Should Private Settlements of Legal Disputes be Made Public?

Influential Judge Posner of the U.S. Court of Appeals for the Seventh Circuit recently denied a motion to seal (keep private) the terms of a settlement agreement involving a minor's personal injury claim (Goesel v. Boley International). Outsiders to the litigation needed to know the amount of the settlement in order to evaluate a dispute over the trial judge's modification of the settlement. In the course of his opinion, Judge Posner reviewed the arguments for and against having undisclosed private settlements of legal disputes. These arguments are the subject of this brief comment.

Judge Posner noted that documents disposing of federal litigation are presumed to be open for public viewing. This is because the public in general needs to know who uses the courts, how judicial decisions are made, and to be able to monitor the judiciary. Exceptions to public viewing include trade secrets and compelling reasons for personal privacy.

Settlement agreements may occur prior to litigation or after litigation has been dismissed. The argument for privacy in these situations is that disclosure would reveal nothing concerning judicial activity. A possible exception to privacy might be settlements resulting from judicial doctrines that unduly favor one side to a dispute.

Judge Posner stated that the effects of compelled settlement disclosures are uncertain. Certain private settlements might involve safety hazards or other public concerns that merit disclosure. Revealing the size of the settlement might allow future litigants to more rapidly and economically settle their disputes as well as prevent lopsided settlements that are significantly above or below the norm. However, knowing that the settlement will be made public may actually complicate negotiations. Defendants fear that revealing large settlements will encourage more lawsuits. A plaintiff's attorney may fear that a small settlement will make future settlement negotiations more difficult as well as causing potential future clients to look elsewhere for legal services. In practice, however, attorneys on both sides will know in advance the typical settlement for the type of case in question.

The parties before Judge Posner offered no reason for keeping the settlement secret except that they had a confidentiality agreement. This reasoning is insufficient because of the presumption in favor of disclosure and the potential public benefit of knowing the terms of the settlement. Hence, Judge Posner ordered disclosure.

Apart from this particular case, many commentators are critical of secret arbitration and negotiated settlements as creating an unaccountable private justice system that conceals potentially important facts from future litigants and the public. Additionally, these critics are concerned that vulnerable parties will be taken advantage of without public benchmarks. Employment issues such as wages, workplace injuries, and discrimination are said to inherently be matters of public and social concern. Other topics, including corporate activities impacting the public or the environment, might be added to a list of social concerns. Secrecy is said to undermine public confidence in the integrity and fairness of the legal system.

In response to the critics of private settlements, other commentators assert that not all cases involve safety concerns or a compelling reason for public knowledge. Secrecy or disclosure must be judged on a case by case basis. Furthermore, privacy and freedom of action and contract are in themselves important social values. Secrecy facilitates creative settlements that address the unique needs of a party. These unique needs, such as therapy, might involve personal privacy. Also, the overworked and under resourced judicial system requires private out of court settlements in order not to collapse under the weight of litigation.

In light of the arguments outlined above as well as others that could be made, there may be no easy answer to the question posed by the title of this comment. The trend over centuries, starting as early as the Magna Carta in 1215 with its requirement of a jury of Peers, favors transparency as essential to a free society. Simultaneously, the rise of individual rights over an equally long period recognizes the right of privacy as fundamental to individual freedom. Consequently, the debate concerning the private settlement of legal disputes is likely to continue.