Secret settlements

From the Fall 2000 issue of The News Media & The Law, page 3.

By Ashley Gauthier

Daniel Van Etten, a 19-year-old college student, died when the tread separated from the Firestone tire on his Ford Explorer, causing the vehicle to roll over. Van Etten was thrown from the vehicle and suffered fatal head injuries. His family hired a lawyer, Rowe Brogdon, who sued Firestone, the manufacturer of the tire, claiming a defective product caused the 1997 crash.

Brogdon’s research revealed dozens of similar suits against Ford and Firestone, but the plaintiffs’ attorneys in those cases were unable to discuss the settlement amounts or provide documents because they were bound by the provisions of confidential settlement agreements.

Brogdon pursued the case on his own. In order to obtain documents from Firestone, he had to agree to a strict protective order. In one instance, a Firestone lawyer personally delivered some documents to Brogdon and stood outside the conference room, guarding the documents while he read them. He could not copy the documents and the lawyer for Firestone took them back as soon as he finished. “The funny thing was that those documents weren’t that important, at least from my perspective,” Brodgon said.

The parties eventually settled in September 1999, one week before starting trial. As a condition of settlement, Firestone required Brogdon to give them the blown tire from Van Etten’s vehicle. He also had to return all company documents in his possession and agree to confidentiality as to the amount and terms of the settlement.

Now, of course, the problems with tread separation on Firestone tires are public knowledge. Tire recall updates are covered on the evening news, and the U.S. Senate, amid concerns that secret settlements harm the public interest by hiding safety hazards, is considering legislation that would make it much more difficult for companies to enter into confidential settlements.

Sens. Herb Kohl (D-Wis.) and Diane Feinstein (D-Calif.) have proposed legislation to allow public access to courts documents that parties might have otherwise sealed. The anti-secrecy legislation, introduced on Sept. 19, is part of a comprehensive bill entitled the Defective Product Penalty Act of 2000. Prompted by congressional outrage over Firestone’s failure to properly recall its defective tires, the bill imposes criminal penalties on corporate executives who knowingly place defective products into the stream of commerce.

Part of the bill, referred to as the “Sunshine in Litigation Act of 2000,” mandates that a court could restrict access to such records only if it found either the information was not relevant to public health or safety, or there is a significant interest that outweighs the public health or safety interest and the sealing order is no broader than necessary to protect that significant interest. The bill would apply to civil cases in federal courts. It would apply to information obtained through discovery, settlement agreements and court records. The bill does not address whether the news media may intervene to challenge a sealing order.

In addressing his fellow senators, Kohl emphasized past examples of defective products, such as a defective braking system on a steamroller and a children’s merry-go-round that severed fingers and toes, that stayed on the market because the defects were hidden from the public.

“Who knows what other hazards are hidden behind courthouse doors?” Kohl said, encouraging the Senate to act before it is too late.

Kohl’s bill is not the first legislation to deal with secret settlements. The Texas legislature, concerned about court secrecy, in 1989 ordered the state Supreme Court to develop guidelines for sealing court records. The court produced Texas Rule of Civil Procedure 76a, which went into effect in one year later and has been a model for anti-secrecy legislation for the last decade.

Rule 76a, the broadest rule of its kind, allows public access to unfiled settlements and materials produced during discovery as well as documents filed with the court. The rule also allows third parties, like the media, to intervene and challenge sealing orders. Most importantly, the rule allows intervention even after a final judgment, providing a chance for the media to examine records of past cases whose significance is suddenly discovered.

A litigant can still seal a record in Texas, but not without first meeting two hefty requirements.

Primarily, a court must balance the presumption of openness and the potential adverse effect that sealing would have on public safety with a specific and substantial interest a party may have for sealing the records. The records cannot be sealed unless some significant interest outweighs the interest in keeping the records open. Second, the court must find that there is no less restrictive means to protect the privacy interest asserted by the party.

The only records excepted from access are documents filed in camera, documents whose access is restricted by law and documents in domestic relations cases.

Rule 76a has been praised as an example of how court access can save lives. About five years ago, the consumer protection group Public Citizen relied on the rule to get documents about General Motors vehicles when it intervened in a lawsuit.

The group wanted access to documents disclosed during discovery in a case arising from the death of a man from an exploding gas tank. Public Citizen presented the court with deposition testimony from an engineer who testified in another case, who stated he believed the company kept relevant safety information from him. General Motors then released the documents once the court ordered that the documents would be discussed.

Of course, there is no guarantee that Rule 76a will always work as intended or make it easier for the media to obtain settlement records, as one Firestone tire case shows. The relatives of a Texas couple, Patricio and Nidia Leal, sued Firestone, claiming that the Leals were killed in an accident caused by defective tires. On October 23, 2000, the parties announced a tentative settlement, but refused to disclose the amount, citing a requirement that the terms of the settlement remain confidential.

The attorney for the plaintiffs in the Leal case told the Wall Street Journal that he would try to make public the documents he gathered while preparing for trial, including 26 boxes of Firestone consumer complaints. At this time, however, it is not clear whether the judge will affirm the confidentiality of the settlement, whether the judge will allow the release of the evidence, or whether any third parties will intervene to obtain access to the documents pursuant to Rule 76a.

Interestingly, Lloyd Doggett, a former Texas Supreme Court justice who drafted Rule 76a, now serves as a Democratic congressman and supports the Sunshine in Litigation Act. Doggett has said that the role the media played in the Firestone case demonstrates the benefits of open court proceedings.

“Thanks to the direct intervention of several national media organizations, important court records involving the Firestone tire recall have been unsealed and significant information is finally being released. It should not take such extraordinary effort to gain access to vital public safety information,” he said.

Other states have passed anti-secrecy rules, but those statutes do not afford access as broadly as in Texas. A Virginia statute allows plaintiffs’ attorneys to share information, but does not allow the release of information to the public. The North Carolina and Oregon statutes apply only to settlements involving the government, not private companies. In New York, a statute seals records upon a showing of “good cause,” but the standard is fairly loose and does not appear to hinder parties’ efforts to seal documents upon request. The Georgia rule applies only to documents filed with the court and does not allow third-party intervention. The Florida rule, on the other hand, permits third-party intervention, and applies only to court orders and judgments.

California is currently considering amendments to its court rules that would make sealing documents more difficult. In 1999, the California Supreme Court’s decision in NBC Subsidiary, Inc. v. Superior Court emphasized the fundamental importance of public access to court proceedings. The high-profile case involved Sondra Locke’s breach of contract claim against Clint Eastwood. The trial court closed the trial, but the state Supreme Court decided the public had a right of access to civil proceedings.

The state judicial council is now considering amendments to the rules of court that would conform the rules to the court’s opinion in NBC Subsidiary. The new rules would create consistent and reliable authority making it difficult for parties to seal records. Thomas Burke, a media lawyer with Davis Wright Tremaine in San Francisco, said, “California is on the brink of a fundamental change in allowing the press and public access to documents that they have never had access to in the past. This will change the way people understand how business is done in California.”

As it stands now, the rules vary from court to court. Burke said, “What you have now is a hodgepodge of rules across the state. San Francisco, for example, has a very strenuous sealing requirement that a lot of litigators aren’t aware of, but you can go across the bay and not find a similar sort of requirement. The right of access shouldn’t depend on what county you’re in or what state you’re in. [The new rules] will create a dramatic change in expectations.”

Burke also rejected the notion that public access to documents would somehow hinder the justice system. Although advocates of secret settlements argue that companies will not be willing to settle cases if their records become public, Burke disagreed. He did not envision either fewer settlements or more frivolous lawsuits if the judicial council enacts the rule. However, Burke did foresee benefits to the public: “I think you’re going to have the opportunity to know a lot more about what’s going on when companies are sued, and that’s a good thing.”

Should either the state or federal anti-secrecy legislation pass, some large gaps in policy remain. The most obvious — and crucial — gap pertains to discovery documents. While a complaint may describe the allegations in a lawsuit, and a settlement agreement may describe the outcome, neither document will help a journalist uncover any truth to the allegations. A journalist will find the real meat of the story in deposition testimony, interrogatories and other materials turned over as part of a discovery request. These documents, however, are almost never filed with the court and therefore not always accessible.

Furthermore, legislation does not address how courts should handle sealing orders when the parties to the suit do not object to sealing the documents and no third party intervenes to seek access. Such situations are quite common and rarely will a judge refuse to seal files on his own initiative. One recent case in Pennsylvania, however, exemplifies how a court should handle a confidentiality request.

In Bryan v. The Pep Boys, the parties asked a federal court in Pennsylvania to seal numerous documents and no third parties intervened. The court, nevertheless, refused to seal the documents, noting that the parties’ agreement was not enough to counter the general rule of open access to information. The judge stated that the parties would have to demonstrate a specific and serious need for confidentiality if they wanted to overcome the presumption of openness.

Even if a judge grants a request for confidentiality, the order can be lifted in some cases. However, the issue of when to seal or unseal records is far from resolved. In many cases, judges permit access to settlement agreements because the cases involve public entities subject to open records laws.

For example, the Maryland Court of Appeals in September released a settlement in a case brought by the family of a man who was killed by a Baltimore police officer.

The parties agreed to a confidential settlement on the eve of trial. They asked the judge to close the courtroom and seal the settlement records. The judge complied.

The Baltimore Sun sought access to the settlement agreement.

In granting the newspaper access to the settlement, the high court emphasized the long-standing tradition of openness in the American judicial system, and that access to court proceedings and documents should be unfettered, unless limited by statute or case law. The appeals court called the balancing test used to weigh the respective interests of the press and the parties improper. The parties could not, the court said, circumvent the tradition of open courts merely by agreeing to keep the settlement confidential.

The Albuquerque Journal enjoyed similar success when it prevailed in obtaining confidential settlements in two cases. In one case, the newspaper sought the settlement agreement reached in a lawsuit filed by the family of a man shot by a Rio Rancho police officer. The newspaper obtained the document, but more importantly, the self-insurance pool that represented Rio Rancho and other municipal governments agreed to pay the newspaper’s attorney fees of $35,000. The insurer also advised its members that confidentiality agreements do not supercede their obligation to comply with the state’s Inspection of Public Records Act.

In a second case, the Journal sought the settlement agreement between the Santa Fe school district and a fired administrator. The school district ultimately agreed to turn over the document and adopted a policy against sealing such agreements in the future.

Kent Walz, of the Albuquerque Journal, has recognized that access to secret settlements can be an important part of the newsgathering process and applauded the efforts of Journal Publisher T.H. Lang in challenging secrecy orders.

“[Lang] has been very aggressive in challenging violations of the public records and open meetings laws in New Mexico. The fact that he is willing to take these cases on has made a real impact,” Walz said.

“The amount of attorney fees paid is significant in this state. Public officials will take notice and will be more cautious in their denials and news organizations and others may be more aggressive in asserting their rights under the law. It is also significant that the public bodies involved have agreed to take policy steps to make it less likely that settlements involving the payment of public funds will be kept secret,” Walz said about the cases in which the Journal recently prevailed.

Such reasoning is beginning to carry over into the private sector. In San Diego, for example, Judge Richard Strauss unsealed a settlement agreement at the request of a newspaper, overriding the wishes of the parties. In that case, the parents of a nine-year-old black girl sued a private school, claiming the school discriminated against her.

In settling the case, the parties asked the court to seal the records. The records probably would have remained sealed, but the San Diego Union-Tribune intervened and asked for access. Strauss unsealed the records, explaining that an agreement

between the parties does not suffice, and the public has a right to see the records unless there is some compelling reason for secrecy.

The Ford/Firestone inquiry has fueled the fire, prompting judges to lift seals on Firestone’s confidential settlements. A federal judge in Atlanta and a state court judge in Florida each issued rulings during the last week of September to unseal documents from 1997 liability cases against Firestone Tire Company due to recent public concern about Firestone tires.

In Florida, the state attorney general intervened in a lawsuit by Orestes and Evelyn Alvarez, who were injured in an accident caused by tread separation on the Firestone tires on their Ford Explorer. The attorney general requested that the court unseal evidence kept under a blanket protective order imposed last year. The attorney general wanted to obtain the records to pursue a civil racketeering investigation of Firestone. Judge Ronald Dresnick agreed to unseal the records, finding that the public has a right to know about Firestone tires, but said Firestone could petition to seal individual documents that contained legitimate trade secrets.

In Georgia, several media entities intervened in Rowe Brogdon’s case filed on behalf of the Van Etten family. The media asked the court to unseal documents that had been subjected to a blanket protective order agreed upon by the parties when they settled the case. Judge Anthony Alaimo ordered records unsealed because of the prominence and importance of the Firestone recall.

“The public and media interest in [this case] involving allegedly defective Bridgestone/Firestone tires and/or Ford Explorers is substantial, and deservedly so, because the use of defective automobile tires linked to numerous deaths raises serious public health and safety concerns,” he wrote.

Firestone objected to the ruling and filed an appeal to the U.S. Court of Appeals in Atlanta (11th Cir.).

Despite the recent public concern over hazardous products, some judges still will not sacrifice a defendant’s privacy just because they are sued. Florida Circuit Court Judge Eleanor Schockett has called the deaths from tire failure “pretty horrendous,” while maintaining that the company records should not become public. Schockett defends her position by pointing to plaintiffs attorneys who, she thinks, extort big companies by aggressively pursuing cases with little merit: The attorney exploits the accepted idea that it is less expensive for the companies to settle rather than expend the time and money necessary to prove the falsity of the allegations. Schockett recently approved a confidential settlement for Goodyear in a tire failure case.

If the media is interested in the contents of a confidential settlement, it may be up to the media to intervene and challenge the protective orders. Brogdon, the attorney who sued Firestone, explained that a plaintiff’s attorney is not necessarily in the best position to resist a protective order because it is not in his clients’ best interest.

“I don’t think the public understands that, at the beginning of a case, in order to get the documents you need, you have to enter into protective orders,” he said.

Brogdon said protective orders can be appropriate for some documents because companies truly have trade secrets that should not be leaked to competitors, but he also recognized that the protective orders can hide evidence of potential danger to the public.

“Some documents really are trade secrets, but some are not. They use the protective order as a shield to hide incriminating evidence and testimony,” he said.

Nevertheless, there is no easy solution to the problem. As Brogdon explained, “proposals to outlaw protective orders . . . well, it’s not that simple. There’s a real dilemma. You can enter into a protective order to get the information you need to prosecute your case for your client or you can spend years fighting over every document and something that isn’t going to help you.”

As for confidential settlements, Brogdon noted that there are many reasons why litigants enter into confidential settlements. Since each case differs, he said, the parties settle because each party can control the outcome of a settlement rather than subjecting themselves to the uncontrollable all-or-nothing aspect of a jury trial.

“In a trial, somebody’s going to win, and somebody’s going to lose, but that doesn’t mean the winner or loser is going to be able to persuade the public that they’re right,” he said.

Confidential settlement agreements allow litigants to realistically examine the good points and the bad points of their case and resolve the dispute without having to declare a winner. Brogdon knew that some of the information he learned in his suit with Firestone could have been of interest to the public, but he recognized the limitations on his ability to prove that Firestone tires were a hazard.

“If I went to the media with all those documents and tried to explain why Firestone tires were bad, then the journalist would also go to Ford and Firestone, and they would explain why I’m wrong. It just creates confusion,” Brogdon said.

Ultimately, the disputed account of the facts lead people to settle a case. The attorneys, as Brogdon said, prosecute cases for their clients, not necessarily the public interest.

In a sense, the media represents the public interest. Even if anti-secrecy legislation is passed, judges like Eleanor Schockett will still have the discretion to find that a company’s privacy interest outweighs the potential public interest in the disclosure of information. The media will still be called upon to challenge protective orders and confidential settlements if the public’s right to know is ever going to be the winner.