You may recall, those of you with no short-term memory issues (a trait that I’m coming more and more familiar with in up-close personal experience), that yesterday’s LouisianaVoice post questioned the necessity of and the reasons for the secrecy of CONFIDENTIALITY CLAUSES in lawsuit settlements.
That essay came on the heels of one the longest posts in the 13-year history of LouisianaVoice that suggested that attorney-legislators might be abusing a thing called LEGISLATIVE CONTINUANCES which give them carte blanche in delaying legal proceedings virtually indefinitely.
A legal challenge to the practice is being taken up by the Louisiana State Supreme Court as I write this.
But back to those confidentiality clauses. In yesterday’s post, I theorized that the sole purpose of their inclusion in settlements of litigation was to shield defendants from revealing – and plaintiffs from learning – the value of any similar claims that might be lurking out there in the real workaday world in which the rest of us exist.
That begs the question: If you are seeking damages from someone or some corporate entity who has harmed you, why would you want to protect them from further liability if they’ve done the same thing to others? Why would you shield them with a confidentiality agreement – and most likely, also allow them to skate with a “no admission of guilt”?
Well, that post was barely up when I got a call from an attorney friend who is a regular reader of this blog. He shed additional light on the issue that, should it become common knowledge, might make any plaintiff a little skittish about agreeing to any conditions of confidentiality.
Before I go any further, I should offer this additional bit of advice: The defendant’s attorney isn’t about to reveal the peril of such a deal and your own attorney, unless he is diligent in keeping abreast of the latest legal developments, won’t even know about it.
Anyway, as President Biden might say, here’s the deal.
Go to this link to conduct your own research in the federal case of AMOS v. COMMISSIONER, No. 13391-01 | Casetext Search + Citator. It’s scary.
In case you’re too busy to read the entire case, here’s the gist:
Eugene Amos was employed as a TV cameraman and was covering an NBA game between the Minnesota Timberwolves and the Chicago Bulls. During the course of the game, Bulls player Dennis Rodman fell into a group of photojournalists that included Amos and twisted his ankle. He then kicked the photographers, striking Amos in that most tender and vulnerable of spots on a man’s anatomy, causing intense pain (ya think?), leaving him limping (I bet) and probably (and I’m guessing here) singing soprano for a while.
Long story short, Amos sued and Rodman settled. The settlement was for $200,000 but at the time of the settlement (1997) a confidentiality clause was agreed to by Amos whereby terms of the settlement were to be kept confidential forevermore.
Well, forevermore turned out to be a little shorter time than anticipated by either side. Turns out that settlements in personal injury cases are tax-exempt. Confidentiality agreements, on the other hand, are considered payments for one’s silence and thus taxable, according to the IRS.
Here’s the applicable bureaucratic language that applies:
Petitioner concedes the determinations in the notice of deficiency (notice) issued to petitioner with respect to 1997 to disallow $6,755 of deductions claimed by petitioner in Schedule A, Itemized Deductions, and $7,178 of deductions claimed by petitioner in Schedule C, Profit or Loss From Business. There are other determinations in the notice that are computational in that resolution of the issues relating to such determinations flows automatically from our resolution of the issue addressed herein.
Okay, I don’t understand all that gibberish, either but basically, what the IRS said was that it was impossible to determine how much of the $200,000 was for bodily injury and how much was a payment for Amos’s silence. So, typical of IRS thinking, it treated the entire amount as silence-purchasing and taxed Amos accordingly, to the tune of $61,668. And that’s what this case is all about.
But lawyers are waking up to the dangers of confidentiality provisions in legal settlements. Here are a few links from several different attorneys offering words of warning:
Confidentiality Provisions – Settlement Law Firm – Orlando Attorneys (specialneedsfirm.com)Daily Journal
Confidentiality: But At What Cost? – Thompson, Coe, Cousins & Irons, LLP (thompsoncoe.com)
Here’s the best one (or at least the best headline):
Okay, you’ve been told. There’s an old Latin adage that applies here: Praemonitus, praemunitus (translated: Forewarned is forearmed).
Proceed accordingly.
Louisiana Voice 
Veeeerrry Interesting.