Surprise!!! You Just Became A Party To Your Client’s Agreement:
Monster Energy Company v. Schechter et. al. 2019 S.O.S. 3287 establishes a strong cautionary precedent for both litigators and transactional attorneys that they may be bound as parties to the confidentiality provisions of their clients’ settlement or other agreements (indeed the principles underlying the case are applicable to terms and provisions beyond those dealing with confidentiality). The judgment was a unanimous 7-0 en banc decision handed down on July 11, 2019 by the Supreme Court of California and was written by the Honorable Madame Justice Corrigan.
In 2012, Monster Energy Company (“Monster Energy”) was sued for products liability and wrongful death by the parents of a teenager who died of cardiac arrest after consuming two energy drinks. The parents were represented by Bruce Schechter (“Schechter”) of R. Rex Parris Law Firm (“Parris Firm”). The case ultimately settled and the parties entered into a confidential settlement agreement. The parties’ respective attorneys, including Shechter, signed the confidentiality agreement under the preprinted heading which read “APPROVED AS TO FORM AND CONTENT.” None of the attorneys for the parties were named, identified or defined as a “Party” to the settlement agreement. There was also no evidence that Schechter had, himself, personally negotiated the settlement agreement.
The settlement agreement contained the following terms and provisions within the body of the agreement (emphasis below has been added):
- that it was made “on the behalf of the settling Parties, individually, as well as on the behalf of their, without limitation, respective beneficiaries, trustees, principals, attorneys, officers, directors, shareholders, employers, employees, parent company(ies), affiliated company(ies), subcontractors, members, partners, subsidiaries, insurers, predecessors, successors-in-interest, and assigns”;
Schedule a Consultation
Meet the Los Angeles Attorney you need on your side.
- a confidentiality clause which provided that “The Parties understand and acknowledge that all of the terms, conditions and details of this Settlement Agreement including its existence are to remain confidential. Plaintiffs and their counsel agree that they will keep completely confidential all of the terms and contents of this Settlement Agreement, and the negotiations leading thereto, and will not publicize or disclose the amounts, conditions, terms, or contents of this Settlement Agreement in any manner . . . Specifically, and without limitation, Plaintiffs and their counsel of record, individually and on behalf of themselves and their principals, partners, agents, attorneys, servants, representatives…successors-in interest and assigns agree and covenant, absolutely and without limitation, to not publicly disclose to any person or entity, including, but not limited to, newspapers, magazines, television…” various facts in respect of the settlement; and
- that “[i]n regard to any communication concerning the settlement of this Action, the Parties and their attorneys and each of them hereby agree that neither shall make any statement about the Action, each other party or Defendants’ products in relation to this Action, in the media, including but not limited to print, television, radio or Internet,” and any comment “shall be limited to the following, or words to their effect: ‘This matter has been resolved.’ ” .
However, an article about the action against Monster Energy later appeared on the website “LawyersandSettlements.com” under the title “ ‘Substantial Dollars’ for Family in Monster Energy Drink Wrongful Death Suit.” In the article, several quotes were attributed to Schechter and reference was made to “substantial dollars” being paid by Monster Energy in settlement. Further, the article quoted Schechter as saying that he could not reveal the exact amount of the settlement because “Monster wants the amount to be sealed.” Monster Energy sued Schechter and the Parris Firm, alleging four causes of action, including, breach of contract.
Schechter and the Parris Firm brought an anti-SLAPP motion to strike Monster Energy’s action pursuant to Code of Civil Procedure section 425.16. The trial court (Riverside County Superior Court) denied that motion; however; the Court of Appeal (Fourth Appellate District, Division Two) reversed that decision (See Monster Energy Co. v. Schechter (2018) 26 Cal.App.5th 54.) The Supreme Court of California reversed the Court of Appeal judgement and denied the anti-SLAPP motion.
All levels of the Court agreed that Schechter’s statements met the first prong of the anti-SLAPP analysis and constituted protected free speech. However, the Supreme Court found that the plaintiff, Monster Energy nonetheless defeated the second prong of the anti-SLAPP analysis by meeting the burden of demonstrating that its claim had a probability of prevailing on its breach of contract claim which hinged on whether Schechter and the Parris Firm were bound by the confidentiality provisions of the settlement agreement. The Supreme Court noted that Monster Energy’s burden to satisfy the second anti-SLAPP step was “a low one” only requiring a showing that its cause of action has at least “minimal merit” by establishing that the claim is both legally sufficient and supported by sufficient prima facie facts if the plaintiff’s evidence is credited.
The Supreme Court recognized the general consensus that the notation “APPROVED AS TO FORM AND CONTENT” above counsel’s signature at the end of an agreement “has a fixed meaning understood by the legal community” and, in and of itself, does nothing more than amount to an assertion by a party’s attorney that the document is in proper form, embodies the deal struck between the parties and that the attorney sees no impediment to their client signing the document However, the Supreme Court noted that the notation did not preclude “as a matter of law, a finding that [the attorney] also intended to be bound by the agreement” and that the issue of intent “requires an examination of the agreement as a whole, including substantive provisions referring to counsel.” In other words, while the notation itself does not bind the attorney to the agreement, it does not act as an insulation from being bound and does not, per se, mean that the attorney did not otherwise intend to be bound as may be demonstrated by other facts and circumstances. As the Supreme Court pointed out “[a]n attorney’s signature on an agreement containing substantive provisions imposing duties on counsel may reflect an intent to be bound even though counsel also approves the document for his client’s signature.”
The Supreme Court noted that a settlement agreement is ultimately a contract with the attendant legal principles applied to its analysis. In this case, that analysis turned to whether Schechter manifested an intent to be bound to the settlement agreement, as determined by objective criteria, such that there was the necessary mutual consent for contract formation. The conclusion was that a trier of fact could reasonably find that Schechter agreed to be bound. Of course, this was not a finding that Schechter was bound but rather only a finding that such a conclusion could reasonably be reached by a trial court. But the decision certainly lays out a road map for future trial courts to reach that conclusion under similar facts and circumstances.
In its examination, the Supreme Court rejected that Court of Appeal’s conclusions that Schechter did not objectively manifest an intent to be bound due to the fact that (i) he was not in the settlement agreement as a party thereto, and (ii) he signed under the “APPROVED AS TO FORM AND CONTENT” notation with its common understanding as merely indicating that the agreement was certified by counsel as one which the client could properly sign and enter. The Supreme Court expressly stated that its decision recognized that confidentiality provisions represent material and substantive terms of settlement agreements, play a significant role in facilitating settlements and would be vitiated if a party’s counsel were free to publicly disseminate the settlement terms despite a restriction on the client form doing so. It was noted that Schechter read and signed the settlement agreement and that “a signature on a written contract is an objective manifestation of assent to the terms set forth there.” According to the Supreme Court “[t]here is no question that the language of the settlement agreement generally, and the confidentiality provisions in particular, purported to encompass not only the [ …] parties but also their respective counsel. “
According to the Supreme Court, the most salient circumstances upon which a trier of fact could reasonably conclude Schechter as being bound were the terms of the confidentiality provisions which were extensive and repeatedly referred to positive obligations of confidentiality being imposed on both the parties “and their counsel.” As the Supreme Court stated “[i]t is the substance of the agreement that determines his status as a party to the contract, as opposed to a party to the lawsuit. The agreement clearly refers to others beside the […] parties” and “ it is reasonable to argue that counsel’s signature on the document evinced an understanding of the agreement’s terms and a willingness to be bound by the terms that explicitly referred to him, which, in turn, would appear consistent with the expectations of the parties and their counsel.” Thus, even though Schechter may have only believed he was signing for “form and content approval” and nothing more, his signature on the document and substantive terms giving rise to obligations on his behalf was enough for an objective view that his signature was his manifest consent to be bound by the agreement.
The first cautionary bell ringing from this decision is that its reasoning is not confined to settlement agreements. Signing agreements simply to “APPROVE AS TO FORM AND CONTENT” is by no means an uncommon practice in commercial transactions where confidentiality provisions are regularly included. Second, one can imagine that counsel (litigators or transactional attorneys), lulled by the commonly recognized understanding of the notation (as noted by the Supreme Court), may sometimes gloss over review of clauses that are commonly encountered as boilerplate. So, while diligent counsel may have been careful to ensure that the substance of a confidentiality clause is reasonable in the circumstances (may there be reference to the existence of the agreement? may the parties refer to the fact of the agreement but nothing more? may the parties refer to the agreement and the essence of the underlying transaction but not the amounts involved? etc. etc.), it is not unforeseeable that the string of parties and the list of their representatives, and the exact placement of the verb, may not have had the benefit of the same detailed attention. Third, the principles behind the Supreme Court’s reasoning would apply equally to any clause which contains an obligation on the part of a party and their attorney and is not confined to confidentiality clauses.
One particular horror show scenario present itself. Imagine that a settlement agreement similar to the one in this case contained a clause that the parties on one side are jointly and severally liable for any breach by any of them; in that case, counsel for a party could find themselves liable for a breach of confidentiality they did not even commit!! Further, one wonders, given the Monster Energy decision, what are the conflict of interest considerations which arise in a scenario where the opposing party insists on both similar confidentiality language and counsel signing a “form and content” certification as a condition of a settlement agreement which the client desperately desires but which counsel does not wish to sign.
There are some good practice steps attorneys can take in light of this decision. First, if at all possible, avoid signing client agreements as counsel altogether, including as “APPROVED TO FORM AND CONTENT.” A representation in the agreement that the parties were represented by independent counsel, understand its terms and had its legal ramifications and significance explained fulfills the same concern as the notation and should suffice. Second, make sure that any clauses which list a string of representatives after naming the party (ie “ the party and their respective shareholders, directors, representatives…”) do not contain obligations for persons who are not really parties as opposed to placing an obligation and liability on the actual party if their representatives engage in the restricted conduct. Third, if one must sign an “APPROVED AS TO FORM AND CONTENT” notation on an agreement which is otherwise devoid of any substantive terms obligating the attorney, consider possibly adding some language making it explicit that the attorney is not a party to the agreement or bound thereby under any circumstances (although this may be belts and suspenders and likely unnecessary given the Supreme Courts comment that “If… the agreement contains no provision purporting to bind counsel or otherwise impose any obligation on him, the question is easily answered. In that circumstance, counsel’s signature that he approved the agreement as to form and content could only mean he is approving it for his client’s signature.”) But be assured of this, in the event of any ambiguity concerning this issue, it is unlikely the Court’s charity in arriving at objective interpretations will be triggered for lawyers who do not understand the legal significance of what they sign.