Settlement’s Confidentiality Not Binding on Attorney

Legal Effect of Signing Agreement Tested by Breach Claims

The parents of a young girl sued a drink maker for wrongful death, arguing their daughter died after consuming its energy drinks. The parents, through their attorney, settled their lawsuit with the energy drink company and agreed to keep the terms confidential. Language throughout the agreement purported to bind the parties and their counsel of record.

The confidentiality clause required the parents and their counsel to keep the terms completely confidential and to agree they would “not publicize or disclose the amounts, conditions, terms or contents of this Settlement Agreement.” The provision explicitly prohibited counsel from disclosing information to a particular media outlet, lawyersandsettlements.com. Below the words “Approved as to form and content,” the attorney signed the agreement.

In an interview with the media outlet, the attorney disclosed the settlement with the energy drink company resulted in “substantial dollars for the family,” and the company wanted the settlement sealed. Based on this disclosure, the company sued the attorney and his firm for breach of contract.

The attorney and his firm filed an anti-SLAPP motion to strike the company’s complaint. They argued the breach of contract claim would fail because the attorneys were not parties to the settlement agreement. To the contrary, the trial court held the company was likely to prevail on the breach of contract claim.

The trial court explained the language clearly contemplated binding the attorneys. Not only did the agreement give the parents authority to sign on the attorneys’ behalf, he signed the document himself. “The suggestion that he is not a party to the contract merely because he approved it as to form and content is beyond reason,” the court stated. Indeed, the attorney later conceded he knew the company would not settle without the terms being confidential.

The Secret Is Safe—As to Form and Content Only

The attorney and his firm appealed to the California Courts of Appeal, Fourth Appellate District, arguing the company failed to show a probability of winning on the merits. Before the court were two issues: First, whether the parties could bind their attorneys without counsel’s consent. And second, whether the attorney’s signature bound him and his firm to the settlement agreement.

The appeals court noted the issue was not one of contractual interpretation, but rather the consent of the parties. “[A] party cannot bind another to a contract simply by so reciting in a piece of paper,” the court cited. “No matter how plainly the contract provided that the Attorneys were bound, they could not actually be bound unless they manifested their consent.”

Turning to the agreement, the contract defined the parties as the plaintiffs and the company. The attorney signed in his capacity as the plaintiffs’ attorney, not as a party himself. “The only reasonable construction of [‘approved as to form and content’] is that they were signing solely in the capacity of attorneys who had reviewed the settlement agreement and had given their clients their professional approval to sign it,” observed the court. “In our experience, this is the wording that the legal community customarily uses for this purpose.” By signing, the attorney simply conveys “the document has the attorney’s professional thumbs-up,” the court concluded.

Winning the Battle Does Not Win the War

“Even though [the] attorney was not liable per this decision, it is likely only because Monster Energy did not bring the correct cause of action against the right party,” opines Emily J. Kirk, Ontario, CA, cochair of the ABA Section of Litigation’s Solo & Small Firm Committee. Indeed, the appeals court warned its “holding does not necessarily mean that a party in Monster’s position has no remedy.” The company may have a cause of action against the parents or a third-party beneficiary claim against the attorneys.

Through dicta, the Monster court cautioned attorneys from interpreting the decision as a license to disclose terms of a settlement. “As the court points out, counsel have duties to their clients and if counsel’s actions lead to the client being sued, they can face claims arising from such conduct. Also, the rules regulating advertising by lawyers vary state by state and risks could arise from that as well,” observes Merrick L. Gross, Miami, FL, cochair of the Section of Litigation’s Business Torts & Unfair Competition Litigation's Membership & Marketing Subcommittee. “The attorney is certainly is not off the hook. He may have survived this, but he put his clients in jeopardy and may face litigation in other respects,” adds Kirk.

At the same time, “All attorneys want to demonstrate the successes of their cases,” she notes. “The moral of the story, you really have to read these settlement agreements in terms of how you want to use them for your own purposes, not just review them to determine if it is OK for clients to sign,” concludes Kirk.

Kristen L. Burge is an associate editor for Litigation News.

Hashtags: #settlement #confidentialityagreement #legalethics

Related Resources

• Robert Hugh Ellis, “Making Certain the Settlement You Intend is the Settlement You Get,” Litigation (Aug. 7, 2017).
• Nicholas D. Stellakis, “Dark Settlements: An Ethical Constraint on Secrecy?,” Appellate Practice (Dec. 6, 2017).
• Edmund J. Sikorski Jr., “Breach of Confidentiality Provision Leads to Loss of Settlement,” Alternative Dispute Resolution (Nov. 17, 2016). 
• Larry Fox & Jenny Gu, “Confidentiality Clauses in Settlement Offers under Rules 5.6 and 3.4,” Ethics & Professionalism (Mar. 31, 2015).

_{Copyright © 2019, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).}