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Terms of "Confidential" Co-Defendant Settlement Prove Party Bad Faith and Earn Counsel a Disciplinary Referral

September 5, 2019 | Lisa Larkin

A well-established and often referred to as sacred part of American jurisprudence is the confidential nature of settlement negotiations and terms. In a recent opinion, Illinois’ First District Appellate Court reminded litigants that such confidentiality, in fact, can be lost. 

In Chernyakova v. Puppala, et al., 2019 IL App (1st) 173066, Plaintiff Elena Chernyakova sued Northwestern Memorial Hospital, McGaw Medical Center of Northwestern University and Vinaya Puppala, M.D. alleging that while she was hospitalized at Northwestern for alcohol intoxication, Dr. Puppala, an employee of McGaw, electronically accessed Plaintiff’s medical chart and took and posted photos of her on social media. Plaintiff and Dr. Puppala knew each other socially, and while she was admitted, Dr. Puppala visited Plaintiff twice just hours after admission. He used his credentials to view Plaintiff’s electronic medical chart and spoke with Plaintiff’s treating physicians regarding her progress and possible discharge. On his second visit, Dr. Puppala took photographs of Plaintiff in what was still an intoxicated state and posted them to Facebook and Instagram. Plaintiff contested that she had consented to Dr. Puppala accessing her medical records, speaking to her treating physicians, or taking and posting her photograph.

The Cook County Circuit Court granted summary judgment to Northwestern and McGaw, and Plaintiff proceeded to trial against Dr. Puppala. During trial, Plaintiff settled with Dr. Pappula and the parties requested an on the record “hearing” wherein the attorneys outlined the terms of the “confidential” settlement for the trial judge. Separately, Plaintiff pursued an appeal of the summary judgment in Northwestern and McGaw’s favor.

During the pendency of the appeal, Northwestern and McGaw’s counsel obtained information that the terms of the “confidential” settlement called in question the validity of the factual underpinnings of the lawsuit. Defense counsel moved the trial court to unseal the transcript of the settlement hearing so that it might be considered by the appellate court on a motion to dismiss the appeal even though those proceedings had no direct connection to the summary judgment proceedings. The trial court ultimately unsealed the transcript, and the parties agreed it would be filed in the appellate court under seal.

While generally the appellate court’s review of summary judgment orders is strictly limited to the materials of record before the Circuit Court at the time the summary judgment was entered, this case presented a unique situation. As the appellate court noted, it implicated the appellate court’s responsibility to “strive to enhance and maintain confidence in our legal system.” The appellate court found the contents of the settlement transcript lead to the inescapable conclusion that the appeal was frivolous and being pursued in bad faith. The transcript disclosed that at the hearing counsel stated the amount Dr. Puppala agreed to pay and that Plaintiff agreed to write favorable letters on the doctor’s behalf stating that her underlying allegations were “mistaken” and that she consented to the photos and postings. Significantly, the appellate court learned that after the Circuit Court ordered the settlement hearing transcript unsealed, Plaintiff’s counsel had nevertheless instructed the court reporter to not provide a copy to Defendants.

On appeal, Plaintiff argued there is a presumption that favors the validity of confidentiality provisions in settlement agreements such that the settlement hearing transcript could not be unsealed as a matter of law. The appellate court explained that Plaintiff’s argument demonstrated a misunderstanding of the confidentiality protection afforded to settlement agreements. Once Plaintiff’s counsel described the terms of the settlement to the trial judge, any confidences evaporated and sealing the confidential terms did nothing to save them. By informing the trial judge of the settlement terms on the record, counsel made those terms a part of the public record which could not be sealed.

The appellate court also found Plaintiff’s counsel was incorrect in his assertion that Illinois Supreme Court Rule 408 protected the confidential nature of the settlement terms. Rule 408 provides that evidence of “furnishing or offering or promising to furnish – or accepting or offering or promising to accept – a valuable consideration in compromising or attempting to compromise the claim” and “conduct or statements made in compromise negotiations regarding the claim” is inadmissible “to prove liability… or to impeach through a prior inconsistent statement or contradiction[.]” Such evidence may, however, be admissible to establish bad faith. Here, the inquiries into settlement negotiations was to establish wrongdoing and Rule 408 offered no protection to Plaintiff.

The appellate court found it significant that Plaintiff did not directly question the substantive accuracy of the settlement terms, which on their fact are irreconcilable with Plaintiff’s continued pursuit of her claim against the Defendants. Plaintiff, through counsel, affirmatively agreed to fully exonerate Dr. Puppala by providing a letter completely contradicting the factual bases of the lawsuit. She knew those letters would be sent to favorably influence regulatory or financial decisions involving Dr. Puppala, while simultaneously continuing her quest for money damages against the Defendants under theories she asserted were “mistaken.”

The appellate court dismissed the appeal as frivolous and not pursued in good faith. Further, it found Defendants entitled to their reasonable attorney fees and costs incurred as a result of defending against the frivolous appeal. The court also concluded that it could not turn a blind eye to Plaintiff’s counsel’s instruction to the court reporter to not provide the Defendants will a copy of the hearing transcript in contravention of the trial court order. As a result, the court instructed the clerk of the appellate court to forward a copy of the opinion to the Attorney Registration and Disciplinary Commission.

The decision corrects any misconceptions that settlement negotiations and terms are absolutely protected. One must question how far this holding might reach as there are many proceedings which are held “on the record” but with the transcripts later sealed. Perhaps more importantly, the opinion cautions counsel against showing a lack of respect for the Circuit Court and for the appellate process in a blind drive for a successful outcome.

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The BSCR Illinois Law Blog examines significant developments, trends and changes in Illinois law on a broad range of topics that are of interest to Illinois practitioners and to businesses evaluating risks under Illinois law or managing litigation subject to Illinois law. Learn more about the editor, Lisa Larkin.

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