Arbitration - USA
Court seals confirmation proceedings because of confidentiality clause
Authors
Contributed by K&L Gates
JP Duffy
May 01 2014
Introduction
Underlying dispute and contractual confidentiality agreement
Parties reaffirm confidentiality of the arbitration
Texas court seals confirmation proceedings
Confidentiality and rights of public access in US confirmation proceedings
Texas court's rationale
Comment
Eric A Bevan
Introduction
In Decapolis Group, LLC v Mangesh Energy, Ltd(1) a federal trial court in Dallas recently
sealed award confirmation proceedings ostensibly subject to the 1958 Convention On
the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) on
the grounds that:
l
the underlying contract contained a confidentiality clause; and
l
the award contained sensitive business and strategic information.
Decapolis is significant for international arbitration practitioners because it provides a
possible solution to the confidentiality problems that can arise when a party seeks to
confirm an award pursuant to Article IV1a of the New York Convention in a jurisdiction
that allows public access to court records.
Underlying dispute and contractual confidentiality agreement
The underlying dispute in Decapolis concerned consulting fees that Mangesh Energy,
Ltd supposedly owed to the Decapolis Group, LLC pursuant to a retainer and
consulting agreement that the parties entered into in 2006. The contract provided that
the Decapolis Group would assist Mangesh in securing oil and gas rights in Iraqi
Kurdistan in exchange for consulting fees.(2) The Decapolis Group is a Maryland-based
consulting firm and Mangesh is a Cayman Islands-registered affiliate of a Dallasbased energy company.
The contract contained a confidentiality clause which provided that the parties would not
disclose 'confidential information', which was broadly defined as:
"[I]nformation (whether or not recorded in documentary form, or stored on any
magnetic or optical disk or memory) relating to the business, products, affairs
and finances of a Party and the Project for the time being confidential to that
Party and trade secrets including, without limitation, technical data and knowhow relating to the business of the Party and the Project."(3)
The contract also contained an arbitration clause that called for disputes to be resolved
by arbitration under the International Chamber of Commerce Rules of Arbitration.
Parties reaffirm confidentiality of the arbitration
Eventually, a dispute arose regarding the Decapolis Group's compensation under the
contract and the Decapolis Group initiated arbitration in 2010. The parties apparently
agreed to keep the arbitration confidential, but the scope of their agreement is not
stated and there is no information in the record indicating that the parties also agreed to
keep enforcement proceedings confidential.(4)
The hearing on the merits was held in January 2012 in Forth Worth, Texas. The
arbitrator subsequently issued an award in the Decapolis Group's favour, granting the
Decapolis Group damages and its costs.(5)
In April 2013, the Decapolis Group filed a petition in federal district court in Dallas to
confirm the award. Mangesh responded by filing a motion to dismiss the petition on
jurisdictional grounds and a motion to seal the petition based on the confidentiality
agreement contained in the contract.
Texas court seals confirmation proceedings
After denying Mangesh's motion to dismiss the confirmation petition, the Texas court
turned to its motion to seal the confirmation proceedings. The court granted Mangesh's
motion to seal the proceedings, which included the award itself.
Confidentiality and rights of public access in US confirmation proceedings
In the United States, court proceedings are presumptively public and, absent
extraordinary circumstances, the public enjoys a constitutional right to access
documents filed in court proceedings. That right extends to documents filed in award
confirmation proceedings, which includes the award itself pursuant Article IVa1 in New
York Convention cases. Accordingly, third parties can generally obtain copies of
international arbitral awards, whether confidential or not, if confirmation proceedings
are commenced in the United States. However, the Texas court concluded that the
contract's confidentiality clause and the sensitive nature of the award warranted a
different approach.
Texas court's rationale
After weighing US constitutional requirements that allow general public access to court
proceedings, the Texas court noted that public rights of access are not absolute, and
that proceedings can be sealed where confidentiality concerns outweigh the general
public's right of access.(6)
The Texas court then turned to the award itself and found that it contained "extensive
findings of fact and conclusions of law", as well as confidential strategic business
information. The Texas court concluded that there was little public interest in that
information, especially when the parties had agreed in the contract to keep at least
some of that information confidential. Accordingly, the Texas court rested its decision to
seal the confirmation proceedings on:
l
the general confidentiality provision in the contract; and
l
the sensitive nature of the information set forth in the award.
Comment
Decapolis suggests a possible solution to a vexing problem – how to preserve the
confidentiality of an underlying arbitration if confirmation proceedings in a jurisdiction
that allows public access to court files become necessary.
International arbitral awards subject to the New York Convention are frequently detailed
and often contain meticulous recitations of the disputes at hand and the business
context in which they arose. While the details contained in reasoned awards can be
useful to the parties, those details can also be useful to third parties if disclosed.
Consequently, the desire to keep an award confidential (if that right was conferred by
the parties themselves or some other source) can ultimately factor into the decision to
comply voluntarily with awards or seek their confirmation.
The question of whether arbitral awards can be kept confidential in subsequent court
proceedings has been addressed before, but arguably not with the same deference to
the parties' agreement to keep the arbitral records and sensitive business information
confidential. For example, in reinsurance arbitrations, it is not unprecedented for courts
to seal arbitral records.(7) Decapolis, however, is not a reinsurance dispute and
involves a more traditional international commercial arbitral award.
Decapolis suggests that if parties wish to preserve any confidentiality to which an award
might be entitled and enforcement proceedings are anticipated in the United States,
then they should contractually endeavour to keep enforcement proceedings confidential
as well (to the extent that this is both possible and permissible). While parties may
currently express those desires either in general contractual confidentiality provisions
or specifically in arbitration clauses, Decapolis suggests that a more direct approach
may be merited.
For further information on this topic please contact JP Duffy at K&L Gates LLP's New
York office by telephone (+1 212 536 3900), fax (+1 212 536 3901) or email (
JP.Duffy@klgates.com ). Alternatively, contact Eric A Bevan at K&L Gates' Los Angeles
office by telephone (+1 310 552 5000), fax (+1 310 552 5001) or email (
eric.bevan@klgates.com). The K&L Gates website can be accessed at
www.klgates.com.
Endnotes
(1)
The Decapolis Group, LLC v Mangesh Energy, Ltd, 3:13-cv-01547-M (ND Texas
2014)
(2) Iraq
is not a signatory to the New York Convention. See Status,
Convention On the Recognition and Enforcement of Foreign Arbitral Awards (1958, New
York).
(3) Memorandum
of Law in Support of Respondents' Motion to Seal Petitioner's Verified
Petition to Confirm Arbitration Award, pp 1-2; Memorandum Opinion and Order, pp 1-2.
The arbitration was presumably subject to the 1998 version of the International
Chamber of Commerce (ICC) Rules of Arbitration, which permitted tribunals to take
measures to protect confidential information during the arbitral proceedings
themselves. See Article 20(7), ICC Rules (1998) ("The Arbitral Tribunal may take
measures for protecting trade secrets and confidential information."), and Article 22(3),
ICC Rules (2012) ("Upon the request of any party, the arbitral tribunal may make orders
concerning the confidentiality of the arbitration proceedings or of any other matters in
connection with the arbitration and may take measures for protecting trade secrets and
confidential information").
(4)
(5) Memorandum
(6) Id,
Opinion and Order, p 2.
p 3, citing SEC v Van Waeyenberghe, 990 F2d 845, 848 (5th Cir 1993); Belo
Broad Corp v Clark, 654 F2d 423, 430-33 (5th Cir 1981); United States v Raybould, 130
F Supp 2d 829, 831 (ND Tex 2000).
(7) See,
for example Century Ind Co v Certain Underwriters at Lloyd's, 2009 US District
Lexis 1774 (ED Pa).
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