California Mediation and Arbitration

Mediation and Arbitration Confidentiality: Acquaint Yourself With The EU-U.S. Privacy Shield If You Are Involved With Data Transfers From The EU To The US

The European Commission Has Deemed The Privacy Shield Framework Adequate To Enable Data Transfers To US Under EU Law.

     On July 12, 2016, the European Commission adopted the EU-U.S. Privacy Shield.  I am blogging about this because it relates to transfer of data from the EU to the U.S., and this impacts legal matters affecting the privacy rights of EU citizens, including mediations, arbitrations, and litigation in which a data transfer from the EU to the U.S. is required.  Also, the Privacy Shield provides for binding arbitration as one of several dispute resolution mechanisms for resolving privacy issues.

     The International Trade Administration of the US Department of Commerce has  created a website with information about the EU-U.S. Privacy Shield Program, intended to protect data flows from the EU to the US, and thus to protect the privacy of EU persons.  The protections offered by the Privacy Shield Program are more stringent than protections offered by an earlier Safe Harbor program.  Click here for a link to FAQs about the Privacy Shield program.

     United States companies that join the Privacy Shield Framework can benefit from an “adequacy determination”, meaning a determination that they have joined and committed to a framework deemed adequate by the European Commission to comply with EU data protection requirements when transferring personal data (e.g., names, addresses, telephone numbers) from the EU to the US.

     No doubt the push to satisfy EU concerns about the privacy of EU citizens was motivated, at least in part, by Edward Snowden’s revelations concerning the NSA surveillance of intelligence available in Internet communications.  Snowden’s choice to disclose secret information about US surveillance triggered a debate on privacy and surveillance.

     The EU-U.S. Privacy Shield provides a number of dispute resolution routes, in case a citizen of the EU believes his or her privacy rights have been violated.  These routes include contacting the company directly, going to an independent dispute resolution provider, submitting to EU Data Protection Authorities (DPAs), and binding arbitration.  In the case of national security issues, an ombudsman independent from US intelligence services is to be available. 

     Arbitration “is available to an individual to determine . . . whether a Privacy Shield organization has violated its obligations under the Principles as to that individual, and whether any such violation remains fully or partially unremedied.”  In short, the purpose of arbitration is to provide an equitable, rather than a monetary remedy, for an individual whose privacy rights have been violated.  “Once invoked, the individual forgoes the option to seek relief for the same claimed violation in another forum, except that if non-monetary equitable relief does not fully remedy the claimed violation, the individual’s invocation of arbitration will not preclude a claim for damages that is otherwise available in the courts.”  See Arbitral Model, Annex II, pp. 12 to 16 of 128. 

     Because the binding arbitration dispute resolution mechanism exists to protect privacy, it would make little sense if the Privacy Shield did not protect the confidentiality of the arbitration proceeding itself.  In fact, “Materials submitted to arbitrators will be treated confidentially and will only be used in connection with the arbitration.”  Furthermore, individual-specific discovery “will be treated confidentially by the parties and will only be used in connection with the arbitration.”

International Arbitration And Confidentiality: What Confidentiality Should One Expect In International Arbitration?

Confidentiality May Seem A Self-Evident Feature Of International Arbitration – In Which Case, You May Be Surprised.

     At the 41st Annual IP Conference held in Santa Barbara, I was asked an excellent question yesterday about dealing with confidentiality in international arbitrations.  Unfortunately, this is not a subject about which I had devoted enough thought.  However, Camilla Mickelson Lous, an attorney with the Norwegian law firm Steenstrup Stordrange, has obviously thought long and hard about this.  It is the subject of her excellent April 14, 2014 on-line article entitled:  “Hush!  Let’s Arbitrate – Discourse And Practice On The Question Of Confidentiality In International Commercial Arbitration.”  While I recommend reading the article in its entirety to anyone interested in the subject, I will give you a few of the highlights.

     Ms. Lous points out that there is “a notable presumption that confidentiality is a self-evident feature of international arbitration.”  However, as important as confidentiality may be to the parties, it shouldn’t be taken for granted. 

     Preliminarily, there is a difference between confidentiality and privacy.  While arbitral hearings may generally be “private”, i.e., they are not open to the public, it cannot be said that confidentiality, as a state of secrecy, necessarily permeates the arbitral process.  Participants could be free to communicate outside the arbitration about the existence of the arbitration, communications in the arbitration, and the arbitration award, absent well-defined confidentiality safeguards.

     Looking for examples of confidentiality protection in England, Australia, the US and Sweden, Ms. Lous identifies different approaches

• England:  Arbitral matters are presumed to be confidential.
• Australia:  Confidentiality is not an essential attribute of arbitration, especially where matters of public interest are concerned, though the parties may contract for confidentiality.
• US:  Neither the Federal Arbitration Act nor the Uniform Arbitration Act contain confidentiality provisions.  The parties may contract for confidentiality.
• Sweden:  No obligation of confidentiality exists, though a “duty of loyalty” may exist between the parties to an arbitration.  If the parties want confidentiality, they must contract.

     Though the rules of international arbitral institutions may regulate confidentiality, there is no uniform approach.   WIPO Arbitration Rules 75 to 77, address confidentiality of the existence of the arbitration, disclosures made during the arbitration, and maintenance of confidentiality by the arbitration center and the arbitrator.  It makes perfect sense that WIPO would have rules addressing confidentiality, because the “World Intellectual Property Organization” exists to protect the “IP” in “WIPO”, and intellectual property is often valuable because it is confidential.

      The UNCITRAL Model Law on International Commercial Arbitration leaves the question of confidentiality to the parties and the arbitration rules they choose.

     While confidentiality cannot be taken for granted in international arbitration, there are some things a party can do:  (1) include a confidentiality clause in the original contract; (2) get individual confidentiality agreements from third parties; (3)  if confidentiality is a concern, pay attention to the choice of law and seat of arbitration; (4) request protective orders from the arbitrator; (6) go to national courts to enforce protective orders (sometimes a self-defeating option). 

      Bottom line:  do not take the obligation to maintain confidentiality for granted in international commercial arbitration.

      While I found Ms. Lous’ article to be genuinely illuminating, I can’t help but remember Laurel and Hardy’s immortal words:  “Well, here’s another nice mess you’ve gotten me into.”

     HAT TIP to the attorney in the audience who asked me about confidentiality in international arbitration yesterday!

International Arbitration/Disclosures: Second District Division 5 Affirms Orders In International Arbitration Denying Vacatur Motion and Confirming Award and Judgment

 

California’s Code of Civil Procedure Provisions Governing International Arbitration Differ From Ordinary Domestic Arbitration Provisions

     With this post, we inaugurate a new sidebar category: “Arbitration: International.”

     Comerica Bank v. Howsam, et al. Case No. B232749 (2^nd Dist. Div. 5 August 20, 2012) (Turner, P.J., author)(partially published) involves appeals from orders confirming three international arbitration awards. The underlying disputes concerned Comerica Bank’s loans totaling $37 million to Mr. Howsam, a Canadian resident, and various Canadian corporations controlled by him. The loans were to fund the production of seven films. The loans, which the bank alleged had been obtained through fraud, were not repaid. The bank initiated legal action, and several defendants moved to compel arbitration. The arbitrator found in favor of the bank, the superior court denied a motion to vacate the awards (vacatur), and appeals followed.

     The Court of Appeal affirmed across the board, after addressing four issues.

     First, the Court of Appeal discussed whether the arbitrator’s failure to timely disclose an alleged disqualifying factor – he had once had signature authority for a client on a Comerica Bank account – is a proper vacatur ground (i.e., a ground upon which the trial court judge could have vacated the arbitration award). However, the failure to timely disclose potential disqualifying circumstances, as required by “Arbitration and Conciliation of International Commercial Disputes” provisions of the Code of Civil Procedure, specifically, section 1297.121, simply is not a ground for vacatur under section 1286.2(a)(6)(A) , the ground relied upon by Defendants, and governing vacatur by the trial judge of an arbitration award. Therefore, the trial judge did not err by failing to vacate an award on the basis of a disqualifying factor in international arbitrations that is not a basis for vacatur under 1286.2(a). The Court of Appeal notes, however, that failure of the arbitrator to disclose disqualifying factors in an international arbitration is not immune to review – but it requires following a different procedural path:  “A litigant remains free to raise the failure to disclose issue in a writ petition.”  Beware:  trap for the unwary.

     Second, the Court of Appeal concluded that the award was not secured by corruption, fraud, or other undue means. Billing errors of the arbitrator had no bearing on the outcome, and were explainable by procedural complexities “with fast moving substantive changes being pursued by both sides.”

     Third, the award did not result from a manifest disregard of the law – an issue forfeited in any case by Defendants who withdrew from the arbitration and who therefore failed to raise the point before the arbitrator.

     Fourth, the arbitrator did not exceed his power when he decided alter ego issues. The rules of the arbitral organization (Independent Film & Television Alliance) and Code of Civ. Proc. section 1297.161, providing that in international arbitration, the arbitrator may rule on his or her own jurisdiction, allowed him to do decide alter ego issues.

     COMMENT: We gleaned interesting tidbits from this case.

     First, title 9.3 of the Code of Civil Procedure, entitled “Arbitration and Conciliation of Commercial Disputes”, sections 1297.11 et seq., while similar to domestic arbitration provisions, also differs substantially in some respects, for reasons that are not intuitively obvious. For example, “the disclosure duties and the consequences of a failure to disclose differ in domestic and international arbitrations.” Therefore, if you have a case involving international arbitration, we urge you to read Cal. Code of Civ. Proc. sections 1297.11 et seq. Comerica Bank v. Howsam will also be a useful case to read.

     Second,”federal Courts of Appeals are divided as to whether the arbitrator’s manifest disregard of the law remains a basis for vacatur in federal court . . . . But one thing is clear, an arbitrator’s manifest disregard of the law is not a ground for vacatur under California law.”