When parties enter into a confidential settlement agreement can they actually count on the agreement remaining confidential? As it turns out, probably not. New York state court rulings with respect to discovery by nonsettling parties confirm that the confidential settlement agreement is not so confidential after all. This, along with the 2003 amendment to the CPLR, which is widely understood to have been made to generate revenues,1 requiring the terms of the settlement to be filed with the county clerk, all but ensures that strict confidentiality cannot be achieved in New York. In New York federal courts the confidentiality of settlement agreements fares no better. The only issue there is exactly what standard courts use in determining whether to allow disclosure of a confidential settlement agreement.
New York State
CPLR §3101(a) requires “full disclosure of all matter material and necessary in the prosecution or defense of an action.” The Court of Appeals in Allen v. Crowlee-Collier Publishing2 interpreted “material and necessary” to mean simply “relevant,” stating that the “test is one of usefulness and reason.”3 “Thus, disclosure of the terms of a settlement agreement by a settling party to a nonsettling party may be appropriate, despite the presence of a confidentiality clause in the agreement, where the terms of the agreement are ‘material and necessary’ to the nonsettling party’s case.”4
