New Appellate Decision Raises Issues for Binding Attorneys to Confidentiality Provisions by Conner D. Johnston

New Appellate Decision Raises Issues for Binding Attorneys to Confidentiality Provisions by Conner D. Johnston

New Appellate Decision Raises Issues for Binding Attorneys to Confidentiality Provisions

By Conner D. Johnston

                Some disputes can only be settled if the parties agree to keep the dispute and terms of the settlement confidential.  Parties in this position often include confidentiality provisions in their settlement agreements that are broadly worded and purport to bind the parties and a laundry list of related third-parties, such as the parties’ agents including their attorneys. However, just listing these parties in a settlement agreement does not ensure enforceability of the agreement against them.  Instead, for these third parties to be contractually bound to the terms of the settlement agreement, including its confidentiality provision, they must sign the settlement agreement on behalf of themselves. With respect to an attorney, the fact that an attorney may sign a settlement agreement “approving as to its form or content” is insufficient to bind the attorney to the agreement.

                This issue arose in the recent Fourth Appellate District case of Monster Energy Company v. Schecter, et al., No. RIC1511553 (Cal. Ct. App. Aug. 13, 2018). The plaintiffs settled all claims against Monster Energy and the settlement agreement included a broad confidentiality provision. This provision stated in several locations that it was intended to cover the parties as well as related third-parties, and specifically identified the parties’ attorneys as persons purportedly bound by the agreement:

  • “Said Settlement Agreement shall be on the behalf of the settling Parties, individually, as well as on the behalf of their, without limitation, respective beneficiaries, trustees, principals, attorneys, officers…” (emphasis in opinion)
  • “The Parties acknowledge that this Settlement Agreement . . . is . . . wholly binding upon them, as well as inure [sic] to the benefit of the Released Parties, inclusive of, but not limited to, their respective . . . attorneys, employers, and employees.” (emphasis in opinion)
  • Plaintiffs and their counsel agree that they will keep completely confidential all of the terms and contents of this Settlement Agreement, and the negotiations leading thereto, and will not publicize or disclose the amounts, conditions, terms, or contents of this Settlement Agreement in any manner.” (emphasis in opinion).

Below the parties’ signatures on the agreement were signature blocks for the parties’ attorneys’ signatures but only to “[a]pprove[] as to form and content.” The attorneys signed pursuant to these signature blocks but nowhere else. One of the plaintiff attorneys later revealed confidential aspects of the settlement agreement and Monster Energy sued the plaintiff’s attorney, in part, for breach of the confidentiality agreement.

                The court held that the attorneys were not parties to the agreement, even though they physically signed the document. The key was that the attorneys never signed the agreement for themselves but only to approve the content of the agreement as an agent of the parties. The clients’ signatures were inadequate to bind the attorneys. Even though the agreement “purported to bind the Attorneys,” 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.” Though an attorney may bind the client in certain circumstances, “this does not work in reverse — the client cannot bind the attorney.”

                The attorneys’ signatures did not show their assent to the agreement. Instead, it merely meant the document has “the professional thumbs up. . . . [I]t does not objectively manifest the attorney’s intent to be bound.” The court concluded that the ruling may make confidentiality agreements more difficult to enforce against third-parties, but that “[i]t 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.” Thus, Monster Energy could not established the basis for a breach of contract claim against the plaintiff’s attorney because the attorney was not a party to the settlement agreement.  (The court touched on other potential legal and ethical ramifications an attorney might face for disclosing such confidential information, but that discussion is beyond the scope of this note.)

                Monster Energy highlights the caution and consideration that needs to be given when a confidentiality provision is an essential term of a proposed settlement agreement. Parties and their counsel need to be mindful of what information needs to be protected, who needs to be bound by the agreement, how those persons can be bound by the agreement, and what are the available remedies for a breach of the agreement.  For additional information about the Monster Energy decision and confidentiality provisions in settlement agreements, feel free to contact: Conner D. Johnston, cjohnston@diepenbrock.com or (916) 492-5095.