A critical question that comes up in the arbitration context, both in drafting the arbitration clause and at the preliminary scheduling hearing, is whether to ask for a bare award or a reasoned award. The question is often given short shrift or decided by default. But it deserves more focused thought.
Why? Because the answer might determine the availability of judicial vacatur or arbitral appeal, or result in the disclosure of information about the dispute that your client had hoped to keep confidential. Anyone thinking about the issue must grapple with the tension between a reviewing body’s need for facts and an arbitral party’s expectation of confidentiality.
Arbitral or judicial review requires information
Parties want to understand the reason for an award and to assure themselves that careful thought preceded the result, particularly if the award is unfavorable. A reasoned award is more likely to satisfy these needs because the effort of writing the reasons can reveal problems in reasoning: if a decision is difficult to write, “[t]he act of writing tells us what was wrong with the act of thinking.” Frank M. Coffin, The Ways of a Judge 57 (Houghton Mifflin 1980).
If you or your client want to preserve the possibility of appeal, either to an arbitral tribunal (as is now available under several provider rules,) or to a court under the Federal Arbitration Act, recent case law counsels insisting on a reasoned award. In Physicians Ins. Capital v. Praesidium Alliance Group, 2014 WL 1388835 (6th Cir. April 10, 2014), the Court noted the difficulty of reviewing a bare award:
“Without a proper and complete record of the proceedings, this court …has no basis upon which to vacate the award,” [and] a party seeking to overturn the arbitrator's’ award ‘faces a tremendous obstacle.”
Ensuring confidentiality requires a bare award
If maximizing the confidentiality of the dispute is the highest priority, a bare or simple award is the better choice.
Many clients elect arbitration because they are told it is a private process. They and often their lawyers believe that confidentiality follows. However, privacy and confidentiality are not synonyms in the arbitration world, particularly in the U.S.
As one of the few appellate decisions on this topic has held: “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?” Baxter Int’l Inc. v. Abbott Labs, 297 F.3d 544, 546-47 (7th Cir. 2002; Easterbrook, J).
A reasoned award is the quintessential dispositive document. Whatever it contains may be published and available for later arbitral appeal or judicial review. The parties can agree with one another that things relating to the arbitration will be kept confidential, but they cannot bind the court or third parties. Gotham Holdings LP v. Health Grades, Inc., 580 F.3d 664, 665-66 (7th Cir. 2009).
Even parties who go to great lengths to preserve confidentiality may lose that protection if they become entangled in the U.S. courts. For example, the London Court of International Arbitration promises confidentiality (LCIA Arbitration Rules, Rule 30.1). But in Veleron Holding, BV v. Morgan Stanley, 2014 WL 1569610 (SDNY April 16 2014), an insider trading and stock manipulation case, the district court held that a U.S. court will not respect the total confidentiality and “utmost secrecy” imposed by the LCIA for any information generated in the arbitration or provided by the parties to the arbitration if it becomes important in the U.S. litigation.
The Veleron Holding court stated that there is both a constitutional and common law right of access to judicial documents relevant to the performance of the judicial function. It rejected Morgan Stanley’s effort to obtain “eternal privacy” and unsealed its entire file subject to strict showings on individual materials.
Taken together, Physicians Ins. Capital and Veleron Holding teach us that choosing between a bare award and a reasoned award can have serious consequences: Judicial or arbitral review is impossible without a record of the arbitrator’s reasoning.
Conversely, anything beyond a bare award risks the loss of bargained-for confidentiality if the US Courts become involved. While total confidentiality cannot be assured, there is far better protection when only a bare award is requested or required by the arbitration clause. Whether to seek a bare or reasoned award should be the subject of careful and deliberate choice by counsel.
By Laura A. Kaster