State Bill Would Scale Back Secrecy in Court Settlements : Measure would prohibit enforcement of agreements that cover up financial fraud, a defective product or environmental hazard.

A man takes diet medication in the hopes of taking off a few extra pounds. He loses weight, but a side effect of the drug almost kills him. After suing the drug company for failing to disclose known effects of the drug, the case is settled and the plaintiff receives compensation for his injury. In return, the file is sealed and all evidence of the harmful effects of the drug is sealed with it. Until another man almost dies.

Sound improbable? Unfortunately not. Important information relating to public health and safety is frequently uncovered in the courts and then routinely hidden from public view under secret settlement agreements between the parties.

For this reason, I have introduced Senate Bill 1254, which would prohibit courts from enforcing secrecy agreements that covered up information about financial fraud, a defective product or an environmental hazard that might cause injury or death. The bill would result in safer products and a safer environment, and prevent fraud artists from preying on more victims. SB 1254 recently passed the state Senate and will be taken up in the Assembly next year.

We have seen the dangers of secrecy agreements too many times. Had the information regarding the heart valve damage associated with the diet medication fen-phen not been sealed by a secrecy agreement, many people who took that drug combination may have avoided its dangers.

It was not until several months after a lawsuit was settled, when the Food and Drug Administration announced the dangers of fenfluramine and removed the product from the market, that the dangers of the drug became public. Since the nature of the heart disorders associated with this drug are severely impacted by the length of time the patient took the drug, the delay in the release of this information might have been catastrophic.

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We also can point to the secrecy agreements that were responsible for keeping known health risks hidden from the public in cases dealing with tobacco products, defective heart valves, defective seat belts and asbestos, to name just a few.

Evidence of a public hazard is routinely sealed without the court even reviewing the information to determine whether secrecy is appropriate. This often occurs because the injured party and the defendant may care more about resolution of the case than whether other parties may be similarly injured in the future.

My bill would require courts to examine independently the information the parties want to seal and leave unsealed information that may endanger the public unless a more compelling case can somehow be made for secrecy. Both the California Judicial Council and the California Judges Assn. support the bill as a workable provision to protect the public’s interest without placing an undue burden on the court system.

Regrettably, the bill has encountered opposition from those who have traditionally benefited from secrecy agreements. History has shown that some companies--albeit the small minority--decide that it is cheaper to pay injured consumers to keep the problem hidden than to lose sales by removing a dangerous product from the market.

In an effort to make sure SB 1254 only impacts these unscrupulous parties, the bill is limited and specific. It would apply only to actions where the public was threatened, and even then only the evidence of the danger would have to be disclosed. In all other cases, secrecy agreements could be used as the parties desired. In addition, the bill would not apply to the amount of a settlement because public health and safety are not affected by nondisclosure of such information.

The bill also recognizes that legitimate trade secrets are an important and valuable asset of any company and deserve to be protected. Specific portions of the bill not only clearly carve out broad protection to keep trade secrets confidential but go well beyond to encompass confidential personal or business information that would not rise to the level of a trade secret.

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California, which has often been a leader in consumer protection, sadly lags behind many other states in the banning of secret settlements that jeopardize public safety. Florida, for example, passed the Sunshine in Litigation Act almost a decade ago, decreeing that any agreement that concealed a public hazard was void and unenforceable. Texas has similarly passed laws that provide that court documents are presumed to be open to the public, and particularly when they concern matters that may impact on public health or safety.

We need to end the practice of manufacturers of dangerous products, toxic polluters and investment fraud artists hiding their mistakes through protective orders and secrecy agreements. SB 1254 is a fair bill that balances the public’s need to know with the business community’s interest in protecting trade secrets and confidential information.

Democratic state Sen. Adam B. Schiff is chair of the Senate Judiciary Committee and represents Burbank, Glendale and Pasadena.

Measure would prohibit enforcement of agreements that cover up financial fraud, a defective product or environmental hazard.