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July 2012

Civil Settlements ? No Regulatory "Gag Clauses"

AB 2570, which was introduced February 2012 and is waiting on a Senate Vote, would add Section 143.5 to the Business and Professions Code (“BPC”). 

In order to promote thorough regulation and to protect consumers, AB 2570 would prohibit any licensee under the Department of Consumer Affairs (“DCA”) (e.g. architect, engineer, etc.) from including a regulatory “gag clause” as a civil settlement provision.  A “gag clause,” in the context of AB 2570, is a provision in civil settlement agreement that requires a plaintiff to agree, as a condition of a malpractice or misconduct settlement with a licensee, to the inclusion of a provision prohibiting the plaintiff from contacting or cooperating with the DCA or requiring the plaintiff to withdraw a pending complaint before the DCA.  Under AB 2570, it does not matter whether the agreement is made before or after the commencement of the civil action.  A licensee who is a party to such an agreement will be subject to disciplinary action by their respective board, bureau, or program. 

In California, regulatory “gag clauses” are already prohibited by attorneys, physicians, and surgeons.  The prohibition of regulatory “gag clauses” should not be confused with “secret settlement” provisions, which are still legal.  The former prevent a plaintiff from contacting or cooperating with the regulatory agency while the latter make certain types of information in a settlement agreement confidential and precludes that information from being introduced as evidence in court.   

AB 2570 also provides for some protection to the licensee.  AB 2570 states that any board within the DCA that takes disciplinary action against the licensee based on a complaint that has been the subject of a civil action and that has been settled for monetary damages providing for full and final satisfaction of the parties may not require its licensee to pay additional sums to the benefit of any plaintiff in the civil action.  Therefore, although a licensee may not, pursuant to a settlement agreement, prevent a plaintiff from reporting the misconduct to the DCA, the licensee will not be required to pay additional fees to the plaintiff by reason of the reported complaint.    



Kimberly A. Blake