Delaware Chancery Court Appeals Decision Striking Arbitration Program

I recently blogged about Delaware statute that allows Chancery Court judges to sit as private arbitrators having been found to be unconstitutional by U.S. District Court Judge Mary McLaughlin of the District of Delaware.

As the DealBook blog in the New York Times wrote, the statute was designed to “permit the Delaware Chancery Court to arbitrate private disputes confidentially without public access.” Which seems to me to be the problem with the program.

As expected, the case has been appealed to the 3^rd Circuit. The lack of transparency in this arbitration program is a significant obstacle for the appellant to overcome.  What do you think are the odds of the District Court’s decision being overturned?

To read an article that disagrees with the District Court decision and supports the private arbitration program, click here. 

Delaware Chancery Arbitration Scheme Declared Unconstitutional

I’ve taken a bit of a vacation from blogging. I’m back now. This blog is about the Delaware Chancery Court statute authorizing the Chancery court judges to sit as arbitrators. Authorizing sitting judges to serve as arbitrators and issue private decisions. Remarkable.

This was a statute so off the wall that I blogged aboutit last November

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The system was designed to allow large corporate litigants to use the Delaware Chancery court system to litigate in secret – cases were not even docketed – and still get a decision by a judge from the Chancery court.  And to allow the judges to receive large fees as arbitrators. 

As I wrote then, the Delaware Coalition for Open Government saw the statute as unconstitutional and sued the five Chancery judges in Federal District Court challenging the scheme. The complaint argued that the statute unconstitutionally violates the First Amendment’s qualified right of access to civil and criminal trials. 

Thankfully, U.S. District Court Judge Mary McLaughlin agreed that this scheme is unconstitutional, and held on the pleadings that:

Under the Delaware law and Chancery Court rules, a sitting judge of the Chancery Court, acting pursuant to state authority, hears evidence, finds facts, and issues an enforceable order dictating the obligations of the parties. 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. (DELAWARE COALITION FOR OPEN GOVERNMENT v. HONORABLE LEO E. STRINE, JR., et al.CA No. 1-11-1015)

While it is likely that this case will be appealed, what do you think the odds are that the Third Circuit will reverse the decision? 

Is Delaware’s Court Arbitration System for Business Disputes Unconstitutional?

Delaware, the state with laws designed for businesses, has a statute authorizing the Delaware Chancery Court judges – sitting Court judges – to conduct confidential arbitrations of business disputes.

The law, Arbitration Proceedings for Business Disputes provides that the “Court of Chancery shall have the power to arbitrate business disputes when the parties request a member of the Court of Chancery, or such other person as may be authorized under rules of the Court, to arbitrate a dispute.” (77 Del. Laws, c. 8 §1).

The Delaware Supreme Court has adopted rules governing the arbitration program. The rules provide that arbitrators are sitting Court judges or masters. Further, and the subject of controversy and now litigation, the Rules provide that all proceedings of the arbitration are confidential unless the proceedings are appealed.

There are at least two things wrong with this picture. First, why are these Court proceedings (even if labeled arbitration) confidential? Is this not private law? And second, why is an arbitration award appealable? Is this not evidence that the so-called arbitration proceeding is simply litigation in the Chancery Court – before Chancery Court judges and using the Court’s case management system by another name – to allow parties to cloak their dispute with the one of the benefits of private arbitration – confidentiality?

Recently the Delaware Coalition for Open Government as sued the five judges on the Delaware Chancery Court for operating a private arbitration system. The only difference between civil litigation - which is public - and the arbitration is that the "procedures and rulings occur behind closed doors instead of in open court," according to the complaint filed in Delaware's federal district court. The Coalition argues that the arbitration proceedings violate the right of access to judicial proceedings and records in civil and criminal cases guaranteed by 1st Amendment to the Constitution as applied to the states in the 14th Amendment.

The case is Delaware Coalition for Open Government Inc v The Honorable Leo E Strine Jr et al, U.S. District Court, District of Delaware, No. 11-1015.

This case is more fully discussed in the always interesting ADR Prof Blog by Professor Art Hinshaw. Professor Hindshaw points out that many courts manage arbitration programs; most typically occur in open court without confidentiality protection and the loser can appeal or ask the trial court for a trial de-novo.

"If the parties really want to go to arbitration, why not go to the private market?"