By Michael Hoenig - New York Law
Journal - February 10, 2014
This article discusses two recent developments. The first is the
Goesel ruling which decided motions addressed to the federal
appellate court to seal the settlement agreements reached in two
separate lawsuits. One request was by plaintiffs' counsel and
one on behalf of defendants. The court consolidated the motions,
and its opinion informs readers about potential traps for the
unwary who seek confidentiality of their settlements. The second
ruling is by New York's Appellate Division, First Department, in
the Malouf case affirming harsh spoliation penalties against a
defendant who failed to preserve a treadmill used by a plaintiff
who was injured.
Assume that adverse litigants in a federal court personal injury
case both decide to settle on a confidential basis. For example,
they want the settlement amount not to be disclosed. And the
plaintiff's lawyer doesn't want his fee publicized. These
objectives should not be a problem. Right? Not so fast! A lot
depends on whether and to what extent the settlement proceedings
are to be reflected in the federal court's records. A mutual
desire for private treatment can be thwarted by a practical
necessity to effectuate the settlement via court approval as,
for example, in the case of an infant compromise. At that point,
the settling litigants may have to move to seal the record. Do
they have to give good reasons? Maybe.
It is worthwhile to check out Goesel v. Boley Int'l (H.K.)
Ltd.,1 a Seventh Circuit Court of Appeals
decision written by Judge Richard A. Posner, so that readers can
be informed regarding hurdles in achieving settlement
confidentiality. By recognizing the traps, interested counsel
can try to work around them. Actually, the Goesel decision
involves two separate appeals in which motions had been filed to
seal settlement agreements in two separate cases. Posner was the
motions judge for that week. He consolidated the motions and
issued the rulings we discuss.
In Goesel, the parties agreed to settle a minor's
personal injury suit but had to obtain the district judge's
approval of the settlement. The judge first reduced the portion
payable to the plaintiffs' law firm, thereby increasing the
amount of money to be received by the claimants, and then
approved the settlement. The law firm challenged the fee
modification on appeal. Both sides had successfully asked the
district judge to seal the settlement. Posner now had to rule on
the plaintiff law firm's motion to maintain under seal documents
that disclosed the settlement amount and the lawyers' fees and
In the second motion before Judge Posner (in a case called
Massuda v. Panda Express), the plaintiff had sued for breach
of fiduciary duty. The district judge there dismissed most of
the claims on the ground that they were derivative from claims
in a previous suit the parties had settled. The judge relied on
a redacted copy of the settlement agreement in the earlier suit,
filed under seal, that inked out almost all the settlement terms
except the parties' names and the nature of the suit. In
Massuda, the defendants moved to keep under continued seal
the redacted settlement agreement.
Here's the problem. Documents that affect the disposition of
federal litigation "are presumptively open to public view." Why?
In order to enable "interested members of the public," including
lawyers, journalists, and government officials, "to know who's
using the courts, to understand judicial decisions, and to
monitor the judiciary's performance of its duties."2
This "presumption" can be rebutted, however. Thus, in the case
of trade secrets, for example, information can be concealed or,
when "compelling reasons of personal privacy" dictate, one could
litigate under a pseudonym. Further, the presumption of public
access applies "only to the materials that formed the basis of
the parties' dispute and the district court's resolution." Thus,
other materials that may have crept into the record are not
subject to the presumption.
How do the foregoing principles apply when settlement agreements
are sought to be concealed by both sides? The pivotal crossing
point is whether the settlement agreement shows up in the
judicial record. Thus, a settlement before the suit is filed is
not subject to a right of public access. Neither is a settlement
in which the parties simply file a stipulation of dismissal,
since they are not required to make the agreement part of the
court's record. In Goesel, however, the parties did not
have that option because the local district court rule
applicable to suits by minors required the court's approval for
the settlement to be valid.
Posner suggests that, even though made part of the judicial
record, if the settlement is made without any court action
(approval, disapproval or approved with revisions), then there
will "rarely be a good reason" to require that its terms be made
public "because making them public would not reveal anything
about judicial activity."3 Exceptions to this might
be "imagine[d]."4 But, for the most part, settlement
terms are of potential public interest only when "judicial
approval of the terms is required, or they become an issue in a
subsequent lawsuit, or the settlement is sought to be enforced."
Posner described the "net effects" of compelled disclosure of
settlement terms as "deeply uncertain." Some argue in favor of
disclosure because settlement agreements "may conceal safety
hazards and other matters of acute public concern." Usually,
however, all that is sought to be concealed is the size of the
settlement. Some will argue that making that information public
will encourage pre-litigation settlements since they are not
open to public scrutiny. This allegedly would economize on
A further argument is that the more that is known about the size
and other terms of settlements, the easier it should be for
prospective litigants to predict the likely outcome of their own
litigation. In turn, it is argued, this "should both foster and
simplify settlement." Another purported advantage of disclosure
is the supposed reduction of the probability of "lopsided
settlements," i.e., ones the parties would have recognized were
too large or too small had they had settlement information from
But there also seem to be disadvantages from taking a
pro-disclosure stance. If parties know that the size of their
settlements will become public, their negotiations are likely to
become more complicated. A defendant will fear that, if the
amount is large, making it public will invite more suits against
him. The plaintiff's lawyer will fear that, if the amount is
small, he will find settlement negotiations in his next case
more difficult. The defendant in the next case will have a
greater incentive to resist, hoping to negotiate as good a
bargain as observed in the public settlement agreement. A
plaintiff's lawyer who has agreed to a modest settlement, if
made public, may fear that future clients, unimpressed by his
past performance for the previous client, "will desert him for
In the end, says the jurist, this "to and fro of competing
considerations" may be of "little importance." It is argued that
most attorneys who negotiate settlements are experienced and
know from their own cases and by word-of-mouth from other
lawyers what the attainable settlement terms are likely to be in
the class of cases they handle. Thus, there may be "little at
stake" in the decision whether to allow or forbid the parties to
conceal the size of a settlement.
Against "such a background of uncertainty," says Posner, it is
"difficult to imagine" what arguments or evidence parties
wishing to conceal settlement terms could present "to rebut the
presumption of public access" to judicial records. In both the
Goesel and Massuda matters the parties did not even try. In
neither case did they offer any reason for secrecy except that
they had a confidentiality agreement. "Obviously that's
insufficient." Because there is potential public value to
disclosing settlement terms, "parties have to give the judge a
reason for not disclosing them—and the fact that they don't want
to disclose is not a reason."
The court could have stopped there but elected to "trudge on"
and comment further. Thus, in Goesel, an "outsider" could
not evaluate the dispute over the district judge's modification
of the settlement without knowing the amount of the settlement
(including fees and costs) before and after the judge's
revision. No reason has been given for thinking that concealment
of the information "would serve some social purpose."
In the Massuda case, there was no indication that the settlement
amount figured in the district court's decision. Indeed, there
is no unredacted copy of the settlement agreement filed in
either the district court or the Court of Appeals. The only
issue, therefore, is whether the redacted agreement, which is in
the judicial record, should be under seal as defendants request.
Posner could not "understand why they want that, since almost
everything of any possible interest has been redacted, including
the size of the settlement." In response to the judge's request
for an "explanation," the attorneys' "unhelpful response" was
that they requested the seal "in an abundance of caution" but
did not object to the circuit court unsealing the redacted
document "if it decides to do so." "Oddest of all," said the
court, they had included a copy of the redacted settlement
agreement in the appendix to the brief on appeal "—a public
document—thus mooting their request for concealment." The
foregoing circumstances led the court to deny the motion to seal
in Goesel and to dismiss the request in Massuda.
Malouf v. Equinox Holdings,7 plaintiff
sued for personal injuries she received when she fell off a
treadmill at defendant's SoHo gym. Defendant was unable to
provide the treadmill for inspection or to provide meaningful
information as to how or when the treadmill was removed.
Defendant submitted an affidavit from a manager at the SoHo
location who believed the treadmill was replaced as part of an
equipment upgrade that would have occurred some two years after
the accident. All paperwork concerning the treadmill was also
Plaintiff and the third-party defendant established that
defendant's failure to take affirmative steps to preserve the
treadmill constituted spoliation of evidence by showing that
defendant was on notice that the treadmill might be needed for
future litigation. Although the lawsuit was filed some eight
months after the accident, the evidence showed that plaintiff
immediately reported the accident and a "claims defense form"
was prepared by defendant's employee and forwarded to its legal
The motion court granted plaintiff's request for spoliation
sanctions to the extent of "precluding defendant from arguing at
trial that the treadmill plaintiff was using at the time of her
accident was operating properly or was free from defects." The
motion court also struck defendant's third-party complaint
seeking contribution and indemnification based on products
liability and maintenance theories because the treadmill was "a
key piece of evidence that is not available for inspection."
The Appellate Division, First Department, affirmed the
preclusion of evidence and other sanctions citing its famous
decision in Kirkland v. N.Y. City Housing Authority,8
a pivotal ruling fortifying the "spoliator beware" approach to
the preservation of evidence. In this case, the defendant was
saddled with the harsh penalties. But it should be remembered
that preservation obligations and spoliation sanctions are a
two-way street and that the "crown jewels" evidence, i.e., the
product being used when an injury occurs, often is in the
plaintiff's possession or control and likewise must be
is a member of Herzfeld & Rubin.
1. No. 13-2434 and No. 13-2818 (consolidated case motions) (7th
Cir. Dec. 26, 2013) (Slip Opinion).
2. Goesel, Slip Op., at 3 (citing cases).
3. Id., Slip Op., at 4-5 (citing cases).
4. E.g., cases in which the size of the settlement can be shown
to be the result of judicial doctrines that "excessively" favor
one side in a class of disputes; rulings made earlier in the
case that, by favoring one side or the other, influenced the
terms of the settlement. Id., Slip Op., at 5.
5. Id., Slip Op., at 5-6.
6. Id., Slip Op., at 6-7.
7. 2014 NY Slip Op. 00165 (1st Dept., Jan. 9, 2014).
8. 236 A.D.2d 170 (1st Dept. 1997).
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