In pre-suit consultations with clients concerning arbitration, time and again I have found that clients take as a given that an arbitration will be confidential. That is, clients often assume that one of the benefits of arbitration is that the allegations, proceedings, and outcome will be kept out of the public eye.
And it’s not surprising that many people would assume that arbitration proceedings occur in a confidential environment. Indeed, most clients, especially corporate clients, operate under the assumption that confidentiality is assured and state that confidentiality is one of the many reasons that they wanted arbitration agreements in the first place; and was one of the reasons why they required employees who work for them and other entities who conduct business with them to agree to arbitrate any disputes that arise out of the relationship. The truth, however, is that confidentiality in an arbitration is far from certain and there are several reasons for that.
The first of these reasons is that nothing in the American Arbitration Association’s Rules (which govern most arbitration disputes) absolutely requires confidentiality. For example, the AAA’s rules for large and complex cases only state that the arbitrator “shall maintain the privacy of the hearings unless the law provides to the contrary.” See AAA Commercial Arbitration Rules and Mediation Procedures R-25. The key word here is privacy of “hearings” which restricts the scope of the rule. To be sure, there’s a lot more going on in an arbitration that has confidentiality implications than just the hearings. While the rule implies that an arbitrator should ordinarily restrict the persons who attend the final hearing in the arbitration to only essential parties and witnesses, nothing in the rules requires that the pleadings, allegations or outcome must be kept confidential. And no default rule prevents those in attendance during arbitration proceedings from disclosing what occurred during the proceedings in a public forum.
When it comes to document production, the AAA’s rules do allow an arbitrator to issue orders protecting the confidentiality of documents exchanged by the parties, but even this rule is permissive and is not a requirement. Id. at R-23. Accordingly, a party seeking to protect confidential documents that must be produced to the other party during the arbitration has the burden to persuade the arbitrator to issue an order which protects proprietary or sensitive documents.
Finally, the greatest risk of public disclosure often occurs at the end of the arbitration proceedings, when the party who is successful at arbitration seeks to enforce the ruling of the arbitrator. To do so, that party must file a proceeding in state or federal court seeking to enforce the judgment of the arbitrator. But such a filing provides the winning party an opportunity to perform a public end-zone dance and publicize the verdict reached and often the underlying allegations—exactly what most corporate clients sought to avoid through arbitration.
So what is a client, and its counsel, to do to make it more certain that disputes covered by arbitration provisions are kept confidential? It’s simple; make confidentiality in arbitration an explicit requirement in the agreement containing the arbitration agreement. And by explicit, I suggest including provisions such as the following:
The parties agree, and the arbitrator shall issue an order providing, that all pleadings, motions, discovery responses, depositions, testimony, and documents exchanged or filed in relation to the arbitration be kept strictly confidential;
The parties agree, and the arbitrator shall issue an order providing, that any award issued by the arbitrator shall be entered under seal in a court of competent jurisdiction; and
The parties agree that any party may seek a separate order from a court of competent jurisdiction enforcing the arbitrator’s order protecting the disclosure of pleadings, motions, discovery responses, depositions, testimony, and documents exchanged or filed in the arbitration, provided that such motion and responses thereto shall be filed under seal.
To ensure that such procedures are followed, you might also consider including a liquidated damage provision for breach of any of the above-procedures.
Taking these steps will dramatically increase the probability that private arbitration proceedings will remain private. After all, arbitrators derive their power from the contract containing the agreement to arbitrate. If that agreement provides for specific procedures or rules that do not themselves contravene a AAA rule, the parties’ agreement controls. Accordingly, planning for confidentiality from the outset provides the best strategy for protecting client confidentiality in arbitration.
The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.