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California legislation designed to bar the use of secret settlement agreements in product defect and other public hazard cases ran into trouble Tuesday as Democrats struggled to drum up support in a key committee hearing the bill. On a first vote Tuesday, the California Senate Judiciary Committee rejected a secret settlements bill by a 2-2 vote, and the bill’s sponsor — Judiciary Chair Martha Escutia, D-Montebello — scrambled to find enough Democrats to get the bill out of her committee. It eventually passed 4-2, but not without major attacks from both Democrats and Republicans. The bill moves now to the Senate floor. The legislation is intended to stop the types of secrecy agreements used by insurance companies following California’s 1994 Northridge earthquake and — more recently — by Bridgestone/Firestone Inc. to settle defective tire claims. If passed, the legislation would prevent companies from forcing people to sign confidentiality agreements as a condition of settlement unless such disclosure would reveal trade secrets or otherwise disclose privileged information. Even if the Senate bill had failed to make it out of Judiciary, a duplicate piece of legislation — AB 36 — is being carried by California Assembly Judiciary Chairman Darrell Steinberg, D-Sacramento. Both bills are fiercely opposed by business interests, which have labeled the legislation, “unfair, unnecessary and anti-privacy.” And the issue has sparked the first major battle of the session between tort reformers who oppose the disclosure of out-of-court settlements and discovery materials and consumer attorneys backed by California Attorney General Bill Lockyer. Escutia told her committee that her bill would ensure that companies would no longer be able to hide the danger of their products, giving such examples as Phen-Fen, breast implants, asbestos and exploding gas tanks. “History has shown that it’s cheaper to pay consumers to keep quiet than to recall a dangerous product,” she said. Escutia was supported by Lockyer, who testified that “our legal system shouldn’t encourage settlements where litigants are paid to behave.” John Sullivan, president of the Civil Justice Association of California, a leading tort-reform group, countered that “the legislation would initiate privacy invasions of individuals and companies and enact a policy that has been rejected as a bad idea numerous times — in this state, in other states and by Congress.” Sullivan said, “The bill, essentially, says that information collected in the course of a civil lawsuit, but not used as part of a trial, is presumed to be public information.” Both sides called at least a dozen witnesses to drive their points home, including representatives from the Los Angeles District Attorney’s office and the California Newspaper Publishers Association, testifying in favor of the legislation. Also on hand were Steve and Betsy Terraszas, a Vacaville, Calif., couple whose young son died last August when their Ford Explorer blew a tire and rolled three times. Opponents of the legislation, which include big-name Silicon Valley business leaders such as James Barksdale, the former CEO of Netscape, view any such law as a threat to trade secrets and other confidential business information. Opponents also argue that such a law would strip judges of their discretion over discovery materials. One such witness was Lloyd Roland, vice president and general counsel of Alliance Pharmaceutical, a San Diego biotech company. Roland told the committee that after his company spent $2 million defending a stock-drop suit, the plaintiff’s lawyers took the fact pattern from the suit, including confidential and proprietary information, and disclosed it at a trial lawyers’ seminar. He said his company was forced to return to court to ensure that the information would not be made public. “If we have to go to court on every document and every piece of information produced in discovery to protect its confidentiality, the costs will cripple small innovative companies like mine,” he said. Still, most of the questioning Tuesday dealt with whether such a law would lead to prolonged discovery fights or whether parties would be prohibited from entering into confidentiality agreements. One pessimistic lawmaker was Sen. Byron Sher, D-Stanford, whose district includes many of the high-tech businesses opposed to the bill. “My constituents are very concerned about this bill,” Sher said. It wasn’t the first time such a bill went before the committee. A similar bill was previously introduced by then-State Senator and now U.S. Rep. Adam Schiff, D-Glendale, but died in the Assembly Appropriations Committee. A bill carried by then-California Senate Pro Tem Bill Lockyer passed the full state Legislature in 1992 only to be vetoed by then-Gov. Pete Wilson.

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