Have you ever used this, or similar, language in a settlement agreement with a claimant?

Subject to the provisions of the Texas Open Records and Meetings laws, the parties expressly agree that the terms and conditions of this Agreement, and all matters relating to the potential lawsuit not otherwise contained in any public records, shall be kept strictly confidential and shall not be revealed or divulged to any third persons or entities except as necessary for tax purposes and/or necessary and legitimate purposes, or pursuant to a court order.

The negotiation of virtually every settlement between a district and a claimant will at some point cover the confidentiality of the terms of the agreement. More often than not, language similar to that above would be used to keep the agreement confidential. Confidentiality can be beneficial to both parties. A district may want to keep the amount confidential to head off copycat claims while a claimant may not want anyone to know what they received from the district. Until September 1, 2017, both parties could achieve some degree of confidentiality by having a confidentiality provision in the final settlement agreement. However, after September 1, the Texas legislature has significantly restricted that practice.

Texas HB 53 went into effect as new Chapter 116 of Chapter 5 of the Texas Civil Practice and Remedies Code. HB 53 reads as follows:

CHAPTER 116. SETTLEMENT OF CLAIM OR ACTION AGAINST GOVERNMENTAL UNIT

Sec. 116.001. DEFINITION. In this chapter, “governmental unit” has the meaning assigned by Section 101.001.

Sec. 116.002. CERTAIN SETTLEMENT TERMS PROHIBITED.

(a) A governmental unit may not enter into a settlement of a claim or action against the governmental unit in which:

(1) the amount of the settlement is equal to or greater than $30,000;

(2) the money that would be used to pay the settlement is:

(A) derived from taxes collected by a governmental unit;

(B) received from the state; or

(C) insurance proceeds received from an insurance policy for which the premium was paid with taxes collected by a governmental unit or money received from the state; and

(3) a condition of the settlement requires a party seeking affirmative relief against the governmental unit to agree not to disclose any fact, allegation, evidence, or other matter to any other person, including a journalist or other member of the media.

(b) A settlement agreement provision entered into in violation of Subsection (a) is void and unenforceable.

Sec. 116.003. EFFECT OF CHAPTER. This chapter does not affect information that is privileged or confidential under other law.

SECTION 2. The change in law made by this Act applies only with respect to a claim or action that is based on a cause of action that accrues on or after the effective date of this Act.

SECTION 3. This Act takes effect September 1, 2017.

For claims accruing after September 1st, in which the Settlement is $30,000.00 or more AND the money used to pay the settlement is derived from taxes collected, is received from the state or insurance proceed from a policy paid for with taxes collected or by the state, any language which requires a claimant to agree not to disclose the certain things related to the agreement will void the settlement and render it unenforceable. Practically speaking, this means that settlement of claims accruing after September 1st cannot contain language similar to that above.

While the new law seems straight forward, the issue that will create uncertainty for districts will likely become making a determination of when a claim “accrues”. Generally, a cause of action accrues when a wrongful act causes a legal injury. An exception to this general rule is known as the “discovery rule”. The discovery rule provides that an action does not accrue until a plaintiff (or claimant) knew or in the exercise of reasonable diligence, should have known, of the wrongful act and resulting injury. The result for districts is that a determination of when the claim accrued should be made for every claim made after September 1, 2017. Those accruing after September 1 and settle for $30,000.00 or more cannot contain confidentiality restrictions.

There are countless exceptions and nuances that impact the accrual analysis. The attorneys at Leasor Crass can assist Districts in making this determination and ensuring that District settlement agreements comply with HB 53 and other Texas laws.