The Unintended Consequences of Secrecy and Confidentiality in Qui Tam Settlement Agreements (Part Two)

2. Confidentiality Agreements in False Claims Settlements: 

How They Erode the ‘Deterrent Effect’

Defendants want to avoid the bad publicity and do not want the reputation of being a soft target, so that, because they’re paying the big bucks, they have the leverage to convince plaintiffs to sign confidential settlements. Most Relator/Plaintiffs don’t really care about publicizing their settlement, particularly when they’re about to receive a large monetary recovery, so they’re more than willing to sign a confidentiality agreement.

Confidentiality agreements can take a number of different forms. At the least restrictive, these may only bar the Relator whistleblower from talking about the money he’s received with the news media. More restrictive language can prevent the plaintiff from disclosing to anyone the allegations in the complaint, any facts or documents produced during discovery, legal theories of the plaintiff or the defense, all expert reports of the parties, and the terms of the settlement. Many confidentiality clauses such as the one below apply to the plaintiff’s lawyer as well.

Relator and his attorney acknowledge and agree that confidentiality is a critical aspect of this Agreement and that the confidentiality provisions herein are a material inducement to Defendant in entering into this Agreement. Relator and his attorney shall maintain the terms and conditions of this Agreement and all discussions regarding or relating to this Agreement in strict confidence as further described below. Relator and his attorney shall not disclose, either directly or indirectly, any of the terms of this Agreement, or any discussions regarding or relating to this Agreement to any third parties including, but not limited to, any governmental (whether federal, state, local or municipal) agency, employee, representative, agent or attorney; current or former employees of the Defendant; members of the news media; jury verdict reporters; or settlement reporters; except: 

1. when required to do so by order of a court of competent jurisdiction,

2. when necessary to communicate essential information to attorneys or to professionals, 

3. to provide tax advice or to prepare tax returns to be filed with any government agency, 

4. upon the express written permission of all parties to this Agreement. 

In the event Relator or his attorney, directly or indirectly, breaches or threatens to breach any term of this confidentiality provision, in addition to any other rights and remedies that the Defendant or its assigns may have, the Defendant shall be entitled to an immediate injunction restricting Relator and his attorney from disclosing information that is the subject of this confidentiality provision. Relator further agrees that he shall not, directly or indirectly, do anything calculated or likely to have the effect of undermining, disparaging or otherwise reflecting negatively upon the Defendant/Releasee them), or upon their operations, reputations, goodwill, services, business practices or customers.

The plaintiff/relator’s signature on the release is always the principal thrust of defense counsel’s efforts when settlements are being negotiated. After the case is settled and closed, God forbid the whistleblower should do any more whistleblowing about what really happened. With the above language, it’s fairly obvious that the goal is to silence the whistleblower before the corporate defendant pays the settlement.

The following situations demonstrate the negative impact that confidentiality clauses can have.

A reporter from a newspaper, or a law or trade journal is prevented from getting the true story behind the settlement. They can contact the Relator, (the man whom the company called a disgruntled former employee when the lawsuit was first filed) – to learn all the reasons why the company just paid the government $90 million and paid the whistleblower $13.5 million. But the whistleblower can’t answer, because he’s just signed the non disclosure secrecy agreement. In this agreement, he’s promised not to talk about the bribery he uncovered, or the forgeries he saw, or the names of the executives at the highest levels of the corporation who were involved with the fraud, or the coverup, or the trading of inside information and all those false certifications, or the means by which the company violated the most favored customer clauses in the sales of cigarettes on military bases overseas. Nor can he, as the successful whistleblower discuss how corporate counsel were involved in the coverup, the falsifying of time sheets, or how the manufacturer of the helicopters falsely certified the testing of ball bearings for the Blackhawk helicopter that were never tested, or the dozens of other overcharges and false billings that he knows the details about. Why can’t he? Because the settlement has literally bought his silence.

The most onerous portion of confidentiality agreements that defense counsel often insist upon is that section of the agreement that says, in effect, that “if the whistleblower or his lawyer does disclose details beyond what the Attorney General or U.S. Attorney says in the press conference or press release announcing the settlement, he – the whistleblower and/or his lawyer – will have to return to the bad guys all the reward money they just received for blowing the whistle in the first place.

The result is this: When the enterprising newspaper reporter (Inquiring minds want to know) hears about the settlement and the incredible amounts of money that have just been paid – both to the Government and to the whistleblower – and he contacts the Relator for more details, the Relator, under the threat of a “payback,” is obligated to say only this and nothing more: “Thank you for calling. You’ll have to take a look at the Statement announcing the settlement that was made by the Attorney General’s office. I have an obligation not to provide further details.” And unless he’s promised not to in the confidentiality clause, the whistleblower can also say “I signed a confidentiality agreement; I promised not to give any more details.” All he can do is tell the reporter: “Go back and read the original complaint.  This is a public document. All the answers you’re looking for are there. If I speak with you about the case I will be penalized. I hope you understand.”

If there were more widespread dissemination of the reasons behind the claim and what caused the corporate giant to pay all that money to the Government and the whistleblower, there would be a stronger deterrent, and there’d be a lot more whistleblowers out there. i.e.: “All that sheetmetal worker got was 3.5 million dollars? The company I work for is a lot worse than that one.”

The way it stands now, with language like

Relator further agrees that he shall not, directly or indirectly, do anything calculated or likely to have the effect of undermining, disparaging or otherwise reflecting negatively upon the Defendant/Releasee, or upon their operations, reputations, goodwill, services, business practices or customers…

in the settlement agreement, it’s left to the enterprising journalist, reading between the lines, to keep the pressure on the corporate wrongdoer, asking again and again “Why, if the claim only arose because of a disgruntled former employee and it’s as insignificant as you say it is – why are you paying the Government $90 million dollars.”

Returning to the premise that began the discussion: “If the qui tam lawsuit is successful, it not only stops the dishonest conduct, but also deters similar conduct by others…” With the language in the confidentiality agreement, the deterrent effect of a whistleblower settlement quite often has the shelf life of a one or two day news cycle.

Another factor that diminishes the deterrent effect is the Corporate Integrity Agreement (the CIA) that is discussed in the third and final blog in this series.