SC Lawyer, July 2004, #6. Ethics Watch July 2004 Another reason to avoid confidential settlements: taxation.

• Author: By John Freeman

South Carolina Lawyer

2004.

SC Lawyer, July 2004, #6.

Ethics Watch July 2004 Another reason to avoid confidential settlements: taxation

South Carolina LawyerJuly 2004Ethics Watch July 2004 Another reason to avoid confidential settlements: taxationBy John FreemanSouth Carolina's judiciary, both state and federal, has done stellar work in focusing public attention on problems that secret settlements pose for lawyers, parties, judges and society as a whole. A New York Times article ascribed the genesis of this movement to an insight that came some time ago to Chief Federal District Court Judge Joseph F. Anderson Jr.:

Judge Anderson was most concerned with the selling of secrecy as a commodity, he said in an interview. He recalled being told by a plaintiff's lawyer that the lawyer had obtained additional money for his client in exchange for the promise of secrecy. "That's what really lit my fuse," the judge said. "It meant that secrecy was something bought and sold right under a judge's nose."

Adam Liptak, Judges Seek to Ban Secret Settlements in South Carolina, N.Y. TIMES, Sept. 2, 2002, at A1, A13.

The concept that secrecy can take on the trappings of a commodity for sale in the marketplace has many ethical and practical ramifications for lawyers engaged in litigation. For one thing, the confidentiality component of a secret settlement may have a high value precisely because the defendant's conduct has been egregious and has injured many other victims. Keeping those other victims in the dark concerning the existence of their claims or the true value of their claims may make good business sense to the defendant.

A potential problem with selling secrecy arises when the wrongdoer's conduct is criminal. In such a case, the law of compounding may come into play. Compounding is a crime in South Carolina. The pertinent South Carolina statute reads:

Any person who, knowing of the commission of an offense, takes any money or reward, upon an agreement or undertaking expressed or implied, to compound or conceal such offense or not to prosecute or give evidence shall:

(a) If such offense is a felony be deemed guilty of a misdemeanor and upon conviction shall be fined not more than five hundred dollars or imprisoned not more than one year, or both;

(b) If such offense is a misdemeanor be deemed guilty of a misdemeanor and upon conviction be...