Confidential Settlement Agreements and the Public’s Right of Access

Confidentiality terms in settlement agreements are fairly commonplace, but most people do not know that until recently the courts would often ignore them. Historically, the public’s “right of access” to judicial records outweighed a party’s desire to keep their settlement confidential. This makes sense when the issues involve public interests or safety concerns. But when the settlement involves trade secrets or other proprietary information, businesses have long argued the public’s right of access should be more limited. In many cases, especially with regard to hi-tech and growth companies, the desire for confidentiality is the prime motivation for settling the case.

In a recent 3rd Circuit ruling, LEAP Systems Inc. v. MoneyTrax, the court shifted away from previous decisions to allow business’s a better chance at maintaining the confidentiality of settlement agreements. In the LEAP case, the settlement was based on assurances from the court that the agreement would remain confidential. The district court’s assurances of confidentiality were clearly a pervasive factor for the 3rd Circuit, and not something every trial judge is going to agree to put on the record. But counsel certainly should ask for a statement on the record that confidentiality is a key term of the settlement. Also, in most cases the business will want to justify the reasons for the confidentiality on the record, since the importance of trade secrets may not be as apparent to courts reviewing the matter in the future as it is to the trial judge overseeing the settlement discussions. These were both factors considered by the 3rd Circuit in finding in favor of LEAP on the confidentiality issue.

One way around this privacy risk has always been to keep the terms of your settlement agreements away from the courthouse. But in many cases, especially in certain federal courts or business law courts like Philadelphia’s Commerce Program, judges may be highly involved in facilitating the settlement process. When that happens, the settlement agreements or even the oral transcripts of the proceeding may be considered judicial records subject to public access. Even if the parties reach a settlement on their own, the court often becomes involved with motions to enforce down the line. The LEAP case begins an outline of how to maintain the confidentiality of these records.

Each individual case is unique and the test that remains is still a balancing act between the public’s right of access and a party’s claim to confidentiality. The attorneys at Danziger Shapiro, P.C. are well-versed in this balance that business owners are required to walk between business opportunities and legal issues. The firm has a proactive and preventative approach that assures these changing doctrines do not become later headaches. If your business is entertaining the possibility of a confidential settlement agreement, contact us to ensure that your business secrets remain secrets.