Will Courts Permit Secret Settlements in Product Liability and Personal Injury Matters?

Many people who are unfamiliar with personal injury and product liability law are probably not surprised that these companies are not particularly pleased about the negative publicity an injury due to a product defect can create. However, these same individuals would probably be surprised to learn that many companies require, as a condition of settlement, the parties to agree to the condition that the details of the settlement will not be released to the public or otherwise publicized except to the extent required by law or other obligations. In fact, for most people unfamiliar with negotiating a settlement, this fact and commonly sought provision would probably not even be considered.

However, this often important aspect of a settlement is frequently overlooked. However, it is a well-known and well-worn path that many lawyers have addressed in past settlements. However, understanding how to handle this aspect of a settlement negotiation is important and can impact negotiations and. Understanding whether a confidentiality clause was negotiated and permitted by the courts affects the likelihood of adherence to the settlement or compromise agreement.

Why Are Matters Settled Out of Court?

Matters are settled out of court for a variety of reasons. In some cases, legal concerns may guide the decision to settle. In some cases, the settlement may be spurred because one party believes that it faces the unfavorable law. In other cases, the party may believe the adage that “bad facts make bad law” and believe that the facts it faces are likely to establish precedent unfavorable to the company’s business and interests. In other cases, a company may settle simply because it believes that it can secure a non-disclosure agreement or confidentiality clause and avoid negative publicity. Finally, and most commonly, a business may decide to settle pending or current litigation for economic reasons because it believes that the costs of defending and a potential judgment against the company outweigh the cost of a settlement agreement.

Are Open or Confidential Settlements Favored by Courts?

It is well-established law in both the Third Circuit and Pennsylvania Courts that there is a presumption in favor of open courts and open settlements. Consider that under Pennsylvania law, courts have interpreted the state’s Right to Know Act broadly. Furthermore, the case Bank of America National Trust and Savings Association v. Hotel Rittenhouse Associates, 800 F.2d 339 (3d Cir. 1986) shows that where parties avail themselves of the judicial process and file a settlement agreement with the court in anticipation of future disagreements, the parties are no longer entitled to keep the proceedings secret.

However, there are certain limits to this presumption against secrecy. The 2011 Moneytrax decision. Here, the court found that the right to obtain judicial records is not absolute. When parties receive reasonable assurances from a court that the matter will remain confidential and those insurances are given, the parties may rely on these assurances.

New York Court Rejects Confidentiality Provision in Defective Stroller Litigation

A recent New York court decision in Guardino v. Graco Children’s Prods. Inc. a New York Court ruled against the plaintiff’s motion to seal the proposed settlement in the defective product case. Here, the underlying facts involved the allegations that Graco sold an unreasonably dangerous baby stroller. Here, the plaintiff’s counsel attempted to argue that public policy favored confidential settlements.

At the outset, the court noted that public policy is actually in opposition to permitting settlements to be sealed. The court wrote:

This embrace of “open Courts” is born of America’s historical antipathy to any judicial proceeding that brings remembrance of that opprobrious body from the past, repudiated by revolutions and constitutions, of whom the mere mention of its name fills the Court with dread the secret tribunal that consigned its victims to grim fates without the pretense of legal protection, the feared and hated Star Chamber.

The court cited an array of New York opinions and authority in support of its premise. It noted that when confidentiality is permitted, they must be narrowly written and narrowly construed.

However, the court also noted that the public interest was particularly at stake here due to the nature of the lawsuit: a products liability suit concerning a mass-marketed and allegedly defective baby carriage.  The court found that in a matter where it is alleged that the wrongful death of a child was caused by a defective product, the public interest was especially at stake. The court found that any interest between the parties regarding keeping the details of the settlement secret did not constitute good cause and was outweighed by the public interest.