Takeaway: If you settle your way out of a multi-party lawsuit, don’t expect the terms of your settlement agreement to stay under wraps if other parties are still battling it out.
In multi-party construction disputes, some defendants may settle with the plaintiff before trial (or an arbitration hearing) to avoid the uncertainties and costs associated with litigation. However, parties that remain in litigation will likely be able to gain access to the resulting settlement agreements, unless the settling parties can show that their agreements aren’t relevant.
This issue was recently at play in In re GreCon, Inc.—a case in which the Houston Court of Appeals addressed whether settlement agreements between a plaintiff and certain settling defendants were relevant and discoverable before trial. In that case, the plaintiff was injured in an explosion at a manufacturing plant. He sued GreCon, asserting that certain systems failed to prevent or eliminate the hazards that caused the explosion. He also sued a number of other defendants.
The plaintiff settled with several defendants before trial but did not settle with GreCon. GreCon asked the plaintiff for copies of the executed settlement agreements in discovery, which the plaintiff refused to produce. But the plaintiff had not timely asserted to the court that the settlement agreements were not relevant and shouldn’t be subject to production. The court ultimately required the plaintiff to produce the settlement agreements, holding that settlement agreements are “ordinarily discoverable” if they are relevant, such as (1) when settlement credits will be at play at trial, (2) if the agreements may demonstrate bias that will affect trial testimony (e.g., agreements to cooperate at trial), or (3) even potentially for the purpose of “creating a settlement strategy.”
Parties should expect pre-trial settlement agreements to be discoverable unless their lack of relevance is demonstrated to the court—which, based on the outcome in GreCon, may be an uphill battle. Indeed, the court in that case noted that only in “rare cases” will settlement agreements be withheld or excluded from discovery in multi-party litigation. So, if a party believes it has a legitimate basis for withholding a settlement agreement from production, it has the burden to seek the protection of those agreements from the court before the deadline to produce them.
While every multi-party dispute is different, there is a good chance that some of the defendants may settle before final judgment is rendered; just don’t assume that the terms of your settlement agreement will stay under wraps if other parties are still battling it out.
Megan Kateff’s practice is focused on helping clients from all areas of the construction industry resolve conflict arising from commercial construction projects. Megan handles a wide variety of construction-related disputes through all phases of litigation, as well as arbitrations and appeals, including construction and design defect disputes, contract payment and termination issues, lien and bond claims, and project closeout.