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Settlements and Confidentiality


Saturday, August 17, 2013

My husband and I were involved in a lawsuit with a company that sold us a defective product. My husband was severely injured by using the defective product. We tried to negotiate with the company without filing a lawsuit, but they refused to acknowledge any wrongdoing. This is not one of those frivolous nuisance suits that some companies face. After months of litigation, and a few days before trial, we finally reached a settlement with the company. The company agreed to pay for all our health costs, lost wages, and for what our lawyer called pain and suffering. We have limited financial resources and need the money. We were about to accept the offer when the company demanded that we accept a nondisclosure or confidentiality clause in the settlement agreement.

If we sign such an agreement, our lawyer tells us that we cannot talk to anyone about what we settled for or whether the company did anything wrong. If we violate this clause, the company can come after us for the money we receive.

In other words, they are buying are silence. This disturbs us because it means that others may suffer the same problems we did when we purchased the faulty product.

But if we don’t sign the nondisclosure agreement, we have to go to trial where we might be awarded no money. Our lawyers have told us they think it’s a big a chance to take, but it’s our decision, not theirs, to make. What do you think is the ethical thing to do?” —Anonymous

Your ethical dilemma fortunately, is not one most of us will ever have to face. Do you take the money, which you need and is rightfully owed to you, or do you risk it all and act for the general public good by going to trial and shinning a 500-watt bulb on the offending company?

You have already shown courage by bringing the lawsuit in the first place, which has likely attracted some media attention to the faulty equipment. How much more negative publicity would the recalcitrant company receive if you went to trial and lost? You just don’t know.

Ben Bycel
Click to enlarge photo

Paul Wellman

Ben Bycel

But you do know the results of a confidentiality agreement. It will allow wrongdoers to continue their dangerous conduct without exposure to the public or government regulators. Some companies view lawsuits, which they settle out of court with a nondisclosure agreement, as just the cost of doing business.

You might ask your lawyers if they could attempt to insert a clause into the settlement agreement that forces the company to agree to make its product safer within a reasonable period of time.

Will a company likely agree? No, but that doesn’t mean you should not push the issue.

Some states, such as Florida, have a statute that prohibits concealment of public hazards, thus helping to stop the use of nondisclosure clauses in settlement agreements. Some federal courts have ruled that confidentiality clauses undermine regulatory efforts. And in California the settlement of some automobile lawsuits that are brought under the Lemon Law cannot require a comprehensive nondisclosure clause.

These are positive steps in the right direction. You may want to use the Lemon Law as an example and write your state legislator or congressperson and ask them to ban nondisclosure clauses in other lawsuit. But don’t hold your breath waiting for a change in the law. There are too many powerful companies who make large campaign contributions that would influence officeholders to vote against any such bill.

So we are right back where we started. Do you take the money and keep your mouth shut, thus keeping the company’s problems out of the public eye, or do you take your chances in front of a judge or jury? There is no clear weight, in my opinion, on one side or the other of the scales of ethics that you can look to for guidance.

If I were in your predicament, I’d hope that I would have the courage to take the case to trial and further expose the wrongdoer. But then again, I am not the one, in real life, who must make the difficult ethical decision you face.

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Benjamin Bycel is an attorney and writer. He was the founding executive director of the Los Angeles Ethics Commission and of the newly reconstituted Connecticut Ethics office. He serves as an expert witness in cases dealing with political and legal ethics.

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