The GM Fiasco and the Overuse of Secret Settlements: Four Blunt Points

Mary Barra, chief executive officer of General Motors Co., addresses reporters during a media briefing before the company's annual meeting at their headquarters in Detroit, Michigan, U.S., on Tuesday, June 10, 2014.

Photograph by Bryan Mitchell/Bloomberg

Mary Barra, chief executive officer of General Motors Co., addresses reporters during a media briefing before the company’s annual meeting at their headquarters in Detroit, Michigan, U.S., on Tuesday, June 10, 2014.

One of the several troubling aspects of the General Motors (GM) ignition-switch scandal involves the company’s past policy of secretly settling lawsuits that could have brought defects to public attention years before the massive recalls of recent months. Bloomberg News described some of GM’s confidential settlements in this dispatch.

The overuse of “protective orders” that conceal incriminating corporate documents, as well as secret settlements, is not a new problem. The layers of misunderstanding that obscure the phenomenon are likewise well-established. Now would be a good time to shed some light on the problem, as a bipartisan bill—yes, Republicans and Democrats … cooperating!—aimed at diminishing courtroom secrecy tries to get aloft in the U.S. Senate. Four blunt points to consider:

1. Corporate defendants aren’t the only ones to blame. For protective orders to keep faulty car parts or medications under wraps, federal judges have to approve. Similarly, for settlements to remain confidential, plaintiffs’ attorneys have to agree to secrecy in exchange for obtaining money for themselves and their clients—and then  judges have to sign off on the pacts. Judges don’t have to do go along with any of this. They already have the ability to reject requests for protective orders and confidential settlements. They just tend not to use this authority aggressively enough.

2. Secrecy indeed greases the wheels of compromise. The vast majority of civil suits settle before a verdict, typically before there’s even a trial. Forcing corporate defendants (or, for that matter, individual defendants) to litigate entirely in public would reduce incentives to settle cases and potentially could clog the courts. So argues Victor Schwartz, a prominent Washington-based business attorney with the law firm Shook, Hardy & Bacon. In an op-ed published in USA Today, Schwartz also points out that many personal injury lawyers “do not want the public to know information about their clients’ personal lives any more than defendants want to disclose the amount of money they paid plaintiffs.” All true, but it’s not the last word.

If plaintiffs want to retain anonymity, they should not use the public court system to seek compensation for their injuries. If defendants cannot get a lawsuit thrown out, as frivolous, at the motion-to-dismiss stage, they should not automatically get to cloak information sought in the pretrial “discovery” phase, at least not when it implicates the public welfare. The formula to Coke (KO)? Sure, that’s a trade secret worthy of protection, and the rest of us don’t need to know it. The memo explaining what’s wrong with the ignition switch that mysteriously shuts down a car at 60 miles an hour on a highway? No, that should come out.

3. The Sunshine Litigation Act moves in the right direction. The bill, introduced in May by Sens. Richard Blumenthal (D-Conn.) and Lindsey Graham (R-S.C.), would require federal judges to consider the public interest before granting requests to seal court records in cases involving health and safety. “GM’s recent legal maneuvering, reaching secret settlements, shows why this legislation is essential,” Blumenthal said in a written statement. “This legislation would have enabled people to be aware of the threats to safety posed by the faulty ignition switches and deaths could have been prevented.”

4. Don’t hold your breath for enactment. Similar legislation got through the Senate Judiciary Committee in 2011, with bipartisan support. In the face of stiff opposition from business interests–and some federal judges who didn’t want Congress telling them what to do–the bill failed to reach the Senate floor. Schwartz and other business advocates will return to the trenches to fight this year’s version. They have some good arguments, but ultimately not arguments that should prevail. Perhaps the GM debacle will cause more lawmakers of both parties to reconsider the courts’ penchant for secrecy.

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