An arbitration agreement may specify confidentiality, but does that term necessarily control and require sealing of subsequent proceedings in court? “No,” usually, is the answer according to a recent federal district court ruling in CAA Sports LLC v. Dogra, No. 4:18-cv-01887-SNLJ, 2018 U.S. Dist. LEXIS 214223 (E.D. Mo. Dec. 20, 2018).  The key portion of the ruling is quoted below.

“But, in the context of arbitration, courts routinely reject arguments that arbitration awards and supporting documents should be sealed merely to honor the parties’ underlying confidentiality agreement related to their arbitration. See, e.g., Grynberg v. BP P.L.C., 205 F.Supp.3d 1, 3-4 (D.D.C. 2016); Redeemer Committee of Highland Credit Strategies Funds v. Highland Capital Management, L.P., 182 F.Supp.3d 128, 132-134 (S.D.N.Y. 2016); Amerisure Mut. Ins. Co. v. Everest Reinsurance Co., 2014 U.S. Dist. LEXIS 153013, 2014 WL 5481107 *2 (E.D. Mich. Oct. 29, 2014); Century Indem. Co. v. AXA Belgium, 2012 U.S. Dist. LEXIS 136472, 2012 WL 4354816 at *13-14 (S.D.N.Y. Sept. 24, 2012); Zimmer, Inc. v. Scott, 2010 U.S. Dist. LEXIS 77409, 2010 WL 3004237 at *2-3 (N.D. Ill. Jul. 28, 2010); Zurich Am. Ins. Co. v. Rite Aid Corp., 345 F.Supp.2d 497, 504 (E.D. Pa. 2004). Indeed, as aptly stated by Judge Easterbrook of the Seventh Circuit “[p]eople who want secrecy should opt for arbitration. When they call on the courts, they must accept the openness that goes with subsidized dispute resolution by public (and publicly accountable) officials.” Union Oil Co. of California v. Leavell, 220 F.3d 562, 568 (7th Cir. 2000).

With these principles in mind, the Court finds little reason to seal the documents in this case. CAA Sports’ only argument is that the parties are contractually bound to confidentiality. Be that as it may, and even if the confidentiality provision, by its terms, applied both to court proceedings and the [*5]  underlying arbitration, it does not bind this Court—being an agreement solely between the parties. More importantly, though, CAA Sports does nothing to explain why its interest in the secrecy of the underlying arbitration with Dogra should outweigh the public’s competing interest in free access to the judicial functioning of this Court. There is, for example, no suggestion that the arbitration award and supporting materials contain personal identifying information, implicate innocent third parties, or contain routinely protected information such as trade secrets or proprietary data. In fact, CAA Sports cites no law favoring its position—it cites no law at all.”

Hat tip to the St. Louis Record for publishing a December 25, 2018 article regarding the ruling. As some will recall, Legal Newsline previously moved for and obtained orders requiring unsealing of records in the Garlock trial. The various “Record” publications and Legal Newsline are inter-related. See this about page.  The same page also explains:  “Legal Newsline is owned by the U.S. Chamber Institute for Legal Reform.”

For companies operating in the UK, there are more issues for public company directors and risk managers to consider when evaluating whether management’s operational philosophy poses risks that are not acceptable to the company and its shareholders. Among other things, a question to ask is whether an enterprise is prepared to accept the risk of large fines for multiple violations of laws. A new example arises as a UK court stated willingness, if not enthusiasm, for the imposition of  large fines for repeated incidents of pollution. The opinion arises under a newish sentencing statute, as reported in a June 3, 2015 article in the Financial Times. The BBC also has a story on the opinion.

The court expressed the view that there is a need to deter the business model in which modest fines are viewed as a cost of doing business:

“For example, to bring the message home to the directors and shareholders of organisations which have offended negligently once or more than once before, a substantial increase in the level of fines, sufficient to have a material impact on the finances of the company as a whole, will ordinarily be appropriate. This may therefore result in fines measured in millions of pounds.”

When should corporate officers face criminal charges? Judge Rakoff famously commented on DOJ not indicting bankers from the 2008 financial fiasco. There also are ongoing media stories regarding GM’s ignition switch recall failures, and some related calls for new criminal laws to foster criminal charges. (see this July 16, 2014 McClatchy News article by Greg Gordon).

With that in mind, it’s worth noting that there already are ways to seek criminal convictions for covering up evidence and corporate officials previously have faced criminal charges in the US. The point is emphasized by an ongoing criminal trial in Georgia that accuses corporate execs of covering up evidence of salmonella contamination, as reported in an August 8, 2014 article on Mercury News. The US Department of Justice indicted corporate officials in a 63 count indictment. The current trial evidence reportedly will not disclose to jurors that people died after consuming the contaminated products. According to the news article:

Witnesses say Stewart Parnell and others at Peanut Corporation of America knowingly shipped salmonella-tainted products, and that they sent customers lab results from other clean batches rather than wait for tests to confirm their products were free of deadly bacteria. Defense lawyers correctly noted for the jurors that salmonella tests aren’t even required by federal law.


Their plant in rural Blakely, Georgia, was shut down and the company went bankrupt. Long after consumers ate contaminated peanut butter, ice cream, energy bars and other products, the outbreak prompted one of the largest food recalls in U.S. history.   But Stewart Parnell, his brother and food broker, Michael Parnell, and quality assurance manager Mary Wilkerson aren’t charged with killing anybody. In fact, prosecutors agreed not to mention the death toll to the jurors.  The 76-count indictment instead accuses the Parnell brothers of defrauding customers that used Peanut Corporation’s contaminated products as ingredients. Stewart Parnell and Wilkerson are charged with concealing information from federal investigators.


Public outcry over the peanut case and several other outbreaks of food borne illness led Congress to pass the Food Safety Modernization Act of 2011, which was supposed to give the FDA more resources and enforcement power.


Salmonella causes an estimated 1.2 million illnesses every year in the United States, with about 23,000 hospitalizations and 450 deaths, according to the U.S. Centers for Disease Control and Prevention. The bacteria can cause severe diarrhea and vomiting, with infections that spread throughout the body, killing people who aren’t quickly treated with antibiotics. The elderly, infants and people with compromised immune systems are particularly vulnerable.

The CDC says it has tracked salmonella outbreaks since 1962. It even has an interactive map with county-by-county information on the impact. And while many sources are never discovered, dozens of food producers have been identified through the years. Some egregious incidents have resulted in fines, and victims have found private attorneys to file civil lawsuits that often get settled out of court. But illnesses, and deaths, continue.

 “Could all these people have been charged criminally with something? The answer is, hell yes,” said Bill Marler, an attorney who claims to have won $500 million for victims of food-borne illnesses over the past two decades.

Three other cases — a salmonella outbreak traced to eggs in Iowa, a listeria outbreak blamed on dirty cantaloupes in Colorado and an E. coli outbreak linked to Odwalla juices in California — resulted in federal plea deals without prison time. This is the first to go to trial, Marler said.

The DOJ’s press release and the February 2013 indictment are online at DOJ. The press release states the following:

Former Officials and Broker of Peanut Corporation of America Indicted Related to Salmonella-Tainted Peanut Products
Allegations Include Mail and Wire Fraud, Introduction of Adulterated and Misbranded Food into Interstate Commerce with Intent to Defraud or Mislead, and Conspiracy

A 76-count indictment was unsealed yesterday charging four former officials of the Peanut Corporation of America (PCA) and a related company with numerous charges relating to salmonella-tainted peanuts and peanut products, the Justice Department announced today.   Stewart Parnell, 58, of Lynchburg, Va.; Michael Parnell, 54, of Midlothian, Va.; and Samuel Lightsey, 48, of Blakely, Ga., have been charged with mail and wire fraud, the introduction of adulterated and misbranded food into interstate commerce with the intent to defraud or mislead, and conspiracy.   Stewart Parnell, Lightsey and Mary Wilkerson, 39, of Edison, Ga., were also charged with obstruction of justice.


Also yesterday, an information filed against Daniel Kilgore, 44, of Blakely was unsealed.   On the same day that charges against Kilgore were filed, he pleaded guilty to that information, which charged him with mail and wire fraud, the introduction of adulterated and misbranded food into interstate commerce with the intent to defraud or mislead, and conspiracy.  


The investigation into the activity at PCA began in 2009, after the Food and Drug Administration and the U.S. Centers for Disease Control and Prevention traced a national outbreak of salmonella to a PCA plant in Blakely as the likely source.  As alleged in the indictment, the Blakely plant was a peanut roasting facility where PCA roasted raw peanuts and produced granulated peanuts, peanut butter, and peanut paste; PCA sold these peanut products to its customers around the country.  


The charging documents charge that Stewart Parnell, Michael Parnell, Lightsey and Kilgore participated in a scheme to manufacture and ship salmonella-contaminated peanuts and peanut products, and in so doing misled PCA customers.   As alleged in the indictment, those customers ranged in size from small, family-owned businesses to global, multibillion-dollar food companies.


“When those responsible for producing or supplying our food lie and cut corners, as alleged in the indictment, they put all of us at risk,” said Stuart F. Delery, who heads the Justice Department’s Civil Division.   “The Department of Justice will not hesitate to pursue any person whose criminal conduct risks the safety of Americans who have done nothing more than eat a peanut butter and jelly sandwich.”


Although PCA is now no longer in business, the allegations against each of the defendants arise from his or her conduct while at PCA and a related company.   The following allegations are set forth in the indictment:  Stewart Parnell was an owner and president of PCA; Michael Parnell, who worked at P.P. Sales, was a food broker who worked on behalf of PCA; Lightsey was the operations manager at the Blakely plant from on or about July 2008 through February 2009; and Wilkerson held various positions at the Blakely plant – receptionist, office manager and quality assurance manager – from on or about April 2002 through February 2009.   As charged in the information, Kilgore served as operations manager of the PCA plant in Blakely from on or about June 2002 through May 2008.


“We all place a great deal of trust in the companies and individuals who prepare and package our food, often times taking it for granted that the public’s health and safety interests will outweigh individual and corporate greed,” said Michael Moore, U.S. Attorney for the Middle District of Georgia.  “Unfortunately and as alleged in the indictment, these defendants cared less about the quality of the food they were providing to the American people and more about the quantity of money they were gathering while disregarding food safety.  This investigation was complex and extensive, and I credit the cooperation of our federal agencies with not only making sure that the cause of this outbreak was uncovered and the people responsible called to account, but also with working hard every day to make sure that parents across the country can feel confident that the food they are feeding their children is safe.”


The charging documents allege that Stewart Parnell, Michael Parnell, Lightsey and Kilgore participated in several schemes by which they defrauded PCA customers about the quality and purity of their peanut products and specifically misled PCA customers about the existence of foodborne pathogens, most notably salmonella, in the peanut products PCA sold to them.   As the charging documents allege, the members of the conspiracy did so in several ways – for example, even when laboratory testing revealed the presence of salmonella in peanut products from the Blakely plant, Stewart Parnell, Michael Parnell, Lightsey and Kilgore failed to notify customers of the presence of salmonella in the products shipped to them.


In addition, the charging documents allege that Stewart Parnell, Michael Parnell, Lightsey and Kilgore participated in a scheme to fabricate certificates of analysis (COAs) accompanying various shipments of peanut products.   COAs are documents that summarize laboratory results, including results concerning the presence or absence of pathogens.   As alleged in the charging documents, on several occasions these four defendants participated in a scheme to fabricate COAs stating that shipments of peanut products were free of pathogens when, in fact, there had been no tests on the products at all or when the laboratory results showed that a sample tested positive for salmonella.  


After the salmonella outbreak that gave rise to this investigation, FDA inspectors visited the plant several times in January 2009.   According to the indictment, the inspectors asked specific questions about the plant, its operations, and its history, and, in several instances, Stewart Parnell, Lightsey and Wilkerson gave untrue or misleading answers to these questions.


 “The charges announced today show that if an individual violates food safety rules or conceals relevant information, we will seek to hold them accountable,” said FDA Commissioner Margaret A. Hamburg, M.D.   “The health of our families and the safety of our food system is too important to be thwarted by the criminal acts of any individual or company.”


Stewart Parnell, Michael Parnell, and Samuel Lightsey are each charged with two counts of conspiracy; multiple counts of introducing adulterated food into interstate commerce with the intent to defraud; multiple counts of introducing misbranded food into interstate commerce with the intent to defraud; multiple counts of interstate shipment fraud; and multiple counts of wire fraud.   Stewart Parnell, Lightsey and Wilkerson are also charged with multiple counts of obstruction of justice.


Kilgore pleaded guilty to one count of conspiracy to commit fraud, one count of conspiracy to introduce adulterated and misbranded food into interstate commerce, eight counts of introducing adulterated food into interstate commerce with the intent to defraud, six counts of introducing misbranded food into interstate commerce with the intent to defraud, eight counts of interstate shipment fraud, and five counts of wire fraud.


Mark F. Giuliano, Special Agent in Charge, FBI Atlanta Field Office, stated, “The FBI was brought in to this matter to provide additional resources and expertise to a complex and very serious investigation. We fully understand the victim impact as a result of this salmonella outbreak and will be asking to hear from other possible victims in this matter.”


Individuals who feel that they may have been affected by or have become ill from tainted PCA products, and businesses that purchased products that were recalled as a result of the outbreak, should visit the following website for further details:        


The case is being prosecuted by Trial Attorneys Patrick Hearn and Mary M. Englehart of the Consumer Protection Branch of the Civil Division of the Department of Justice and Assistant U.S. Attorney Alan Dasher of the Middle District of Georgia.   Marietta Geckos, formerly a Trial Attorney with the Consumer Protection Branch, also worked on the prosecution.   The case was investigated by the Food and Drug Administration’s Office of Criminal Investigations and the FBI.


An indictment is merely an allegation, and every defendant is presumed innocent until proven guilty beyond a reasonable doubt.




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Related Material:

Which direction will GM take for its ignition switch failures – a compensation fund or litigation? Relevant considerations include the outcome of the ongoing internal investigation undertaken by Anton Valukas, reputation risk, costs, insurance (or self-insurance), and the terms of GM’s prior race through a farcical chapter 11 proceeding. News stories this week arise from Senate hearings. The events include GM hiring Ken Feinberg to provide his thoughts, and HarrisMartin scheduling a May 28, 2014 litigation seminar regarding the switch failures.

Many things move fast these days. Litigation typically does not.  My bet is against GM Letting this fester for years. 

The NYT story is here.  One can assume that day-traders and  hedge funds will be busy shorting bank stocks and otherwise betting on the litigation impacts. 

The key excerpts are:

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

Besides the angry investors, 50 state attorneys general are in the final stages of negotiating a settlement to address abuses by the largest mortgage servicers, including Bank of America, JPMorgan and Citigroup. The attorneys general, as well as federal officials, are pressing the banks to pay at least $20 billion in that case, with much of the money earmarked to reduce mortgages of homeowners facing foreclosure.

And last month, the insurance giant American International Group filed a $10 billion suit against Bank of America, accusing the bank and its Countrywide Financial and Merrill Lynch units of misrepresenting the quality of mortgages that backed the securities A.I.G. bought.

Bank of America, Goldman Sachs and JPMorgan all declined to comment. Frank Kelly, a spokesman for Deutsche Bank, said, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”

Hard to believe. Banks do face pressures these days, and B of A is under particular pressure with its stock price down 53%.  But now B of A is responding to generalized blog comments by Henry Blodget (if that name rings a bell, think back to the dotcom bubble and recall that he was sanctioned with a lifetime ban from the securities industry). Stories are here and here, and Henry’s take is here. Hopefully B of A’s management team can do better.

At present, B of A credit default swaps are becoming expensive and some see a "downward spiral," as described here. Some compare CDS contracts to asbestos, saying both are toxic. There also are economics papers analyzing CDS and related risks of bankruptcy, including the impacts of mass tort risks. See also this paper on hedges, CDS and the financial fiasco. All this takes me back to the days when CDS rates for "asbestos companies" were a major topic. And, even after a chapter 11 filings, investors bet on how reorganization plan outcomes will vary depending on the amount of the estimated liability, as illustrated by this presentation, especially its page 16.


Class actions and mass filings raise the stakes for mass tort defendants. Back in the day, before "free fall" descents into chapter 11,  several "asbestos defendants" felt enormous pressures from mass trial proceedings. The names include Cimino, West Virginia’s several "mass trials," and the New York Powerhouse Litigation, and at a time, the federal asbestos MDL

Today, financial firms face more and more of those pressures from massive financial fraud claims. AmLaw’s Litigation Daily includes this new Victor Li story on – and links to – a pair of recent class certification rulings against financial houses. The rulings include Judge Rakoff’s opinion explaining his class certification decision against Merrill. Here’s a key excerpt from his ruling, at 18:

 "The common questions presented by this case — essentially, whether the offering documents were false or misleading in one or more respects — are clearly susceptible to common answers." 

Now the financial houses face major pressures, including media stories which create more stock price pressure. Can a financial house risk appealing and losing?  Can it risk trying a class action trial and losing? Can it risk class-wide discovery and resulting testimony that may be widely publicized? If a case is tried and lost, can it afford an appeal bond?

Financial houses also face the problem arising from the weakest member of the herd. That weakest member of the herd may lose a trial (think any mass tort) or may capitulate and settle (think tobacco litigation). More pressure follows, despite claims that the remaining members of the herd are stronger.

For a recent example of pressure, note this DealBook story on Goldman’s stock falling 5% on news that its CEO hired a criminal defense attorney.   


Suppose you are a crisis manager worried about your public company’s falling stock price due to massive tort claims and/or regulatory changes. As you weigh options and public statements, consider this August 28, 2011 Financial Times article by Phil Davis. Mr. Davis’ article  suggests that hedge funds are increasingly seeking out "event-driven" investing, such as taking short or long positions in companies facing mass tort claims or regulatory changes (or engaging in m & a events).

There are various unpleasant realities to "event-driven" investing. One is that crisis managers need to understand that some investors have absolutely no interest in the merits of a business or its defenses to litigation or regulation. Instead, they simply hope to use information better than others to make money as stock prices rise or fall based on perceptions (which may or may not have anything to do with reality). 

Here are some excerpts from the article – the entire article is worth reading:

"Event-driven is one of the least recognised hedge fund strategies and yet, over the long term, 25 per cent of hedge fund assets are allocated to it. Its diversification benefits from mainstream indices are the principal reason for its prevalence in hedge fund portfolios.

Carl Ludwigson, associate director at Paamco, which runs a $10bn multi-strategy fund, says: “We see a move towards more event-driven strategies because they can extract idiosyncratic risk and less market-driven returns.

The event-driven strategy embraces bankruptcies, recapitalisations, spin-offs, asset sales, leadership transitions, litigation and regulatory changes. There are potentially thousands of strands, all of which have little correlation with broad share or bond benchmarks. 


The number of investor surveys indicating that event-driven is at the top of many institutional investors’ shopping lists is a clear warning signal that overcrowding will continue. There are even exchange traded funds on the market that replicate the vanilla M&A arbitrage activities of event-driven funds."

Here is a different example of how mass tort litigation ends up becoming a media story. In this instance, the media consists of the latest story on Toyota’s battles regarding alleged destruction of internal documents in order to avoid the information becoming evidence in rollover cases.

The short version is that after suing Toyota for wrongful discharge, a former inside lawyer has turned over to a federal judge four boxes of documents that are said to support his claim that documents were wrongfully destroyed by Toyota. The judge has ordered the documents to be secured, scanned and coded, and will give Toyota a chance to claim privilege regarding the documents. No doubt plaintiff’s lawyers will then assert the crime-fraud exception applies to any otherwise privileged documents. The judge’s ruling presumably will be widely reported.

How would you like to be the General Counsel dealing with this situation ? What would you want to know and then what would you decide to do when no one will give you the answers you need ? Much wisdom on the subject of crisis management has been spelled out before by business consultants. See, e.g,, Stop The Presses: The Crisis and Litigation PR Desk Reference. Written by Richard Levick and Larry Smith of Levick Strategic Communications, the book addresses crisis management in general, and its chapters 7 and 8 deal with strategies for dealing with blog stories and other issues that were more or less immaterial as little as 5 years ago. Also potentially relevant is its chapter 9 on the impacts of media related to prosecutorial activity.