180 October / November 2010

ARBITRATION:THe QueST FOR CONFIDeNTIALITY

By Bert K. Robinson

Louisiana Bar Journal Vol. 58, No. 3 181

Universally accepted principles of law become black letter law, e.g.: Absent statute or contract,

no attorney fees will be awarded.Research into the issue of

confidentiality in arbitration yields a similar axiom: Absent statute or contract, there is no confidentiality attaching to arbitration.1 Of course, this statement may contradict what most legal professionals have assumed about arbitration, namely, that arbitration, ipso facto, has some confidentiality attached to it.

Privacy v. Confidentiality

Feelings of confidentiality are perhaps created by the fact that arbitrations are, by their very nature, private and not public.2,3 No documents are filed in court or in the public records. All hearings are held somewhere other than the courthouse, and no strangers are witnesses to motions, hearings, trials or other proceedings. No public officials are involved, and no notices are published in the newspaper or other legal news outlets

However, as the issues are analyzed, it is quickly evident that privacy is not the same as confidentiality. When focusing on confidentiality, in addition to the privacy issues listed above, clients also may expect that the parties and the neutral (and, in exceptional cases, even witnesses) are obligated not to divulge information to third parties. However, there is no confidentiality attaching to arbitration unless by state or federal statute or rule, or specific agreement of the parties.

Therefore, if clients desire confidentiality in arbitration proceedings, attorneys must timely attempt to secure the degree of confidentiality needed in each particular situation. Because clients sometimes are not aware of the confidentiality issue and their potential legal rights, attorneys also have the obligation of ensuring that their clients are fully informed about these matters.

The fields mined to examine this issue are the usual ones, i.e., federal and

state statutes and administrative rules and jurisprudence, as well as secondary authorities. In crafting agreements, attorneys must know the published confidentiality rules, if any, of the proposed neutral or the organization for which the neutral arbitrates. Similar to contract and tort law, there are areas of general consensus in the field of arbitration confidentiality; however, the jurisdiction in which the attorney has a case must be examined for its peculiar nuances on the law of confidentiality. Attorneys involved in international or foreign arbitration are likely to learn that those arbitrations lean much more to the use of confidentiality in arbitration.

Louisiana and Federal Law

Louisiana’s statutory law affecting arbitration does not mention confidentiality. Therefore, if there are to be any issues, documents or testimony that a party wishes to be held confidential in proposed arbitration proceedings, that confidentiality can be timely created only by contract.4

Louisiana’s general arbitration statutes are found in La. R.S. 9:4201, et seq., and La. Civ.C. arts. 3099, et seq.; the Civil Code articles are rather antiquated. For this article, no reported Louisiana jurisprudence dealing with the issue of confidentiality in arbitration was found. Therefore, reference to sources outside Louisiana and cases decided under the Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq., will be useful. This article will not discuss whether state or federal law governs a particular fact pattern.

The Alternative Dispute Resolution Committee of the Louisiana State Law Institute is currently considering revision of Louisiana’s arbitration statutes based on the Revised Uniform Arbitration Act which does deal with confidentiality in arbitration.

One case arising in Louisiana was removed as a diversity case to federal court; it involved “standard form” cellular telephone contracts containing confidentiality clauses. Iberia Credit Bureau, Inc. v. Cingular Wireless.5

Although decided under the FAA, the case is instructive. The confidentiality clause provided, inter alia, that neither party “may disclose the existence, content, or results of any arbitration.” The customers complained that application of the confidentiality clause to them under the facts of this case was unconscionable, but the court disagreed and enforced the clause. The court noted that “both federal and Louisiana policy favor arbitration as a method of dispute resolution” and that “confidentiality can be desirable to customers in some circumstances.”

Louisiana’s existing arbitration statute, La. R.S. 9:4201, et seq., was modeled after the FAA. It is not surprising then to find that the FAA itself does not contain any confidentiality provisions. Federal courts liberally enforce arbitration agreements because of a strong federal policy favoring arbitration.

In Fireman’s Fund Ins. Co. v. Cunningham Lindsey Claims Management,6 a federal court refused to compel the production of a damage award granted in a prior arbitration proceeding stating, “protecting confidentiality agreements . . . promotes federal policy and encourages ADR by ensuring that parties in an arbitration proceeding get the protections for which they contracted.” It supported its decision by stating that there is a “strong public interest in preserving the confidentiality of arbitration awards.” It seems that the court was almost equating arbitration proceedings with settlement proceedings.

There is a provision in 5 U.S.C. § 574 imposing certain rules of confidentiality in federal administrative ADR proceedings, including arbitration. Neutrals are prohibited from disclosing confidential information in subsequent proceedings, subject to certain limited exceptions.

The United States 2nd Circuit Court of Appeals declared that not only is there a “strong federal policy favoring arbitration,” but that circuit would “construe arbitration clauses as broadly

182 October / November 2010

as possible.”7,8 A decision of the United States 7th Circuit Court of Appeals declares, “People who want secrecy should opt for arbitration. When they call on the courts, they must accept the openness that goes with subsidized dispute resolution by the public (and publicly accountable) officials. Judicial proceedings are public rather than private property[.]”9

Practical Considerations

Confidentiality may be bargained for in the contract to be confected, or the parties may contract for confidentiality at the inception of an arbitration proceeding. Failure to timely preserve the client’s rights can result in a waiver of confidentiality.10

Confidentiality agreements, like all contracts, must be crafted with careful forethought; parties are free to contract as they please, subject to public policy. Attorneys must consider such items as the breadth and the coverage of the

confidentiality desired. One important item to consider is the agency that provides the list of neutrals, e.g., AAA,11 JAMS,12 NAF,13 NASD,14 ARIAS-US,15 if an agency is to be used. Each of these neutral organizations has its own set of rules regarding confidentiality. Those rules vary greatly and attorneys may want to augment the organization’s rules by special provision in the agreement being confected. The organizations’ rules also may change as time goes by, and the organizations may have rules for different types of litigation, i.e., accounting, commercial, telecommunications or construction. Attorneys also must be informed and current on the particular rules to be applied.

Public policy should be considered in cases of adhesion, public hazards, pollution and other areas of public concern, as these relate to issues of confidentiality. For example, La. C.C.P. 1426C prohibits the issuance of a protective order limiting discovery if the information relates to “a public hazard.” In the state of Washington, for example,

the Code of Washington16 states that confidentiality provisions may be enforced “by the court only if the court finds that the confidentiality provisions are in the public interest.” A Florida statute declares that any agreement “which has the purpose of concealing a public hazard” is void.17

Confidentiality clauses contravening public policy are void.18

Drafting Confidentiality Clauses

Confidentiality clauses run from the very simple, e.g., “All aspects of the arbitration proceedings, and any ruling, decision or award by the arbitrator, will be strictly confidential.”19 Or the clause might say simply that all “proceedings... would remain confidential.”20 Other clauses may be quite lengthy and elaborate, covering several specific subjects.21

Absent statute or contract, there is no confidentiality attaching to arbitration.

Louisiana Bar Journal Vol. 58, No. 3 183

Bearing this in mind, attorneys would do well to familiarize themselves with confidentiality issues in both the contractual negotiation process and in preparing to initiate arbitration.22

FOOTNOTeS

1. The scope of this article is strictly limited to arbitration and does not deal with mediation. Confidentiality rules are much more common in mediation than in arbitration. See, La. R.S. 9:4112; Thomas H. Oehmke, Commercial Arbitration (1987), § 6.6 on privacy; also Martin Domke, Domke on Commercial Arbitration, 3d ed.; Scott v. Metropolitan Transportation Authority, 809 N.Y.S.2d 484, 10 Misc. 3d 1058(A) (2005). In the absence of a confidentiality agreement, documents filed in an arbitration proceeding are subject to disclosure. Kamyr, Inc. v. Combustion Engineering, Inc., 554 N.Y.S.2d 619, 161 A.D.2d 233 (1990). Evidentiary material filed in an arbitration proceeding is not immune from disclosure. Accord: A.T. v. State Farm Mutual, 989 P.2d 219 (Colo. Ct. App. 1999).

2. Amy J. Schmitz, “Untangling the Privacy Paradox in Arbitration,” 54 U. Kan. L. Rev. 1211 (2006): “Arbitration is private, but not confidential.” The article contains a good discussion of policy issues regarding confidentiality.

3. A good example is the rules of the LSBA fee arbitration program. Although there is some discussion of “confidentiality,” the rules do not actually require it.

4. Commenting on a federal district court decision that arose in Louisiana, the court in Contship Containerlines v. PPG Industries, 2003 WL 1948807 (S.D.N.Y. 2003), held that arbitration proceedings are not confidential where the parties did not contract for confidentiality.

5. 379 F.3d 159 (CA 5, 2004). 6. 2005 WL 1522783 (E.D.N.Y. 2005).7. Oldroyd v. Elmira Savings Bank, 134 F.3d

72 (CA 2, 1998).8. Richard C. Reuben, “Confidentiality in

Arbitration: Beyond the Myth,” 54 U. Kan. L. Rev. 1255 (2006). Referring to a contractual confidentiality agreement between the parties, a court decision discussed held that “arbitrators are ethically bound to preserve this confidentiality unless otherwise required by law.” Id., at 1299.

9. Laurie Kratky Doré, “Public Courts versus Private Justice: It’s Time to Let Some Sun Shine in on Alternative Dispute Resolution,” 81 Chicago-Kent L. Rev. 463 (2006), citing Union Oil Co. of Cal. v. Leavell, 220 F.3d 562, 568 (CA 7, 2000).

10. Urban Box Office Network v. Interfase Managers, 204 WL 2375819 (S.D.N.Y. 2004).

11. Canon 6 of the American Arbitration Association (AAA) Code of Ethics for Arbitrators in Commercial Disputes (3/1/04) states: “The arbitrator should keep confidential all matters relating to the arbitration proceedings and decision.” AAA has stated in a letter to the author that as a matter of practice it does not divulge information to third parties. In addition, Rule 51(e) of the AAA

rules for construction disputes states that: “Parties to an arbitration under these Rules may not call the arbitrator, the AAA . . . as a witness in litigation . . . . The arbitrator, the AAA . . . are not competent to testify as witnesses in any such proceedings.”

12. Rule 26 of JAMS provides that: “JAMS and the arbitrator shall maintain the confidential nature of the Arbitration proceeding and the Award, including the Hearing, except as necessary in connection with a judicial challenge to or enforcement of an Award, or unless otherwise required by law or judicial decision.”

13. Rule 4 of the National Arbitration Forum provides in part: “Arbitration proceedings are confidential unless all Parties agree or the law requires arbitration information to be made public. Arbitration Orders and Awards are not confidential and may be disclosed by a Party.”

14. “The National Association of Securities Dealers, Inc. (NASD) Code of Arbitration Procedure is silent concerning the privacy or confidentiality of arbitration proceedings.” Derek Lisk, “The Confidentiality of Arbitrations,” 63 Texas B.J. 234 (2000).

15. “[T]he ARIAS-US arbitration rules also dictate that arbitrations should be confidential proceedings.” 11 The Arias US Quarterly 22 (2004), a publication of the AIDA Reinsurance and Insurance Arbitration Society.

16. West’s revised Code of Washington, RCW 4.24.601(b) states in part: “Confidentiality provisions [of a private agreement] may be . . . enforced by the court only if the court finds . . . that the confidentiality provision is in the public interest.”

17. West’s Florida Statutes Annotated ‘ 69.081 is called the “Sunshine in Litigation Act.”

18. Delta Funding Corp. v. Harris, 189 N.J. 28, 912 A.2d 104 (2006), dealt with the issue of whether a confidentiality provision of a mortgage was uncon-scionable. At p. 117, the court said: “Finally, there is nothing in either the arbitration clause or the rules of the three arbitration administrators [AAA, NAF, JAMS] requiring that the arbitration awards be kept confidential. It is not unconscionable to require that the proceedings before the arbitrator be kept confi-dential when the arbitrator’s award is not required to be kept confidential” (emphasis supplied). In Luna v. Household Finance Corp. III, 236 F. Supp. 2d 1166 (W.D. Washington 2002), the contract stated that the “award shall be held confidential.” After considering the “totality of the circumstances,” the court held the confidentiality provision unconscionable and unen-forceable. As a matter of public policy, the California Code of Civil Procedure § 1281.96 requires private arbitration companies that are involved in consumer arbitration to make public the names of parties to certain arbitrations, the amounts involved, prevailing policies, and other specified data.

19. That clause arose under FAA law in Texas in ITT Educational Services, Inc. v. Arce, 533 F.3d 342 (CA 5, 2008). At p. 346, the court commented: “[P]rocedural requirements — such as adopting the rules of the arbitration association, choice of law provisions, confidentiality requirements, and rules governing discovery — can be part of an arbitration clause.” The clause was upheld in the case, the court noting on p. 347: “Arbitration is conducted

in the contracted-for manner, so requiring [the contracting party] to arbitrate accordingly is not an undue hardship.”

20. Group Health Plan v. BJC Health Systems, 30 S.W.3d 198 (Mo. App. E.D. 2000). Missouri had adopted the Uniform Arbitration Act (UAA) which provided that arbitration is “regarded as settlement negotiations and all information yielded is confidential.”

21. A draft of such an arbitration confidentiality agreement is found in Vol. 62, No. 2 (May-July 2007) of The Dispute Resolution Journal published by the American Arbitration Association. It is interesting to note that the article says that, unlike some European countries, “courts in the United States . . . have rejected a general implied duty of confidentiality.”

22. The following citations are provided in the event counsel needs information on a particular state law in this area. Statutes dealing with confidentiality in ADR procedures in sundry matters: Arkansas Code Annotated, §16-7-206; Kansas Statutes Annotated §60-452a; Vernon’s Annotated Missouri Statutes 436.362, arbitration proceedings are regarded as settlement negotiations; New Jersey Statutes Annotated 17:48A-7.12 and 17:48F-13.1; Tennessee Code Annotated §63-4-115; Vernon’s Texas Codes Annotated, Civ. Prac. and Rem. Code Ann. §154.073; Utah Code Annotated 1953 §78B-6-205; Virginia Code Annotated §8.01-576.10; Wisconsin Statutes Annotated 93.50; Vernon’s Annotated Missouri Rules re: Alternative Dispute Resolution, 17.06. Some states prohibit or exempt the arbitrator from testifying, e.g., Kansas Statutes Annotated 5-512; Vernon’s Annotated Missouri Statutes 435.014. Some states provide that the arbitrator neutral is not competent to testify about the arbitration, e.g., Annotated California Codes Government Code §11420.30; Annotated California Evidence Code §703.5. A good discussion of international law can be found in Anjanette H. Raymond, “Confidentiality in a Forum of Last Resort: Is the Use of Confidential Arbitration a Good Idea for Business and Society?” 16 American Rev. of Int’l Arb. 479 (2005).

Bert K. Robinson is exclusively involved in construction and commercial alternative dispute resolution (ADR). He serves as a member of the ADR Committee of the Louisiana State Law Institute. He has lectured and written in the field of construction arbitration. He serves as a private arbitrator and is also on the panels of several neutrals’ organizations. Before limiting his activities to serving as a neutral, he was involved in construction litigation for more than 30 years. (11035 Burton Ave., Baton Rouge, LA 70815)