Attorneys and clients often sign settlement papers without a close review. After all, the case is finished. Right? It’s time to get the money. When a case settles, the plaintiff gets paid and drops the claim. That’s the way it’s supposed to work. Yet, the language in settlement papers does have meaning. And, sometimes that language creates more potential liability. A good lawyer carefully reviews all documents and works to protect his client.
Case settlement is not always the simple process of signing a release and receiving a check. Many personal injury cases have difficult issues related to claims for medical bills. In other cases, for a variety of reasons, a defendant wants the settlement to remain confidential. Now, I don’t really like secret deals. I think they are bad for our tort system. Secret deals allow companies to hide safety issues in their products. Secret deals allow defendants to hide their bad actions from others who were also harmed. And, secret deals mean more contract language that can create issues in the future for your client.
I’ve written about the potential tax issues previously. Now, confidential settlements are back in the news. Why? Because bragging on Facebook just cost a Florida man his settlement. For accuracy, I need to say that the plaintiff himself did not do the bragging. His daughter did. As a result, he gets no settlement proceeds. If you have not learned by now, be careful what you post on Facebook.
What are some good practices when dealing with confidential settlements? Attorney Ray Bennett at Womble Carlyle just posted an article on the issue. I don’t know Ray but he works at an excellent firm. I have had a case against his partners in the past. Ray discusses some excellent practices from the defense perspective. I will mention a few of his points, addressing them from the plaintiffs’ side:
- Don’t ignore confidentiality language after settlement. This is obvious. It can cost you your settlement. My advice for lawyers is to sit down with their client and discuss the issues. In the Florida case, I bet the plaintiff never thought his daughter would brag on Facebook. But, she did. A little discussion at the time of settlement can help clients understand and prevent future problems.
- Don’t allow confidentiality language to be added after the initial deal. Many cases settle at mediation. When they do, the mediator will usually write a short agreement of the settlement. Afterwards, the defense counsel will prepare more formal settlement paperwork. Confidentiality is an important issue. If it is not raised at mediation and included in the mediator’s short agreement, I usually won’t agree to it later. It’s too late. Who knows — between the day of mediation and day when the final paperwork is signed, my client could have told someone. He could have told a lot of people. So, allowing additional clauses is a bad idea. If I settle a case outside mediation, I usually confirm the major terms immediately by email. Again, if we don’t discuss confidentiality when we initially agree to settle, adding terms later is too late and creates too many potential problems.
- Don’t ignore the scope of the confidentiality agreement. Your client just settled a significant case. He may need to consult his accountant or financial adviser. While these professionals should protect confidentiality, they are beyond your control. Allow exceptions for needed disclosures.
- Don’t agree to the “teeth.” In his article, from the defense side, Ray discusses giving the clause “teeth” if you want it to be enforceable. The one in the Facebook case had teeth. Now, that plaintiff has no settlement. From the plaintiffs’ side, you can craft an agreement with only limited teeth that protects the settlement.
- Don’t forget to decide what you can say. Let’s face it – friends, family, co-workers, neighbors, know about your case. If you suddenly have some extra money, one of them will ask. If you suddenly quit complaining about the defendant after two years of fighting, one of them will ask. What do you say? This is an issue that can be addressed and resolved in advance.
- Don’t ignore the potential tax implications. In many cases, settlement proceeds are not taxable. You need to address this issue with your attorney prior to settlement. A confidentiality clause can create tax issues for damages that would not have been taxable otherwise.
I have a lot of issues with confidentiality clauses. I also have a lot of issues with plaintiffs’ lawyers who simply allow their client to sign extensive paperwork, without reviewing it, to get the deal done. If you represent individuals or small businesses seeking damages for a harm or injury, be careful what you allow your client to sign.