Legal Settlements . . . Are they Always Confidential?

Put the names Donald Trump and Stormy Daniels in the same sentence and you’re almost guaranteed an argument, or at least a conversation peppered with salacious rumors.  But what about these names: Peggy Peterson, Stephanie Clifford, and David Dennison?  All are fake names used by Daniels and Trump to conceal their identity in settlement documents.

Daniels asked her attorneys to have a court rule that the confidentiality provisions in her settlement with Trump were invalid.  Without describing all the legal wrangling, from that point forward the case became very confusing.

 

About Legal Settlements & Confidentiality

But is this common practice, and is it even legal?  Like most things involving lawyers, the answer can be complicated.  First, what is a settlement agreement?  It’s a signed document, essentially a contract, where parties promise to do certain things.  In the case of Daniels, she promised to keep quiet about an affair with Trump.  In return Trump (through a third party) agreed to pay her $130,000.  While Trump still denies these allegations, in general, this type of agreement is legal and plays an important part in our justice system.

For example, a party might not be willing to settle unless the agreement is private.  Until our firm tried and won a $150 million verdict in Walden v. Chrysler, Fiat Chrysler Automobiles had insisted on confidential settlements in all the cases involving Jeep fuel tank defects.  Why?  Because making the details of prior pay-outs public might get the media interested, and that might hurt the automaker’s sales numbers.

In a car accident settlement, confidentiality is unusual.  When most car accident cases settle, neither party is too concerned about secrecy.  The media is rarely interested in the amount of a car accident settlement.  If the case goes to verdict–that is, if a jury decides how much the defendant (or the defendant’s insurance company) should pay to the injured person as a result of the car accident–then certain law-based media outlets might be interested.  For instance, the Daily Report and Law360 have covered several of Butler Tobin’s car accident verdicts, and even some car accident settlements.  But generally, in the world of car accident settlements, confidentiality provisions are rare.

But in some cases, making settlement amounts confidential has a beneficial purpose.  Victims in a car or bicycle accident may want privacy about their medical condition.  Victims of sexual misconduct often understandably prefer privacy to publicity.  The list goes on but the point is that people are entitled to create agreements that remain private so long as doing so does not violate the law.

 

Enforcing Confidentiality in Legal Settlements

In the case of Stormy Daniels, she sought to have a court strike down the confidentiality provisions of her agreement.  Without exceptional circumstances courts will not do this after the fact.  If there is evidence that the parties acted in good faith, and both parties received “consideration” (a legal term which means each person received something of value for signing the document), the contract will usually stand.

Why would a court uphold the privacy of an agreement that contained information some might consider important to the national interest?  The answer is that our legal system believes in the ability, and the right, of people to enter contracts, and for those contracts to be enforced as written.  This is fundamental to our way of life and our system of capitalism.  Imagine if businesses could disregard their contracts with each other.  Commerce would slow to a standstill.  In other words, our economy depends on the enforceability of contracts.

It’s a fact that most cases settle before they ever come to court.  This is both a necessity and the logical outcome of the judicial process.  It is a necessity because if every case were to continue through trial and a decision by a jury or judge, the judicial system would quickly be overwhelmed.  It’s a logical outcome because the very nature of the legal process is designed to illuminate strengths and weaknesses of each party’s case and give them incentives to settle.

Furthermore, settlement allows parties to exercise more control over the terms of the settlement and have access to remedies that might not be available from a trial court.

 

How Do Settlements Happen?

But what kind of settlement ought to be achieved?  And what type of process should govern settlement negotiations?  Here are some tips:

Early discussion.  Discussing the possibility and scope of a settlement early in a case allows the attorney to learn quickly about the client’s objectives.  It also helps educate the client about possible other modes of dispute resolution.  Finally, it provides an opportunity for both the lawyer and the client to set expectations, so both can make better decisions.  Thinking about settlement early is sometimes a good idea.  Other times, it is better to be aggressive and push the case to trial.

The law: For clients, it’s important that the attorney explain exactly what the law is.  This may take some research but understanding where a party stands vis a vis actual statues or case law is critical.  Additionally, the attorney will give the client some expectation of what the likely outcome will be, both during settlement negotiations (if any) and as the case proceeds through trial.

Authorization:  The attorney must obtain explicit authorization from the client to settle a case. That authorization should outline exactly what authority the attorney has.  Do they have broad powers to obtain a settlement or is their authority narrow in scope?   The client must also know they have the power to revoke settlement authority.

Timing:  The client should also be educated about the timing of settlement.  In complex cases it may be necessary to engage in discovery (the exchange of documents and other information between the parties, governed by the court).  This process can generate facts and information needed to get the case settled.  The lawyer will explain other methods of dispute resolution such as mediation or binding arbitration.  Both avenues may produce significantly cheaper outcomes and may speed the process.

The settlement offer: This document should be in writing and approved by the client.  An offer letter often establishes that the letter is intended for settlement purposes only and may not be used for any other purpose (including introduction at trial as evidence).  It should include the important terms of the agreement (but not all the minutiae of a final agreement).

Following these guidelines will help both the lawyer and the client achieve better results in their settlement negotiations and decide the important strategies to achieve a successful resolution to the matter.

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