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02.18.2014

Often in litigation multiple defendants are named based on their roles in creating the plaintiff’s injury.  Very frequently, these defendants will be represented by separate counsel and looking to save themselves, even if it is at the expense of their co-defendants.  That is simply how litigation usually works.  One of the ways to save themselves – potentially to the detriment of their co-defendants – is to settle their portion of the case with the plaintiff, leaving the remaining defendants in litigation.  The question becomes – do remaining co-defendants or non-party (which often is the insurer in a companion declaratory judgment action) – have the right to see the confidential settlement agreement inked between the plaintiff and the settling co-defendant?

This question has been litigated across the nation with mixed results.  It was most recently examined in Selective Way Insurance Co. v. Schulle, 2014 WL 462807 (W.D.Va. 2014).  An underlying wrongful death suit was brought as the result of a boating accident where a man perished.  Two of the named co-defendants entered into a settlement agreement regarding this claim.  Simultaneously, the insurer – Selective Way – filed a declaratory judgment action, naming all parties to the underlying litigation, asserting that it had no obligation to defend or indemnify in the wrongful death suit.  Selective Way served discovery seeking to obtain the amounts of the settlements, as well as a copy of the agreement itself.  The plaintiff refused to provide this information and documentation, and Selective Way moved to compel the information.

The Schulle Court noted that, in the case of confidential settlement agreements, courts are divided on whether the confidentiality concerns inherent in the settlement process warrant a heightened showing of relevance to obtain such information.  The plaintiff primarily relied on Bottaro v. Hatton Assoc., 96 F.R.D. 158 (E.D.N.Y. 1982), which holds a heightened relevancy standard for discovery related to confidential settlement agreements.  Bottaro specifically focused on the issues of whether these settlement agreements would lead to admissible evidence on the question of damages, and whether the settling co-defendant may be liable for contribution to the remaining defendants.  Ultimately, the Bottaro Court instituted a higher standard, noting that the dissemination of the terms of a settlement agreement was not likely to generate admissible evidence.  It also held that the proportion of liability among the remaining co-defendants will not be determined until final judgment.  At that time, a mathematical computation can be made by the Court to determine whether the settling co-defendant may be liable to the remaining defendant for contribution.

Ultimately, the Schulle Court (a Virginia federal court) was not persuaded by Bottaro (a New York Court decision which has no precedential value on the decisions of a Virginia court) and ordered the settlement agreements be disclosed.  Schulle held that no heightened relevancy standard exists with regard to confidential settlement agreements.  Moreover, Schulle noted that “the monetary terms of the settlement that [the plaintiff] reached with the [settling] defendants in the wrongful death lawsuit are relevant to the amount of setoff to which the non-settling defendants would be entitled . . . Likewise, the terms of the releases are relevant to the non-settling defendants’ continued liability and right of setoff, and, in turn, the insurer’s exposure in the instant action.”  The Court concluded by noting that, “discovery of settlement information permits the remaining parties to assess their liability and evaluate their risks in continuing with the litigation and, thus, may ultimately promote settlement of the remaining claims.”

In the end, the authority split has become deeper.  Some Courts will compel the disclosure of confidential settlement agreements among co-defendants, others will not absent a heightened showing of need.  This issue, however, remains important for all defendants – those that settle early, and those that remain in litigation.  Parties must be mindful that their decision to make something confidential in not always the end of the discussion.  Ultimately, the discovery of this information will effectuate how much setoff is entitled to the remaining litigants, and whether the settling defendants – thinking they are getting off easy – may continue to be exposed to the remaining, non-settling defendants, for contribution if and when the court determines what proportionate amount each defendant was liable.

Frank Cragle is a trial lawyer and a member of Hirschler Fleischer’s Insurance Recovery Team. He handles a variety of commercial business disputes, including insurance recovery and policyholder claims. Frank also devotes a substantial portion of his time to business tort litigation and intellectual property claims. For more information, contact Frank at 804.771.9515 or fcragle@hf-law.com.

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Kristen M. Chatterton
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kchatterton@hirschlerlaw.com

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