BILL SHINES LIGHT ON LAWSUITS; PROPOSAL WOULD BAN SECRET SETTLEMENTS OVER DANGEROUS PRODUCTS.

Byline: Hallye Jordan Knight Ridder Newspapers

It was all very hush-hush. Four months before the federal Food and Drug Administration yanked the popular fen-phen diet drug from pharmacy shelves, lawyers quietly settled a San Francisco suit claiming the prescription drug caused heart valve damage and other life-threatening injuries.

In exchange for receiving an undisclosed amount of money, the unidentified injured party signed a confidentiality agreement - making sure information about potential dangers would remain under wraps from May 1997 until the FDA took action the following September.

From exploding gas tanks to defective seat belts, from cigarettes to injury-causing amusement park rides, dangerous products have been shielded from public scrutiny by California courts in exchange for multimillion-dollar awards for plaintiffs and no admission of guilt for defendants.

Now California is poised to pass a ``sunshine law,'' following the lead of nine other states that have clamped down on secrecy settlements since 1989. State Senate Judiciary Committee Chairman Adam Schiff, D-Pasadena, introduced SB 1254 this year to ban confidential settlements involving financial fraud, personal injury or wrongful death caused by defective products or environmental hazards.

Some businesses fear the bill will open up sensitive trade secrets, putting company research and development in jeopardy.

``I think it could have a chilling effect on businesses in the state, particularly the high-tech industry,'' said Gavin McHugh of the California Manufacturers' Association.

But supporters say it is time companies quit hiding behind the ``trade secret'' argument.

``There are compelling reasons to have a sunshine law and try to end an era where you have successive injuries because of confidential settlements,'' Schiff said.

If anyone doubts how important sunshine laws are, Schiff said, they should look at Florida. There, a ban on confidential settlements brought to light internal tobacco company memos and studies documenting nicotine addiction and the dangers of secondhand smoking.

That disclosure led to a massive settlement between the tobacco industry and all 50 states, which will result in the industry paying California $25 billion over 25 years as reimbursement for the costs of treating smoking-related illnesses.

Schiff's bill is similar to one former Gov. Pete Wilson vetoed in 1992. But the state is now under a Democratic governor and backers are encouraged by the fact that businesses have not come out as strongly against the new bill.

More than 200 businesses and trade organizations opposed SB 711, by former state senator and now Attorney General Bill Lockyer. Wilson said the bill ``would add to California's litigation nightmare and increase the cost of doing business in this state.''

Public right to know

In reaction to the veto, five counties - Los Angeles, San Francisco, Santa Clara, San Diego and Alameda - adopted rules prohibiting confidential agreements. Judges generally have embraced the ban, agreeing that the courts should function as much as possible in the public eye.

``I believe if you are in the public forum, the public has a right to know how you are using it,'' said Santa Clara County Presiding Judge Jack Komar.

Now, even some business lobbyists say they may have overreacted to the bill the first time it was introduced.

``Roughly about 40 percent of the state's population is covered by the (local court) rules already. We haven't identified any problems yet,'' says Fred Main, general counsel to the California Chamber of Commerce. ``We still don't like the bill. . . . But it's not going to be a job-killer.''

Barbara Wheeler, a lobbyist with the Association for California Tort Reform, said ACTR opposes the bill because it lacks definitions of key terms, such as ``environmental hazards.''

Still, she agreed the bill is ``less onerous'' than the original measure. ``There is room for amendments that would make the bill palatable to the business community,'' Wheeler said.

Keeping trade secrets

But McHugh said the high-tech industry fears barring confidential settlements will jeopardize trade secrets when cases are forced to settled in the open, or they go to trial.

McHugh said the industry's biggest fear is of securities lawyers, who specialize in filing massive class-action lawsuits on behalf of shareholders for companies' fiscal mismanagement or fraud. Those lawyers will be able to file piggyback claims based on information disclosed in other lawsuits, he said.

San Diego lawyer Craig McClellan said he's seen just the opposite - in which companies negotiate small, confidential settlements by telling attorneys that is what plaintiffs in similar cases, also settled confidentially, have received.

Lawyers say they can't blame their colleagues for agreeing to the settlements. They must take whatever action is favorable to their client, even if it means hiding dangers that could harm other, unaware consumers.

But some clients refuse to accept secret settlements.

In the early 1990s, San Diego resident Jim Miller rejected a $6 million settlement from Ford Motor Co. over the absence of harness seat belts in the back seat of some cars. The suit was filed in the late 1980s after one of Miller's 11-year-old twin sons was killed and the other was paralyzed in a head-on crash while they were wearing lap-only seat belts in the family's Ford Escort.

McClellan, who represented the Millers, said his clients knew a confidential settlement would financially benefit them and, at the same time, protect them from all the disruptions to their lives that publicity about the settlement could bring.

``Any time people recover large sums of money, weird characters come out of the woodwork,'' McClellan said. ``The Millers were aware of that, but more important to them was getting the word out about the dangers of the lap belt.''

Ford eventually agreed to settle the case for $6 million - without the secrecy requirement, McClellan said. And the Millers lobbied the California Legislature to require used-car dealers to place strong warnings about dangers of lap-only belts in cars that did not have shoulder harnesses in the back seat.

Facts and payments

Melanie Wiegner, government affairs manager for Ford in Sacramento, said in the Miller case Ford's only concern was with the disclosure of the settlement amount, not the facts of the case.

``Ford has no quarrel with a plaintiff being able to talk about his or her case,'' Wiegner said. But the company is concerned the bill would ``unnecessarily add to the cost and burden of the court system, and is so complex and vague that it would permit trade secrets or privileged information to be disclosed.''

Wiegner and business representatives said the ban on confidential statements in the five counties has not caused any hardship and it might even make more sense to have one law across the state.

Mark P. Robinson Jr., president of the Consumer Attorneys of California, which sponsored the Schiff bill, said it is critical to ensure that deadly defects in all products are brought to light and corrected. ``I think the fact that you are killing 20 people with your (defective) car should not be a trade secret,'' Robinson said. ``There is a difference between a nasty secret and a trade secret.''