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September 8, 1999

Business Insurance via NewsEdge Corporation : SACRAMENTO, Calif.-Business and insurer organizations are fighting California legislation that would eliminate confidentiality agreements in settling certain lawsuits.

S.B. 1254 would apply to cases involving allegations of personal injury, wrongful death or financial fraud in product defect or environmental hazard cases.

The bill also would prohibit courts from issuing protective orders that conceal any information related to allegations of defective products, environmental hazards or financial fraud, according to information from the bill's author, Sen. Adam Schiff, D-Pasadena.

Secret settlement agreements and protective orders keep health risks hidden from the public, according to Sen. Schiff. A news release from the senator cites cases involving silicone gel implants, asbestos, the diet drug combination Fen- Phen, and tobacco products as examples of instances where people were harmed because information about health risks was sealed.

Businesses warn that S.B. 1254 would force them to settle lawsuits rather than risk having proprietary information, such as trade secrets or business plans, divulged to competitors.

Under the legislation, it would be difficult or impossible to obtain a protective order guarding information gathered even during a lawsuit's earliest stages, such as during a deposition or the discovery phase, said John H. Sullivan, president of the Civil Justice Assn. of California, a Sacramento, Calif.-based tort reform organization.

Therefore, plaintiffs attorneys stand to successfully force ``quick and easy'' settlements of frivolous lawsuits as companies opt to protect their information, Mr. Sullivan said.

If a lawsuit did not settle quickly, then all information obtained through discovery or as a result of a settlement could be placed on a Web site, allowing other plaintiffs attorneys to file copycat lawsuits, Mr. Sullivan said.

``Either way, if it's the short scenario or the long scenario, the lawyers win and the employers lose,'' he said.

Victoria Jones, manager of governmental relations for the Oakland, Calif.- based The Clorox Co., said the bill is unnecessary.

``If there are potentially dangerous products or other public hazards, courts already have the power to prevent the sealing of documents that include information vital to the public's safety. We thus see no need for this bill,'' she said.

Clorox is among several national companies that have focused lobbying efforts on defeating the bill, which already has passed the California Senate. It is now in the Assembly Appropriations Committee. The legislative session ends Friday, but S.B. 1254 will be taken up next year with modifications likely.

Danbury, Conn.-based Union Carbide Corp. opposes the measure in its current form because protective orders facilitate efficiency in the discovery process, said Robert A. Butler, the company's chief litigation counsel. Without protective orders, companies would have to put much greater effort into objecting to the disclosure of proprietary business or technical information, he said.

``When the companies do that, then plaintiffs attorneys will put more effort into arguing they should receive these documents,'' he said. ``The court will have to do a lot more work to review documents.''

Nine states now limit or prohibit confidentiality agreements in lawsuits that affect public safety, according to Sen. Schiff's office. Those states are Florida, Arkansas, Louisiana, Kentucky, Nevada, North Carolina, Oregon, Virginia and Washington.

But many of the laws in those states are narrower than the version currently proposed in California, according to Mr. Sullivan. For example, he said, under Florida's law, plaintiffs must show that information they are seeking to make public already has caused injury or is likely to cause injury. The California bill as it now stands does not have a similar test to make plaintiffs to show keeping information confidential presents a clear danger, Mr. Sullivan said.

Washington's law says a judge must balance the public's right to privacy with the public interest in knowing about potential hazards, Mr. Sullivan said. California's proposed law would strip a judge's power to make that determination, Mr. Sullivan said.

To protect information under S.B. 1254, defendants would have to go through costly mini-trials to prove that confidentiality will not conceal information pertaining to public safety, according to the California Civil Justice Assn.

But proponents of the bill that has been introduced say a company's trade secrets would still be protected. They also say the bill protects against the complete undermining of protective orders.

``You can still get a protective order, but it has to be for a legitimate purpose, and the court has to review what you are seeking to maintain confidential,'' an aide to Sen. Schiff said. ``Anything that could be interpreted as evidence of a defective product, a financial fraud or environmental hazard, those things could not be kept confidential. Everything else could be.''

The current bill's supporters include the Sierra Club, Congress of California Seniors, the California Newspaper Publishers Assn. and the Consumer Attorneys of California.

``From our perspective, the public has the right to know the truth,'' said a spokeswoman for Consumer Attorneys. ``Defendants keep agreements secret because they want to prevent public exposure about their wrongdoing.''

For example, she said, amusement park operators regularly enter into confidential settlements in cases involving injuries on their rides so as not to discourage attendance.

Opponents of the legislation as it now stands include the California Manufacturers Assn., the California Chamber of Commerce and the Assn. of California Insurance Companies.


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