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Dennis Rodman was professional basketball’s self-proclaimed bad boy. From his rookie season in 1986, until his retirement in 2000, he tormented opposing players, fans, referees, and even his own coaches and teammates. Rodman has gone from the basketball court to a court of law. He kicked down the front door, with important consequences for personal injury settlements. More about the law shortly, but first, a little more information about the protagonist for those of you who have done your best to forget the author of Bad as I Wanna Be. What follows are the facts. No names have been changed to protect the innocent.

Rodman was one of the most controversial players in the history of the National Basketball Association. Nicknamed “the worm,” he was a defensive and rebounding specialist. He broke in with the Detroit Pistons, with whom he tormented Portland fans during the Pistons 1990 NBA championship victory over the Trailblazers. After taking up with Madonna (the celebrity, not the religious figure), he adopted an increasingly wild and eccentric persona. He dyed his hair an ever-changing rainbow of colors and patterns including blonde, multi-color, tie-dye, and florescent. He acquired multiple body piercings. He posed in women’s clothing, including lingerie and wedding dresses. He married Carmen Electra. He played on five NBA championship teams, but left a wide wake—on and off the court.

On January 15, 1997, Rodman was a member of the Chicago Bulls, who were playing the Minnesota Timberwolves in Minneapolis. Eugene Amos, a television cameraman, was courtside. During the game, Rodman landed on a group of photographers. Rodman twisted his ankle in the fall. He got up and kicked Mr. Amos. It is unknown whether Rodman kicked with his injured ankle or was standing on it when he delivered the blow.

Eugene Amos went by ambulance to the hospital. He gave a history of having been kicked in the groin, but that his pain was subsiding. He had a noticeable limp. He also described neck pain. He also related a preexisting back condition. Mr. Amos was discharged from the hospital. He had further medical attention for his back, but not for his groin or neck. Amos filed a report with the police department in which he claimed to have been assaulted by Rodman.

Eugene Amos retained counsel who negotiated a settlement with Rodman, before a lawsuit was filed, for payment of $200,000 in exchange for a full release of all claims against Rodman, the Chicago Bulls, the NBA, and other potential tortfeasors. The settlement agreement also imposed additional obligations upon Amos, including:

The confidentiality terms contained limited exceptions allowing disclosure “to the extent necessary to report the sum paid to appropriate taxing authorities or in response to a subpoena . . . .” The agreement also contained a mandatory arbitration clause and a liquidated damages clause requiring Amos to pay Rodman the sum of $200,000 in the event of a material breach of the settlement agreement.

Except for the unique facts of the underlying tort and the celebrity status of the tortfeasors, the foregoing scenario is familiar to personal injury practitioners. An injured person makes a claim. The parties negotiate a settlement agreement including a release of all claims by the injured party, payment of money by the tortfeasors, and a confidentiality clause. The parties go their respective ways. The injured party assumes that the settlement proceeds are not subject to income taxes pursuant to 26 U.S.C.A. § 104(a)(2), which provides that gross income does not include “the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness.”

Needless to say, the worm turned. Mr. Amos had not felt the last blow from Mr. Rodman. The Commissioner of Internal Revenue determined that Amos owed income taxes on the entire $200,000 in the sum of $61,668. On appeal, the United States Tax Court held that $120,000 of the settlement was properly excludable from gross income as the ordinary proceeds of a bodily injury settlement, but that the remaining $80,000 was subject to income taxes. Amos v. Commissioner of Internal Revenue, 86 T.C.M. (CCH) 663, T.C.M. (RIA) 2003-329, 2003 RIA TC Memo 2003-329, 2003 WL 22839795 (U.S. Tax Ct.). As Casey Stengel said, “You can look it up.”

In a written opinion dated December 1, 2003, the United States Tax Court rejected the IRS’s contention that the entire amount of the settlement was gross income and therefore taxable. The court found that “Mr. Rodman’s dominant reason in paying petitioner the settlement amount at issue was to compensate him for his claimed physical injuries relating to the incident.” The court assigned 60% of the settlement funds as payment for Amos’ bodily injuries and the remaining 40% “on account of the nonphysical injury provisions of the settlement agreement.” The court described these later provisions as including Amos’ agreement to not defame Rodman, to not disclose the terms of the settlement, publicize the facts of the assault, and to not assist in a criminal prosecution of Rodman.

Confidentiality clauses in bodily injury settlement agreements have become increasingly more common in the past 15 years. The defendants and their insurers frequently insist upon such clauses. It is not uncommon for such a clause to appear unannounced in the settlement papers even where confidentiality was never discussed during settlement negotiations. Many defense lawyers and some mediators consider a confidentiality clause of some kind to be a standard term in a settlement agreement.

Confidentiality clauses have been the source of much debate among the bar. Critics of the clauses believe that secrecy jeopardizes public health and safety and permits wrong doers to hide their wrongs at the peril of the public. There have been proposals over the last several years in both the legislature and the Council on Court Procedures to eliminate or limit the use of such clauses.

Confidentiality clauses are not permitted in settlements against public bodies, except under limited circumstances. ORS 17.095(1) prohibits a public body, officer, or employee from entering into a settlement that “requires that the terms of the settlement or compromise be confidential.” The only exception is where “the court determines, by written findings, that specific privacy interests of a private individual outweigh the public’s interest in the terms of the settlement or compromise.” ORS 17.095(2). All settlements of claims against a public body, officer, or employee must be filed with the court before dismissal of the action and must included “a full and complete disclosure of the terms and conditions.” ORS 17.095(3).

Plaintiff’s attorneys in Oregon have been successful in eliminating confidentiality clauses in many cases and in softening the hard edges of the clauses that have been agreed upon. Common modifications include limiting the clause to the amount of the settlement and language that allows the plaintiff to disclose the terms to the court (where court approval of the settlement is required), to taxing authorities, and to persons in the regular course of plaintiff’s affairs such as CPAs, financial planners, and attorneys. It is also common to include language imposing a heightened burden of proof upon a defendant and that the defendant prove the actual damages caused by a breach of confidentiality. It is also common to include a provision that the plaintiff is not vicariously liable for breaches of confidence by his or her attorneys, CPAs, or financial planners.

In light of the decision in Amos v. Commissioner of Internal Revenue, plaintiffs’ counsel is obligated to fully explain the risks and possible benefits of a confidentiality clause. It may not be possible to settle cases involving significant damages without agreeing to the tortfeasor’s insistence upon a confidentiality clause. While confidentiality clauses in Oregon are generally limited to the amount of the settlement, Amos still subjects the plaintiff to some income tax liability for such a clause. Not including the other “nonphysical injury provisions” contained in the Amos v. Rodman confidentiality agreement, such as not publicizing the underlying facts of the tort and not cooperating with the authorities in a prosecution, will probably not eliminate all income tax liability.

Before Dennis Rodman kicked Eugene Amos in the groin, the parties in a bodily injury claim believed that the settlement was not subject to income tax liability as long as no claim for punitive damages was asserted. 26 U.S.C.A. § 104(a)(2). A Plaintiff must now weigh the desire to amicably resolve a bodily injury claim out of court against the income tax liability now associated with a confidentiality clause.

Defendants began to insist on hold harmless clauses in the mid to late 1980s requiring plaintiff to agree not only to pay any medical and disability liens and subrogation rights, but to also pay defendants attorneys’ fees if plaintiff failed to pay the claims. These clauses, too, were the subject of much debate and controversy. Defendants were not content with a promise to pay. Taking a page from the defense, plaintiffs should insist that defendants who demand confidentiality clauses hold plaintiffs harmless from income tax liability in bodily injury cases.

As Yogi Berra said, “It’s déjà vu all over again.” It is unfortunate that Dennis Rodman did not stay on the basketball court and keep Eugene Amos out of tax court. As for confidentiality clauses, Yogi summed it up when he said, “The future ain’t what it used to be.”

Reprinted by permission of THE OREGON STATE BAR LITIGATION JOURNAL. This article was originally published in THE LITIGATION JOURNAL, Fall 2004."

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How Dennis Rodman Messed with Your Client’s Settlement