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By Bill Altreuter

I've run into the situation presented in Mahoney v. Turner Construction more than a few times. In a multi-defendant action one or more co-defendants settle with the plaintiff on a confidential basis. For some reason it is always my client that is left in the case, wondering how much the plaintiff got. I should be let in on the secret, I think, because my client is entitled to some sort of offset under the General Obligations Law, but as the First Department notes, "the law on the disclosure of settlement agreements to nonsettling parties is unclear and presents a thorny issue...." The First Department thinks that settlement agreements are discoverable only to the extent that they are material and necessary to the nonsettling party's case. Citing Allen v. Crowell-Collier Publ. Co, a chestnut from 1968, the Court reminds us that term "material and necessary" is to "interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity". To the First Department what this means is that if there is a secret "Mary Carter" agreement between the plaintiff and the settling defendants then the non-settling defendants should know about it, because Mary Carter agreements are pretty much a fraud on the court.

Frankly, that's bullshit reasoning. If what you want to do is sharpen the issues and reduce delay and prolixity, tell me if it makes economic sense for my client to to roll the dice and try the case. If we are not going to see a meaningful offset, that is information which should go into the decision-making process. As a general proposition the law disfavors confidential settlements, and that's a good thing from a policy perspective. I cannot fathom why the courts in New York allow this practice, which is essentially a tool to extort settlements from parties by increasing the unknowns in a case.

Full post as published by Outside Counsel on January 23, 2009 (boomark / email).