An Arizona law firm has lost its bid to overturn a fine imposed by a trial judge for improperly disclosing the terms of a settlement it got for clients against a major homebuilder.
Without dissent, the Arizona Court of Appeals upheld the $25,000 penalty against Kasdan Simonds Riley & Vaughan after it sent out notices saying it had received what is "believed to be the largest single-family home defect settlement in Arizona history." Judge John Gemmill, writing for the court, said that violated the terms of a confidentiality agreement.
Gemmill said the fact the notice did not name the specific dollar figure is irrelevant. He said the law firm clearly violated the intent of the confidentiality agreement.
Calls to the firm seeking comment were not returned.
The case stems from a lawsuit filed in 2005 by the firm on behalf of more than 500 homeowners in the Terravita subdivision in Scottsdale against Del Webb, a division of Pulte Homes. It alleged the stucco on their homes had been improperly applied and was cracking, deteriorating and discolored.
Del Webb, in turn, sued two of its subcontractors. And one of them, in turn, sued a supplier.
In August 2007 the parties entered into a mutual settlement agreement with the case being dismissed with prejudice, meaning it could not be refiled.
That settlement included a confidential agreement that barred the parties and the law firm from "disclosing, advertising or publicizing the terms of the agreement" to third parties or any media. It also included provisions for a court to enforce that requirement.
Three months later, the law firm sent a letter to Terravita homeowners who were not part of the original lawsuit. It included mention of settlement on the eve of trial and the reference to it probably being the largest such settlement ever in this kind of case.
Del Webb sued, charging the firm had violated "the letter and spirit of the agreement." A trial judge agreed, imposing the $25,000 penalty.
The firm appealed. But the appellate court said the evidence showed the contract had, in fact, been broken.
Gemmill said it is not unreasonable to assume that Del Webb would reasonably have expected that the firm "would not refer to the amount of the settlement, either by stating the exact amount or referring to its size relative to other settlements in Arizona history." Nor was the court persuaded by the lack of a dollar figure, saying the letter "gave potential plaintiffs a means of determining the minimum amount."
Gemmill also rejected arguments by the firm that Del Webb itself had also disclosed the amount.
That is based on the fact that Del Webb, in filing its complaint, attached a newspaper article that quoted anonymous sources as saying the lawsuit had settled for $17 million. The firm argued that action did more to disclose confidential information than anything the lawyers had done.
"The article Del Webb attached to its motion was already publicly available, and Del Webb therefore did not disclose any new information about the agreement," Gemmill wrote. Anyway, the judge said, the homebuilder, unlike the law firm, "was motivated by a desire to enforce the terms of the agreement."
Finally, the appellate court rejected the law firm's arguments that barring it from disclosing the nature of the settlement interferes with its ability to practice law. That is based on arguments that the firm is entitled to inform potential clients of its experience in the first stucco case.
But Gemmill said the firm is free to tell would-be clients of the fact there was a settlement or other public information. He said barring the firm from disclosing the terms of the settlement does not interfere with its ability to practice law.
The ruling was not a complete victory for Del Webb.
It also had asked that, based on the improper disclosure, the law firm be barred from representing other Terravita homeowners who responded to the solicitation letter. That, Gemmill said, would be a much more severe sanction, and there is no evidence that the trial judge who refused to impose it acted improperly.
The law firm, with offices in California and Phoenix, describes itself on its Web site as having a "well-established reputation in construction defects litigation," boasting of $497 million in recovery for its clients.