City of Lansing Settlement Agreement and a Non-Disparagement Clause with a $10k Penalty

I read an article a few days ago about the City Lansing’s Mayor, Virg Bernero and a settlement agreement he apparently negotiated that included a payout that was made, as reported by the Free Press,  “so everybody would be happy.”

What I found interesting was “the settlement agreement signed by Bernero and McIntyre also includes a non-disparagement clause with $10,000 penalties for any comments either side makes harming the reputation and goodwill of the other.”

Would you sign a non-disparagement clause with that big of penalty attached to it?

I’ve previously delved into the topic of non-disparagement clauses.

The above language interests me because the $10,000 penalty is a pretty big stick to deter “disparagement”.  As a lawyer, if I was approving my client’s signature on that agreement, I’d want to be sure that my client understood what constitutes “disparagement” (in the City of Lansing case, the client was a lawyer – and (in my opinion appropriately) responded to inquiries from the press with a “no comment“).

Courts have held that “disparagement” is plain in its meaning. It is not ambiguous. Therefore, when signing a non-disparagement clause you can have some reasonable certainty in your conduct.

For a further discussion on this topic – see below.

1. Non-Disparagement Clauses in Settlement Agreements.

Often times as part of a confidential settlement agreement, the parties to a dispute will agree not to “disparage” each other.

Disparage – as you will see below – has a fairly common meaning.

‘Disparagement’ is ‘a false and injurious statement that discredits or detracts from the reputation of another’s property, product, or business.’ Black’s Law Dictionary (7th ed. 1999).

stated another way:

(1) To speak of in a slighting or disrespectful way; belittle. (2) To reduce esteem or rank.’ . . . American Heritage Dictionary (4th Ed. 2000)

2. Michigan Case Law Concerning “Non-Disparagement Agreements”

Rarely have I ever seen a non-disparagement clause become an issue. In fact, a review of Michigan case law supports this – I found only a handful of cases in Michigan where the parties litigated over one party’s alleged “disparagement” after a settlement agreement was entered.

One such case was the 2011 case of Sohal v. Mich. State Univ. Bd. of Trs. & Davoren Chick M.D., 2011 Mich. App. LEXIS 915, *12-14, 2011 WL 1879728 (Mich. Ct. App. May 17, 2011).

There, Plaintiff,  a participant in MSU’s internal medicine residency program, entered into a “resignation and settlement agreement” with MSU under disputed circumstances. The Agreement contained a “non-disparagement clause”.

Plaintiff sued and argued that Defendants breached the non-disparagement clause, entitling him to “rescind” the Agreement (and therefore sue under all of the laws that he would have otherwise waived).

One of Plaintiff’s arguments was: “the word “non-disparagement” is ambiguous. (If you’ve read my previous post you can understand why this argument does not win the day.)

The Court was not convinced. It held:

“the term “disparage” in the non-disparagement clause is not ambiguous. While plaintiff attempts to ascribe several “reasonable” meanings to the term “disparage,” and thus the non-disparagement clause, the term fairly admits of but one interpretation.” Citing Meagher v Wayne State Univ, 222 Mich App 700, 722; 565 NW2d 401 (1997).

As the Court noted, “Other state courts have determined that the term “disparage” in non-disparagement clauses of settlement agreements are unambiguous.” (citations omitted).

In closing – non-disparagement clauses are standard clauses (but not universally used). Courts have consistently held that “Disparage” is a plainly understood term. It isn’t an ambiguous term.

Questions?  Comments?

e-mail: Jeshua@dwlawpc.com

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Twitter: @JeshuaTLauka