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

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 09 2377
GOTHAM HOLDINGS, LP, et al.,
Plaintiffs Appellees,
v.
HEALTH GRADES, 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.
____________________
SUBMITTED AUGUST 28, 2009 DECIDED SEPTEMBER 3, 2009†
____________________
Before EASTERBROOK, Chief Judge, and WILLIAMS and
SYKES, Circuit Judges.
EASTERBROOK, Chief Judge. Gotham Holdings is a plaintiff,
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 con
tends in the New York case that an arbitration award supports
its view of the merits. It tendered the award and some of the
documents exchanged in the arbitration. When Gotham Hold
ings asked to see related documents, Health Grades balked, ob
serving 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
† This opinion is being issued in typescript. A printed copy will follow.
No. 09 2377 Page 2
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 directed
Hewitt Associates to produce the documents. Hewitt Associ
ates 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 additional 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 subpoena. Second, even if the agree
ment had purported to block disclosure, such a provision would
be ineffectual. Contracts bind only the parties. No one can
“agree” 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. In
deed, we have stated more broadly that a person’s desire for
confidentiality is not honored in litigation. Trade secrets, privi
leges, and statutes or rules requiring confidentiality must be re
spected, see Fed. R. Civ. P. 45 c 3 A iii , but litigants’ prefer
ence 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 information related
to the arbitration. See ITT Educational Services, Inc. v. Arce, 533
F.3d 342, 347 48 5th Cir. 2008 . Disclosure would be author
ized only when a third party had a legal right of access. That’s
No. 09 2377 Page 3
what ¶6 of this agreement does: The parties promised to keep
their mouths and files shut unless a subpoena required a turn
over. 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 declin
ing to create an “academic deliberations privilege” , and Health
Grades does not 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 arbitration.
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 resolu
tion; it does not create a preference for that process. “There is
no federal policy favoring arbitration under a certain set of pro
cedural rules; the federal policy is simply to ensure the enforce
ability, 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. Car
lisle, 129 S. Ct. 1896, 1901 2009 federal policy is “to place ar
bitration agreements upon the same footing as other con
tracts” . People do not “violate” or “undermine” any federal pol
icy if they litigate rather than arbitrate. Federal policy favors
arbitration only in the sense that it favors contracts in general.
The Federal Arbitration Act does not promote arbitration
at the expense of strangers. Suppose Health Grades and Hewitt
Associates had agreed between themselves that Gotham Hold
ings would pay the arbitrators’ fees. That would make arbitra
tion more attractive, but no one would think the agreement en
forceable; 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. Noth
ing that Health Grades and Hewitt Associates can do or say,
separately or collectively, can affect that legal right. We con
cluded in Teamsters Negotiating Committee v. Troha, 328 F.3d 325
7th Cir. 2003 , that parties to a labor arbitration may use sub
poenas to obtain information from third parties. It would be
weird to treat this as a one way street, so that parties to arbitra
tion may obtain, but need not divulge, information relevant to
the resolution of other disputes.
No. 09 2377 Page 4
Hewitt Associates does not contend that the subpoena is
unduly burdensome. No one contends that a recognized privi
lege applies to these documents. So the subpoena was properly
enforced. The stay is lifted, and the judgment is affirmed. The
mandate will issue today.