Corporate Defendants May Have to Say They're Sorry When They Settle

Corporate Defendants May Have to Say They're Sorry When They Settle

Settling a lawsuit for money damages seems pretty simple. A party who suffers a loss agrees to accept a certain amount of money, the defendant agrees to pay it, and the case is over. But alas, things are never so simple in lawsuit world. In lawsuit world, even agreements to settle cases are usually written and loaded up with fine print provisions.

One of the most common provisions is the "no admission of guilt" language. Even when a defendant agrees to pay, it almost always insists on having the settlement agreement state it is not admitting guilt. Usually, the provision will say the defendant continues to deny any guilt or fault, and is simply paying to avoid the time and expense of continuing to fight.

In a car accident where only one person was injured, admissions of guilt don't matter much. If no one else was involved in the accident, then obviously no one else could use an admission of guilt anyway. Nevertheless, insurance and corporate defendants almost always insist on a denial as part of a settlement agreement. Most injured people are just grateful to get a settlement after a hard fight, so they almost never quarrel about it.

Against this backdrop, a recent development in the financial world is intriguing. The Securities and Exchange Commission ("SEC"), which basically acts as a policeman for large financial institutions, has decided it will no longer allow those institutions to automatically deny guilt when they settle. In certain cases, the SEC will not settle claims for violation of securities laws (laws involving sales of stocks, etc.) at all unless the bad actor admits what it did wrong.

Along these lines, the SEC forced JP Morgan to admit that it violated securities laws as a condition of a $200 million settlement it reached in September. Now JP Morgan will have to live with the possibility that individual investors will try to use its admission of wrongdoing when they bring their own claims.

This is a welcome development for cases where many people are harmed. These, of course, are not just large-scale financial cases. Mass disasters such as the Deepwater Horizon oil spill would lend themselves to this type of treatment as well. It needlessly taxes our judicial system to require each new claimant to prove the same thing again and again in such cases. It also allows defendants to throw up roadblocks each time a plaintiff tries to reinvent the wheel.

Other regulators should consider following the SEC's lead here. They should consider adopting rules or guidelines of their own governing admissions of fault in settlements. Requiring an admission of guilt will not be appropriate in every case, and it might make sense to apply it only to the most egregious or serial offenders. There are legitimate abuse of power concerns too. Nevertheless, the issue deserves consideration. A defendant should not automatically be able to avoid confessing by paying to make a case go away.

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