By Leslie King O’Neal
How confidential are arbitration proceedings?
Are arbitration proceedings confidential? While many parties and attorneys assume that all testimony and documents presented in arbitration proceedings are confidential, neither the Federal Arbitration Act (§9 U.S.C.1) nor most state arbitration statutes address confidentiality. Unlike court proceedings, arbitration hearings are private and arbitrators have discretion to exclude non-parties from attending any part of a hearing. This doesn’t mean everything presented in arbitration is confidential.[1] JAMS rules provide that JAMS and the arbitrator will keep the proceedings and the award confidential, but there are no confidentiality requirements for parties, counsel, or witnesses; AAA has similar rules.[2] Arbitrators may issue orders to protect the confidentiality of proprietary information, trade secrets or other confidential information if requested. Absent such an order, these items could be subject to subpoena or discovery in other matters. However, confidentiality agreements are not binding on courts when considering post-hearing motions, as discussed further below.
Using confidentiality agreements in arbitration
Since construction arbitrations may involve parties’ confidential financial information, intellectual property, business operations methods and trade secrets, counsel may want to protect sensitive information from disclosure by: (1) Including confidentiality provisions as part of the arbitration agreement; (2) negotiating a confidentiality agreement with opposing counsel and requesting the arbitrator include it in the initial order; (3) describing who has access to confidential information, how access will be managed during the case, and limitations on the information’s use or disclosure after the case. In Galleon Syndicate v. Pan Atlantic Group Inc., the court allowed production of materials and expert reports that Pan Atlantic Group submitted in a prior arbitration with a third party. The court noted, “There is no confidentiality privilege precluding disclosure of the material requested as the parties to the arbitration proceeding . . . are, in the absence of a confidentiality provision, not prohibited from disclosing documents generated or exchanged during the arbitration and since evidentiary material at an arbitration proceeding is not immune from disclosure.”[3]
Maintaining confidentiality in court proceedings after arbitration
After arbitration, new confidentiality issues may arise. If filing a motion to confirm or to vacate the award, counsel should move to seal the court file (or redact any confidential information ) before filing any sensitive information (such as the arbitration award) in the record. Remember that the court file is a public record and there is a “strong presumption in favor of access” to court files.[4] Sealing court records is subject to local rules, which not only vary from district to district, but also differ between districts since individual judges may have their own rules about filing under seal. Knowing the applicable rules ahead of time is critical. Once confidential information has been disclosed, it’s difficult to “unring the bell.”[5]
Courts aren’t bound by confidentiality agreements
The parties’ confidentiality agreements in arbitration are not binding on judges or courts. Therefore, parties must be prepared to offer evidence to show the information meets confidentiality requirements in court rules or statutes. In Soligenix, Inc. v. Emergent Prod. Dev. Gaithersburg, (C. A. 2022-0880-PAF (Del. Ch. Feb. 21, 2023), the parties had a confidentiality agreement during arbitration and sought to seal the court file in the motion to confirm the award. Denying the motion to seal, the court stated: “[A] confidentiality provision, even when carefully negotiated, cannot form the basis for this Court to treat contractual provisions as confidential under Rule 5.1, assuming that the Rule itself does not provide such a basis.”[6 Neither the arbitration award itself nor the exhibits presented at the hearing were included in the confidentiality agreement; however, even if they had been, the Court was not bound by that agreement. The Soligenix court held that, to overcome the fundamental principle that most information provided to the Court should be made available to the public, a party must show the information meets the requirements of Chancery Rule 5.1 regarding confidentiality. Since the party requesting confidentiality could not present evidence to meet these requirements, the judge denied the motion.
Takeaways
Maintaining confidentiality in arbitration proceedings requires counsel to be proactive. Ask your client about confidential information needing protection before beginning discovery. Request entry of confidentiality orders before providing confidential information to opposing parties; include the arbitration award and exhibits in the confidentiality order. Request fact witnesses and experts to agree to confidentiality. Review local court rules regarding sealing the court file and file an appropriate motion before filing any documents in the public record. Be prepared to provide evidence regarding the effect of the confidential information’s disclosure in court to support confidentiality protection.
1] See Richard C. Reuben, Confidentiality in Arbitration: Beyond the Myth, 54 U. Kan. L. Rev. 1255 (2006). https://scholarship.law.missouri.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1328&context=facpubs. See also Confidentiality in U.S. Arbitration (March 23, 2023) (GPSolo eReport, ABA Solo Small Firm and General Practice Division).
But see Delaware Rapid Arbitration Rule 5, https://courts.delaware.gov/forms/download.aspx?d=160538#:~:text=Rule%205%3A%2Delaware Superior Court Rules of Civil Procedure, Rule 139 (b). However, even these rules may not overcome the strong presumption in favor of open access to materials in the court file, as shown by the case in footnote 6.
[2] See Rule 26, JAMS Engineering and Construction Arbitration Rules and Procedures (https://www.jamsadr.com/rules-construction-arbitration/). AAA Rule R-45 states that AAA and arbitrators must keep all matters relating to an arbitration or award confidential; it also allows arbitrators to issue confidentiality orders. However, the AAA’s Statement of Ethical Principles states that parties may disclose details of the proceeding unless they have a separate confidentiality agreement.
[3] 223 A.D.2d 510, 637 N.Y.S.2d 104 (N.Y. App. Div. 1996).https://casetext.com/case/galleon-syndicate-v-pan-atlantic-group-inc
[4] Kamakana v. City and County of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006)https://casetext.com/case/kamakana-v-city-and-county-of-honolulu (quoting Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003)).
[5] See Chicago Bridge & Iron Co., N.V. v. Refinera De Cartagena S.A.S., (Case No: 1:23-cv-4825-GHW S.D.N.Y. June 9, 2023)https://casetext.com/case/chi-bridge-iron-co-nv-v-refinera-de-cartagena-sas, (order denying motion to seal court file where Petition to Vacate Arbitration Award (and attached award) were filed without prior filing of a motion to file civil case under seal according to the court’s local rules).
[6] Soligenix, Inc. v. Emergent Prod. Dev. Gaithersburg, (C. A. 2022-0880-PAF (Del. Ch. Feb. 21, 2023) https://law.justia.com/cases/delaware/court-of-chancery/2023/, discussing the effect of the parties’ confidentiality agreement in arbitration on the court in determining whether the arbitration award and exhibits were confidential and allowed the court file to be sealed under Delaware chancery court rules .
For further discussion about confidentiality in court records see “Managing What Goes in the Court File and Sealing Court Records,” Chapter 6, Section V E, in Technology in Construction Law (ABA Press 2023) listed on the Recommendations and Resources page of this websitehttps://theconstructionadrtoolbox.com/recommendations/
