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The Good, the Bad and the Ugly About Secret Settlement Agreements

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Persons and corporations innocent of misconduct claims frequently settle to avoid the costs of trial, and demand a non-disclosure clause to avoid the humiliation, embarrassment and often adverse economic and sometimes political consequences of a public trial. Persons and corporations guilty of misconduct frequently settle claims and demand non-disclosure clauses for the very same reasons. That is why I previously argued that it was wrong to draw inferences one way or the other from the settlement of a claim of sexual harassment against Herman Cain. Numerous claims and settlements may allow for such an inference, but a single one should not.

What I find problematic is the practice of insisting upon non-disclosure. A person who is truly innocent of charges of sexual harassment might want to settle to avoid the public airing of false and humiliating charges, but wants to assure that the charges are not made public nonetheless -- thus, the demand for a non-disclosure agreement. The public is not harmed by such a withholding of information. But if the person is guilty of the charges aren't other and future employees or similar victims entitled to know? Cases are settled daily in which molesting by priests, malpractice by doctors, the existence of dangerous and defective products are concealed from the public. The claimant is frequently given a choice between accepting compensation and keeping the matter secret or going to trial. Victims, particularly those of sexual harassment or assault, prefer to have the incidents charged remain private. So they likewise are content to keep the charges and settlement confidential.

In some instances where there is litigation in progress, the court is called upon to seal the record as a condition of the settlement. Usually the judge has no knowledge as to whether or not the claims or charges have merit and will succeed. If the court believes that a settlement should not be sealed because there may be some public interest involved, can it refuse the request, and in effect, require the parties to go to trial when both have agreed to settle. Of course, they have the option of proceeding without the court's imprimatur, but confidentiality will be lost if the record remains public.

In court cases, the court can require that the parties satisfy it that secrecy does not adversely affect the public. But many of these settlements with their secrecy requirement are reached without court involvement. Some ethical standard might be implemented (if one does not already exist) to prohibit lawyers from demanding or including non-disclosure if to do so is adverse to the public interest. In respect to the Herman Cain matter, I have no doubt that his statements have waived the prohibition on his alleged victims. It would be the ultimate chutzpah (not Michele Bachmann's pronunciation) for the National Restaurant Association to seek a return of any moneys paid to the alleged victims merely for countering the claims of Mr. Cain regarding their truthfulness and integrity.

But no matter how these claims play out on the political stage, the practice of hiding wrongdoing through the avenue of non-disclosure settlements agreements is worthy of further consideration and possibly a change in what apparently has become acceptable and routine. Secret settlements may protect the innocent, but I suspect they serve much more often to protect the guilty.

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