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MAY 26, 2015 DAILY BUSINESS REVIEW BOARD OF CONTRIBUTORS YOUR ARBITRATION IS PRIVATE, BUT IS IT CONFIDENTIAL? by Ronald Ravikoff [email protected].

Parties to business arbitrations generally assume that arbitration proceedings will be both private and confidential. The first assumption is correct. Arbitrations are private in that persons who are not a party to the arbitration agreement cannot attend any hearings or play any part in proceedings absent consent of all parties and the arbitrator. The second assumption is not. While the obligation of the arbitrator (and administrator) to maintain is usually clear, generally no such obligation is imposed on the parties. This becomes particularly troublesome in business cases involving such sensitive items as customer lists, secrets, proprietary processes, permissive, allowing the arbitrators However, the AAA specifies in its financial information, etc. to establish protective orders Statement of Ethical Principles that Parties, therefore, must take steps relating to “sensitive information,” while arbitrators and AAA have a to protect sensitive information but imposing confidentiality (Rule duty of confidentiality, “The parties within the arbitration. 26(b)) only on the arbitrators and always have a right to disclose JAMS. Thus, neither parties nor details of the proceeding, unless CONFIDENTIALITY STEPS witnesses are covered unless action they have a separate confidentiality PROTECTIVE ORDER is taken by way of entry of an order. agreement. However, the AAA takes The easiest, and most universally Canon VI of the American no position on whether parties used method to secure confidential Arbitration Association Code of should or should not agree to information is a protective order requires arbitrators to keep the proceeding and award from the arbitrator. maintain the confidentiality of all confidential between themselves. JAMS Rule 26 (b), for example, is matters relating to the arbitration. The parties always have a right to disclose details of the proceeding, fact but to seek to prevent its use award). Consider declining the unless they have a separate in the first place. reasoned award option or provide confidentiality agreement.” by agreement that confidential Likewise the revised Florida PROTECTING CONFIDENTIALITY information may not be referred Arbitration Code provides: “An The best way to ensure to in the reasoned award. arbitrator may issue a protective confidentiality is not during Perhaps the most effective order to prevent the disclosure of arbitration, but at the time of the manner in which confidentiality can privileged information, confiden- drafting of the be preserved is through the use of tial information, trade secrets and controlling the arbitration. a liquidated clause within other information protected from For those businesses that rou- the arbitration clause itself. Under disclosure to the extent a tinely deal with confidential in- such an approach, the parties, could if the controversy were the formation or enter into a in the arbitration clause, would subject of a civil action in this where confidential information is acknowledge that if information state.” F.S. 682.08(5). The Federal uniquely at issue, the arbitration is designated as confidential, and Arbitration Act has no compara- clause should be carefully draft- the arbitrator agrees, then in the ble provision. ed. The clause should specify that event of a breach, actual damages there is a confidentiality issue and are unascertainable and provide ENFORCEMENT lay out the process to be followed. for a meaningful liquated damages The problem with a confiden- The arbitration clause may amount as a deterrent. The threat tiality order from the arbitrator require the arbitrator to enter of such a damages claim would be is not its issuance or scope—but an order at the beginning of the more effective in deterring a breach rather its enforcement. The arbi- arbitration, specifying the process of the confidentiality as opposed to trator’s sole remedy for violation for adopting confidentiality. This the possibility (and cost) of going is the imposition of sanctions dur- order would include how the to court to enforce the arbitrator’s ing the course of the arbitration. information will be exchanged, confidentiality order. This is little comfort when the vio- how it will be identified and Of course, any such liquidated lation occurs after the arbitration what steps must be taken damage clause should also be or is done by a witness who is not to avoid distribution. These included in the final award of the a party to the arbitration. In those standards should be entered in arbitration. circumstances the party seeking the preliminary order and, to the Both the drafters of arbitration the enforcement of the arbitra- extent necessary, included in the clauses and those handling arbi- tion clause must go through the final award. tration trials must be sensitive to lengthy and expensive process of The arbitration clause should their clients’ need for confidenti- going to court to enforce the right also require all third parties ality at the earliest possible time of confidentiality. (witness, experts etc.) to agree to in the process and take steps as Because of this need to seek a and sign off on their understanding appropriate. court remedy, it is imperative that of the confidentiality order and the confidentiality information the fact that they are bound by it. be clearly identified during the Ronald Ravikoff practiced commercial arbitration proceedings and the AVOID A REASONED AWARD litigation with several national law firms order itself be reiterated within Confidential matters may be for 35 years. He joined JAMS in 2012 and the final award. necessarily disclosed in having is a mediator, arbitrator, hearing officer Of course the main goal in pro- the arbitrator render detailed and special master. He can be reached at tecting the confidential informa- findings of fact and conclusions [email protected]. tion is not to get relief after the of law in the opinion, (a reasoned

Reprinted with permission from the 5/26/15 edition of the DAILY BUSINESS REVIEW © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. Contact: 877-257-3382 [email protected] or visit www.almreprints.com. # 100-05-15-09