Overbey v. Baltimore (2019) Nondisclosure Agreements

Overbey (4th Circuit 2019) (cleaned up):

The Facts and History

Overbey’s settlement agreement included what we will call a “non- disparagement clause.” This clause required Overbey to “limit [her] public comments” regarding her lawsuit “to the fact that a satisfactory settlement occurred involving the Parties.” It prohibited her from “discussing [with the news media] any opinions, facts or allegations in any way connected to” her case, her underlying allegations, or the settlement process. And it provided that if Overbey were to ever make a prohibited comment regarding her lawsuit, the City would be entitled to a refund of half of her settlement. The clause placed no restriction on the City’s freedom to speak about the case.

After Overbey signed the settlement agreement, the agreement went before the City’s Board of Estimates for approval. While approval was pending, a local newspaper, the Baltimore Sun, published Overbey’s name, her photograph, her address, and the amount of her proposed settlement in a report on payouts planned for police-misconduct claimants. The Sun’s report quoted a statement made by the then-City Solicitor to the Board of Estimates in which the Solicitor characterized Overbey as “hostile” during her encounter with police—insinuating that Overbey, not the officers, had been at fault.

The Sun’s story accumulated several anonymous, race-inflected comments implying that Overbey had initiated a confrontation with the police in hopes of getting a payout from the City. Overbey posted responses to several such comments, insisting that the police had been in the wrong and describing some of the injuries she had suffered. The City determined that Overbey’s online comments on the Sun article violated the non-disparagement clause of the settlement agreement. Consequently, once Overbey’s settlement was approved, the City remitted only half of the agreed payment—$31,500— to Overbey’s attorney. It retained the other half as “liquidated damages.”

• (1) Something special about this case is that the breach was before the agreement was agreed to by both parties, apparently--- the City Board of Estimates had not approved it yet. She could have sued on that ground, too, but apparently did not plead that argument.

Incidentally, from the $31,500 disbursed by the City, Overbey’s attorney took a cut of approximately $20,500—one-third of the $63,000 that Overbey would have received if the City had not determined that she had violated the non-disparagement clause. Once her attorney took his cut, Overbey was left with about $11,000 in settlement funds.

• (2) I wonder if all $63,000 was taxable income? If the liquidated damages had been 100% rather than 50%, would she owe taxes on all $63,000? A good question for tax twitter.
• (3) In Overbey's case, she was too poor to pay income tax, though this settlement was probably taxable income and would raise her high enough to do it. Being poor, though, she had been eligible for housing aid, food stamps, etc. Do winning legal damage for defamation, civil rights, etc. kick plaintiffs off of welfare? Should this be changed? Again, ask tax twitter.
• (3.5) This attorney's fees paragraph is a footnote. That is good and proper. It's worth including in the opinion, but it isn't relevant to the holding.

Overbey, having obtained new representation, filed another lawsuit in which she named the City and the BPD as defendants. In this second suit, she sought to compel the City to pay her the other half of her settlement sum. She brought a variety of claims under federal and state law, only one of which is relevant to us now: that the City violated her First Amendment rights when it withheld half of her settlement because of her speech about her case.

Overbey was joined in her second suit by the Brew, a local news website that, among other things, investigates and reports on how the City and its police department handle allegations of police misconduct. The Brew claimed that the City’s policy of including non-disparagement clauses in its settlements with police-misconduct claimants violated the Brew’s First Amendment interest in newsgathering. The Brew sought both declaratory and injunctive relief.

• (4) I'll have to look to the district opinion for the "variety of claims". The Waiver and Void As Against Public Policy claims are both ruled on here, though, even though this paragraph says only the Waiver one is.
• (5) If someone brought suit against a California state agency for using nondisparagement clauses, they could ask for an injunction against ALL California agencies using them, perhaps. This would bring in the other agencies as defendants, perhaps---for example, the trustees of the University of California are a different legal entity than the main part of the state government, I expect. That's ok.

The City moved to dismiss or, in the alternative, for summary judgment. It attached to its motion a number of exhibits pertaining to Overbey’s settlement agreement and the online comments that had led the City to withhold half of her settlement funds...

After a hearing on the motions, the district court decided that because it had “relied upon supplemental affidavits and documents filed outside of the pleadings,” it would treat the City’s motion as one for summary judgment pursuant to Federal Rule of Civil Procedure 12(d), even though the parties had not yet conducted discovery. J.A. 352–53. The district court then granted summary judgment to the City on Overbey’s First Amendment claim, reasoning (1) that by signing the settlement agreement, Overbey had knowingly, voluntarily, and intelligently waived her First Amendment right to speak about her police-misconduct suit; and (2) that enforcement of the waiver was not contrary to public policy. The district court also granted summary judgment to the City on the Brew’s First Amendment claim, concluding that the Brew lacked standing to challenge the City’s practice of using non-disparagement clauses in virtually all settlement agreements with police-misconduct claimants.

• (6) It is a tangled procedural issue whether this is summary judgement or dismissal. It might matter, because the appellate court reviews dismissal de novo, as a question of law, but summary judgement with deference, as more a question of fact, I think (though there is still the legal issue of how much evidence is needed to grant summary judgement). Here, it is of academic interest only, even the deference part, because nobody disputes that the evidence presented shows that the plaintiff knowingly talked to the press about her incident.

The City's Argument

The City, for its part, argues that the non-disparagement clause did not require Overbey to “waive” anything; rather, in agreeing to be bound by the non-disparagement clause, Overbey merely exercised her right not to speak in exchange for payment from the government. Alternatively, the City argues that even if the non-disparagement clause amounts to a waiver of Overbey’s First Amendment rights, there is no reason for us to hold that the waiver is void; thus, the City’s enforcement of the waiver cannot have violated the First Amendment.

We hold that the non-disparagement clause in Overbey’s settlement agreement amounts to a waiver of her First Amendment rights and that strong public interests rooted in the First Amendment make it unenforceable and void.

• (7) Very nice "steel manning" of the argument the Court rejects; they're being fair and just.

Overbey also argues that the enforcement of the non-disparagement clause was unconstitutional because it was illegal for the City to include the clause in the first place; according to Overbey, the First Amendment prevents the City from introducing and negotiating for non-disparagement clauses in settlement agreements with police- misconduct claimants. The district court did not address that argument, and we decline to do so now...

• (8) This sounds like the declaratory judgement claim of the newspaper, so maybe the Court *does* address it now.

According to the City, there is no need for us to subject the non-disparagement clause to First Amendment scrutiny, because Overbey’s promise not to speak about her case was not a waiver of anything.It was, rather, a reasoned decision to exercise her right not to speak in return for payment. The City points out that it did nothing to stop Overbey from speaking, and that it has paid her every cent that she was due under the terms of the settlement agreement—i.e., half the settlement sum. As the City would have it, Overbey agreed to exercise her rights in a particular way in return for money; she then exercised her rights in a different way, leaving her entitled to less money.

We disagree...

• (9) Again, good steel-manning. Very nicely phrased.

The Court's Reasoning

In other words, the right to refrain from speaking limits the government’s ability to sanction or override a private individual’s preference for not making certain speech. The First Amendment’s protection of this right advances our bedrock societal interest in “individual freedom of mind.”

Overbey’s promise not to speak about her case cannot be fairly characterized as an exercise of her right to refrain from speaking, because none of the interests protected by the right to refrain from speaking were ever at stake in this case. No one tried to compel Overbey to make speech she did not want to make; no one tried to punish Overbey for refusing to say something she did not want to say. Instead, Overbey agreed, on pain of contractual liability to the City, to curb her voluntary speech to meet the City’s specifications. In doing so, she waived the First Amendment protections that would have otherwise shielded her speech from government sanction.

A waiver is enforceable only if it meets two conditions: First, it was made knowingly and voluntarily. Id. Second, under the circumstances, the interest in enforcing the waiver is not outweighed by a relevant public policy that would be harmed by enforcement. Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204, 212 (4th Cir. 2007); see also Davies v. Grossmont Union High Sch. Dist., 930 F.2d 1390, 1397 (9th Cir. 1991) (holding that when it seeks to enforce a contractual waiver of a constitutional right, the government bears the burden of “demonstrat[ing] that the public interest is better served by enforcement . . . than by non-enforcement”).

Claims of police misconduct, as well as the circumstances in which the City litigates and settles such claims, assuredly fall into the “public issues” category. Thus, enforcing the non- disparagement clause, which subjected Overbey to contractual liability for speaking about the allegations giving rise to her complaint and the circumstances under which she settled with the City, was contrary to the public’s well-established First Amendment interest in “uninhibited, robust, and wide-open” debate on “public issues.”

Standing shoulder to shoulder with the citizenry’s interest in uninhibited, robust debate on public issues is this nation’s cautious “mistrust of governmental power.” Citizens United, 558 U.S. at 340. This mistrust is one of the “premise[s]” of the First Amendment, id., and we think it well-warranted here, because the non-disparagement clause is a government-defined and government-enforced restriction on government- critical speech. Indeed, when the government (1) makes a police-misconduct claimant’s silence about her claims a condition of settlement; (2) obtains the claimant’s promise of silence; (3) retains for itself the unilateral ability to determine whether the claimant has broken her promise; and (4) enforces the claimant’s promise by, in essence, holding her civilly liable to itself, there can be no serious doubt that the government has used its power in an effort to curb speech that is not to its liking...Accordingly, we conclude that enforcement of the non-disparagement clause at issue here was contrary to the citizenry’s First Amendment interest in limiting the government’s ability to target and remove speech critical of the government from the public discourse.

The Court's Attempt To Refute the City's Arguments

the City points out that it has an interest in using settlement agreements to reduce the time and money that it devotes to litigation, and that this interest favors enforcement of the non-disparagement clause...The City cannot succeed merely by invoking its general interest in settling lawsuits. It must point to additional interests that, under the circumstances, justify enforcing Overbey’s waiver of her First Amendment rights.

We note that this is not a case in which the government seeks to hold a private speaker liable for the unauthorized disclosure of confidential or sensitive information that was held by the government and to which the speaker would not have had access but for a promise of confidentiality or other fiduciary obligation to the government. Cf. Snepp v. United States, 444 U.S. 507, 510 (1980).

The City falls back on its argument that one of the private interests protected by the First Amendment is the right not to speak. According to the City, the “individual autonomy” embodied by the right not to speak would be undermined if plaintiffs like Overbey could not use their right to silence as a bargaining chip during settlement negotiations. Appellees’ Br. at 36. Thus, in the City’s view, enforcement of the non-disparagement clause is consonant with, and essential to, individual First Amendment interests. 10 We think not.

To bolster its argument, the City asserts that if Overbey were to prevail in the instant case, the City would “almost certainly” offer less money to similar police-misconduct claimants in the future, since such claimants would have less value to offer in return for settlement; that is, claimants would be unable to sell their own silence as part of a settlement agreement, making their agreement to settle less valuable. This, according to the City, would “reduce the number and mutual value of settlements.” Id. We are troubled by the underlying logic of this assertion: police- misconduct claimants get money to keep quiet, the City gets silence and a speedy end to litigation, and everybody wins—except, presumably, members of the public who are interested in transparency surrounding police-misconduct suits.

Aside from that concern, there are two factors that make the City’s assertion unconvincing. First, the assertion is overly simple: the outcome of settlement negotiations in a police-misconduct suit is likely to be driven by a complex interaction of case-specific factors, such as the defendants’ risk of exposure to high damages awards following a jury trial, the claimant’s financial resources, and each side’s appetite for litigation. Accordingly, we will not assume that the financial terms of all future settlements will be appreciably affected by the enforceability of the non-disparagement clause in this settlement. Second, during oral argument, the City represented that it had already stopped using non-disparagement clauses like Overbey’s in settlement agreements with police-misconduct claimants. Thus, we are left with no reason to think that the enforceability of the non-disparagement clause in Overbey’s settlement agreement has anything other than a conjectural and attenuated relationship to “the number and mutual value of [future, hypothetical] settlements.”