April 29, 2022
Famously, “litigation is not a tea party”, meaning that the participants can expect a tough fight. This is limited by various rules, particularly those that enforce honesty, and try to prevent judges from being misled.
Failure to immediately disclose an agreement between parties to a lawsuit that converts their adversarial relationship to a cooperative relationship may result in the stay of the non-disclosing party’s action.
So, you may make such a deal, but you must disclose it immediately. This may go against your instincts, or the instincts of some lawyers who love “trial by ambush”. But it is not a risk worth taking.
The justice system encourages settlements, but it also expects transparency and a level playing field. The existence of an agreement where former adversaries co-operate significantly alters the relationship between the parties, and makes the existing pleadings misleading. That is unfair both to the judge hearing the case and the non-cooperating parties.
A series of cases over the last decade or so have wrestled to define when partial forms of settlements that change loyalties must be disclosed.
The clearest rule is that the disclosure must be “immediate” or “as soon as it is concluded”.
Despite early cases stating this emphatically, that issue arose again in the 2022 case of Tallman Truck Centre Limited v. K.S.P. Holdings Inc. where a delay of three weeks was held to be too long. The claim was stayed. The Plaintiff argued that the non-cooperating Defendant had not suffered any prejudice, but that did not matter.
KSP, the non-settling defendant, expected the other defendant, Secure, to provide helpful evidence for the defence on a motion for summary judgment. Instead, that party supplied an affidavit to support the Plaintiff. That affidavit was claimed to be sworn “in response to” the Plaintiff’s motion. In reality, it was in support of that motion.
In addition to the unfairness to KSP, this leads to confusion on the part of the judge reading the materials. It is misleading the court, which is improper, whether done by a lawyer or a party.
Tallman also considered the question of what types of agreements must be disclosed. Given the failure to disclose immediately, Tallman lacked any ability to stand upon the “moral high ground” so any doubt was resolved in favour of KSP.
Although the earlier cases seem pretty clear- any agreement that changes the adversarial relationships must be disclosed – Tallman argued that the form of their deal, known as a Perringer agreement, was not covered. Secure was always adverse to KSP, they argued. The court clarifies that this does not matter – Secure went from being an adversary of Tallman to being its ally. That triggered the duty to disclose.
Although KSP’s experienced lawyer suspected some sort of deal had been made, that is not enough. KSP was entitled to know the terms of the settlement.
Tallman then argued that the rule is intended to root out “shams”, and that its bargain with Secure was not a sham. The court disagreed. A judge reading the motion record would not know that Secure was now on the Plaintiff’s side.
Finally, Tallman argued that a stay was too severe a penalty. Again, the courts disagree. Failure to disclose is an abuse of process for which the ONLY remedy is a stay – the most important thing to courts is their ability to enforce and control its own process by sending out a strong message.
It is the strength of that message which makes us believe that clients ought to be aware of this risk.
Litigation may not be a tea party, but you do not want your lawyer to be the bull in the china shop either.
When you select your lawyer, you want one like those at Weilers LLP who love a tough fight, and who know what lines not to cross. At Weilers LLP, we have the knowledge and experience to strike that balance. We understand the importance of telling your story in a way that claims the moral high ground if at all possible. If you have a big hill to climb, we might be the right lawyers for you.