Judicial proceedings to confirm or vacate arbitral awards can create a conflict between the presumption that judicial proceedings are public and the expectation that arbitrations are private. To alleviate this conflict, the Delaware Court of Chancery Rule 5.1 permits parties to seek protected treatment to prevent the disclosure of truly confidential information in public filings. A recent case, Soligenix v. Emergent Product Development Gaithersburg, C.A. No. 2022-0880-PAF (Del. Ch. Feb. 21, 2023), called upon the Court of Chancery to answer the related questions of whether arbitration materials automatically qualify for confidential treatment under Court of Chancery Rule 5.1, and if not, whether the calculus changes when parties earlier stipulated to treat the arbitration materials confidentially. As the court explained, precedent and policy indicate the answer to both questions is “no.”
Petitioner Soligenix, Inc. (Soligenix) petitioned the Court of Chancery to vacate an arbitration award in favor of respondents Emergent Product Development Gaithersburg, Inc. and Emergent Manufacturing Operations Baltimore LLC (collectively, Emergent).
The underlying dispute involved claims of breach of contract and fraudulent inducement.
Emergent prevailed in arbitration before the American Arbitration Association. The parties had stipulated that the arbitration, as well as related discovery, was confidential.
After Soligenix filed its petition and several exhibits under seal, Emergent requested broad redactions to the public version of the petition and requested that all exhibits remain under seal. Those exhibits included not only the agreements at the heart of the parties’ dispute (which were designated confidential in the arbitration proceedings), but also a New York Times article and a public transcript of a Congressional Subcommittee. Soligenix objected to the redactions, and Emergent agreed to revised public filings with narrower redactions. Unsatisfied, Soligenix filed a notice of challenge to the continued confidential treatment of the redacted portions of its petition and certain exhibits.
Emergent responded by filing a motion for continued confidential treatment under Rule 5.1 According to Emergent, the materials were entitled to confidential treatment because arbitration proceedings are inherently confidential, the parties’ confidentiality stipulation in the arbitration entitled the materials to confidential treatment, and the materials otherwise qualified as confidential information under Rule 5.1.
Arbitration Is Private, but Not Inherently Confidential
The court began by dispelling the misconception that arbitration is always confidential, and consequently, that arbitration materials are presumptively entitled to confidential treatment. On the point of privacy, the court agreed with Emergent that arbitration is an inherently private process. But, the court explained, there is nothing to support the assumption that privacy equates to confidentiality. Privacy involves the ability of uninvited third parties to access the proceedings without consent; confidentiality involves the ability of parties and participants to disclose information about the arbitration. And broad confidentiality of Court of Chancery proceedings runs contrary to both the Delaware Constitution and the court’s precedent. Citing case law from other jurisdictions, as well as scholarly articles, the court observed that there is no support for the common, but wrong, assumption that arbitration is confidential. Indeed, the court noted that the Federal Arbitration Act, which governed this case, does not require confidentiality. Nor do the commonly-used rules of the American Arbitration Association or JAMS (formerly Judicial Arbitration and Mediation Services, Inc.). The court agreed with other courts that, to make proceedings confidential, parties must contract with each other for confidentiality.
None of the authority cited by Emergent changed the court’s conclusion. In the court’s view, many of Emergent’s selected quotations came from cases where confidentiality was uncontested; thus, the authority was “not persuasive in circumstances where, as here, an award is contested and the court is required to adjudicate the dispute.” Likewise, the court was unpersuaded by Emergent’s invocation of earlier Delaware cases. None of those cases involved a Rule 5.1 challenge or established the inherent confidentiality of arbitration.
Because arbitration itself is not inherently confidential, the court declined to treat the disputed materials as confidential solely because they arose from arbitration proceedings.
A Private Confidentiality Stipulation Does Not Prevent Public Access
Next, the court dispensed with Emergent’s heavy reliance upon the parties’ confidentiality stipulation.
Initially, the court noted that Emergent’s argument for confidentiality of the exhibits was inconsistent with the language of the parties’ stipulation. The arbitration award, one of the exhibits, was not specifically designated as confidential in the stipulation. And because the remaining exhibits were in Soligenix’s possession prior to the commencement of the arbitration, those materials were outside the stipulation’s definition of “Confidential Information.”
But, the court explained, it would not have mattered if the exhibits fell within the stipulation’s express language. That stipulation did not bind the court, and the court’s proceedings to determine whether to vacate the arbitration award are public. Put simply, “parties cannot subvert Rule 5.1 by contract.”
To be Treated Confidentially, Information Must Meet the Standard Set in Rule 5.1
Having rejected Emergent’s first two arguments, the court analyzed whether the information otherwise met the standard for confidential treatment under Rule 5.1.
As the court explained, a party seeking confidential treatment must establish good cause for keeping the material out of the public record. This includes showing that the information is nonpublic and that it aligns with one of Rule 5.1’s specific categories potentially protected information. It also includes a showing that release of the information would cause the party a concrete, particularized harm.
Here, instead of establishing good cause under Rule 5.1, Emergant merely relied upon the stipulation and the confidentiality of the parties’ arbitration proceedings. Because Emergent did not identify any harm that would result from disclosure of the petition or the exhibits, the court denied Emergent’s motion for continued confidential treatment.
The court in Soligenix followed the decisions of courts in other jurisdiction, as well as the general academic consensus, in declining to view arbitration proceedings as inherently confidential.
From there, it followed a straight line to conclude that the parties could not, by private agreement, transform non-confidential information into “confidential information” entitled to Rule 5.1’s protections. Going forward, parties seeking confidential treatment of information should be prepared to explain why the information merits protection under Rule 5.1 and should not merely rely upon the privacy of arbitration proceedings or a confidentiality stipulation.