California Bill Restricts Confidentiality in Products Liability
California Senate Bill 1149 (The Public Right to Know Act of 2022), which has already been approved by the California Senate, effectively forbids protective orders and confidential settlement agreements in any litigation involving alleged product defects or environmental hazards. If passed, the new statute would apply to a “covered civil action” which means a civil action the factual foundation for which states a cause of action for civil damages regarding a defective product or environmental hazard that poses a potential danger to the public health or safety. A “defective product” means a defective product that has caused, or is likely to cause, significant or substantial bodily injury, illness, or death.
Any provision with an agreement between the parties in a covered civil action that purports to restrict the disclosure of factual information related to the action is prohibited. Under subsection (c) there is a presumption that disclosure of discoverable factual information relating to a covered civil action shall not be restricted and the court shall not enter, by stipulation or otherwise, an order that restricts the public disclosure of such information, except for certain enumerated exceptions (subsection (b).)
One such exception under subpart (d)(2) is the amount of the settlement which can be the subject of an order of nondisclosure. Under subpart (d)(3)(A) information relating to a current proprietary customer list or a trade secret can be the subject of nondisclosure if the party seeking to restrict the disclosure moves the court in good faith for an order of nondisclosure, demonstrating that the presumption in favor of disclosure is clearly outweighed by a specific and substantial overriding confidentiality interest.
Any agreement that purports to restrict the disclosure of factual information related to the action is void as a matter of law and shall not be enforced (subsection (e).)
Any attorney who fails to comply with the requirements of this section may be grounds for professional discipline by the State Bar of California. This includes simply advising a client to sign or otherwise enter into an agreement that includes an unauthorized nondisclosure provision (subsection (h).)
This bill now goes to the Assembly in California and is expected to pass. If passed, this provision effectively precludes a stipulated protective order absent a motion that the action involves a customer list or trade secret, disclosure of which is clearly outweighed by a specific and substantial overriding confidentiality interest. A trade secret is defined in California Civil Code § 3426.1 to be information that derives independent economic value, actual or potential, and is the subject of reasonable efforts to maintain secrecy.
The bill fails to recognize that the courts already scrutinize proposed stipulated protective orders. Most counties have narrowly tailored forms for protective orders. By requiring litigants in a products liability action to file motions for nondisclosure based upon customer lists or trade secrets, this bill only burdens already overworked courts.
The bill would also encourage lawsuits to include a cause of action for products liability simply to gain the benefit of nondisclosure. A products liability action can be brought not only against the designer and manufacturer, but also any entity in the chain of distribution. Manufacturers, wholesalers, and retailers would have no protection for their work product. Attorneys who deem it necessary to protect such information will be subject to disciplinary proceedings affecting standing with the State Bar of California.
Every unsupported products liability cause of action should be challenged at the pleading stage. In a valid products liability action, the defendant should contend its business proprietary information is a “trade secret” as defined in the Civil Code.