Understanding Mass Tort Defendant Incentives for Confidential Settlements: Lessons from Bayer's Cerivastatin Litigation Strategy

Settlement agreements that require a plaintiff not to disclose or publicize any information about her claim are both common and controversial. Under some conditions, however, a mass tort defendant will rationally choose to discourage such secrecy. A defendant can use publicity to act as a commitment device akin to a most-favored-nation agreement to increase its bargaining power with plaintiffs. The paper uses the real world example of Bayer’s cerivastatin litigation as a case study to illustrate this theory in practice and to explore the public policy implications of this finding. Transparency seems a self-evident aid -if not a necessary precondition -to an effective and just civil justice system. As a result there has been extensive concern over one of the least transparent practices of the civil justice system: private settlement agreements that require both parties to maintain confidentiality about the settlement and the nature of the underlying dispute. The public, the press and other parties can learn almost nothing from the litigation or its outcome, and important public dangers can be concealed from public view indefinitely. Environmental dangers, auto safety issues and the widespread sexual abuse of children by some priests have arguably been concealed and perpetuated by the use of these agreements (Luban, 1995; Drahozal, 2006). Critics of confidentiality agreements suggest that parties owe an informational duty to the public if they employ the ____________ 1 A version of this paper will be included as a chapter in a forthcoming UCLA-RAND book based on the November 2007 conference, “Transparency in the Civil Justice System” at the UCLA School of Law. 2 Associate Behavioral/Social Scientist, RAND Institute for Civil Justice. I thank Laurie Dore, Steve Garber, and Laura Zakaras for comments on earlier drafts of this paper.