Settlement Agreement Not Privileged, Court Rules

The USDC for the Eastern District of Tennessee recently ruled that the Sixth Circuit’s settlement privilege does not prevent a non-settling defendant from obtaining the settlement agreement between a plaintiff and a settling defendant.  Kelley v. Apria Healthcare, Inc., 2016 WL 737919 (E.D. Tenn. Feb. 23, 2016).  You may access the decision here.

Sixth Circuit’s Settlement Privilege

In Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976 (CA6 2003), the Sixth Circuit adopted a federal common-law “settlement privilege” that prevents compelled disclosure of settlement communications and negotiations.  Critics of Goodyear correctly point out that the court was exercising diversity jurisdiction and should have applied state law—not federal law—in determining whether a settlement privilege exists under common law.

Courts outside the Sixth Circuit reject Goodyear’s analysis, but the decision remains good law.  For an explanation of Goodyear and practice tips for outside and in-house counsel, see my post Important Lessons about the Settlement Privilege.

Background

In Kelley, the plaintiff sued multiple defendants following a fire that erupted in a traveling camper and killed the camper’s occupant.  All defendants except Apria Healthcare settled, and Apria filed a motion to compel the settlement agreements.

The plaintiff and the settling defendants opposed the motion on grounds of relevancy, but also that the Sixth Circuit’s settlement privilege protected the settlement agreements from compelled disclosure.

Ruling

Noting that “a number of district courts have recognized that settlement agreements are not privileged,” the Kelley court ruled that, “[a]lthough the Sixth Circuit recognizes that the settlement privilege protects settlement negotiations from discovery, ‘this privilege does not extend to the terms of the final agreement.’” (emphasis added).

What about Confidentiality Provisions?

The plaintiff and settling defendants argued for non-disclosure because the settlement agreements contained confidentiality provisions, but the court ruled that was of no consequence, stating that the no-privilege rule “is true even where the agreement is designated as ‘confidential.’”

Protective Order

The plaintiff and settling defendants received a consolation prize as the court ruled that it would approve entry of a protective order limiting use and disclosure of the settlement agreement.  So, while the settlement privilege does not protect settlement agreements from discovery, counsel likely can limit disclosure through a court-approved protective order.