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It is not uncommon for parties settling an action to negotiate a confidentiality provision that prohibits them from disclosing the terms of their agreement. While there may be reasons for requiring non-disclosure (a topic for another day), courts often grapple with the circumstances under which disclosure is warranted. In Appleyard v. Tigges, 2019 N.Y. Slip Op. 29373 (Sup. Ct., Bronx County Dec. 6, 2019) (here), the Court declined to order the disclosure of a confidential settlement between the plaintiff and one of the defendants because the request was made for purely tactical reasons, rather than for determining the underlying issue of fault and damages.
Courts Favor Settlement
Courts favor negotiated settlements because a resolution of a dispute avoids costly, time-consuming litigation and conserves the resources of the judicial system. Hallock v. State of N.Y., 64 N.Y.2d 224 (1984); Denburg v. Parker, 82 N.Y.2d 375 (1993). In addition, there is a societal benefit in recognizing the autonomy of parties to shape their own solution to a controversy rather than having one judicially imposed upon them. Denburg, 82 N.Y.2d 375.
Under certain circumstances, it is necessary to maintain the confidentiality of a settlement in order to protect the litigants and/or encourage a fair resolution. In re NY County Data Entry v. A.B. Dick Co., 162 Misc. 2d 263 (Sup. Ct., N.Y. County 1994), aff’d, 222 A.D.2d 381 (1st Dept. 1995). When that happens, the courts must weigh the agreed upon provision for confidentiality against the rights of those who are not privy to the settlement agreement.
When a plaintiff settles with one of the defendants, the non-settling defendant(s) may be entitled to discovery of the confidential settlement if the terms of the settlement are material and necessary to the prosecution and/or defense of an action. CPLR § 3101(a); Allen v. Crowell-Collier, 21 N.Y.2d 403 (1968). This does not mean that the non-settling defendant(s) can obtain the terms of the settlement by merely invoking the term “material and necessary”. Rather, the stated need for the information must be relevant to the prosecution and/or defense of the action. Trial strategy is not sufficient to meet this standard.
In In re N.Y. County Data Entry Worker Prod. Liab. Litig., 222 A.D.2d 381 (1st Dept. 1995), the First Department held that the desire to use the terms of a settlement to assess a defendant’s maximum exposure, or to determine whether to settle or continue the litigation, was not material and necessary to the defense of the action to warrant usurping the confidentiality of the agreement.
In Osowski v. AMEC, 69 A.D.3d 99 (1st Dept. 2009), the defendant, AMEC, commenced a third-party action against its subcontractor, DCM. Sometime during the litigation, the plaintiff and AMEC settled and entered into a confidential settlement agreement. The First Department determined that DCM was entitled to disclosure of the confidential settlement agreement because the “settlement of the main action directly [concerned] the underlying issue of fault and damages.” The court reasoned that “since the third-party action was one for indemnification and was necessarily predicated on the fact that AMEC/NYTB was ‘out-of-pocket’ for a loss which should have been borne by DCM,” the “the question of who funded the settlement of the main action was critical to whether AMEC/NYTB could continue to maintain the third-party action.” 69 A.D.3d at 106. In reaching its decision, the court rejected AMEC/NYTB’s reliance on Matter of New York County Data Entry Worker Prod. Liab. Litig., because “the terms of agreement were not material to the resolution of the issues involved in the case.” Id. at 107. “Specifically,” said the court, “we concluded that other than the amount of settlement, a confidential settlement between the plaintiffs and the codefendants had no relevance to a possible postverdict apportionment under General Obligations Law § 15-108.” Id.
GOL § 15-108(a) provides that when a plaintiff settles with one of the defendants, the plaintiff’s recovery against the remaining defendants is reduced by the greater of the amount paid in the settlement or the settling defendant’s equitable share of fault as apportioned by the jury. The statute requires the disclosure of the confidential agreement’s settlement amount, but only after a verdict is rendered against the non-settling defendants to determine post-verdict apportionment. Matter of Steam Pipe Explosion, 128 A.D.3d 493 (1st Dept. 2015).
In Mahoney v. Turner, 61 A.D.3d 101 (2009), a confidential settlement agreement was entered into between the plaintiff and two of the defendants, Turner (general contractor) and FDA (site owner). Earlier in the litigation, these defendants commenced a third-party action against the defendant, Williams, a sub-contractor. Williams sought disclosure of the confidential settlement agreement out of concern that Turner and FDA were improperly colluding. Williams contended, and Turner and FDA did not dispute, that these two defendants were planning to continue participating in the underlying trial between the plaintiff and Williams. The First Department was concerned with the uncertainty about whether Turner and FDA planned to participate in the trial, and if they did, the reason for their continued participation, and whether this could result in prejudice to Williams. To address these concerns, the First Department limited the disclosure to an in-camera inspection of the confidential settlement agreement by the Supreme Court.
Against these principles, the Appleyard Court held that the non-settling defendants were not entitled to the terms of the confidential settlement.
Appleyard arose in August 2012, when defendants administered the antibiotic, Vancomycin, to treat an MRSA infection that developed in plaintiff’s left knee following arthroscopy surgery. Plaintiff claimed that the procedure was performed negligently.
In February 2017, plaintiff settled with and discontinued the action against defendant, Vassar Brothers Hospital. Defendants, Russel G. Tigges and Orthopedic Associates of Dutchess County, P.C. (“Orthopedic Associates”), moved to compel plaintiff or Vassar Brothers Hospital to disclose the terms of the settlement agreement. In opposition, plaintiff argued that the settling parties agreed to keep the terms of the settlement agreement confidential, and that they were only obligated to disclose the settlement amount after a verdict was rendered against Tigges and/or Orthopedic Associates. According to the non-settling defendants, the terms of the settlement were necessary “to determine what evidence to submit during the trial of the case, in particular whether to put in a case against the hospital and the infectious disease consult, Dr. Feinstein.” They went on to argue that “[i]f the settlement seems small given the plaintiff’s injuries, then in light of the provisions of Gen. Oblig. Law 15-108(a), the non-settling defendants will want to introduce evidence of Dr. Feinstein’s negligence . . . [i]f the settlement appears close to the full value of the case, it will be enough for the non-settling defendants to fend off the claims against them, and challenge the severity of the injuries claimed.”
The Court’s Decision
The Court held that the terms of the settlement were not material and necessary to the defense of the action. In particular, the Court said that the non-settling defendants were seeking the information for trial strategy and not to defend the action:
It appears that in making this argument, Mr. Tigges and Orthopedic Associates are of the opinion that Vassar Brothers Hospital’s fault or the severity of plaintiff’s injury can somehow be determined by the settlement amount. This is pure speculation and amounts to nothing more than trial strategy, and is insufficient to qualify as material and necessary to the defense of the action to warrant disclosure of the instant settlement agreement.
Slip Op. at *3 (citing Matter of New York County Data Entry Worker Prod. Liab. Litig., 222 A.D.2d 381.)
Accordingly, the Court denied the motion to compel.
Takeaway
Appleyard shows that whether a confidential settlement should be disclosed is determined by the standard New York courts employ to determine questions about the disclosure of documents and information – i.e., whether the information sought is material and necessary to the prosecution and/or defense of the action. In Appleyard, the Court found that the settlement was not material and necessary because of the speculative grounds upon which the settlement terms were sought and because the settlement was not relevant to the resolution of the action.
