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ALERT: Don’t Forget to Speak Out About Confidentiality Clauses

November 5, 2018

Confidentiality as a term of a settlement seems to be becoming a real sticking point in negotiations these days. Confidentiality clauses or agreements can be utilized in a number of different contexts including employment contracts, commercial transactions, and, most notably here, settlement agreements. Often the amount of the settlement as well as its mere existence is sensitive information that the defendant does not want to be made public. While there are arguments on both sides for the merits of a confidentiality clause in a settlement agreement or release, issues can arise when the confidentiality clause is written into the settlement agreement without negotiation or consideration.

Pennsylvania state law has long held that a confidentiality clause is a material term in settlement agreements and, subsequently, that if any material term in a settlement agreement is not specifically negotiated for and agreed to, then the settlement agreement will not be enforceable. Peterson v. Ratasiewicz, 48 Pa. D. & C.4th 214, 221 (Pa. Comm. Pl. 2000); Miller v. Clay Township, 555 A.2d 972, 974 (Pa. Commw. Ct. 1989); Denooyer v. Lehman Pike Development Corp., 32 Pa. D. & C.4th 351 (Pa. Comm. Pl. 1996). However, “absent [such] fraud or mistake, courts will not intervene to second guess or undermine the original intention of the parties.” Christopher Tinari v. Allstate Financial Services Group, LLC and Julian Hinson, No. 2676, 2007 Phila. Ct. Com. Pl. LEXIS 230 (C.C.P. Phila. 2007). 

The state law and public policy of New Jersey on this issue is roughly the same if not more strictly adherent to the written terms of the settlement agreement. Williamson v. Boehringer, 2012 WL 762162, at *3 (N.J. Super. Ct. App. Div. 2012). The Superior Court has upheld the confidentiality provision of a settlement agreement “in the absence of fraud or other compelling circumstances.” Id.             

The holdings in these cases are representative of the general principle that as long as the confidentiality clause was known to the affected parties, sufficient consideration is whatever the plaintiff agreed to through negotiations. This follows both the highly-favored public policy for voluntary settlement agreements in the face of litigation as well as one’s freedom of contract. The consideration negotiated for usually comes in the form of payment but other forms of consideration could include taking a certain action by a given date, ceasing specified conduct, and transferring or releasing specified property or goods. However, such alternate forms of compensation must be listed in a separate section of the settlement agreement and have been specifically negotiated for in exchange for the confidentiality clause.

As for the confidentiality clause within the release itself, the provision should include specific language that states what will be kept confidential, notice requirements in case of a court order or subpoena, and subsequent requirements to make a good faith effort to file the protected information under seal if possible. Attorneys should negotiate early for a confidentiality agreement if that is what’s best for their client, and avoid attempting to insert one into the settlement agreement without going through the proper steps.

For more information please contact Lisa Slotkin at lzslotkin@zarwin.com


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