Parties to an arbitration contract may agree to a secrecy clause that will govern their arbitration process to protect the confdentiality of their proprietary or personal information. Of great concern, however, is that they also may use such an arbitration secrecy clause to hide their improper or discriminatory practices or defects in their products, and to silence the victims of their wrongdoing. This silence, in turn, may enable perpetrators to continue to engage in harmful behavior, that is like the conduct that the secrecy clause has covered up. This Article explores the relationship between the Federal Arbitration Act (FAA), which generally requires that courts enforce arbitration agreements as written, and various state and federal limitations on the enforcement of nondisclosure agreements (NDAs), which might be used to safeguard against the harmful effects of arbitration secrecy clauses.
Courts have divided sharply in considering the extent to which the FAA preempts or displaces, respectively, various state and federal limitations on the enforcement of NDAs as they relate to arbitration secrecy. The established broad framework is clear enough: Pursuant to the U.S. Supreme Court’s FAA jurisprudence, the FAA will preempt or displace a regulation that undermines a fundamental attribute of arbitration. A neutral regulation will not confict with the FAA, however, when it impacts only an incidental aspect of arbitration. Lower courts have not reached a consensus as to whether arbitration secrecy is a fundamental attribute or merely an incidental aspect of arbitration. The U.S. Supreme Court has never explicitly addressed the issue.
The Article’s analysis begins by considering the nature of arbitration and the place of secrecy in the hierarchy of arbitral values. After reviewing the FAA’s structure and legislative history, the folklore of arbitration, and the case law addressing encroachments upon arbitration secrecy, the Article concludes that secrecy is neither a fundamental attribute of arbitration nor a mere incidental aspect of arbitration. Rather, secrecy should be regarded as a secondary or intermediate attribute of arbitration. This Article’s novel conclusion that arbitration has intermediate attributes, suggests the need for an expanded framework for resolution of challenges to neutral arbitration regulation that allows for a more nuanced intermediate scrutiny. This Article proposes and defends such a framework. In the context of government infringements of arbitration secrecy, the framework would require the government to demonstrate that its infringement upon arbitration secrecy is reasonable in its inception and reasonable in its scope when measured against the parties’ interest in arbitration secrecy. This balancing approach would allow for consideration of context that the Supreme Court’s current all-or-nothing approach ignores and, thus, is better suited to harmonizing the competing concerns grounding the FAA and any potentially conflicting state or federal effort that does not target arbitration specifically but nonetheless impacts a secondary attribute of arbitration.
To read this Article, please click here: Arbitration Secrecy.
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