Arbitration Award Ruled a Non-Confidential Judicial Record

Attorneys beware: An arbitration award may not be as secret as you think. In Pennsylvania National Mutual Casualty Ins. Group v. New England Reinsurance Corporation, a federal appellate court affirmed a ruling that unsealed an arbitration award based on a common-law right of access to judicial records. ABA Litigation Section leaders say the case serves as a reminder to practitioners that arbitration, contrary to popular belief, is not necessarily entitled to confidentiality.

Intervenor Seeks to Unseal Arbitration Award

Pennsylvania National Mutual Casualty Insurance Group, an insurance company, arbitrated a contractual dispute with two reinsurance companies over the insurance company’s entitlement to proceeds based on the insurance claims it made to the reinsurers. The panel issued an award to the insurance company.

The insurance company filed a petition in the U.S. District Court for the Middle District of Pennsylvania to confirm and reduce the arbitration award to a judgment, as required by the Federal Arbitration Act. The insurance company moved to seal the copy of the arbitration award attached to its petition, which the district court granted. But before the reinsurers responded to the petition to confirm, the parties settled. The insurance company withdrew its petition to confirm, and the district court took no action on the petition.

Everest Reinsurance Company, one of the insurance company’s reinsurers which did not participate in the arbitration, moved to intervene and to unseal the award. The reinsurer argued that because the arbitration award was filed with the court, it was a judicial record and subject to the common-law right of access. The district court denied the motion after applying the “Pansy factors,” which are “used to determine whether to modify a confidentiality order issued under Federal Rule of Civil Procedure 26(c).”

Public Has a Presumptive Right of Access to Judicial Records

The U.S. Court of Appeals for the Third Circuit reversed and instructed the district court to apply the common-law right of access analysis to determine whether to unseal the award. The common-law right of access provides that documents in a judicial proceeding are open to the public. Thus, the common-law right of access analysis requires courts to first determine whether the document is a judicial record. If it is, the common-law right of access presumably attaches. This presumption can be overcome by showing a clearly defined and serious injury resulting from disclosure. Only then does the court determine if the harm from the alleged injury outweighs the presumption of access.

On remand, the district court granted the reinsurer’s motion to unseal. The insurance company appealed. The Third Circuit affirmed, holding that the filing of a document gives rise to a presumptive right of public access, irrespective of the purpose of the filing or the court’s use of the document. The insurance company asserted that disclosure of the award might cause other reinsurers to forego payment. This did not sway the court, which noted missing information as to how many relationships could be impacted, what amount of money would be at stake, what types of actions other parties might pursue, and what the likelihood of success of any such actions would be. Thus, the district court did not abuse its discretion in asserting that the insurance company demonstrated no “clearly defined” injury, the Third Circuit reasoned.

The appellate court also rejected the insurance company’s argument that North Jersey Media Group, Inc. v. United States should apply. That case held that whether a document constitutes a judicial record should turn on the court’s use of the document rather than whether it entered the clerk’s file. But the Third Circuit regarded the language in North Jersey as dictum, noting that such language was rejected in a different case.

No Clear Injury from Disclosure Means No Confidentiality

Litigation Section leaders are not surprised by this result. “The appellate court gave [the insurance company] the opportunity to show an overriding interest in maintaining the confidentiality of the award and [the insurance company] was unable to do so,” remarks Mitchell L. Marinello, Chicago, IL, cochair of the Section’s Alternative Dispute Resolution Committee. “It was somewhat unique that [the insurance company] applied to file [the award] under seal and the court granted it,” adds Betsy A. Hellmann, New York, NY, cochair of the Section’s Alternative Dispute Resolution Committee. “At least in New York, it is usually a very high bar to get something filed under seal in federal court—for example, to protect patent secrets or super sensitive pricing information,” she explains.  

Section leaders remind practitioners that arbitration proceedings are not necessarily confidential. “There’s a common misperception among the public and many lawyers that arbitration is confidential,” Hellmann remarks. “In most of the arbitration institutions’ rules, the obligation of confidentiality applies to the arbitrators, but it does not bind the parties to confidentiality.”

“Arbitrations and their outcomes are generally confidential, but your opponent may make public disclosures about the proceedings, and if one of the parties asks the court to take action with respect to the award, the award may well become public,” agrees Marinello. “Parties need to remember that although the arbitrator is required to keep an arbitration proceeding confidential, the parties themselves are under no such obligation (unless of course, they have an agreement that says otherwise). And, when third parties are interested in the arbitration outcome, they may also attempt to publicize the award,” he advises.