Litigation: Federal judge strikes down confidential arbitration in Delaware’s Court of Chancery
A public interest group, Delaware Coalition for Open Government, Inc. (DCOG), filed suit in the U.S. District Court for the District of Delaware challenging the constitutionality of a Delaware statute and its implementing rules that permitted private parties to, in effect, hire a member of the Court of Chancery to...
November 29, 2012 at 03:10 AM
9 minute read
The original version of this story was published on Law.com
A public interest group, Delaware Coalition for Open Government, Inc. (DCOG), filed suit in the U.S. District Court for the District of Delaware challenging the constitutionality of a Delaware statute and its implementing rules that permitted private parties to, in effect, hire a member of the Court of Chancery to arbitrate a dispute. On Aug. 30, 2011, Judge Mary McLaughlin resolved the case by issuing an opinion, in Delaware Coalition for Open Government v. Strine, granting DCOG's motion for judgment on the pleadings. Judge McLaughlin held that the statute and rules violated the First Amendment: “The Court concludes that the Delaware proceeding functions essentially as a non-jury trial before a Chancery Court judge. Because it is a civil trial, there is a qualified right of access and this proceeding must be open to the public.”
The statute created a mechanism by which parties could elect to have a member of the Court of Chancery confidentially arbitrate a dispute. This option was available only for “business disputes” that involved a Delaware business entity and did not involve a consumer. If the plaintiff sought only money damages, the amount in controversy had to exceed $1 million. A dispute could enter arbitration only if each party consented.
These arbitration proceedings afforded significant advantages over traditional litigation. The implementing rules allowed the parties to follow the traditional rules of discovery, have the arbitrator decide the scope of discovery or agree to the scope of discovery. The arbitration hearing would typically occur 90 days after the parties first filed the petition. Further, the arbitration would be confidential. On appeal, the Federal Arbitration Act governed the Delaware Supreme Court's review, meaning that the court would not review the case for errors of fact or law. Parties could therefore use this mechanism to obtain a result rapidly, inexpensively and privately.
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