Prima Paint applies to confidentially agreement

by Richard Alderman

In an interesting case, ITT Educ. Serv. Inc. v. Arce, the Fifth Circuit has held that parties to an arbitration may not disclose a copy of the arbitrator’s findings in an independent proceeding involving the same defendant. The consumer appellants argued that the arbitrator’s findings constituted a finding of fraudulent inducement. Accordingly, the consumers argued, the entire Enrollment Agreement–including the confidentiality provision–was void under Texas law, such that the consumers may disclose the results of the prior arbitration. The defendant, IRR, disputed that the arbitrator made a finding of fraudulent inducement.

ITT argued, however, that–even if the arbitrator made such a finding–the district court nonetheless properly found that the confidentiality provision is part of the arbitration clause and, thereby, severable and enforceable under Prima Paint and its progeny. The court agreed with ITT. The court noted that:

Rather, under Prima Paint and the structure and content of the arbitration clause, the clause should be considered “separable” and any alleged finding of fraudulent inducement does not taint the validity of the arbitration clause as a whole or its confidentiality provision in

particular.

The result of this decision points out another negative aspect of arbitration—the lack of a published decision and public evidence. Without any published decision or the availability of evidence from a trial, each consumer with a dispute about the identical matter must independently learn of the dispute and establish his or her claim. For those who discover they may have a claim, the result is unnecessary, time consuming, redundant, and possibly inconsistent legal proceedings. In fact, the court recognizes the consequences of publicly disclosing the arbitrator’s decision when it states:

If Ms. Clark filed an unredacted copy of the arbitrator’s opinion, such information could be used against ITT in the Rodriguez arbitration, as well as open the door to innumerable other suits by ITT students.

Opening the door to others is one of the features of an open system of civil justice. As the court recognizes, arbitration is a way for the party in the stronger bargaining position to close that door.