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Can you keep a secret? Do you promise not to tell? Plaintiff sues defendant. Parties settle for an undisclosed amount. Parties seal the court record and retreat to their corners, their secret settlements approved by judges and sealed in specially marked envelopes tucked away in courthouses’ private vaults. But consider this: Under secret settlement agreements, Ford was allowed to keep putting allegedly defective Firestone tires on its SUVs. People died. Under secret settlements, thousands of consumer complaints against Metabolife were suppressed. People died. Under secret settlements, drug companies made billions while hiding research data. People died. Federal judges in South Carolina recently have decided to put a stop to this madness. Recognizing that secret settlements ultimately hurt the public, the judges voted in July to amend their local court rules to impose a blanket prohibition against court-sanctioned secret settlements. The judges have solicited public comment on the proposal, and the final rule is pending. Until the move by the South Carolina judges, the Eastern District of Michigan was the only other federal district to address the problem head-on. There, the court can grant an order to seal the record, but the order automatically dissolves two years later. Now momentum seems to be building. Federal judges in Florida met in early September to come up with their own plan of attack against the indiscriminate use of secrecy agreements. In state courts, the chief justice of the South Carolina Supreme Court has vowed to examine the way their courts handle requests to seal the record. In 1990, a far-sighted Texas Supreme Court promulgated Rule 76a, becoming the first state to adopt comprehensive reforms to improve access and ensure greater openness in the judicial process. Texas’ precedent-setting rule addressed a serious problem. For example, more than 200 sealing orders were entered in Dallas County alone on nonchild-related cases between 1980 and 1987. Some of these cases concerned fatally defective products, environmental contamination and professionals who shouldn’t be professionals. Rule 76a creates a presumption that all “court records” are public, and only can be sealed upon a showing of a “specific, serious, and substantial interest which clearly outweighs this presumption of openness” as well as any probable adverse effect upon the general public health or welfare that cannot be protected by less restrictive means. Presumptive public “court records” include “settlement agreements not filed of record, excluding all reference to any monetary consideration, that seek to restrict disclosure of information concerning matters that have a probable adverse effect upon the general pubic health or safety, or the administration of public office, or the operation of government.” Before court records are sealed, Rule 76a requires public notice and a hearing at which third parties may intervene. How many of these hearings have you heard about? Detailed provisions for enforcement and appeal are also included. While the party seeking to seal public records has the burden of proof, the party seeking to avoid sealing them has the burden to prove they are “court records.” Sealing settlements once found favor on all sides of the bar and judicial system. Some plaintiffs liked the option of downplaying their newly acquired wealth, and some attorneys found they could exact bigger settlements by caving in on confidentiality. Corporate defendants, their lawyers and their insurers liked sealed settlements because they protected their tangible trade secrets (such as how much they pay to employees’ widows) and their intangible corporate reputations. Judges even liked them and rarely turned down a joint request to seal a settlement because it meant one more case removed from their overburdened docket. Consumer groups and most plaintiffs’ lawyers never have liked sealed settlements. Valuable health and safety facts are removed from the public eye and from plaintiffs’ arsenals. The public is forbidden from seeing the documents underlying the case, which sometimes reveal reprehensible conduct. And because gag orders also are routinely included within the settlement terms, the plaintiff can’t tell similar plaintiffs or the public about his experience. Now judges are falling out of love with court-approved secret settlements because of public safety issues. Defendants have said that without the protection a confidentiality agreement affords, they will be less likely to settle cases at all. Their objection rings hollow because if they are trying to avoid publicity, a settlement is still preferable to a public trial. Insurers are actually concerned that disclosing what they paid one plaintiff will provide a benchmark for others. They feel this is unfair because it does not allow them to take advantage of inexperienced lawyers with whom they can settle cheaply. Also, the trade secret argument is almost always misapplied. A legitimate “trade secret” requires much more than merely showing information was generated in the course of trade or commerce. Instead, courts determine whether a secret with significant value to its owner truly exists. Still, it sounds important to claim a trade secret. It’s kind of like sending in a team of lawyers to investigate, then artfully hide, all the facts before claiming an attorney-client privilege. Defendants need to protect legitimate trade secrets, just as plaintiffs should be able to keep sensitive personal matters away from public consumption. The South Carolina proposed rule still allows parties to agree privately to keep settlement terms secret; a violation would be enforced through standard breach of contract litigation. The judges understand, however, that courts no longer can be passive in the attempt to close the public out of traditionally open proceedings or to shield them from important health and safety information. If there is anything good to come out of the Enron and Arthur Andersen scandals, the WorldCom debacle and the sexual abuse cases against the clergy, it is this: The judiciary is taking the lead in advancing the notion that secrecy hurts society, and secret settlements hurt people. Charles Noteboom is with the firm of Noteboom & Parker, based in Hurst, Texas.

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