Judge Posner on the confidentiality of settlement agreements

Every once in a while (well, actually, more often than not) Seventh Circuit Judge Richard Posner transforms an opinion into an opportunity to discourse more broadly on some topic of interest to him. The topic of the decision of these consolidated motions is whether settlement agreements should remain confidential.

In one case, the parties agreed to settle a personal injury suit. Because the suit was on behalf of a minor, district court local rules required the district judge’s approval of the settlement. The judge reduced the portion of the settlement payable to the plaintiffs’ law firm, thus increasing the amount to be received by the plaintiffs, and approved the revised settlement. The district judge sealed the settlement at the parties’ request. The law firm appealed to challenge the modification of the attorney fee amount. The firm moved in the court of appeals to maintain under seal the documents disclosing the amount of the settlement and the lawyers’ fees and costs. (One wonders how the firm intended to argue in a publicly-filed brief that the district judge erred in reducing the fee without ever mentioning what the fee is, was, or should have been, but the motion did not require that Judge Posner address that.)

In the second case, the district judge dismissed as moot the plaintiff’s claims on the ground that they were derivative from claims in a previous suit that the parties had settled. The district court relied upon a redacted copy of the settlement agreement from the earlier suit, filed under seal, that eliminated nearly all of the terms except the parties’ names and the nature of the suit. The defendants requested that the redacted settlement agreement be kept under seal in the court of appeals, as well.

Judge Posner consolidated those motions for decision because they both raised the question of whether the settlement agreements should remain under seal in the court of appeals. He begins the analysis with the general proposition that documents that affect the disposition of federal litigation are presumptively open to public view. That presumption applies only to “materials that formed the basis of the parties’ dispute and the district court’s resolution.” No such presumption applies to other documents that “may have crept into the record[.]”

How do those principles apply to settlement agreements? Although settlements are common, most settlement agreements are not filed in the judicial record and, therefore, do not raise any questions regarding the right of public access. The parties in the personal injury case did not have that option because the local rule required the court’s approval for the settlement to be valid.

Judge Posner observed that where settlement agreements become part of the court record, but they do not involve and judicial action (such as approval, disapproval, or approval with modifications), there may rarely be a good reason to require that the terms be made public because doing so would not reveal anything about judicial activity. On the other hand, Judge Posner believes that, in the interest of permitting public scrutiny of the operation of the courts, settlement agreements should be public 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. Yet surprisingly in light of those comments, Judge Posner opts in favor of broader disclosure of settlement agreements: “[I]t’s difficult to imagine what arguments or evidence parties wanting to conceal the amount or other terms of their settlement (apart from terms that would reveal trade secrets or seriously compromise personal or institutional privacy or national security) could present to rebut the presumption of public access to judicial records. The parties before me haven’t even tried. In neither case have they offered any reason for secrecy except that they have a confidentiality agreement. Obviously that’s insufficient, and I could stop there: because there is potential public value to disclosing settlement terms, including amount, 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. . . . But I’ll trudge on.” And so he does.

If you think that the statement quoted above foreshadows Judge Posner’s decision on the pending motions, you’d be right. In the personal injury litigation, “an outsider to the litigation could not evaluate the dispute over the district judge’s modification of the settlement without knowing the amount of the settlement before and after the modification.” Therefore, there would be no good reason to keep the terms confidential but very good reasons for disclosing the terms, so Judge Posner denied the firm’s motion in that case.

In the case involving the previous settlement agreement, the question was whether that highly redacted settlement agreement (which was already in the public record) should be under seal. The request to maintain the confidentiality of the agreement (from which Judge Posner says “almost everything of any possible interest has been redacted”) was ultimately mooted because the defendants included a copy of the redacted settlement agreement in the appendix to their appellate brief, which is a public document in its entirety. Judge Posner therefore dismissed the motion in that case as moot.

Goesel v. Boley International (H.K.) Ltd., 2013 WL 6800977 (7th Cir. 2013).