Overbey v. Baltimore (2019) Nondisclosure Agreements

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

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.