ABSTRACT
State medical boards are charged with protecting the public by detecting incompetence and removing licenses of physicians who are unsafe to practice. However, licensed physicians routinely conceal evidence of negligence or incompetence from medical boards by inserting “regulatory gag clauses” into civil settlement agreements – provisions that prohibit injured patients from complaining to or cooperating with regulators. The author – who recently completed a two-year term as Enforcement Monitor at the Medical Board of California – argues for a statutory ban on the inclusion of regulatory gag clauses in civil settlement agreements by licensed physicians, to ensure medical boards can detect misconduct and take appropriate disciplinary action.
In 1999, Wendy Conner went to a well-known San Diego physician for a routine plastic surgery procedure on her forehead. Before the procedure, Conner asked the doctor if he had ever had a problem with that particular procedure. “Oh, no,” he assured her. “In fact, I’ve never been sued.” He then botched an injection, causing an obstruction that destroyed her retina and optic nerve — permanently blinding her in one eye.
Conner, an accomplished author of books about jewelry and beadwork, lost her depth perception. Like a baby, she had to relearn everything, from driving to work to daily tasks. She retained an attorney who filed a medical malpractice action against the physician. Since 1980, she found that he had been sued for medical malpractice at least 16 times. Additionally, the Medical Board of California had put his license on probation for five years in the 1990s for multiple counts of sexual misconduct, permitting unlicensed office staff to administer anesthesia and other violations.
During the course of the lawsuit, the doctor decided to settle with Conner rather than go to trial. However, he gave her a list of demands as a condition of settlement and the compensation she desperately needed so she could go on with her life. One of them turned her stomach: She was not allowed to file a complaint with the medical board or any other agency and she was prohibited from cooperating with any agency that might investigate his misconduct.
After lying to her and injuring her, he was able to cover up his negligence from his own regulator — because no California law prevents him from doing that. Undoubtedly, he had extracted the same “agreement” from his prior victims and had gone on to become a repeat offender.
THE “REGULATORY GAG CLAUSE”
Different from the standard “confidentiality clause” often inserted into settlement agreements to ensure that the fact and the terms of a civil settlement agreement are not disclosed to the public, “regulatory gag clauses” are aimed at hiding information from regulators and only regulators. Regulatory gag clauses prevent occupational licensing agencies — created by the state and charged with public protection — from learning about professional misconduct committed by their own licensees. Without that information, and without ready cooperation from injured victims, agencies are unable to detect misconduct and remove or restrict the license of a practitioner who is incompetent, negligent, dishonest or impaired.
Regulatory gag clauses cause many serious problems — for the injured victim who is forced to accept it as a condition of settlement, for the agency that is being deprived of information about its own licensees and for unsuspecting consumers who continue to be exposed to unscrupulous and/or incompetent state licensees because their regulators cannot take appropriate disciplinary action against them — the very antithesis of the purpose of regulatory agencies.
As a matter of sound public policy, an injured consumer should never be put in the position of having to decide between two competing incentives: “I should take the money and run” vs. “I’d really like to help prevent what happened to me from happening to others.”
As for the agency charged with protecting the public, gag clauses contribute to investigative delay (during which time the practitioner continues to practice, and which sometimes stretches beyond the statute of limitations and precludes the board from being able to file the case), additional enforcement costs (including additional investigator time spent trying to convince the victim to cooperate, and additional prosecutor time spent seeking a subpoena and then enforcing it), and the ultimate cost for an agency charged with preventing irreparable harm — if the injured victim refuses to cooperate, the board will not be able to pursue a practitioner who may then go on to harm someone else.
Regulatory gag clauses are avoidable — but that doesn’t help. California courts have repeatedly ruled that regulatory gag clauses are void as against public policy.1 However, these rulings have not deterred some licensed professionals (including physicians like the one who blinded Wendy Conner) from routinely including them in civil settlement agreements. They are inserted into agreements to settle often-contentious litigation between a licensed professional and an injured victim. Agencies often find out about these settlements and approach the victim, seeking information and assistance. When the victim resists because of the gag clause, the agency may attempt to persuade the victim to ignore the clause and assist the agency in preventing future harm to another consumer. However, having just been involved in protracted litigation that has now been settled, what victim would want to risk new litigation (in the form of a breach of contract lawsuit) with that same professional?
FINDINGS OF THE MEDICAL BOARD ENFORCEMENT MONITOR
I recently completed a two-year term as an “enforcement monitor” for the Medical Board of California (MBC). As specified in the statute creating the enforcement monitor position, my job was to “monitor and evaluate the disciplinary system and procedures of the board, making as his or her highest priority the reform and reengineering of the board’s enforcement program and operations and the improvement of the overall efficiency of the board’s disciplinary system.”2 In analyzing the medical board’s complaint handling performance, we found that many of the state’s mandatory reporting mechanisms that assist the board in detecting physician incompetence, dishonesty or impairment are failing. For example, California law requires medical malpractice insurance companies to report to the medical board all civil settlements over $30,000 — but the number of those reports filed with the board has halved since 1998 (while the number of physicians with active California licenses grew from 80,000 to 93,000 between 1998 and 2005).3 Even when settlement reports are filed, physicians themselves routinely gag their victims to prevent them from cooperating with the board. In a 2004 report, the medical board identified more than a dozen cases in which regulatory gag clauses had contributed to investigative delays (24 months in one case), increased costs (more than $25,000 in one case) and inability to file charges because the statute of limitations had run.
Our Initial Report of the Medical Board Enforcement Program Monitor concluded: “Regulatory gag clauses should be statutorily banned for all regulated trades and professions, and particularly for physicians in light of the irreparable harm they can cause if they are incompetent, negligent, dishonest or impaired. No physician should be permitted to deprive MBC of information about misconduct committed by that physician in the course and scope of the practice of medicine regulated by the State of California.”4
THE FATE OF CALIFORNIA LEGISLATION TO BAN REGULATORY GAG CLAUSES
During both years of my term as enforcement monitor, we sponsored bills declaring that regulatory gag clauses contained in civil settlement agreements are void as against public policy, and subjecting regulated professionals who nevertheless use them to professional discipline. Also, the California Legislature passed those bills by wide margins and, on both occasions, Gov. Arnold Schwarzenegger vetoed them.5 His veto message claimed that, “[W]hen parties who are in dispute agree to settle, there should be some assurances that the dispute has been resolved in a satisfactory and final manner for both parties. Under this bill, a party who agrees to a civil settlement could still file a complaint with a regulatory agency — subjecting the licensee to double jeopardy. Even after the resolution of a civil suit, this bill could still require a licensee to a second adjudication before a regulatory body. The policy implications of this bill do not further the goal of making California more business friendly, therefore, I cannot support this bill.”
With all due respect, these statements reflect confusion about the legal doctrine of “double jeopardy” (which is applicable only in the criminal arena, not in civil or administrative matters). Of more significance, they indicate a fundamental misunderstanding of the difference between the purposes of the civil tort system and the administrative discipline system. The civil tort system and the administrative discipline system are parallel, co-extensive systems that function separately — independent of one another — and they have very different purposes. Civil courts entertain a plaintiff’s claim against a defendant who has allegedly caused a past injury to the plaintiff in order to determine whether the plaintiff is owed compensation. In contrast, the purpose of administrative agencies is to appropriately license and discipline certain trades and professions to prevent future harm to consumers by licensees who are incompetent or dishonest.
A ban on regulatory gag clauses would not interfere at all with a civil defendant’s ability to fully resolve a civil matter by way of settlement; indeed, public policy favors settlements in the civil system and a ban would further that policy by removing the “secrecy-from-the-regulator” issue from the table. Our proposed legislation would simply prevent regulated licensees from being able to unilaterally deprive their own regulators of information about their own misconduct committed in the course and scope of the regulated business. In other words, a ban would prevent civil defendants from interfering with a public regulatory agency’s ability to receive information and its discretion to investigate alleged wrongdoing by a regulated licensee — and that call is for the agency to make, not the regulated licensee.
If the harm that can be caused by incompetence or dishonesty is so serious as to justify the creation of a regulator to protect the public, then it makes no sense to deprive that regulator of information about misconduct committed by its own licensees in the course and scope of the licensed activity. If a consumer wants to file a complaint, a regulatory agency is entitled to learn of it. After that, it is the agency’s call what to do about it — whether to close the case, investigate it or take appropriate disciplinary action. Our proposed legislation simply preserves the ability of agencies to learn of and the discretion of agencies to investigate complaints filed against repeat offenders who have and will continue to injure the public. How ironic that the head of the executive branch would countenance the blindfolding of his own agencies — directed largely by his own appointees — to the very dangers those agencies are created and directed to prevent.
A statutory ban on regulatory gag clauses does not prohibit anyone from settling any dispute in any way they want. It does not require anyone to file any complaint with any regulator, and it does not require any regulator to do anything about any complaint. It simply precludes the defendant licensee from forcing a “gag clause” on a victim plaintiff. It simply — and appropriately — removes from civil settlement negotiations the issue of concealment from the regulator.
The ability of regulated professionals to insist upon clauses secreting information about their own misconduct from their own regulators actually promotes an irresponsible business model and encourages serial wrong-doing by repeat offenders who can: (1) cheat or injure consumers, (2) settle with the few who are willing and able to sue, (3) silence them through a gag clause and (4) repeat the misconduct again and again and again — with the regulator never the wiser.
The bottom line? The practice of paying people not to contact state regulatory authorities is tantamount to extortion, and is clearly a violation of public policy. Substantial California case law recognizes these facts, and a 20-year-old California statute prohibits attorneys from inserting regulatory gag clauses into settlement agreements in legal malpractice cases.6 Those precedents should be applied across the board to all regulated professions — especially physicians. In California, the medical board currently is sponsoring Assembly Bill 2260 (Negrete McLeod). The bill would add section 2220.7 to California’s Medical Practice Act, which would prohibit physicians from including regulatory gag clauses in civil settlement agreements. Let us hope the third time is the charm.
Editor’s note:
↵Julianne D’Angelo Fellmeth is the Administrative Director of the Center for Public Interest Law (CPIL) at the University of San Diego School of Law. She recently completed a two-year term as the Enforcement Monitor of the Medical Board of California. In that capacity, she investigated almost every aspect of the board’s enforcement program and its diversion program for impaired physicians; published two comprehensive reports (both of which are available on CPIL’s website at http://www.cpil.org); and successfully drafted and advocated 2005 legislation addressing many of the deficiencies found during her investigation.
After this article was edited, Gov. Schwarzenegger approved Assembly Bill 2260 (Negrete McLeod) on Sept. 28, 2006. Effective Jan. 1, 2007, AB 2260 prohibits California physicians from including regulatory gag clauses in civil malpractice settlement agreements. The new law is codified at California Business and Professions Code section 2220.7.
REFERENCES
- 1.↵See, e.g., Cariveau v. Halferty, 83 Cal. App. 4th 126 (2000) (investment advisers); Picton v. Anderson Union High School, 50 Cal. App. 4th 726 (1996) (teachers); Mary R. v. Division of Medical Quality of the Board of Medical Quality Assurance, 149 Cal. App. 3d 308 (1983) (physicians).
- 2.↵Cal. Bus. & Prof. Code § 2220.1(c)(1) (now repealed).
- 3.↵D’Angelo FellmethJulianne and PapageorgeThomas A., Final Report of the Medical Board of California Enforcement Program Monitor ( Nov.1, 2005) at 68.
- 4.↵D’Angelo FellmethJulianne and PapageorgeThomas A., Initial Report of the Medical Board of California Enforcement Program Monitor ( Nov.1, 2004) at 113– 14.
- 5.↵On Sept. 22, 2004, Gov. Schwarzenegger vetoed Assembly Bill 320 (Correa). On Sept. 29, 2005, he vetoed Assembly Bill 446 (Negrete McLeod).
- 6.↵California Business and Professions Code § 6090.5 (originally enacted in 1986) subjects a lawyer to discipline if he or she seeks to settle a client’s professional misconduct claim through an agreement prohibiting the client from reporting the misconduct to the State Bar or cooperating with the Bar, or which requires the client to withdraw a complaint already filed with the Bar.
