One of the perceived advantages of arbitration over litigation is that the proceedings are presumed to be confidential. An increasing number of court decisions suggest that this presumption may be misplaced. In December 2020, the U.S. Court of Appeals for the Third Circuit held that an arbitration award filed with a petition to confirm the award was a judicial record and hence subject to the common-law right of access.
In Pennsylvania National Mutual Casualty Insurance Group v. New England Reinsurance Corp., Nos. 20-1635, 20-1872, 2020 WL 7663878 (3d Cir. Dec. 24, 2020), insurance company Penn National obtained a favorable arbitration award against two of its reinsurers. It then filed with the U.S. District Court for the Middle District of Pennsylvania a petition to confirm the award and reduce it to a judgment. Penn National filed the arbitration award with the court and requested that it be sealed, which the court granted.
The parties settled and Penn National withdrew its petition. One of Penn National’s reinsurers—an entity that was not a party to the action—subsequently moved the court to unseal the arbitration award pursuant to the common-law right of access. The common-law right of access allows members of the public to access documents in a judicial proceeding. The district court ruled in favor of the non-party reinsurers and unsealed the award.
The Third Circuit affirmed, holding that if a document makes its way into the clerk’s file, then it is subject to the presumption of common-law right of access. The presumption can be overcome if public disclosure would result in a clearly defined injury.
Penn National argued that it could establish a clearly defined injury because other reinsurers might decline to pay Penn National and contest their contractual obligations if they knew of the contents of the award. The court disagreed, holding that this was not a clearly defined injury because it “could not determine how many possible relationships could be impacted, the amount of money that could be at stake, the types of actions other parties may pursue, or the likelihood that any such actions would be successful.” Id. at *2.
The Third Circuit’s holding is consistent with what appears to be a trend in which courts are increasingly deciding to unseal arbitration awards. See e.g., Global Reinsurance Corp. U.S. Branch v. Argonaut Ins. Co., 2008 WL 1805459, *1 (S.D.N.Y. April 21, 2008) (unsealing an arbitration award, noting that arbitration awards simply state the relief granted or denied and therefore any fear of disclosure typically does not “provide adequate basis to overcome the presumption of access”); Redeemer Comm. of Highland Credit Strategies Funds v. Highland Capital Management, L.P., 182 F. Supp. 3d 128 (S.D.N.Y. 2016) (unsealing arbitration award, holding that “commercial dealings, even between private parties, play an integral role in a market economy that intimately affects the lives of citizens, and the enforcement of legal obligations governing these dealings should not, at least as a general matter, be shrouded from the public view”); Zurich Am. Ins. Co. v. Rite Aid Corp., 345 F. Supp. 2d 497 (E.D. Pa. 2004) (unsealing arbitration award, holding that a non-party employee’s concern over what unsealing an arbitration award would do to her reputation was not a sufficiently “compelling countervailing interest[]” to warrant keeping the award under seal); and Visteon Corporation v. Leuliette, 2018 WL 623663, *6 (E.D. Mich. Jan. 30, 2018) (unsealing an arbitration award, holding that although “arbitration hearings normally proceed outside of the public sphere,” the “veil of secrecy is lifted once the parties turn to federal court to confirm, vacate, or modify an arbitration award”). The trend is not limited to domestic arbitrations. At least one court has applied the common law right of access and unsealed an award issued in an international arbitration. Jankula v. Carnival Corporation, No. 18-cv-24670, 2019 WL 8051719 (S.D. Fla. Sep. 5, 2019). It did so despite the fact that the parties had what the court described as an “agreement to confidentiality in the underlying arbitration proceeding.” Id.
In light of this trend, parties concerned with maintaining the confidentiality of arbitration awards should think carefully before filing petitions to confirm, vacate, or modify them.
