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?"

Challenges to Environmental Permits in Maryland

In April, I wrote of a change in the Maryland Code that altered the Maryland environmental permitting appeals procedure to give standing to not only those with a direct financial interest in the results of the permit, but to anyone who participated in a public participation process conducted by the Maryland Department of the Environment (MDE).

Well, the Maryland Court of Appeals, in a September 2011 decision in Patuxent Riverkeeper v. Maryland Department of the Environment, et al. has given effect to this amendment by holding that environmental advocacy groups such as the Plaintiff, Patuxent Riverkeeper, can challenge actions by the MDE to grant permits because “its member…had alleged sufficient harm to his aesthetic, recreational and economic interests in connection with the issuance of the non-tidal wetlands permit in issue.” Id. at p. 3

As I previously suggested, and especially now that the Court has upheld this change in the law regarding standing to challenge permits, applicants should consider how to work with local citizens and other interested groups before requesting a permit. Working things out with affected stakeholders can be more cost-effective than litigation and produce better results.

"The Better Angels of Our Nature" Review

The lead review in the Sunday Book Review section of the New York Times this past week is of a book by Steven Pinker titled “The Better Angels of Our Nature: Why Violence Has Declined." The review was written by Peter Singer.

I have not yet read the book – although I did purchase and download it based on this review – and will read it soon.

The basic thesis of the book is simple. Our era – the time in which we now live – is less violent and cruel and more peaceful than any other period in human history. Despite World Wars I and II, Vietnam, the Iran/Iraq war, the Holocaust, the Rwandan genocide and all of the other atrocities of the twentieth and early twenty-first centuries. Really?

Mr. Pinker is a professor of psychology at Harvard and author of “The Language Instinct." Mr. Singer makes a compelling argument that professor Pinker’s new book is substantial, worthwhile and interesting.

To sum up this observation, Mr. Singer states, quite simply, ””The Better Angels of Our Nature” is a supremely important book,” adding that the book addresses many of the age-old questions about human nature: Are human beings essentially good or bad? Has the past century witnessed moral progress or a moral collapse? Do we have grounds for being optimistic about the future?

Obviously Mr. Pinker has to convince a skeptical audience. According to the review he spends a substantial portion of the book successfully documenting his claim.

What do you think? Do we live in a more civilized and more just and peaceful world?

Mediator Testimony

A recent New Jersey case is yet another example of why parties need to be careful when they pick a mediator.

And why there should be higher standards of mediator training – perhaps especially for judges.

Information about this case comes from the always interesting Business Conflict Management Blog by Peter Phillips in New Jersey.

According to Phillips’ blog, the New Jersey Superior Court Appellate Division recently approved for publication a decision in which a party to a mediation successfully sought to enforce a settlement agreement that was not fully reduced to writing. For purposes of this blog, the issue of whether the agreement was evidenced in writing is not particularly relevant.

What is relevant is that the plaintiff seeking enforcement of an alleged agreement, “supported the motion with a certification of their attorney and the mediator,” who also was deposed and testified at the hearing. A retired (and unnamed) New Jersey Superior Court Judge was the mediator.

As Phillips blogs, “(t)he trial judge on the motion found his former colleague’s testimony “highly credible.” Imagine that!”

The mediator submitted an affidavit and testified in support of a party’s motion. A mediator. Even though, as the court pointed out that both statute and rule, state that a mediator “may not disclose any mediation communication to anyone other than a participant in the mediation session,” and referred to that bar as “an evidentiary privilege.” The court justified the decision to allow the mediator’s affidavit and testimony because the privilege can be waived by the parties.

Even though the plaintiff unilaterally breached the confidentiality rule and statute, the court allowed (and relied on) the mediator’s evidence, perhaps because the defendants deposed the mediator. The trial judge ruled that confidentiality had been waived. But we don’t have any information about why or how.

Phillips succinctly sets out the concerns about this case:

What was the movant doing attaching a certification of the mediator to their opening papers, in open breach of statutory confidentiality obligations? What on earth was the former judge-cum-mediator doing executing a certification for that purpose? What was the trial judge doing putting himself in a position to rule on his former colleague’s credibility? Or the admissibility of his testimony as set forth in his certification? Was the opponent to the motion required not to depose the prospective witness and then argue no waiver?

The judge/mediator by allowing a party unilaterally to attach his certification and opinion about whether there was agreement in this case appears to have breached two of the cardinal rules of ethical mediation to not breach the confidentiality of the mediation and to not breach the duty of neutrality.

As Phillips writes, this case is a reminder a Mediation 101 lesson: Never Never Never Violate Mediation Confidentiality.

Environmental Liability Insurance and Voluntary Cleanups

Pollution Legal Liability (PLL) policies offer pollution liability protection to industrial, commercial and agricultural property owners for gradual, as well as sudden and accidental, first-party and third-party environmental liabilities. They have become an increasingly common method for property owners of potentially contaminated properties to protect themselves from unexpected liability for the costs of environmental site cleanup as well as against third-party claims for property damage and personal injury.

As is the case in nearly all insurance policies, the details of the specific language and scope of coverage (and exclusions from coverage) matter a lot. For example, in a recent Connecticut Federal District Court case, the plaintiff bought property contaminated with solid waste with the intent to sell and purchased a PLL. The plaintiff agreed to remediate the site and entered into a state-approved voluntary cleanup plan (VCP). Unfortunately (and not uncommonly), the site was more contaminated than originally thought. The plaintiff then sought reimbursement under the insurance policy. When the insurance company denied coverage, the plaintiff sued. The Court decided that voluntary cleanups were not covered by the specific policy at issue in the case and held that since the cleanup was not "required," there was no "claim" under the policy. Fischer and Dab Three LLC v. American Specialty Lines Ins. Co., 2010 WL 2573909 (D. Conn.)

This outcome was entirely dependent on the language of the policy. The policy at issue did not have a discovery trigger (i.e., coverage is “triggered” by the discovery of contamination, not by the assertion of an adverse claim) in the relevant coverage section for cleanup costs based on pre-existing conditions. Therefore, the policy was only triggered by a “claim” for "cleanup costs" as required by "Environmental Law."

The lesson of this case: pay close attention to the specific language of the policy and what triggers coverage. It makes sense to purchase a policy that has a discovery trigger, not just a claim trigger. While coverage under PLL policies can be triggered by the insured's discovery of contamination, policies often limit the scope of cleanup cost coverage to the extent cleanup is "required by Environmental Law." Be sure that the definition of "Environmental Law" includes voluntary cleanup and risk-based corrective action programs.

In this case, the insured plaintiff was just removing debris, so there was no "claim" for "cleanup costs" under "Environmental Law." There were no measured levels of contamination. As the court pointed out, the definition of "claim" is closely linked to the definition of "cleanup" which is closely linked with "environmental laws."

Frontiers of Mediator Confidentiality: Can You Reveal That an Offer Was Made?

Here is a link to an interesting discussion about the Frontiers of Mediator Confidentiality posted by Peter Phillips in his always interesting Business Conflict Blog.

As Phillips points out, nothing is as simple as it looks. He sets out an interesting hypothetical about mediator confidentiality and posits three questions.

Visit the blog and answer the three questions. My answers are yes to question 1 and no to question 3 (the easy questions) and in response to question 2 the mediator can send a copy of the letter faxed to plaintiff’s counsel. Plaintiff has a right to see that letter.

Read the hypothetical and answer the questions yourself.