Confidentiality Agreements; Are They Enforceable? – Article by David C. Swedelson

Article by David Swedelson

We are often asked to include confidentiality clauses in settlement agreements with owners, as the board often wants to avoid other owners hearing that the association settled. The concern is that these other owners will think it is OK to violate the CC&Rs or Rules, as they will ask for the same “sweetheart” deal. We do not want them to think this way. We do not want them to know about the settlement with their neighbor.

Sometimes, we have these clauses in agreements with developers or contractors or even former association employees who want to keep the terms of the settlement confidential.

The question whether and to what extent settlements can be kept quiet through the use of a confidentiality agreement is difficult to answer. Just ask Republican presidential candidate Herman Cain, who currently faces allegations that women formerly employed with the National Restaurant Association received financial settlements in disputes over alleged sexual harassment by Cain, the former head of the National Restaurant Association.

It is unclear where this issue will end up and whether it will torpedo Cain’s candidacy. What is clear is that the confidentiality agreements that Cain’s attorneys so carefully crafted have already lost their value to Cain and the women involved. Confidentiality provisions that are often added to settlement agreements range from a sentence or two requiring that the terms of the settlement remain private, to several pages setting forth exactly what the parties can and cannot say, to whom the parties can speak with, and the price of breaking those agreements.

Most confidentiality clauses state that the parties to the agreement may only disclose that they have resolved their dispute, but prohibits them from saying anything about the underlying allegations, terms of settlement and/or how much money was paid in settlement.

Sometimes, there is a penalty provision or a “liquidated damages” clause, stating that if there is a breach the confidentiality clause and talk about the allegations or the settlement, they have to pay a certain sum of money to the other. These sums can range from fairly nominal amounts to the return of the entire amount they received in settlement, depending on many factors.

The problem, as highlighted in the current political scandal, is that even with a confidentiality clause, it is impossible to, as they say, “un-ring the bell.” And, it is extremely difficult to enforce these agreements. Judges have told me that they do not like confidentiality clauses, and many believe that they are not enforceable by the court. And, in order to make a claim for damages against the other party for breaching the agreement, the person hurt by the disclosure (usually the association) has to go back to court and prove that the other side was at fault and improperly said something about the settlement.

Even if no lawsuit was filed, it is very difficult to muzzle all of the people involved from talking about the settlement later. No matter how good the lawyering and how iron-clad the agreement, this is one area where we lawyers simply cannot un-ring the bell. The question of confidentiality agreements and how to enforce them has no easy answers. Just ask Herman Cain, who is running for the highest office in the land.

 

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