Class Action and Product Insights for Your Business
May 10, 2022 - Environmental Law, Product Liability, Class Action

Confidentiality at Risk: California Legislature Considers Bill That Would Limit Scope of Confidentiality in Product Liability and Environmental Cases and Settlements

Confidentiality at Risk: California Legislature Considers Bill That Would Limit Scope of Confidentiality in Product Liability and Environmental Cases and Settlements

California lawmakers are considering a bill that would limit confidentiality in cases involving allegations of defective products or environmental harms by placing restrictions on protective orders and confidentiality terms in settlement agreements.

Generally, parties litigating cases alleging defective products or environmental conditions may stipulate to a protective order that governs discovery and protects the confidentiality of certain documents. Similarly, settlement agreements almost always require both parties to maintain some level of confidentiality as a condition of settlement. The ability to protect confidential information encourages early resolution, which in turn helps reduce the caseload of overburdened courts.

The Public Right to Know Act (SB 1149), however, seeks to limit the parties’ ability to enter into such agreements in product liability and environmental cases in California. SB 1149, which was introduced by California State Senator Connie Leyva (D-Chino) this spring and is jointly sponsored by Consumer Reports and Public Justice, seeks to require public disclosure of factual information about an allegedly defective product or environmental condition that “has caused, or is likely to cause, significant or substantial bodily injury or illness, or death.”[1] California would join other states such as Florida and Louisiana that impose similar restrictions by statute.

If passed, the bill would:

  • Render provisions in settlement agreements that restrict disclosure of such factual information void and unenforceable;
  • Preclude courts or arbitral tribunals from entering any protective order that would seek to maintain the confidentiality of such factual information, with narrow exceptions; and
  • Allow any person, including a media member acting on behalf of the public, to challenge these types of confidentiality provisions so long as it is reasonably foreseeable that the restriction would affect the challenger.

The bill provides some exceptions. A settlement provision or a protective order could still maintain confidentiality over the following:

  • Settlement amount;
  • Medical or personal identifying information;
  • Citizenship or immigration status; and
  • Proprietary customer lists or trade secrets if the party moves the court or arbitral tribunal in good faith and demonstrates that an overriding confidentiality interest outweighs public interest in disclosure.

The legislature recently amended SB 1149 to permit a party, including an intervenor who has become a party or a producing or testifying third party, to move for nondisclosure under the above provisions.

The bill’s proponents claim to seek a balance between corporate confidentiality and promoting disclosure of evidence related to public safety. If passed, however, the bill could undermine public policy favoring early resolution and harm parties litigating these kind of cases by restricting the tools available to protect confidentiality. Protecting confidential information incentivizes parties to settle cases early. Settlements help parties avoid costly litigation and lessen burdens on courts. Without this incentive, parties would be more likely to avoid seeking early resolution and to engage in protracted litigation.

Furthermore, with protective orders severely limited, discovery disputes would likely intensify, as parties defending against such allegations would seek to protect their confidential information from public inquiries.

In addition, SB 1149 would place new obligations on attorneys. If passed, attorneys would have to take this legislation into account when advising clients about the scope of confidentiality permitted in settlements and in discovery. Asserting confidentiality over the underlying facts in a settlement agreement, advising a client to sign an agreement containing such a provision, or moving for a protective order that seeks to protect such information could constitute grounds for bar discipline.

This bill’s passage is not a foregone conclusion. Similar legislative proposals have failed in the past, including a recent effort in 2017. If SB 1149 passes, however, parties defending in the areas of products and environmental harms could experience increased litigation costs, drawn out discovery disputes, and greater risk of exposing confidential business information.

The Morrison Foerster Class Action & Mass Tort team will continue to monitor the progress of SB 1149 and provide updates as the bill proceeds through the legislature.

[1] SB 1149.