Page 4 - Alternative Dispute Resolution

S4 | MONDAY, MARCH 20, 2017 | Alternative Dispute Resolution
| NYLJ.COM
Proposed Rule for NY Supreme Court May Make Arbitration Truly Confidential
agreement to arbitrate, i.e. the arbitra- tion award.”
Id. (internal citations omitted).
New York’s Proposal to Expand Sealing
New York state statutory and case law relating to the sealing of documents does not differ markedly from that of the federal courts, in that New York courts disfavor the sealing of court records so as to ensure the integrity of the judicial process and provide the public with important information regard- ing the subject of disputes. People v. Burton, 189 A.D.2d 532, 535 (3d Dept. 1993). Although Rule 216.1 of the Uniform Civil Rules for the Supreme and County Court provides for the sealing of documents in limited circumstanc- es, that rule has traditionally been interpreted in a stringent manner. Matter of Brownstone, 191 A.D.2d 167 (1st Dept. 1993); Mosallem v. Berenson, 76 A.D.3d 345 (1st Dept. 2010); Applehead Pictures v. Perelman, 80 A.D.3d 181 (1st Dept. 2010). In an effort to make the New York Commercial Division a more attractive forum for business litigants, the Administra- tive Board of the Courts recently proposed a new rule for the Commercial Division which, if adopted, would expand the power of the Com- mercial Division to seal records that contain confidential or proprietary business informa- tion. This Proposed Rule could thus provide a shelter for parties seeking to maintain the confidentiality of arbitral awards.
The Proposed Rule provides:
(a) Except where otherwise provided by statute or rule, a court shall not enter an order in any action or proceeding seal- ing the court records, whether in whole or in part, except upon a written find- ing of good cause, which shall specify the grounds thereof. Good cause may include the protection of proprietary or commercially sensitive information, includ- ing without limitation, (i) trade secrets, (ii) current or future business strategies, or (iii) other information that, if disclosed, is likely to cause economic injury or would otherwise be detrimental to the business of a party or third-party. In determining whether good cause has been shown, the court shall consider the interests of the public as well as of the parties. Where it appears necessary or desirable, the court may prescribe appropriate notice and opportunity to be heard.
(emphasis added).
The Proposed Rule is materially identical to the more general sealing rule set forth in 22 NYCRR §216. 1, with one notable exception: the addition of the second sentence (“Good cause may include ...”). As set forth in the memorandum of the Commercial Division Advisory Counsel, this additional sentence is designed to clarify and highlight for courts and parties that the protection of proprietary sensitive business information in commercial disputes is an appropriate goal of, and “good cause” for, sealing of selected documents or portions of documents filed in the course of litigation.
As noted in a recent Request for Public Comment issued by the Office of Court Admin- istration, “the public disclosure of business data such as price information, » Page S11
BY ROBERT LEWIN
AND ANDREW S. LEWNER
In recent years there has been a huge increase in the use of binding arbitration as a means of resolving commercial dis- putes. In fact, arbitration generally is the preferred method of resolving disputes in areas such as employment, securities, ener- gy and reinsurance. Although arbitration is regarded as more cost-effective and expedi- tious than litigation, one of the key benefits of commercial arbitration is confidentiality. For decades, companies have included arbitra- tion agreements in their contracts as a means of preserving the privacy of their business dealings and disputes. Kevin J. Hamilton and Harry H. Schneider Jr., “Confidential Arbitra- tion Agreements for High-Profile Clients and Senior Executives,” Litigation, Fall 2016, at 39, 40.
Although parties to a commercial arbi- tration might desire, and contract for, confi- dentiality, in recent years it has often proven ephemeral when one or both of the parties seeks to confirm or vacate the arbitration award in court. Indeed, the federal courts have increasingly refused to uphold the confidentiality of arbitration awards.1 A new rule recently proposed by the Administra- tive Board of the New York State Courts for the New York Supreme Court, Commercial Division (Proposed Rule 11-h, 22 NYCRR Sec. 202.70(g), Rule 11-h), however, might offer parties a means of maintaining the desired confidentiality.
The stated purpose of the Proposed Rule is
ROBERT LEWIN and ANDREW S. LEWNER, part- ners in Stroock & Stroock & Lavan’s litigation and insurance practice groups, can be reached at [email protected] and [email protected], respectively.
If adopted, the Proposed Rule might provide parties an avenue to maintain the confidentiality of arbitration awards in connection with confirmation or vacatur motions.
“to clarify and highlight for courts and parties that the protection of proprietary sensitive business information in commercial disputes is an appropriate goal of, and ‘good cause’ for sealing of selected documents or portions of documents filed in the course of litigation.” If adopted, Proposed Rule 11-h could sig- nificantly expand the sealing power of the Commercial Division, and could provide a potential avenue for maintaining the confi- dentiality of arbitration awards.
Federal Courts’ Reluctance to Seal Records
Section 9 of the Federal Arbitration Act (FAA), as well as §207 of the Convention on the Enforcement and Recognition of Foreign Arbitral Awards (where applicable), specifi- cally provide that any party to an arbitration may seek “confirmation” of the arbitral award by making an application to the appropriate U.S. district court. It is in the context of such confirmation proceedings that confidential- ity of arbitrations is most often undermined.
In federal courts, there exists a strong presumption that judicial documents should be accessible to the general public. Nixon v. Warner Commc’ns, 435 U.S. 589, 597 (1978). Federal courts, particularly in the Second Circuit, have held that when a party seeks to confirm, modify, or vacate an arbitration award, that award will be considered a “judi- cial document” that should generally be made publicly available. Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110, 119 (2d Cir. 2006). The fact that an arbitral award is a judicial docu- ment subject to the presumption of public access, however, does not end the inquiry.
Courts within the Second Circuit then balance that presumption of access against the “com- peting considerations against it.” United States v. Amodeo, 71 F.3d 1044, 1050 (2d Cir. 1995). These competing considerations include, but are not limited to, “the privacy interests of those resisting disclosure.” Lugosch, 435 F.3d at 120.
Notwithstanding this balancing test, par- ties seeking to seal arbitration awards in order to preserve their confidentiality typically are unable to overcome the presumption of public access, unless they have been able to show irreparable harm that would result from the disclosure of the award (e.g., trade secrets, proprietary formulae, customer lists, medical records of individuals, etc.). Istithmar World PJSC v. Amato, 12 CIV. 7472 JFK, 2013 WL 66478, at *3 (S.D.N.Y. Jan. 7, 2013). In fact, even where all parties seek to maintain the confidentiality of arbitration awards, such requests rarely overcome the presumption of public access.
For example, in Century Indem. Co. v AXA Belgium, 11 CIV. 7263 JMF, 2012 WL 4354816, at *14 (S.D.N.Y. Sept. 24, 2012) the court, citing the strong presumption to public access of judicial documents, denied the parties’ seal- ing application. There, the court noted that
the confidentiality agreement ... may be binding on the parties, but it is not bind- ing upon the Court. And while parties to an arbitration are generally ‘permitted to keep their private undertakings from the prying eyes of others,’ the circumstance changes when a party seeks to enforce in federal court the fruits of their private
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