The case of the day is Redeemer Committee of Highland Credit Strategies Funds v. Highland Capital Management, LP (S.D.N.Y. 2016). Highland Capital Management was the manager of Highland Credit Strategies Master Fund, LP, a Bermuda mutual fund company. The Master Fund invested money received from two feeder funds, Highland Credit Strategies Fund, LP and Highland Credit Strategies Fund, Ltd. When the feeder funds decided to liquidate in 2008, Highland Capital Management and the investors agreed on a plan for distributing the assets of the Master Fund, to be overseen by a Redeemer Committee. They agreed to arbitration of any disputes that arose, to be held in New York and administered by the AAA. According to Highland Capital Management, the plan of distribution was “implemented in Bermuda in relation to Highland Credit Strategies Fund, Ltd. (a Bermuda company) by way of a scheme of arrangement under the Bermuda Companies Act 1981.” The plan of distribution had confidentiality provisions that were incorporated into the scheme of arrangement. The scheme of arrangement was approved by the Bermuda court and could not be changed without court approval.
A dispute arose, and the parties arbitrated in New York. The arbitration resulted in an award, which the Redeemer Committee moved to confirm. As required by the confidentiality provisions of the plan, the Redeemer Committee sought and received leave to file its petition for confirmation under seal. For its part, Highland Capital Management moved to vacate the award. Later, the parties agreed that the petition itself need not be sealed, but Highland Capital Management insisted that the award itself, and other materials, should remain under seal. The main argument was that Bermuda law applied and required sealing, and that therefore considerations of comity overrode the usual policy favoring public access to judicial records and proceedings.
The court held that Bermuda law did not govern and that in any event even if it did, comity did not require the court to keep the award sealed in the face of the ordinary presumption of public access. This is fairly straightforward.
The case is interesting to me because it illustrates a common problem. Parties say they choose arbitration because they want a private method of resolving their disputes. But then someone files the arbitral award in connection with a petition to confirm it. What was meant to be private becomes public.
We wouldn’t expect this to be a problem if parties really meant it when they agreed to resolve their disputes privately. Voluntary compliance with awards is supposed to be the norm, and if there is prompt voluntary compliance, there is no need for confirmation proceedings (or vacatur proceedings) at all. Maybe you want to make explicit an exception for seeking relief in the courts in truly exceptional cases, and most of the bases for denying confirmation under the FAA and the New York Convention are meant to deal with the rare exceptions where there is a strong reason to reject the award on grounds of fundamental procedural fairness (e.g., the arbitrator was biased or had a conflict of interest; or one party or the other wasn’t allowed to put on its case; other exceptions, e.g., the public policy objection, are meant to give the courts a basis to refuse to confirm awards that would be repugnant to local policy, but that doesn’t meant that the parties couldn’t voluntarily comply with the award if they chose). But no one who reads the cases on confirmation or vacatur of awards, at least in the United States, can think that parties are only repairing to the courts in exceptional cases. Post-award litigation is common enough that I think it’s fair to ask whether parties really mean what they say when they say they are shocked to find their arbitral awards put in the public record.
By the way, on the merits, it seems to me that Highland Capital Management will have a tough time prevailing in its argument that its objection to arbitrability is for the court, not the arbitrators, to decide. It appears the parties chose the AAA Commercial Arbitration Rules to govern, and courts have held that adoption of those rules, which include a rule (Rule R-7) giving the arbitrators the power to decide questions of arbitrability, is the kind of clear and unmistakable evidence of the parties’ intent to commit such questions to the arbitrator that courts rely on to reject judicial challenges to arbitrability.