Hollywood Confidential

A discussion of confidentiality concerns in high-profile celebrity mediations

2014 September

Public figures as well as high-profile businesses have an obvious interest in private and confidential settlements of their disputes. For mediators and advocates who assist high-profile parties to resolve their disputes, it is important to address confidentiality concerns early, to help parties understand and consider issues of public perception, and to help clients manage the public relations aftermath of a dispute.

The purpose of this article is to discuss confidentiality concerns relating to high-profile parties in mediation, the use of non-disclosure or confidentiality agreements in mediation agreements, and the use of public relations techniques after a high-profile dispute is resolved.

Confidentiality in California

When representing high-profile individuals or companies as parties to a mediation, it is important to understand the limitations of the California Evidence Code as it applies to statements made during the course of mediation. California Evidence Code section 1119 (a) states:

Except as otherwise provided in this chapter: (a) No evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation is admissible or subject to discovery, and disclosure of the evidence shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given.

The statute only protects statements made during the course of mediation from admissibility during subsequent litigation. The Evidence Code does not protect information discussed at the mediation from being disclosed to third parties or from being shared in a public forum. Unless agreed to otherwise, parties to mediation are permitted to share information with the public about statements made during the course of mediation as well as information about any settlement that is reached. Therefore, if confidentiality is not addressed as a part of the settlement agreement, parties may later share information about the mediation, negotiations, the amount of the settlement, and any other salacious information that emerges during the mediation.

Confidentiality and non-disclosure agreements

In order to expand upon the confidentiality provided by laws, high-profile parties may wish to incorporate a confidentiality or non-disclosure agreement (NDA) into settlement agreements. NDAs create a confidential relationship between the parties as well as a legal obligation to keep the protected information secret. In his article about the use of NDAs to protect trade secrets, Rich Stim explains that an NDA can be either unilateral or bilateral. “If an agreement is unilateral, it protects the person who is disclosing the information from the other party to the agreement. If an agreement is bilateral, both parties have exchanged information, which they each expect the other to keep confidential.” (Richard Stim, A nondisclosure agreement (NDA) helps a business protect its trade secrets NOLO, https://www.nolo.com/legal-encyclopedia/nondisclosure-agreements-29630.html.)

Stim also explains that there are five components of an NDA which include:

1) definition of confidential information, 2) exclusions from confidential information, 3) obligations of receiving party, 4) time periods, and 5) miscellaneous provisions” such as liquidated damages.

(Richard Stim, A nondisclosure agreement (NDA) helps a business protect its trade secrets NOLO, https://www.nolo.com/legal-encyclopedia/nondisclosure-agreements-29630.html.)

When drafting the definition of confidential information, it is important that it be done in such a way as to outline the content of the confidential information without disclosing any of the secret information. This is paramount because a settlement agreement that results from mediation may be disclosed in a court of law for purposes of enforcement if the parties satisfy the provisions set forth in Evidence Code section 1123(c).

In defining the confidential information, Stim states, “the purpose is to establish the boundaries, or subject matter of the disclosure without actually disclosing the secrets.” Parties may also have an interest in carving out some exceptions to confidentiality based on their individual needs. The exceptions might be in the form of a public statement or press releases regarding the dispute.

The NDA should also describe the specific obligations of the party to be bound by the confidentiality statement, such as limits on communication regarding the settlement as well as the surrounding negotiations and mediation session. Additionally, some NDAs incorporate specific time limitations in which the agreement will be enforceable.

In drafting the NDA, parties may also want to consider incorporating a liquidated-damages provision against the party in breach of the agreement. Damages could include a specific sum, or a more general cost such as attorneys’ fees to the prevailing party.

How and when to discuss confidentiality agreements

It is good practice for advocates to ask their mediation provider or mediator about confidentiality agreements well in advance of the mediation. Advocates with particularly high profile clients may also want to ask the mediators to sign an NDA while the mediators are running conflict checks and going through the selection process. Mediators are under an ethical duty not to disclose information pertaining to a mediation, but are not under a statutory duty to withhold information. Advocates may also ask witnesses, spouses, children, and support people who are a party to the mediation to sign an NDA as well.

Many mediation providers ask the mediator and the parties to sign a confidentiality agreement at the start of the mediation, but the content of those agreements varies and it is unusual for provider agreements to incorporate limitations on statements made to third parties. Additionally, many independent mediators take the position that it is up to the parties to raise issues relating to confidentiality to third parties. Most independent mediators typically will not address issues of confidentiality unless they are raised by the parties.

As an advocate, addressing the issue of confidentiality at an early stage in the mediation can prove helpful during settlement negotiations. Parties will often negotiate for hours in order to reach a monetary settlement, yet do not address issues of confidentiality until they are drafting the settlement agreement. If confidentiality is not addressed until after a monetary settlement is reached, additional negotiations regarding the limits of confidentiality may take place. Some plaintiffs may even make additional financial demands based upon a defendant’s request for confidentiality and vice versa.

Sometimes a party may feel that it is an important part of his or her “personal justice” to be able to share information about the settlement. Others may desire that the defendant take “responsibility” for his or her actions. Conversely, a defendant may want to share information about the settlement in order to address a public perception issue, while the plaintiff may wish the settlement remain private. If the parties do not address the issue of confidentiality early on, the parties may then need to engage in a second negotiation, which can put the first negotiated agreement at risk for failure.

Advocates and mediators should also be aware that negotiating the wording of a public statement or press release can be time consuming and require additional hours of negotiation. Informing clients of these potential issues at an early stage and coming to the mediation with proposed statements in mind may be helpful in efficiently reaching a resolution on issues of confidentiality.

Breach of a mediation-confidentiality agreement

Even with the insertion of confidentiality agreements, there remains a risk that the information will somehow be released. Remember Carrie Prejean? Prejean was the former Miss California who came in second place at the Miss USA Pageant after she shared her views on traditional vs. same-sex marriage. After the pageant, Prejean filed suit against the pageant executive directors based on defamation, public disclosure of private facts, religious discrimination, and emotional distress. The parties ultimately decided to settle the dispute and attended a mediation hosted by JAMS.

At the mediation, the parties reached a settlement and signed a JAMS confidentiality agreement. The parties also inserted their own confidentiality statement in the settlement agreement, which required that specific information revealed during the mediation remain confidential and be destroyed, and that the Prejean parties would be entitled to seek damages for any violation of the non-disclosure agreement. (LiMandri v. Wildman, Harrold, Allen, & Dixon, LLP et al. 2013 Cal. LEXIS 7592)

The confidentiality clause states:

Each of the pageant-related parties, and their counsel shall destroy any and all tangible copies of, and eliminate and purge all electronic copies of, those certain video and photographic materials . . . Further, none of the pageant- related parties shall ever, directly or indirectly, reveal that such material exists or existed; the contents of such material; the nature of such material; and/or, the source of such material. Each party in the possession of such photographic or video material shall subscribe a sworn affidavit affirming the destruction and/or purging (as applicable) of such material.

(LiMandri v. Wildman, Harrold, Allen, & Dixon, LLP et al. 2013 Cal. LEXIS 7592)

One day after the settlement was reached, details of the settlement and the negotiations were leaked to and reported by TMZ. TMZ reported that Prejean settled for around $100,000 but also that during the mediation, Prejean was shown footage from a sex tape that depicted her, and that she settled for a small sum to avoid the release of the tape. (Prejean Sex Tape Triggers Settlement, TMZ (November 4, 2009, 7:00pm EST), http://www.tmz.com/2009/11/04/carrie-prejean-sex-tape-settlement-miss-california-usa-pagneat/)

The information released was severely damaging to Prejean’s reputation and was released in breach of the confidentiality and settlement agreements. Subsequently, Prejean’s attorney, Charles LiMandri, filed suit against the defendants and their attorneys for breach of the settlement agreement, breach of the JAMS confidentiality agreement, fraudulent inducement, and breach of the implied covenant of good faith and fair dealing. LiMandri alleged that only Prejean, the mediator, and the defendants were in the room at the time the sex tape was revealed and argued to the satisfaction of the court that the defendants may have breached the agreement. (LiMandri v. Wildman, Harrold, Allen, & Dixon, LLP et al. 2013 Cal. LEXIS 7592)

Once the information was released there was little value to the settlement for Prejean. She and her attorney were left to litigate for more than four years in order to prove the amount of damages caused by the breach.

The Gulliver case

Another example of a breach of confidentiality agreement comes from a Florida case, Gulliver Schools, Inc. v. Snay, 2014 WL 769030 (Fla. Dist. Ct. App. February 26, 2014). In this case, the parties had a clear liquidated-damage clause that stated:

[T]he plaintiff shall not either directly or indirectly, disclose, discuss or communicate to any entity or person, except his attorneys or other professional advisors or spouse any information whatsoever regarding the existence or terms of this Agreement. . . A breach . . . will result in disgorgement of the Plaintiffs portion of the settlement Payments.

After settlement was reached, the plaintiff disclosed information about the settlement to his daughter who subsequently posted on Facebook, “Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.” The Facebook post was sent to the daughter’s more than 1200 Facebook friends, some of whom were former or current students of the Gulliver School. After the post, the defendant informed plaintiff that he breached the agreement by telling his daughter about the settlement. The plaintiff then sued to enforce the agreement, but the Florida appellate court found that the plaintiff was in breach and therefore not entitled to retain his portion of the settlement. This case shows how strictly confidentiality clauses are enforced, and also that they should be carefully crafted and consider third parties such as children and spouses.

In light of the Prejean case and the Gulliver case, advocates may want to negotiate for a specific and reasonable amount of liquidated damages in the event of a breach. This specific amount can serve as an additional motivator for compliance and reduce the need for subsequent litigation.

Public relations considerations

In the case of Carrie Prejean, once the information about the sex tape was released, the damage to her reputation was done. High-profile parties should always be prepared for the possibility that their private information may be released. One way to prepare parties for this possibility is to hire a public relations professional to assist in managing the public perception of the client and the dispute.

An attorney hiring a public relations consultant should understand that the communications with that consultant will not be privileged communications unless the following requirements are met:

(1) communications between the PR firm and the attorney are made in confidence; (2) the services of the PR firm are necessary to assist the lawyer in providing the client with legal advice; and (3) the communications between the PR firm and the attorney are predominantly legal in nature.

(Michael Lasky, Navigating the attorney-client privilege, PR Week (November 15, 2013), http://www.prweekus.com/article/navigating-attorney-client-privilege/1274090)

PR firms that manage legal disputes should maintain a privilege log, which records the nature of the communications between the attorney and the PR firm. Attorneys may want to maintain a similar log in case it is necessary to show that the purpose of communications are predominantly legal in nature.

Advocates representing employers should consider if and how information about the settlement should be released to employees. Many employers have an interest in keeping the settlement confidential from employees in order to prevent similar claims from being filed. Other employers may want to be able to announce to their employees that the ongoing litigation is complete. Advocates should work with their clients to determine if information about a settlement should be released, and if so, the optimal way to release the information.

Joint statements

In high-profile divorces the couple often releases a joint statement regarding the dissolution of their marriage. Rather than releasing information about their separation through legal documents, the celebrities craft a joint public statement that they release themselves explaining how they plan to separate. Consider the recent example of the March 2014 “conscious uncoupling” of Gwyneth Paltrow and Chris Martin. Their public statement was released through Paltrow’s ecommerce site, Goop, which drove so many visitors to the site that it crashed for a brief period. It’s clear that Paltrow and Martin saw additional opportunities in the way the information was released and created a positive outcome from what many might consider a very negative situation.

In light of this example, parties may want to negotiate when and how the statement is released and make sure to include the text of the joint statement as well as information about its release as a part of the written settlement agreement. Such statements should be discussed as a part of the mediation in order to avoid further disputes once the settlement agreement is complete.

Terry Fahn, a senior executive at Sitrick and Company, who specializes in strategic communications, litigation support, crisis and reputation management and transactional public relations, explained that the best way to craft a joint public statement is through “collaboration with attorneys, clients, and public relations professionals.” Fahn described a case where the plaintiff demanded that a public statement be released as part of the settlement. The defendant’s attorney hired Fahn to help draft the statement and assess the long-term effects the statement might have on the defendant’s reputation. With Fahn’s assistance, the parties developed a statement that was satisfactory to both parties, and a settlement was reached.

Fahn described another scenario where a plaintiff and defendant ultimately agreed to disagree regarding the content of their public statements. In that case, the parties crafted their own public statements that did not conflict with one another and released them separately when the settlement was complete.

Solutions regarding the release of information are not restricted and can be creatively crafted to benefit both parties. Advocates should encourage their clients to be open-minded and creative in the way the parties release information about the dispute. Mediation often provides an excellent opportunity for parties to maximize the outcome of their resolution.

Conclusion

When resolving disputes for parties where the dispute is of public interest, advocates and parties should consider issues of confidentiality at the outset of a mediation. Advocates should consider incorporating an NDA or confidentiality clause into the settlement agreement, and discussing this with opposing counsel at an early stage during negotiations. Further, advocates for high-profile parties should consider the effects of the public aftermath of a dispute and incorporate public relations’ techniques, such as developing joint statements and hiring public relations professionals, in order to maximize the outcome of the dispute resolution process.