- Posted by John P. Ahlers
- On April 2, 2015
A recent Southern District of New York ruling addressed the issue of public access to arbitration awards.[i] The case involved a motion to confirm an arbitration award and a joint request from the parties to “seal” various documents relating to the arbitration. Sealing of court records prevents public access and ensures the proceedings remain confidential.
The Court granted the motion to confirm the award. As to the request to seal, however, the Court noted that “it is well settled in this district that ‘the petition, memoranda and other supporting documents filed in connection with a petition to confirm an arbitration award (including the Final Award itself) are judicial documents that directly affect the Court’s adjudication of that petition.'” (Citations omitted.) Accordingly, despite the joint request to seal which the parties made in an earlier-filed letter, the Court asked the parties to submit further briefing to address whether they can overcome, in this case, the Second Circuit’s presumption that the public should have access to judicial documents.
This case raises an interesting issue about the scope of confidentiality of arbitration proceedings when viewed in a context of subsequent motions to confirm (or vacate) an award. Privacy is the dominant feature of arbitration and distinguishes it from open-court proceedings. Both the American Arbitration Association Rules (CIR?23, 2009) and JAMS Rule 26(c) (2014) give the arbitrators considerable discretion to exclude a non-party from any part of the hearing. Privacy and confidentiality, however, are distinguishable.
The assumption that arbitration will always protect confidential information can be misleading and is certainly overbroad. Moreover, the scope of protections will be impacted by the circumstances in which information is subsequently sought. Therefore, parties to an arbitration should take care to protect trade secrets, sensitive financial information, work product, and attorney-client privilege communications within the arbitration itself. Parties should seek a protective order, and appropriately mark and maintain the information so that confidentiality is maximized. If the parties do not consider the scope of confidentiality provided by their agreement and by the orders of the arbitration tribunal, they proceed at their peril.
The AAA and ABA have Canons governing the obligations of arbitrators to maintain confidentiality of the proceedings.[ii] The AAA specifies in its Statement of Ethical Principles that while arbitrators and AAA staff have the duty of confidentiality, it is neutral as to whether the parties should enter into a confidentiality agreement or agreed order pertaining to confidentiality of the proceedings or the award: “The parties always have the right to disclose details of the proceeding, unless they have a separate confidentiality agreement. Where public agencies are involved in disputes, these public agencies routinely make the award public.” Where the parties intend that the arbitration be confidential, the following should be considered:
- Draft a provision in the governing agreement to arbitrate specifying confidentiality requirements for documents or other business secrets that will be exchanged, how they will be identified, and what steps must be taken to avoid distribution or disclosure;
- Draft a provision in the agreement to arbitrate that expresses the parties’ intent that the facts of arbitration, the matter submitted in arbitration, witness statements, the reasoning of the arbitrators, and the award be maintained as confidential by all participants in the arbitration, the arbitrators, witnesses, experts, and administrative personnel, except as required by law or financial reporting requirements; and
- Consider declining to have a reasoned award to avoid having to submit the reasoning to a court where it must be disclosed. Here, there are certainly countervailing considerations, but enforcement or challenge to the award is one place where there is serious potential for unwanted disclosure or publication.
Even with the maximum effort and care, there remains exposure to disclosure if third-party non-participants in the arbitration have legitimate need of the information in connection with unrelated litigation.[iii]
[i] Clearwater Insurance Company v. Granite State Insurance Company, et al., No. 1:2015cv00165 – Document 16 (S.D.N.Y. 2015).
[ii] Canon VI AAA Code of Ethics requires arbitrators to maintain the confidentiality of all matters relating to the arbitration.
[iii] L.A. Kaster, Confidentiality in U.S. Arbitration, NYSBA, New York Dispute Resolution Lawyer, Spring 2012, Vol. 1, No. 5.