‘Approved as to form and content’ may bind counsel

An attorney who signs a settlement agreement approving it as to form and content may be liable for breaching the agreement's confidentiality clause, according to a recent California Supreme Court decision, Monster Energy Co. v. Schechter, 2019 DJDAR 6457 (Cal. Jul. 11, 2019). The opinion reversed the Court of Appeal and held the "approved as to form and content" notation above the lawyer's signature does not, as a matter of law, "preclude a factual finding that counsel both recommended their clients sign the document and intended to by bound by its provisions." How far can lawyers be bound and what are the practical implications of this holding?

Background

A 14-year-old girl died of cardiac arrest after drinking two cans of an energy drink. Her family retained attorney Bruce Schechter and his firm to file a wrongful death action on their behalf against Monster Energy Company. The lawsuit ultimately settled.

The settlement agreement included a confidentiality clause that was not only extensive, but referred repeatedly to both the parties and their counsel. Specifically, it provided that plaintiffs and their counsel agreed to "keep completely confidential all of the terms and contents of this Settlement Agreement," and further provided the parties and their attorneys would not make any statements about the action or Monster's "products in relation to this Action, in the media," which was defined to include the Internet. Any comment "shall be limited to the following, or words to their effect: 'This matter has been resolved.'" Schechter signed the agreement under a signature block, "Approved As To Form and Content."

Shortly after, an article appeared on the website Lawyersandsettlements.com titled, "Substantial Dollars for Family of Monster Energy Drink Wrongful Death Suit." It attributed several quotes to Schechter about the case, describing how it resulted in "substantial dollars" for the family, although "Monster wants the amount to be sealed." The article also mentioned Schechter's belief that Monster's products were unsafe, described three other lawsuits he had filed against Monster, and concluded with a link and phone number for "Monster Energy Drink Injury Legal Help."

Monster filed suit against Schechter and his firm for breach of contract. In turn, the attorneys filed a special motion to strike under Code of Civil Procedure Section 425.16 (Strategic Lawsuit Against Public Participation), 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. The trial court denied the attorneys' motion, allowing Monster's case to proceed, 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."

Analysis

Justice Carol Corrigan authored the unanimous opinion of the Supreme Court, which reflects a practical approach in seeking the delicate balance between two competing public policies -- the critical importance of keeping settlement agreements confidential, an absolute essential requirement in some settlements, and the danger of binding attorneys to personal liability for merely approving a client's settlement agreement as to form and content. As Justice Joshua Groban observed at oral argument, to do so "would come as a shock to the Bar across the state."

In light of the procedural posture of the case, the issue before the court was a narrow one: In opposing the attorney's anti-SLAPP motion, did Monster establish that it brought a legally sufficient claim supported by a prima facie pleading of facts to sustain a successful judgment against the attorneys? That question, in turn, depends upon whether Schechter's signature approving the settlement agreement as to form and content provides him with an absolute defense -- he did not sign as a party and, therefore, could bear no personal liability for the substantive provisions of the agreement, including the confidentiality clause.

The opinion noted the general consensus in the legal community that "approved as to form and content" simply means that counsel has read the document, it embodies the parties' agreement, and no impediment exists to the client signing it. However, the analysis does not end there. "The legal question is whether counsel's signature approving as to form and content for his clients' signature precludes, as a matter of law, a finding that he also intended to be bound by the agreement."

The court applied rudimentary contract law principles to the settlement agreement, concluding the language of the confidentiality provision clearly purported to bind the parties and their counsel. The question was one of mutual consent, "determined by objective rather than subjective criteria, the test being what the outward manifestations of consent would lead a reasonable person to believe." Did Schechter's signature on the agreement, in light of the substantive provisions in the confidentiality clause that unequivocally applied to him, manifest his consent to be bound by those provisions?

The opinion makes clear that approving a document as to form and content will not bind counsel where no substantive provisions purport to do so. On the other hand, a lawyer's signature to a document imposing duties on counsel may evince an intent to be bound, even though the attorney is also approving the client's signature. "Here, a factfinder considering all of the circumstances could reasonably conclude Schechter agreed to be bound."

Public Policy Considerations Regarding Confidentiality

The court observed, "Our conclusion also recognizes the role that confidentiality plays in facilitating settlement agreements." The inability to prevent public disclosure of private settlements would "'chill the parties' ability in many cases to settle the action before trial. Such a result runs contrary to the strong public policy of this state favoring settlement of actions."

The importance of the confidentiality clause to Monster was not lost on the court. The opinion cited Schechter's acknowledgment in deposition that Monster would not have settled without the confidentiality clause, and then observed that excluding him from the scope of the settlement agreement would undermine one of the most important terms of the agreement. It would be cold comfort to Monster if its only other recourse would be to sue the parents of the child who died to enforce the agreement their attorney breached.

Conclusion

What are the practical applications of this holding? First, merely approving a settlement agreement as to form and content will not impose any obligation on counsel where the agreement is void of provisions purporting to bind the attorneys.

Conversely, if the agreement's substantive terms include provisions that would impose obligations on counsel, those terms may be binding on the lawyers. Signing under a signature block, approving as to form and content, will not preclude liability as a matter of law. This is especially so if the obligation pertains to a confidentiality clause in light of the strong public policy favoring confidentiality. The question will be a factual one for a jury.

Great care must be taken in drafting any settlement agreement that would purport to bind counsel. The language should explicitly and unambiguously describe what is, or is not, expected of the lawyers.

Potential pitfalls for the unwary involve a client's obligation to the other party, where the attorney may have ministerial duties related to that obligation but does not expect to be personally responsible for it. For example, in cases with joint tortfeasors, the plaintiff may settle with one defendant and agree to share with that defendant a future recovery from another defendant. The language of the settlement agreement may refer to counsel facilitating payment of the future recovery. If the plaintiff achieves an additional recovery and then fails or refuses to share it, is plaintiff's counsel responsible? To eliminate any potential claim against counsel, the settlement agreement should state the payment obligation flows to the plaintiff and not his or her lawyer. The key is to circumscribe counsel's personal liability to the other party if any obligation is not met, assuming that is the intent of the parties.

Monster Energy is a significant holding in that form will not control over substance. Here, the confidentiality clause would be rendered meaningless if it applied only to the parties, but not their counsel. This holding establishes that lawyers may be bound to settlement terms that apply to them even though they are not parties to the agreement. 