Settlement agreements that require a plaintiff not to disclose or publicize any information about her claim are common in mass tort and product liability cases, and sometimes controversial. See generally Bechamps, Sealed Out-of-Court Settlements: When Does the Public Have a Right to Know, 66 Notre Dame L. Rev. 117 (1990); Dore, Settlement, Secrecy, and Judicial Discretion: South Carolina’s New Rules Governing the Sealing of Settlements, 55 S.C. L. Rev. 791 (2004); Drahozal & Hines, Secret Settlement Restrictions and Unintended Consequences, 54 Kan. L. Rev. 1457 (2006); Moss, Illuminating Secrecy: A New Economic Analysis of Confidential Settlements, 105 Mich. L. Rev. 867 (2007).
The conventional wisdom is that confidential settlement agreements aid defendants. Confidentiality minimizes bad publicity for the corporate defendant which is important to the defendant both for its own sake and to minimize additional claims. But both the defendant and an early claimant – a claimant who discovers that he or she has a claim before other claimants do – may have a strong incentive to maintain confidentiality. And they have a variety of means by which they might do so.
Nevertheless, several commentators and academics have called for restrictions on secret settlements. Such attempted restrictions on secret settlements may be ineffective: a claimant may circumvent restrictions adopted by a single state or federal court by filing suit in a state or court without such restrictions. Second, parties might circumvent secret settlement restrictions adopted by a single state by choosing another state’s law to govern the settlement. Third, parties could avoid restrictions on secret settlements in court by settling before the claimant files suit. Finally, many parties could try to accomplish much the same result as a secret settlement by use of pre-dispute or post-dispute arbitration agreements, taking advantage of the privacy of the arbitration process. See generally, Drahozal and Hines, Secret Settlement Restrictions and Unintended Consequences, 54 Kansas Law Rev. 1457 (2006).
An interesting recent paper by James Anderson observes that under some conditions, however, a mass tort defendant will rationally choose to discourage such secrecy. A defendant can use publicity to act as a commitment device akin to a most-favored-nation agreement to increase its bargaining power with plaintiffs. The paper uses the real world example of a drug (statin) litigation as a case study to illustrate this theory in practice and to explore the public policy implications of this finding. The paper is Understanding Mass Tort Defendant Incentives for Confidential Settlements, published by the RAND Institute for Civil Justice. An interesting read, worth a look.