Federal Court Puts the Confidential Back Into Confidential Settlement Agreement

July 2, 2021

In a recent federal court case involving a class action settlement agreement, the court addressed two threshold issues: one, was the settlement agreement enforceable, and two, who was and was not covered by the confidentiality provision. Sometimes it's about the journey. Sometimes it's about the destination. In this federal case, I think we got to the right place but it was quite the bumpy ride.

The 2015 Class Action

By way of prologue, in 2015, Plaintiff Charlotte B. Milliner filed a Class Action against Mutual Securities, Inc. ("MSI"); and in June 2018, the parties settled their dispute subject to an agreement with confidentiality provisions. Charlotte B. Milliner, et al., Plaintiffs, v. Mutual Securities, Inc., Defendant (Order on Defendant's Motion to Enforce Settlement Agreement, United States District Court for the Northern District of California ("NDCA"), 15-CV-03354 / June 28, 2021) (the "NDCA MSI Order") 

Funny thing about settlement agreements with confidentiality provisions, they don't always settle things and what is and what isn't confidential often becomes a matter of interpretation -- hence the fact that the above-referenced citation involves a motion to enforce the settlement agreement.

The Gilotti FINRA Arbitration Statement of Claim

In setting out the preliminaries, the NDCA MSI Order explains that in February 2019, Sturgeon-Garcia:

filed a statement of claim with the Financial Industry Regulatory Authority ("FINRA") against MSI and five individuals on behalf of a different client, Vincent F. Gilotti (the "Gilotti claim"). [Docket No. 173-4 (Fredricks Decl. April 5, 2019) ¶ 4, Ex. 3 (Gilotti claim).] Gilotti's FINRA claim included as attachments deposition transcripts used in this litigation and a document used in this litigation and marked as confidential. Additionally, Gilotti's claim noted that Milliner and Brem settled their individual claims against MSI and dismissed the class claims with prejudice, and in support of the statement that "any and all claims held by putative class members, like Mr. Gilotti, were preserved," Gilotti cited the settlement agreement and attached a complete copy as an exhibit to his claim. Gilotti claim 9, Ex. 7.1

In relevant part, MSI argued that Sturgeon-Garcia's use of materials from discovery in this litigation with the Gilotti claim violated the protective order and the settlement agreement's confidentiality provision. It also argued that Plaintiffs and/or Sturgeon-Garcia violated the settlement agreement's confidentiality provision by attaching a copy of the settlement agreement to the Gilotti claim.

at Page 2 of the NDCA MSI Order 

In April 2019, MSI moved to enforce the settlement agreement, and, as set forth in the Syllabus to the NDCA MSI Order:

Defendant Mutual Securities, Inc. ("MSI") filed a motion to enforce the settlement agreement and the stipulated protective order entered in this case, arguing in part that Plaintiffs' counsel David Sturgeon-Garcia violated the settlement agreement by submitting a copy of the agreement to the Financial Industry Regulatory Authority in connection with a third party's claim to that agency. [Docket No. 176.] On July 8, 2019, the court ruled on portions of the motion and held in abeyance the portion of the motion regarding Sturgeon-Garcia's use of the settlement agreement pending a decision by the California Supreme Court. [Docket Nos. 188 (Partially Redacted Order), 189 (Sealed Order).] The portion of the motion regarding the settlement agreement previously held in abeyance is now ripe for decision. This matter is suitable for resolution without a hearing. Civ. L.R. 7-1(b). For the following reasons, the motion is denied.

No Lawyer Signed the Settlement Agreement

After much legal meandering, which you can read about to your heart's delight in the NDCA MSI Order, the Court denied the portion of MSI's motion to enforce the settlement agreement that had been in abeyance:

Here, although the settlement agreement purports to impose confidentiality on Plaintiffs' counsel, neither Sturgeon-Garcia nor any other attorney signed any part of the agreement. Therefore, Monster Energy is of limited guidance since the court examined a narrow legal issue: whether an attorney's signature approving an agreement as to form and content on behalf of their clients "precludes, as a matter of law, a finding that [they] also intended to be bound by the agreement." Id. at 792 (emphasis removed). 

at Page 8 of the NDCA MSI Order 

No Proof of Consent

In furtherance of its analysis, NDCA explains that [Ed: footnote omitted]:

Despite the inclusion of counsel in the confidentiality provision, MSI offers no evidence that Sturgeon-Garcia outwardly manifested consent to being bound by that provision or that he communicated his consent to be bound to MSI. See Esparza, 2 Cal. App. 5th at 788. The settlement agreement does not name Sturgeon-Garcia (or any other attorney) as a party to the agreement and he did not sign the document to indicate his approval as to its form or content. MSI argues that Sturgeon-Garcia's actions support the finding that he consented to be bound by the confidentiality provision because he participated in negotiating the agreement, advised his clients to sign the agreement, and then accepted the benefits of the agreement. [Docket No. 217 at 2.] Setting aside the fact that the record does not contain any evidence supporting these facts, MSI offers no authority that an attorney may be bound by the terms of a contract or settlement agreement under such circumstances. . . .

at Pages 9 - 10 of the NDCA MSI Order 

Finally, NDCA delivers its knock-out blow:

[I]n the absence of any evidence that Sturgeon-Garcia consented to the settlement agreement and the confidentiality provision therein, MSI has not established that he was bound by it. Accordingly, it has not established that he breached the confidentiality provision by attaching a copy of the settlement agreement to Gilotti's FINRA claim.

at Pages 10 - 11 of the NDCA MSI Order 

Gilotti Asks for Judicial Notice

Remember Mr. Gilotti -- the client on whose behalf Sturgeon-Garcia filed the FINRA Arbitration Statement of Claim -- well, he moved to intervene in order to unseal the settlement agreement that was attached by Defendant MSI to its Motion to Enforce the Settlement Agreement. Charlotte B. Milliner, et al., Plaintiffs, v. Mutual Securities, Inc., Defendant (Order Denying Motion to Intervene, NDCA, 15-CV-03354 / June 28, 2021) ( the "NDCA Gilotti Order") Denying") https://www.govinfo.gov/content/pkg/USCOURTS-cand-4_15-cv-03354/pdf/USCOURTS-cand-4_15-cv-03354-16.pdf Yeah, I know, the more you read that last sentence, the more your head may want to explode. Be that as it may, this is what is before NDCA via Gilotti's Motion:

In connection with his motion, Gilotti asks the court to take judicial notice of two FINRA "BrokerCheck Reports" for Thomas Herbert Bock and Mary C. Evans. [Docket No. 206 (RJN).] According to Gilotti, BrokerCheck is a "free tool from FINRA to research the background and experience of financial brokers, advisers and firms." Id. at 1 (citing https://brokercheck.finra.org). FINRA's website states, "BrokerCheck gives you a snapshot of a broker's employment history, regulatory actions, and investment-related licensing information, arbitrations and complaints." https://brokercheck.finra.org (last visited Jun. 15, 2021). 

Exhibit 1 to the RJN appears to be a BrokerCheck Report for Bock. RJN Ex. 1. Under the section, "Disclosure Events," the report states that "[a]ll individuals registered to sell securities or provide investment advice are required to disclose customer complaints and arbitrations, regulatory actions, employment terminations, bankruptcy filings, and criminal or civil judicial proceedings." Id. at 5. Bock's report contains three final "disclosure events," including an entry that states that an action was filed in "United States District Court" on July 21, 2015, provides the case number for Plaintiffs' lawsuit, includes a brief description of the allegations, the status "settled," and states the settlement amount. Id. at 9-10. It also states that "Mutual Securities, Inc." was the "employing firm when activities occurred which led to the complaint." Id. at 9. 

Exhibit 2, which appears to be a BrokerCheck Report for Evans, similarly states that an action was filed in "United States District Court" on July 21, 2015, provides the case number for Plaintiffs' lawsuit, includes the status "settled," and states the settlement amount. RJN Ex. 2 at 10-11. It also states that "Mutual Securities, Inc." was the "employing firm when activities occurred which led to the complaint." Id. at 10. 

Gilotti asks the court to take judicial notice of the two BrokerCheck Reports pursuant to Federal Rule of Evidence 201. Under Rule 201, a court may take judicial notice of "an adjudicative fact if it is 'not subject to reasonable dispute.' " Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018) (quoting Fed. R. Evid. 201(b)). A fact is "not subject to reasonable dispute" if it is "generally known," or "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). While a court may take judicial notice of "matters of public record," it may not take judicial notice of disputed facts stated in public records. Lee v. City of Los Angeles, 250 F.3d 668, 689-90 (9th Cir. 2001). "Just because [a] document itself is susceptible to judicial notice does not mean that every assertion of fact within that document is judicially noticeable for its truth." Khoja, 899 F.3d at 999. If a court takes judicial notice of a document, it must identify the specific fact or facts it is noticing from the document. Id. 

It appears that Gilotti asks the court to take judicial notice of the fact that MSI "and/or its agents" reported to FINRA the case number for Plaintiffs' complaint against MSI, the fact of its settlement, and the amount of the settlement. RJN 1. MSI did not object or respond to the RJN. However, Gilotti attached the BrokerCheck Reports directly to the RJN. Neither document was authenticated by anyone with personal knowledge or described in a declaration. Additionally, the document pertaining to Evans appears to be altered with redactions on multiple pages, with no explanation. See, e.g., RJN Ex. 1 at 1, 3, 4. Since there is no evidence to substantiate what the documents are, Gilotti's request for judicial notice is denied.

at Pages 3 - 4 of the NDCA Gilotti Order

Protecting Confidential Agreeement

In denying Gilotti's Motion to Intervene, NDCA found that [Ed: footnotes omitted]:

good cause supports sealing the settlement agreement. The parties' inclusion of the confidentiality provision in the settlement agreement itself supports the conclusion that they intended to keep the settlement agreement confidential and out of the public record. Numerous courts in this district have recognized the importance of protecting confidential settlement communications and materials "in order to promote settlement" and have concluded that this general policy satisfies the more demanding "compelling reasons" standard to seal judicial records. . . .

The court also finds that Gilotti's and the public's interest in this matter do not outweigh MSI's interests in keeping the settlement agreement under seal. This is consistent with the court's July 8, 2019 order directing Sturgeon-Garcia to withdraw the settlement agreement from Gilotti's FINRA claim; as the court found, "[n]othing in the record suggests that Gilotti will be prejudiced in any way by its withdrawal, or that the settlement agreement in this case is material or even relevant to Gilotti's claim." Milliner I, 2019 WL 2929831, at *4. Gilotti offers no argument or explanation regarding his or the public's interest in a settlement agreement between private parties. . . .

at Pages 9 - 10 of the NDCA Gilotti Order

Bill Singer's Comment

I have sooooo many issues and problems with the Court's rationale in the NDCA MSI Order that I don't know where to begin. Let's just say that my role here is to present the NDCA MSI Order and let it speak for itself. You should infer from that tepid commentary that I don't necessarily agree with the analysis or the rationale. On the other hand, the Court's rationale in the NDCA Gilotti Order makes perfect sense, and I wholeheartedly agree with it. 

It may be that NDCA knew where it was going to ultimately land with upholding the confidentiality of the settlement agreement notwithstanding that the Court struggled with who was actually covered by the confidentiality. As such, even if the road to enforcing the provision proved bumpy, we all arrive safe and sound.