HUSHING CONTRACTS.

Author:Hoffman, David A.
 
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ABSTRACT

The last few years have brought a renewed appreciation of the costs of nondisclosure agreements that suppress information about sexual wrongdoing. Recently passed bills in a number of states, including New York and California, have attempted to deal with such hush contracts. But such legislation is often incomplete, and many courts and commentators continue to ask if victims of harassment can sign enforceable settlements that conceal serious, potentially metastasizing, social harms. In this Article, we argue that employing the public policy doctrine, courts ought to generally refuse to enforce hush agreements, especially those created by organizations. We restate public policy as a defense which should be concerned with managing externalities, and which expresses a legitimating account of contract law.

Table of Contents Introduction I. The Public Costs and Private Benefits of Secrecy about Sexual Wrongdoing A. The Costs of Hash Contracts B. The Costs of Nonenforcement: What do Hush Contracts Achieve II. Public Policy & Hush Contracts A. NDAs and Employer Breach in the Public Interest B. NDAs and Court-Approved Settlements C. NDAs and Whistleblowers D. NDAs and Adulterers III. Public Policy as an Externality Problem IV. Towards an Expressive Theory of Contract Defenses A. An Expressive Account of Public Policy in Contract B. Application to Hush Contracts C. A Few Obvious Objections Conclusion INTRODUCTION

Contracts are making news.

In December 2016, McKayla Maroney, a gold medal winning American gymnast, agreed to settle her lawsuit against USA Gymnastics (USAG) for enabling Dr. Larry Nassar to abuse her. In the settlement agreement, Maroncy promised to either refrain from further speech about her ordeal or pay a $125,000 liquidated damages fee, (1) together with the costs and fees of enforcement. (2) Revelation of this stipulation created a national furor, (3) and USAG ultimately abandoned it. (4)

In October 2017, Zelda Perkins, the longtime assistant to Miramax's Harvey Weinstein, broke a nineteen-year-old agreement in which she agreed not to reveal that the mogul had harassed her in return for 250,000 [pounds sterling]. (5) Perkins's breach of contract sparked a swell of stories by other victims of Weinstein, and, along with his resignation and the firm's bankruptcy, intensified the burgeoning #MeToo movement.

Finally (and you knew this was coming), on October 28, 2016, ten days before the Presidential election, Michael Cohen executed an agreement with Stephanie Clifford, in which Clifford agreed to keep silent about an alleged affair with Cohen's client, Donald Tramp, as well as return evidence of the relationship, in return for a sum of $130,000. (6) Clifford's 2018 suit to render the agreement unenforceable ignited a political and legal battle that encompassed the Special Counsel's office, guilty pleas for criminal violations of campaign finance laws, (7) and weighty matters of Presidential immunity. (8)

These agreements concern underlying behavior with sundry culpabilities and quell disclosure with a variety of contractual spurs. As a threshold matter, they deal with different sorts of behavior--from a consensual affair involving the President to criminal sexual assault. But, notwithstanding the obvious differences, each, when revealed, engendered a similar public response: disgust. Indeed, our present moment of reconceiving and coming to terms with sexist and sex-based misconduct, organized around #MeToo, is driven largely by a reaction to wrongdoing buried by contract, and revealed by its breach. Public disclosures of contractual secrets are giving breach a good name.

This Article considers the emerging political and legal movement surrounding hush contracts--which we define as nondisclosure agreements covering sexual misconduct. (9) We use the term "sexual misconduct" deliberately to refer to the widest possible category of wrongdoing of a sexualized or sex-based nature. (10) In so doing, we thread the needle between employment discrimination scholars' power-based account of sexual harassment (which considers "harassment as an expression of workplace sexism, not sexuality or sexual desire"11) and the commonplace use of sexual harassment to refer only to sexual advances motivated by desire. (12) We focus on those instances where parties contract to conceal misconduct of a sexual nature whose nondisclosure carries a steep cost to the public.

The moment is ripe for such a treatment, as hush contracts are increasingly the subject of legislative action. In one recent, and salient, example, in its 2018 budget, New York State passed a law that Governor Cuomo bragged would "end the secrecy and coercive practices that have enabled [sexual] harassment for far too long." (13)

Upon closer inspection, New York's bill (like many recently passed or considered laws across a variety of jurisdictions) is a virtual husk. (14) The key language permits a hush contract if it is the "complainant's preference," defined as the victim agreeing to the wrongdoer's proposal after a twenty-one day waiting period. (15) Or, to put it differently, New York State prohibits only those hush contracts that lack mutual assent. Nondisclosure about sexual wrongdoing may be politically disfavored, but lawmakers have been largely unwilling to make such contracts categorically unenforceable. (16)

Why are hush contracts so hard to kill? The most flattering accounts posit that nondisclosure agreements (NDA) are necessary for corrective justice. (17) As the argument goes, settlement often can occur only if the parties agree to hold its terms (and very existence) silent. (18) Because compromise can be the only practical recourse for private parties, making nondisclosure clauses enforceable may be necessary to remedy harms. (19)

In this Article, we argue that even those who are attracted by utilitarian accounts of contract law ought to reject this defense of hush contracts. (20) After collecting information from a variety of sources and disciplines, we argue that not only do hush contracts encourage specific acts of repeated (and spiraling) misconduct, (21) but also they can corrupt entire organizations and communities. (22) As a recent expose put it, "[l]ike a stealthy virus, sexual harassment impacts the wellbeing of society at every level." (23)

Consequently, we conclude that even when the parties consent at arms length and after due reflection to a hush contract, courts should be very hesitant to enforce this contract.

Our chosen doctrinal hook--increasingly employed by lawyers in hush contract cases (24)--is the oft-criticized doctrine of contractual public policy. Like other writers--including one in these pages, (25) we give that doctrine content by focusing on third-party harm. (26) That is, rather than ask if the parties to a contract really consented to it--an inquiry invited by various legislatures' procedural approaches--we would judge such contracts by their negative externalities.

Grounding public policy in public harms advances two important goals. First, it provides contract law a way to infuse public values, and concerns, into private agreements whose cost and benefits aren't easily cabined. In an era when contract cases increasingly vanish into secret arbitral tribunals, (27) and where digital consent is notional, courts ought to seize the limited opportunities available to demonstrate that the state's enforcement powers can serve ends that ultimately maximize the public's welfare, rather than maximizing the goals of parties entering into private agreements which might harm third parties. Moreover, because public policy defenses rely on the factually intense and inherently conservative common law for their articulation, public policy doctrine is self-limiting. That is: unlike legislation, if we are wrong about the balance of costs and benefits hush contracts create, courts will reverse course, and with less difficulty than gridlocked legislatures.

Second, in quieting hush contracts, we seek to revitalize contract doctrine more broadly. The practice of contracting, and the resolution of claims both in court and in arbitration is increasingly a sterile exercise--a joke about "clicking to agree" whose punchline is rote enforcement. We think this trend is pernicious: it threatens to rob contracting of the moral force that it needs to achieve efficacy and legitimacy in a world where almost no contracts are read, breached, or sued upon. (28) Courts should push back by seizing on particularly high-profile examples where enforcement of contracts violates ordinary intuitions of fairness and distributive justice. Hush contracts are a good place to start that project of resistance. By refusing to enforce such agreements, courts will give an expressive voice to contract law that it is currently missing.

We proceed as follows. Part I reviews the private benefits and public costs of hush contracts. Part II describes the existing state of public policy doctrine on NDAs. Part III argues for a reimagining of public policy as an engine to reduce external harm. Part IV reveals the need for an expressive account of contract law and ties that account to public policy.

  1. THE PUBLIC COSTS AND PRIVATE BENEFITS OF SECRECY ABOUT SEXUAL WRONGDOING

    "With sexual-abuse scandals bubbling out of Hollywood, Capitol Hill, and corporate boardrooms nationwide, you might wonder why the accusers kept their suffering a secret for years, before realizing in recent weeks that they weren't alone. There's more than fear behind their silence: Their lips were sealed with a signature." (29)

    The antisocial consequences of private civil settlements are a well-trod subject. (30) Indeed, there have been repeated cycles of public concern with, and reaction to, secrecy about litigation. (31) The patterns are illustrative of where the hush contract movement may be going. In the last decades, fights against secrecy about automobile manufacturing defects (32)...

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