Go Bare to Protect Your Confidences

Choosing a bare award can preserve confidential information in arbitration

Published in Law.com and here by permission
By Laura A. Kaster Laura A. KasterLaw.com ContributorPublished: Apr 22, 2014

In choosing between a bare award and a reasoned award in arbitration, drafting or arbitrating counsel often focus on the salutary effect on logic and reasoning that having to write an award may have on the panel. There is no doubt that is an important and legitimate purpose for requiring a reasoned award.  As the renowned jurist Frank M. Coffin wrote in The Ways of a Judge 57 (Houghton Mifflin 1980):

[W]e may be in the very middle of an opinion, struggling to reflect the reasoning all judges have agreed on, only to realize that it simply “won’t write.”  The act of writing tells us what was wrong with the act of thinking.

But other needs should also be weighed.  The desire to assure careful thought in this particular way may be subordinate if the client has an overriding desire to maintain confidentiality.  Many clients elect arbitration because it is a private process; they and often their counselors believe that confidentiality follows.  However, privacy and confidentiality are not synonyms in the arbitration world.  At least in the U.S., seeking judgment on a reasoned arbitral award can expose not only the fact of the dispute and its outcome but underlyingconfidential information.  The reason for this exposure is that the needs of the open and publicly funded judicial system require that the judges’ rulings be subject to scrutiny.  As one of the few appellate decisions on this topic explains:

the dispositive documents in any litigation enter the public record notwithstanding any earlier agreement. How else are observers to know what the suit is about or assess the judges’ disposition of it? Not only the legislature but also students of the judicial system are entitled to know what the heavy financial subsidy of litigation is producing. These are among the reasons why very few categories of documents are kept confidential once their bearing on the merits of a suit has been revealed. In civil litigation only trade secrets, information covered by a recognized privilege (such as the attorney-client privilege), and information required by statute to be maintained in confidence (such as the name of a minor victim of a sexual assault), is entitled to be kept secret on appeal. . . .  [M]any litigants would like to keep confidential the salary they make, the injuries they suffered, or the price they agreed to pay under a contract, but when these things are vital to claims made in litigation they must be revealed.

Baxter Int’l Inc. v. Abbott Labs. 297 F.3d 544, 546-47 (7th Cir. 2002) (Easterbrook, J).

Therefore, if the rationale for the underlying arbitral decision is part of the judicial record, confidentiality is threatened.  The Seventh Circuit made that perfectly clear in Gotham Holdings:

one can ‘‘agree’’ with someone else that a stranger’s resort to discovery under the Federal Rules of Civil Procedure will be cut off.  .  .  .. [The parties] were entitled to agree that they would not voluntarilydisclose any information related to the arbitration. . . .  Disclosure would be authorized only when a third party had a legal right of access.  Gotham Holdings LP v. Health Grades, Inc., 580 F.3d 664, 665-66 (7th Cir. 2009) (citations omitted).

How can the drafter or advocate deal with this? There are multiple precautionary moves, but one of them is to include in the arbitration clause, the terms of reference, or the preliminary hearing order a specific statement that the parties seek a bare or simple award only.  Some arbitrators may provide a separate statement of reasons if the parties so desire.  But to maximize the potential for maintaining confidences – go bare!


NJ Mediation Confidentiality

New Jersey has an important new case that mediators and advocates in mediation should be aware of: Willingboro Mall Ltd. v. 240/242 Franklin Avenue Associates LLC , A-4589-09. The headlines in the news focus on the fact that it held an oral settlement reached in mediation may be enforceable if subsequently memorialized by a writing :”We hesitate to interpret the writing requirement of Rule 1:40-4(i) so rigidly that it becomes an impediment to resolution of a matter through mediation.”

I would like to focus on a different point in the case — the mediator’s privilege not to testify.

New Jersey has adopted a mediation privilege in its rules of evidence:
New Jersey Rule of Evidence 519 entitled “Mediation Privilege” provides that a mediation communication is privileged and shall not be subject to discovery or admissible in evidence in a proceeding unless waived or precluded under limited circumstances. However, the parties to a mediation may expressly waive the privilege, and in the case of the privilege of a mediator, it may be expressly waived by the mediator.

The evidence rule expands New Jersey Court Rule 1:40-4 “Mediation – General Rules” which include a “confidentiality” provision. It mirrors several provisions within the New Jersey Uniform Mediation Act, N.J.S.A. 2A:23C-1 to 13.

In Willingboro the defendant’s counsel sent an email with a draft memorandum of understanding subsequent to the mediation and also undertook to put moneys in escrow — There was no signed writing. But there was a 4-day hearing on a 1-day mediation that resulted in the enforcement of the oral agreement commemorated by an unsigned writing. The court held that all parties and the mediator waived the privilege:

“Here, defendants first breached the confidentiality of the

proceeding by supporting their motion to enforce the settlement

with a certification from the mediator. Thereafter, the

mediator was deposed and testified at trial. The extent of the

waiver was the subject of rulings by Judge Bookbinder during the

deposition of the mediator and at trial by Judge Hogan. We do

not understand any argument advanced by plaintiff to contest

those rulings.”

This is not a good outcome for a mediation or for confidentiality. The clear lesson for mediators is make sure there is a signed writing at the close of the successful mediation, consider asking the parties to draft an agreement or key terms in advance (without monetary terms), and enter into a confidentiality agreement with the parties before the mediation providing that they will not call the mediator as a witness.