Form over content when it comes to confidential settlements

The parties in a wrongful death action reached a settlement and reduced it to writing. The settlement agreement included a confidentiality clause stating the parties and counsel would keep the terms confidential. Plaintiffs' counsel signed the agreement "approving as to form and content," and then gave an interview to a reporter who published an online article about the case. Did the attorney violate the confidentiality provision? Evidently not, according to a recent California Court of Appeal decision, Monster Energy Company v. Schechter, 2018 DJDAR 8092 (Cal. Ct. App. Aug. 13, 2018).

The Monster Energy Case

The underlying matter arose from the death of a 14-year-old girl who died of cardiac arrest after drinking two cans of an energy drink. Attorney Bruce Schechter and his firm represented the girl's family. He filed an action against Monster Energy Company resulting in a settlement that was reduced to writing.

The settlement agreement provided that plaintiffs and their counsel would "keep completely confidential all of the terms and contents of this Settlement Agreement," and was signed by counsel under a signature block, "Approved As To Form and Content." Schechter then gave an interview to a reporter who published an online article about the case in Lawyersandsettlements.com.

Monster filed suit against plaintiffs' attorneys for breach of contract. In turn, the attorneys filed a special motion to strike under Code of Civil Procedure Section 425.16, and argued that Monster could not show a probability of prevailing on its breach of contract claim because they were not parties to the settlement agreement. In opposition to the SLAPP motion, Monster countered that Schechter's statements were commercial speech and, therefore, unprotected; and the attorneys were bound by the settlement agreement. The trial court denied the motion with respect to the breach of contact cause of action, observing that "Schechter's suggestion that he is not a party to the contract merely because he approved it as to form and content only is beyond reason."

The appellate court reversed. An essential element of any contract is mutual consent of the parties to be bound that must be clearly communicated to the other parties. Although the settlement agreement purported to bind the parties and their respective counsel, the attorneys never consented to be parties to the contract. "[A] party cannot bind another to a contract simply by so reciting in a piece of paper. It is rudimentary contract law that the party to be bound must first accept the obligation." Thus, no matter how unequivocally the settlement agreement purported to bind the attorneys, they were not subject to its terms, including the confidentiality clause, unless they specifically manifested their consent to be parties.

Nor did any exceptions apply to this general principle of contract law. While an agent can bind a principal to a contract, the converse is not true -- a principal may not bind the agent. Therefore, the plaintiffs could not bind their counsel to the settlement agreement.

What Does 'Approved as to Form and Content' Actually Mean?

According to the Monster holding, approving as to form and content merely means the attorneys were signing solely in their role as counsel who had reviewed the settlement agreement and given the clients their professional approval to sign it. It does not make the attorneys parties to the agreement nor subject them to any of its terms, including the confidentiality clause. Since Monster was unable to show a probability of prevailing on the merits of its breach of contract claim, the trial court erred in failing to grant the attorneys' SLAPP motion.

Application of Monster Holding

Approving settlement agreements as to form and content is a very common practice, and some practitioners may assume (incorrectly) the terms of a settlement, especially a confidentiality clause, would be binding on the parties and their respective counsel. However, the Monster holding makes clear this is not so. Counsel are not bound by merely signing the agreement approving as to form and content.

Nevertheless, the opinion suggests a solution for parties, especially defendants, who will want to ensure that the parties and their counsel will keep confidential the terms of any settlement. "It seems easy enough, however, to draft a settlement agreement that explicitly makes the attorneys parties (even if only to the confidentiality provision) and explicitly requires them to sign as such."

Of course, there are other remedies that aggrieved defendants could pursue if plaintiff's counsel violates a confidentiality clause. In dictum, the Monster opinion suggested that the defendant may have a claim against the plaintiffs for breach of the settlement agreement resulting from plaintiffs' counsel violating the confidentiality clause. The appellate court also raised the possibility that a defendant may be a third-party beneficiary of the attorney-client contract between plaintiffs and their counsel.

In addition to those legal questions and potential remedies for an aggrieved defendant, an attorney who discloses confidential settlement details faces practical and ethical risks vis-à-vis his or her own client. Along those lines, Schechter testified that, although he had no contractual obligation to Monster, he did have a duty to his clients "not to cause or create any potential litigation for them." So, the likelihood of such disclosures is probably rare.

Conclusion

As Benjamin Franklin so famously said, "An ounce of prevention is worth more than a pound of cure." It is far better to avoid all of these issues by understanding the Monster holding. First, we may not assume counsel are bound to the terms of a settlement agreement merely by "approving as to form and content." If any settlement terms are to be binding on counsel, including a confidentiality clause, the agreement must so explicitly state. And, counsel must sign the agreement indicating assent. By implementing the lessons of this case, both plaintiff and defense counsel may avoid the malpractice pitfalls for the unwary.