When defending cases in New York state courts, parties must be prepared for the probability that their settlement agreements, even if intended to be kept confidential, could be revealed to the public.
New York adopted a rule relating to the sealing of court records in 1991.1 Reflecting a clear policy preference against sealed settlement agreements, the rule provides that a court shall not enter an order in a civil action sealing court records, in whole or in part, “except upon a written finding of good cause, which shall specify the grounds thereof.” 2 It was adopted at a time when various entities (plaintiff’s bar, consumers groups, public figures, etc.) were raising concerns that sealing orders was preventing the public from learning about hazards arising from unsafe products or environmental toxins. The rule requires the courts to carefully set forth the reasons for sealing in writing, limit the sealing to only those particular documents or groups of documents that require it, and refrain from sealing entire files unless absolutely necessary.3
There are some common arguments defendants make in favor of sealing settlement agreements that require judicial approval and are thus filed with the court.4 For instance, defendants frequently argue (1) that such agreements are necessary to facilitate settlements, protect trade secrets and other proprietary information, and prevent adverse publicity that might cause juries to be biased against the defendant in future cases and (2) that disclosure would prompt additional litigation and make the defendant a target for nuisance suits. Other arguments contend that a publicly disclosed settlement agreement becomes a floor for all future negotiations and that sealing the amount of settlement as opposed to evidence of wrongdoing does not hinder the public’s ability to learn of hazards to public health or safety. However, New York courts have been generally unsympathetic to the defendants’ arguments.
One of the more publicized settlements came out of the In Re September 11 Litigation,5 which arose out of a claim by certain insurers and property owners that a group comprising airlines, airport security companies, an aircraft manufacturer and the municipal owner of a departure airport was responsible for the property destruction that occurred as a result of the 9/11 terrorist attacks.
Most of the plaintiffs settled with some of the defendants, and the New York Southern District Court granted the parties’ motion to seal information relating to the settlement amount. However, the court reserved its right to revisit the ruling should a motion for reconsideration be presented. Thereafter, the New York Times moved to unseal the settlement information. Responding to the defendants’ arguments, the court found that the defendants could not have reasonably relied on the sealing order because the court reserved its right to reconsider its decision. The court also found that the parties intended to go forward with their settlement agreement regardless of how the court resolved the motion to unseal and that the unsealing of the settlement information would therefore not have a chilling effect on the defendants’ attempt to settle unresolved property damage cases. The court did however leave the amount each settling plaintiff was to receive under seal.
Similarly, in Matter of East 51st St. Crane Collapse Litigation, 2012 N.Y. Slip Op. 02433 (App. Div. 1st Dep’t Apr. 3, 2012), the First Department of the New York Appellate Division affirmed the unsealing of seven wrongful death settlements arising out of a crane collapse in Manhattan. The March 2008 accident killed the seven people and damaged nearby buildings. The settlements that resulted from the ensuing wrongful death suits were originally sealed by the trial judge. The judge ordered a temporary sealing so that the previous judgments would not impact the pending cases.
In December 2011, the plaintiff and third-party defendant from the only remaining wrongful death case filed a motion to unseal the settlements from the resolved wrongful death cases. With only one of the suits still pending, and citing 22 NYCRR § 216.1(a), the trial judge found that there had been no showing of good cause for the continued sealing of the settlement documents and granted the motion.
The defendants appealed and argued that maintaining the records under seal would prevent parties from using information about prior settlements to establish “an artificial threshold” in evaluating their own cases. The Appellate Division rejected the argument. The court held that there is a strong presumption favoring public legal proceedings and against sealing files without good cause shown. The court cited one of its prior decisions, saying that “[t]he presumption of the benefit of public access to court proceedings takes precedence, and sealing of court papers is permitted only to serve compelling objectives, such as when the need for secrecy outweighs the public’s right to access, e.g., in the case of trade secrets.”6
The court held that the “plaintiffs made a better argument that the unsealing of the settlement documents was necessary to enable them to ascertain the amount of available insurance coverage and thus make informed decisions as to the relative benefits and drawbacks of settling their own claims. Records should not be sealed to enable one party to have an advantage over another ‘when such sealing prevents counsel from fully discussing with their clients all of the relevant information in the case.’”7
New York case law indicates that it is unlikely that settlement agreements will be kept under seal, particularly in high-profile cases that involve a public hazard. Arguments relying on (1) the chilling effect unsealed settlement agreements will have on future settlement negotiations, (2) the potential that a defendant could become a target for nuisance suits and (3) prevention of adverse publicity that might cause juries to be biased against the defendant in future cases will likely be insufficient to convince courts to maintain settlement agreements under seal. In an effort to convince the court that the sealing of the settlement agreement would serve a compelling objective, defendants will probably have to refer the court to specific prejudice or harm that one or both parties will suffer through disclosure.