Commercial Arbitrations: Private, But Not Always Secret

An advantage of commercial arbitration is that it is private.  The dispute is resolved in a private proceeding.  Unlike court, the public is not allowed in.

Arbitrators must keep secrets

Under the rules of most arbitral organizations and under ethics rules for arbitrators, the arbitrator must keep things confidential.  E.g., AAA Comm’l Rule 25 (“The arbitrator and the AAA shall maintain the privacy of the hearings unless the law provides to the contrary.”); Code of Ethics for Arbitrators in Commercial Disputes, Canon VI B (“The arbitrator should keep confidential all matters relating to the arbitration proceedings and decision.”)

Private, but not secret

But that doesn’t mean arbitration proceedings will remain secret.  Enforcing an award may necessarily render the award public. A recent case illustrates the point. 

Enforcing the award

An insurance company, Pennsylvania National Mutual Casualty Insurance Group, arbitrated and won a contractual dispute with its reinsurers.  It filed a petition in U.S. District Court to confirm the award.  Remember, arbitrators can’t enforce their decisions.  Only courts can do that. They do that under the Federal Arbitration Act – or in some cases a state arbitration act – by enforcing a judgment confirming the award. 

Of course, to petition the court, Penn National had to provide the award to the court.  It wanted to keep things confidential, so it petitioned to have the award filed under seal.  But before the court could act on the case, the parties settled. 

One of Penn National’s reinsurers, which wasn’t involved in the arbitration, wanted to see the award.  It argued to the District Court that the award, having been filed with the court, was a  judicial record.  The public, it said, had the right to access judicial proceedings and records.  The District Court at first disagreed. But, after an appeal to and remand from the Third Circuit, the District Court decided it should not have been sealed.  Penn National then appealed to the Third Circuit. 

The Third Circuit decided that any document that makes its way into the clerk’s file is presumed to be available to the public.  A party can overcome that presumption only by demonstrating a “clearly defined and serious injury” that would result from public access. The evidence Penn National submitted was mostly that it believed ”other reinsurers might choose to forego paying Penn National and contest their contractual obligation to pay if they learned of the contents in the arbitration award.”  That wasn’t a “clearly defined” injury because the court couldn’t determine “how many possible relationships could be impacted, the amount of money that could be at stake, the types of actions other parties may pursue, or the likelihood that any such actions would be successful.”  The award would be made public.

So, in this case, the arbitration was private, but it wasn’t secret.  To enforce the award, it had to be filed.  After filing, it was presumed to be public. 

The parties may not need to keep secrets

Let’s assume a new set of facts.  Buoyed by a large award in their client’s favor, your opposing counsel announces the victory on their firm’s marketing website.  “Our firm, Bigs and Winners, has the experience to win big in breach of contract arbitration, as proven by the recent big award we secured for our client.”  It then has a summary of the case, the names of your client, the charges made against your client (in great detail and making it look as bad as possible), and a large award.  The local press picks this up, and interviews opposing counsel, who provide a copy of the award. The front page of the paper includes an excerpt of the award, including the amount.

Furious, your client exclaims, “I thought this was a private  proceeding. Do something!”  What can you do?  Probably nothing. 

While arbitrators and arbitral organizations must keep arbitration matters confidential, your opponent is under no such constraint.  The parties need not keep the award or anything else about he arbitration confidential absent some agreement or order to do so.

But they can agree to keep secrets – to a point

Of course, arbitrators can enter protective orders to forbid disclosure of confidential information or, in fact, any information the parties can agree to keep secret.  This is routinely done in commercial arbitrations.  There is no presumption of public access to worry about. 

But what about the award itself?  Again, arbitrators in commercial matters will keep things confidential.  But your opponent needs to do so only to the extent the parties have agreed to or have been ordered to keep it confidential.

Keeping the award secret

This suggests a way to keep the award secret, at least for a time.  Enter into a confidentiality agreement or seek one from the arbitrator to keep the proceedings and award confidential.  As to documents that are, in fact, confidential this is routine. 

Arbitrators do not, however, routinely order that the parties keep awards confidential.  The parties, though, can agree to keep the proceedings and the award confidential, and arbitrators may agree to enter an order enforcing that agreement.

At the courthouse

But, if a party seeks a court’s help to enforce the award, it is no longer up to the parties, as illustrated by the Penn National case.  Still, as the Penn National court noted, other circuits have different tests for keeping information confidential.  So, you may fare better in your court than Penn National did. 

The place to start, though, is to find out whether you really need to petition to enforce the award at all.  Often, parties will simply pay an award, recognizing the high standard for attacking an award.  Try that first. 

Also, your case may not have parties as interested in your arbitration award as the reinsurers were in Penn National’s case.  It may well be that, if you have a confidentiality agreement, only your client, your opponents, and the arbitrator even know about the dispute.  Chances may be slim that someone will challenge an attempt to keep the award confidential.

And yet, courts are sensitive to the public’s right of access, and so well may not simply agree to keep filings confidential just because the parties want it that way. You need to recognize that, if you need go to court to enforce an award, it may not stay secret. 

Still more private

Still, arbitration remains much more private than court.  And it can and be even more so if the parties enter into agreements to keep it as confidential as possible.