Gotham Holdings, LP v. Health Grades, Incorporated ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 09-2377
G OTHAM H OLDINGS, LP, et al.,
Plaintiffs-Appellees,
v.
H EALTH G RADES, INC.,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 09 C 1843—James B. Zagel, Judge.
S UBMITTED A UGUST 28, 2009—D ECIDED S EPTEMBER 3, 2009
Before E ASTERBROOK, Chief Judge, and W ILLIAMS and
S YKES, Circuit Judges.
E ASTERBROOK, Chief Judge. Gotham Holdings is a plain-
tiff, and Health Grades a defendant, in litigation
pending in the Southern District of New York. (Although
there are multiple plaintiffs, we use one name to denote
all.) Health Grades contends in the New York case that
an arbitration award supports its view of the merits. It
tendered the award and some of the documents ex-
changed in the arbitration. When Gotham Holdings
2 No. 09-2377
asked to see related documents, Health Grades balked,
observing that the parties to the arbitration (Health
Grades and Hewitt Associates, LLC) had pledged
confidentiality. Gotham Holdings rejoined that, by
relying on the award, Health Grades had waived
confidentiality. When Health Grades refused to budge
from its position, Gotham Holdings served a subpoena
on Hewitt Associates and moved to enforce it in the
Northern District of Illinois, where Hewitt Associates’
principal offices are located. See Fed. R. Civ. P. 34(c), 45.
No one contends that the subpoena exceeds the bounds
set by Fed. R. Civ. P. 26(b)(1), and the district court di-
rected Hewitt Associates to produce the documents.
Hewitt Associates is willing to hand them over. But the
district court issued a stay pending Health Grades’ appeal.
(Appellate jurisdiction rests on the doctrine of Perlman
v. United States, 247 U.S. 7 (1918).) Because the discovery
deadline in the New York suit is approaching, and the
documents covered by the subpoena may lead to addi-
tional discovery requests in New York, we granted
Gotham Holdings’ request to expedite the appeal. It has
been submitted on the briefs to the motions panel that
granted the request for expedited consideration.
We affirm the district court’s decision, for two reasons.
First, ¶6 of the agreement between Health Grades
and Hewitt Associates provides that materials from
the arbitration may be disclosed in response to a sub-
poena. Second, even if the agreement had purported
to block disclosure, such a provision would be ineffec-
tual. Contracts bind only the parties. No one can “agree”
No. 09-2377 3
with someone else that a stranger’s resort to discovery
under the Federal Rules of Civil Procedure will be cut off.
We applied this principle in Jepson, Inc. v. Makita Electric
Works, Ltd., 30 F.3d 854 (7th Cir. 1994), to confidentiality
agreements reached during litigation. That conclusion is
equally applicable to confidentiality agreements that
accompany arbitration. Indeed, we have stated more
broadly that a person’s desire for confidentiality is not
honored in litigation. Trade secrets, privileges, and statutes
or rules requiring confidentiality must be respected, see
Fed. R. Civ. P. 45(c)(3)(A)(iii), but litigants’ preference for
secrecy does not create a legal bar to disclosure. See Baxter
International, Inc. v. Abbott Laboratories, 297 F.3d 544 (7th
Cir. 2002); United States v. Foster, 564 F.3d 852 (7th Cir.
2009) (Easterbrook, C.J., in chambers).
Health Grades and Hewitt Associates were entitled to
agree that they would not voluntarily disclose any infor-
mation related to the arbitration. See ITT Educational
Services, Inc. v. Arce, 533 F.3d 342, 347–48 (5th Cir. 2008).
Disclosure would be authorized only when a third party
had a legal right of access. That’s what ¶6 of this agree-
ment does: The parties promised to keep their mouths
(and files) shut unless a subpoena required a turnover.
Gotham Holdings is entitled to compulsory process to
acquire documents from third parties. Health Grades
does not argue that any privilege protects this material.
The Supreme Court has expressed reluctance to create
new privileges, see University of Pennsylvania v. EEOC,
493 U.S. 182 (1990) (declining to create an “academic
deliberations privilege”), and Health Grades does not
4 No. 09-2377
attempt to show that an “arbitration privilege” would be
appropriate under the Court’s standards.
According to Health Grades, access to the information
would undermine the national policy favoring arbitra-
tion. There is no such policy. Arbitration agreements are
optional and enforced just like other contracts. 9 U.S.C. §2.
The Federal Arbitration Act eliminates hostility to
private dispute resolution; it does not create a preference
for that process. “There is no federal policy favoring
arbitration under a certain set of procedural rules; the
federal policy is simply to ensure the enforceability,
according to their terms, of private agreements to arbi-
trate.” Volt Information Sciences, Inc. v. Stanford University,
489 U.S. 468, 476 (1989). See also, e.g., Arthur Andersen, LLP
v. Carlisle, 129 S. Ct. 1896, 1901 (2009) (federal policy is “to
place [arbitration] agreements upon the same footing
as other contracts”). People do not “violate” or “under-
mine” any federal policy if they litigate rather than arbi-
trate. Federal policy favors arbitration only in the sense
that it favors contracts in general.
The Federal Arbitration Act does not promote arbitra-
tion at the expense of strangers. Suppose Health Grades
and Hewitt Associates had agreed between themselves
that Gotham Holdings would pay the arbitrators’ fees.
That would make arbitration more attractive, but no one
would think the agreement enforceable; third parties’
rights may be affected only with their consent. Just so
here. Gotham Holdings has an entitlement to material
information in the hands of Hewitt Associates. Nothing
that Health Grades and Hewitt Associates can do or
No. 09-2377 5
say, separately or collectively, can affect that legal right.
We concluded in Teamsters Negotiating Committee v.
Troha, 328 F.3d 325 (7th Cir. 2003), that parties to a
labor arbitration may use subpoenas to obtain informa-
tion from third parties. It would be weird to treat this as
a one-way street, so that parties to arbitration may
obtain, but need not divulge, information relevant to the
resolution of other disputes.
Hewitt Associates does not contend that the subpoena
is unduly burdensome. No one contends that a recog-
nized privilege applies to these documents. So the sub-
poena was properly enforced. The stay is lifted, and the
judgment is affirmed. The mandate will issue today.
9-11-09