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Confidentiality: How One Simple Clause Can Spell Torment

Regardless of your practice area, confidentiality clauses should be no stranger to you. Whether settling a minor personal injury claim or a multimillion-dollar settlement, these clauses can spell financial disaster if you are not careful. If you don’t work in the civil arena, live under a rock, or simply just don’t deal with settlement agreements, you may be asking: What is a confidentiality clause?

In the most basic definition, a confidentiality clause is a provision of a settlement agreement or contract that states neither party can discuss the details of the claim, case, or settlement. It seems simple and straightforward, right? Wrong. There is a giant misconception about the importance of these clauses. Seemingly, the general understanding is that these clauses are boilerplate and don’t have any real impact on the client. So, as long as your client isn’t broadcasting the details of the case or settlement, then there isn’t any impact. The misconception is rooted in a misguided idea that the clause is standard, so it’s impact and relevance is nominal. However, as one of the most prolific athletes and controversial figures has learned, this is not the case.

Dennis Rodman, an NBA Hall of Famer, was sued by a photographer following an altercation that occurred in a game between the Chicago Bulls and the Minnesota Timberwolves during the 1997 season. While fighting with Kevin Garnett for a rebound, Rodman fell out of bounds and tripped over camera equipment. Amos, photographer for the Timberwolves, went in for a photo of Rodman lying on the floor. In a fit of frustration, Rodman kicked Amos between the legs causing injury. As a result of his actions, Rodman agreed to settle outside of court with Amos for $200,000.00.

Part of this agreement was a confidentiality clause. The problem with the clause, illustrating the problem plaintiffs’ attorneys deal with, was the lack of value specifically applied to the confidentiality clause. When Amos filed his taxes, he excluded the settlement as he believed (and was likely advised) that personal injury settlements are not taxable. However, Amos soon
learned that only the money for physical injuries was non-taxable. The court used a dominant reason analysis to resolve the dispute. This analysis looks to the underlying reason, or dominant reason, that payment is made; looking at the terms of the agreement, or lack thereof, for an allocation between physical and non-physical injuries and values attached thereto.

Despite his argument that the confidentiality agreement was only a nominal amount of his settlement agreement, the court ultimately found that 40% of his settlement was consideration for the confidentiality clause!

This landmark case should serve as a warning for those entering into agreements with seemingly boilerplate confidentiality clause language. While each case may be different and parties may disagree on tactics, consider the following when entering into agreements:

â–  Do not agree to confidentiality clauses or specifically negotiate the terms;
â–  Make specific allocations detailing the amount of the settlement attributed to physical injuries compared to nonphysical damages.
â–  One way to make a confidentiality clause non-taxable is by making the confidentiality mutual;

While defendants and plaintiffs may have differing views or adverse reactions to specific provisions, take the time to review these provisions and work amicably with opposing counsel to resolve these disputes as they arise. It is more than likely that a defendant might not agree to completely omit a confidentiality clause, but everything we do as lawyers is focused on one shared concept: To protect and act in the best interests of our clients. Taking the extra few minutes to review, discuss or negotiate these types of clauses is a must.

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