Monday, December 24, 2012

Business Groups Urge Third Circuit to Allow Arbitration by Sitting Delaware Chancery Court Judges

In an amicus brief filed with the Third Circuit Court of Appeals, business groups asked for judicial approval of a valuable alternative to civil litigation offered to companies through arbitration by Delaware Court of Chancery judges. This arbitration allows companies to resolve their disputes before experts in corporate law, said the groups, but without the trammels and expense of drawn out litigation. A federal district court (DC Del) held that such arbitration must be conducted in public because it is tantamount to civil litigation, noted the brief, even though Delaware intended the arbitration as an alternative to and a substitute for, such litigation. The district court’s decision denies businesses a promising alternative to cumbersome litigation, argued the business groups, while not advancing any interest of openness, and should be reversed. The brief was submitted by the Business Roundtable and the US Chamber of Commerce. (Delaware Coalition for Open Government v. Strine, CA-3, No. 12-3859).

The district court held that a secret Delaware Chancery Court arbitration proceeding set up to decide corporate governance and other business disputes submitted by private entities was essentially a civil trial and thus the First Amendment qualified right of access mandates that the proceeding must be open to the public. The Delaware proceeding functions as a non-jury trial before a Chancery Court judge, said the federal district court.

In the Delaware proceeding, the parties submit their business dispute to a sitting judge acting pursuant to state authority, using state personnel and facilities. The judge finds facts, applies the relevant law and issue an enforceable order dictating the obligations of the parties. A judge bears a special responsibility to serve the public interest, said the federal court, an obligation that is undermined when a judge acts as an arbitrator bound only by the parties’ interest. The parties’ consent could not alter the judge’s public role as a judicial officer.

To determine whether arbitration by Court of Chancery judges is subject to a limited public right of access, noted the brief, the Third Circuit applies the experience and logic test. A key question arising under the logic prong of the test is what public benefit, if any, is served by requiring such arbitration to be conducted in the open. The answer is none, said the business groups.

Indeed, since confidentiality is essential to arbitration, if arbitration by Court of Chancery judges were made public businesses that would otherwise avail themselves of it would turn instead to other non-public fora to resolve their disputes. Thus, whatever public benefit might accrue in theory from open arbitration proceedings in the Court of Chancery, emphasized the business groups, none will be realized in practice.

The district court wrongly conflated arbitration with a civil trial based on the single fact that the arbitrator is a Chancery Court judge, said the business groups. Court of Chancery arbitration is consensual, they pointed out, while litigation is not. That the Court of Chancery arbitrator is a judge who also resolves other disputes between other parties in judicial proceedings governed by other rules and resulting in precedential decisions does not somehow transform consensual arbitration into non-consensual litigation.

In the view of amici, the district court’s reasoning amounts to a per se rule that any proceeding conducted with public funds by a state judicial officer is necessarily “civil litigation” and therefore subject to a qualified First Amendment right of access. But that conclusion is clearly overbroad, contended the business groups, and contrary to settled practice in courts throughout the country. For example, it would invalidate the numerous state programs authorizing judges to act as arbitrators in court-annexed or similar arbitration programs.