International Arbitration And Confidentiality: What Confidentiality Should One Expect In International Arbitration?
Confidentiality May Seem A Self-Evident Feature Of International Arbitration – In Which Case, You May Be Surprised.
At the 41st Annual IP Conference held in Santa Barbara, I was asked an excellent question yesterday about dealing with confidentiality in international arbitrations. Unfortunately, this is not a subject about which I had devoted enough thought. However, Camilla Mickelson Lous, an attorney with the Norwegian law firm Steenstrup Stordrange, has obviously thought long and hard about this. It is the subject of her excellent April 14, 2014 on-line article entitled: “Hush! Let’s Arbitrate – Discourse And Practice On The Question Of Confidentiality In International Commercial Arbitration.” While I recommend reading the article in its entirety to anyone interested in the subject, I will give you a few of the highlights.
Ms. Lous points out that there is “a notable presumption that confidentiality is a self-evident feature of international arbitration.” However, as important as confidentiality may be to the parties, it shouldn’t be taken for granted.
Preliminarily, there is a difference between confidentiality and privacy. While arbitral hearings may generally be “private”, i.e., they are not open to the public, it cannot be said that confidentiality, as a state of secrecy, necessarily permeates the arbitral process. Participants could be free to communicate outside the arbitration about the existence of the arbitration, communications in the arbitration, and the arbitration award, absent well-defined confidentiality safeguards.
Looking for examples of confidentiality protection in England, Australia, the US and Sweden, Ms. Lous identifies different approaches
-
England: Arbitral matters are presumed to be confidential.
-
Australia: Confidentiality is not an essential attribute of arbitration, especially where matters of public interest are concerned, though the parties may contract for confidentiality.
-
US: Neither the Federal Arbitration Act nor the Uniform Arbitration Act contain confidentiality provisions. The parties may contract for confidentiality.
-
Sweden: No obligation of confidentiality exists, though a “duty of loyalty” may exist between the parties to an arbitration. If the parties want confidentiality, they must contract.
Though the rules of international arbitral institutions may regulate confidentiality, there is no uniform approach. WIPO Arbitration Rules 75 to 77, address confidentiality of the existence of the arbitration, disclosures made during the arbitration, and maintenance of confidentiality by the arbitration center and the arbitrator. It makes perfect sense that WIPO would have rules addressing confidentiality, because the “World Intellectual Property Organization” exists to protect the “IP” in “WIPO”, and intellectual property is often valuable because it is confidential.
The UNCITRAL Model Law on International Commercial Arbitration leaves the question of confidentiality to the parties and the arbitration rules they choose.
While confidentiality cannot be taken for granted in international arbitration, there are some things a party can do: (1) include a confidentiality clause in the original contract; (2) get individual confidentiality agreements from third parties; (3) if confidentiality is a concern, pay attention to the choice of law and seat of arbitration; (4) request protective orders from the arbitrator; (6) go to national courts to enforce protective orders (sometimes a self-defeating option).
Bottom line: do not take the obligation to maintain confidentiality for granted in international commercial arbitration.
While I found Ms. Lous’ article to be genuinely illuminating, I can’t help but remember Laurel and Hardy’s immortal words: “Well, here’s another nice mess you’ve gotten me into.”
HAT TIP to the attorney in the audience who asked me about confidentiality in international arbitration yesterday!
Miscellany: Panel On IP And ADR At 41st Annual IP Institute In Santa Barbara
Fellow Mediators Erica Bristol, Phyllis G. Pollack, and I Participated On Panel.
Above: President Roosevelt and party visiting Old Franciscan Mission in Santa Barbara. 1903. Library of Congress.
On November 10, 2016, I had the pleasure of participating in a panel with fellow mediators Erica Bristol and Phyllis G. Pollack in Santa Barbara.
Phyllis G. Pollack is the principal of PGP Mediation and past chair of the California State Bar ADR Committee. Phyllis spoke about California Law Revision Commission activity aimed at revising mediation confidentiality in California. She recited the recent history of mediation confidentiality, beginning with Cassel v. Superior Court, 51 Cal.4th 113 (2011), the California Supreme Court case strictly enforcing mediation confidentiality. Phyllis discussed the Law Revision Commission’s in-depth study about creating an exception to mediation confidentiality for evidence proving or disproving professional misconduct or malpractice by an attorney advocate where the misconduct occurs in the context of the mediation.
Phyllis suggested that if mediation confidentiality is loosened up in California, lawyers who represent clients in mediation will be more exposed to malpractice claims arising out of mediation. If in fact this happens, we could see malpractice premiums for policies covering mediators become more expensive. She also suggests that courts could become burdened with new cases, new discovery disputes, new protective order procedures, and requests for in camera proceedings.
Erica Bristol is a mediator and intellectual property attorney. She is the current Chair of the State Bar’s Litigation Section’s ADR Committee, and a principal of EB Resources Group. Erica discussed differences between the federal and state mediation privileges. The privilege exists in California and is enshrined in our Evidence Code, but the privilege varies in federal jurisdictions. One solution to the uneven application of the mediation privilege courts would be to create a federal mediation privilege in the Federal Rules of Evidence. However, unless that happens, attorneys practicing in federal courts need to consider jurisdictional privileges, give consideration about what information they can safely disclose in mediation, and inform their clients about the application of mediation confidentiality.
I suggested that President Elect Trump will impact the use of arbitration through the likely nomination of conservative Supreme Court justices, because the conservative wing of SCOTUS has been very willing to enforce arbitration agreements, whereas the liberal wing of SCOTUS has been more critical of the use of arbitration to resolve disputes.
I spoke about arbitration in the context of IP disputes. I noted that IP patent, copyright, trademark, domain name/cybersquatting disputes, and license disputes may be susceptible to arbitration. Numerous arbitral bodies exist for arbitrating IP disputes, including WIPO (the World Intellectual Property Organization and Mediaiton Center), the Hong Kong International Arbitration Centre, and the organizations familiar to us here, including the AAA, ADR Services, JAMS, and JudicateWest.
I discussed the application of the Federal Arbitration Act, “gateway issues,” the application of delegation clauses that determine whether a judge or arbitrator decides arbitrability, class arbitration, stays, incorporation of arbitral rules in the arbitration agreement, and the use of click wraps to bind persons using the internet to arbitration agreements. While case law cannot be overlooked, the best way to begin to analyze most arbitration issues in a dispute is with copies of the arbitration agreement, the rules of the arbitral organization, the Federal Arbitration Act, and The Rutter Group treatise on ADR.
Arbitration, FINRA, FAA: Ninth Circuit Holds Arbitration Award Must Be Vacated Because The Arbitration Hearing Was Chaired By An Impostor
Ninth Circuit Allows Equitable Tolling For Claim To Vacate Award Brought More Than Four Years After Entry Of Award.
Fraud against Truth. Currier & Ives. 1872. Library of Congress.
Yikes! In 2009, Move, Inc. lost a multi-million dollar securities claim before a three-member FINRA (Financial Industry Regulatory Authority) arbitration panel. In 2014, Move learned that the panel chairperson, one James H. Frank, had lied about being licensed to practice law in California, New York, and Florida. “It is now undisputed that Mr. Frank, who is ‘James Hamilton Hardy Frank,’ was impersonating retired California attorney ‘James Hamilton Frank.’ FINRA later confirmed that Mr. Frank lied about his qualifications in his ADR and subsequently removed him from all cases and from its roster.” Move v. Citigroup Global Markets, No. 14-56650, slip op. *4 (9th Cir. 11/4/16) (J. Nelson, author).
Under the Federal Arbitration Act, a motion to vacate must be served within three months after the award is filed or delivered. Here, the district court held that equitable tolling applied, but then concluded that Mr. Frank’s misbehavior did not prejudice Move’s right to a fundamentally fair hearing.
The Ninth Circuit held “that the FAA is subject to the established doctrine of equitable tolling.” However, the panel rejected Citigroup’s argument that there was “no evidence that Mr. Frank influenced other members of the panel or that the outcome of the arbitration was affected by his participation.” Explained Judge Nelson, “[T]here is simply no way to determine that this was the case.” Arbitrators contribute by their qualifications, by their participation, and by their vote. In other words, being judged by an impostor is not a harmless error.
Move wanted a qualified arbitrator and had made that clear from the start. Here, however, the arbitrator was an impostor “who should have been disqualified from arbitrating the dispute in the first place.”
Equitable tolling is about fairness. So too is the provision in the FAA addressing arbitrator misconduct, section 10(a)(3), the basis for vacatur here. “[U]nder the unique set of facts of this case, we hold that Move was deprived of a fundamentally fair hearing and therefore was prejudiced by the fraudulent conduct of the panel’s chairperson, Mr. Frank.” Slip op., *13-14.
Of course, it is possible that a fair hearing would have resulted in an award against Move. But in a fair hearing, one’s legal fate would not be decided by an impostor.
Arbitration, PAGA: Third District Says Whether Representative PAGA Claims Can Be Subject To Mandatory Arbitration Remains Unsettled, And Doesn’t Settle It
Unlike The Arbitration Agreement In Iskanian, The Agreement Here Did Not Include A Waiver Of The Right To Bring A PAGA Representative Claim.
The Court in Eaton v. Big League Dreams Manteca, LLC, C079374 (Third District 11/2/16) (Renner, Nicholson, Murray) (unpublished) addresses an issue that some may have thought was settled after Iskanian: whether PAGA representative claims can be the subject of mandatory arbitration. Relying on Iskanian, the trial court in Eaton concluded that PAGA representative claims cannot be arbitrated. However, the Court of Appeal concludes that the issue is not settled – without settling it.
“On the one hand. . . on the other hand,” says the Court of Appeal. On the one hand, it is plausible that PAGA representative claims cannot be arbitrated, because Iskanian treats PAGA claims as a dispute between the State of California and the employer – and the State never signed an arbitration agreement. But on the other hand, in Iskanian, the arbitration clause included a waiver of representative PAGA claims – something the court would not countenance. So perhaps arbitration claims can be arbitrated if they are not waived, because arbitration would provide a forum for deciding the substantive rights.
Instead of deciding the issue, the Court of Appeal concludes that other issues must be addressed first: the trial court “must determine whether the parties’ arbitration agreement encompasses representative PAGA claims and whether incorporation of the AAA Employment Rules constitutes clear and unmistakable evidence of their intent to delegate questions of arbitrability to the arbitrator.” If the answer is yes, then the case gets stayed and the arbitrator must determine the scope of the arbitrator’s jurisdiction to decide the PAGA claims.
If the arbitrator concludes that there is a lack of arbitral jurisdiction because PAGA claims are really between the State and the employer, does the can then get kicked back to the trial judge?
BONUS TRIVIA from Wikipedia article (“Kick the Can”): “Play scholar Rodney Carlisle notes that: ‘As outdoor and unstructured play of children continues to dwindle, the game of Kick the Can is becoming less and less known to each generation… At one point in time, teenagers played Kick the Can with younger children, and the game and its variations were passed on from child to child. Past generations remember this game fondly, and it was enough of a cultural phenomenon that it was a central player in a 1962 episode of The Twilight Zone and was incorporated later in the 1983 film of the same name.’"
Arbitration, Employment, FAA, Class, Waiver: Petition For Certiorari To SCOTUS Filed In NLRB v. Murphy Oil USA, Inc.
The Circuits Disagree About Class Action Waivers In Arbitration, The NLRA, And Prohibition Of “Concerted Activities” In Pursuit Of Employees’ “Mutual Aid Or Protection”.
On October 11, 2016, I blogged that on September 8, a petition for a writ of certiorari had been filed by the accounting firm in Morris v. Ernst & Young, presenting the issue: ““Whether the collective-bargaining provisions of the National Labor Relations Act prohibit the enforcement under the Federal Arbitration Act of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than collective basis.”
The same source for my earlier post, Kate Howard’s Petition of the Day in SCOTUSBlog, reported on November 2 that on September 9, a petition for a writ of certiorari was filed in National Labor Relations Board v. Murphy Oil USA, Inc.,16-307, presenting the issue: ”Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. § 158(a)(1), because they limit the employees’ right under the National Labor Relations Act to engage in “concerted activities” in pursuit of their “mutual aid or protection,” 29 U.S.C. § 157, and are therefore unenforceable under the savings clause of the Federal Arbitration Act, 9 U.S.C. § 2.
So now we have a collision between the Ninth Circuit in Morris v. Ernst & Young and the Fifth Circuit in NLRB v. Murphy Oil USA. And the arbitration class action waiver/”concerted activities” issue has been squarely presented to the Supreme Court in dueling petitions for writ of certiorari.
Review, Arbitration, Disclosures, MFAA: The Message From Baxter v. Rock
“Vet Your Fee Arbitrator Early.”
In May 2016, I posted on the then unpublished case Baxter v. Rock, and posted later that the case was partially published. 247 Cal.App.4th 775 (2016). Relying on the case, I pointed out that an arbitrator’s mistake about an attorney’s fees award was no basis for overturning the award under California’s Mandatory Fee Arbitration Act, but that a judge’s error in assigning different hourly rates to two attorneys, without a reasonable basis for doing so, was subject to a different standard of review, and could be more easily reversed – as it was.
The case, however, was also important for what it said about arbitrator disclosures. The arbitrator who failed to disclose prior experience auditing attorney’s fees, could not be later disqualified in an attorney fee arbitration held under the MFAA. Just because the arbitrator had experience auditing attorney’s fees did not necessarily mean that the arbitrator was biased for or against the attorney or the client.
Mary A. Dannelley, Esq. has written an article about the disclosure requirements discussed in Baxter v. Rock, published in Orange County Lawyer (November 2016), and entitled, “The Message from Baxter v. Rock: Vet Your Fee Arbitrator Early.”
Here are three takeaways from this helpful article:
-
“arbitrators are required to disclose: (a) connections to the parties, the facts, or the events at issue in the fee dispute; and (b) business activities of an attorney arbitrator (including the nature of his or her law practice) that would create an economic incentive to rule in favor of one party over the other.”
-
the arbitrator should disclose the arbitrator’s practice as an attorney if it is focused on a particular area related to the subject matter of the litigation such that it would provide the arbitrator with an incentive to rule in favor of one side rather than the other.
-
vet your arbitrator early, because post-arbitration challenges to the sufficiency of disclosures will be viewed by the courts with a gimlet eye.