Friday, April 03, 2015

Delaware Rapid Arbitration Bill Sails Through Legislature, Heads to Governor’s Desk

By John M. Jascob, J.D.

The Delaware Senate this week unanimously approved a bill that seeks to avoid the constitutional infirmities in the state’s previous program for the confidential arbitration of disputes between businesses. By a vote of 21-0, the state Senate on March 31 approved the Delaware Rapid Arbitration Act (H.B. 49), which aims to give Delaware business entities greater capacity to resolve business disputes in an efficient manner through voluntary arbitration under strict timelines. The bill now heads to Governor Jack Markell for his signature, after previously having passed the Delaware House by a vote of 36-1 on March 19.

The proposed legislation comes in response to a Third Circuit ruling in October 2013 which held that the public had a First Amendment right of access to the state-sponsored business arbitrations established under a program of the Delaware Chancery Court. The Delaware Coalition for Open Government had sued the Chancery Court, individual chancellors, and the state, arguing that the public’s right of access to arbitrations conducted by state judges in state courthouses was violated by the confidentiality requirements of the law and implementing rules. Although five chancellors petitioned the U.S. Supreme Court for review, arguing along with business groups that removing confidentiality would effectively destroy arbitration’s viability as a dispute resolution method, the Supreme Court declined to grant certiorari in March 2014.

Swift resolution of business disputes. Sponsored by Rep. Melanie Smith, H.B. 49 is intended to provide an additional option for sophisticated entities to swiftly resolve their business disputes through arbitration. The bill expressly states that nothing in the Act is intended to impair the ability of business entities to use other voluntary arbitration procedures. Businesses are thus free to opt for arbitration procedures that may allow lengthier proceedings or permit more extensive discovery.

To ensure that no person is subject to the arbitration without giving express and voluntary consent, a written agreement must be signed by the parties. As a consumer protection measure, at least one party to the agreement must be a business entity formed or organized under Delaware law or having its principal place of business in Delaware; no party may be a consumer (as defined by statute). The written agreement must also provide that it will be governed by the laws of Delaware, and must include an express reference to the “Delaware Rapid Arbitration Act.”

The bill requires arbitrators to issue a final award within the time fixed by the agreement or, if not fixed by the agreement, within 120 days. The parties may extend the time for the final award by unanimous consent in writing, but the extension may not exceed 60 days. The Act also imposes financial penalties on arbitrators who fail to decide disputes within the time frames specified by the statute.

Role of the Delaware courts. The bill attempts to step around the constitutional issues concerning public access by carefully circumscribing the role of the Delaware courts. Although the Chancery Court has the authority to appoint an arbitrator in the event that the parties fail to do so, or the arbitrator chosen is unable or unwilling to serve, judges themselves do not act as arbitrators under the Act. While the Chancery Court may enter relief in aid of arbitration until the arbitrator is appointed, determinations regarding the scope of the arbitration are left exclusively to the arbitrator. The State of Delaware serves as the seat of the arbitration, but arbitrators may hold hearings within or without Delaware or the United States.

Challenges to final awards may be made only to the Delaware Supreme Court, unless the parties have either agreed to have them heard by an appellate arbitral panel or have waived them altogether. If a challenge to a final award is taken to the Delaware Supreme Court, the proceedings will be public and limited to review under the standards of the Federal Arbitration Act.

The Delaware Supreme Court does not have jurisdiction, however, to hear appeals concerning the appointment of an arbitrator; the determination of an arbitrator’s fees; the issuance or denial of an injunction in aid of arbitration; or the grant or denial of an order enforcing a subpoena. A party to any agreement under the Act will be deemed to have waived the right to such appeals.