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.

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. Overbey and the Brew filed a response; they attached to their response a declaration from Overbey in which she averred that she had not understood the scope of the non-disparagement clause when she signed the settlement agreement.

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.

The Appellate Ruling

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.

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...

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...