Besieged by legal obstacles, Delaware’s alternative dispute resolution method for business matters, 10 Del. C. § 349, came to a complete halt in 2013. Fortunately, the General Assembly has rebounded with the passage of the Delaware Rapid Arbitration Act (the “DRAA”) and its novel provisions, which offer prompt and cost-effective benefits to parties looking to avoid litigation.
After swiftly passing through the state House and Senate, Governor Jack Markell signed the DRAA into law on April 3, 2015. The touted DRAA offers revamped procedures for the quick resolution of business disputes between parties and replaces the defunct 10 Del. C. § 349. Pursuant to § 349, business disputes were arbitrated, in a confidential matter, by the Court of Chancery. But in 2013, the U.S. Court of Appeals for the Third Circuit curiously found the practice and § 349 to be unconstitutional based on First Amendment grounds in Delaware Coalition For Open Govt., Inc. v. Strine, et. al. The Third Circuit reasoned that Delaware’s government-sponsored arbitrations essentially equated to civil trials, which are required to be open to the press and general public. In response to the ruling, state officials immediately began work on the construction of an efficient, cost-effective way to resolve business disagreements in a manner that would be an attractive option for parties.
The DRAA provides that sophisticated parties, one of which must be organized as a Delaware business entity, may consent by contract to have an expert arbitrator confidentially settle a dispute. To ensure a timely resolution, the arbitrator must resolve the matter within 120 days of accepting the appointment, with a one-time extension of an additional 60 days, but only with approval of all parties. If a final award is not entered within the allotted time, then the arbitrator’s fees may be substantially reduced or even completely eliminated. For example, if the issuance is less than 30 days late, then the arbitrator’s fees will be reduced by 25 percent; if it is late between 30 and 60 days, then the fees will be reduced by 75 percent; and if it is more than 60 days late, the fees will be reduced by 100 percent.
The DRAA also states that a final award may be directly appealable to the Delaware Supreme Court for limited review to vacate, modify, or correct the final award. Notably, the Court’s review becomes public information and all confidentiality from the arbitration proceeding will be lost. Prior to arbitration, however, the parties may contract to prohibit any appellate review of the final award, or agree to an appellate review by one or more different arbitrators in which confidentiality will remain intact.
Currently, the DRAA appears to be an innovative and enticing alternative for parties concerned about engaging in time-consuming discovery and incurring evidentiary expenses normally associated with a trial. The four-month deadline for an arbitrator to issue an award ensures a speedy resolution and provides an incentive to the arbitrator: quickly resolve the matter or lose your fees. Furthermore, there should not be any apprehension about an arbitrator haphazardly issuing a final award only to comply with the deadline and receive payment because parties subject to the arbitration must be sophisticated (i.e., they know what they are getting into) and an award may be appealed to the Supreme Court subject to the parties’ agreement. Since the DRAA pertains only to parties who contract at arm’s length (but not individual consumers), parties who favor confidentiality of the information disclosed at the arbitration—which is likely to be most parties—may retain confidentiality by specifying that any appeal of the arbitration award will be heard by a panel of different arbitrators, and not the Supreme Court.
The DRAA’s flexible provisions for resolving issues traditionally bogged down by time, complexity, and costs, are representative of Delaware’s ability to recover from the setback of § 349 and the perseverance to remain at the forefront of regulating corporate governance.
Alexander Bonder is a staff member of the Delaware Journal of Corporate Law. He also serves as a Judicial Extern to the Honorable Mary Pat Thynge of the United States District Court for the District of Delaware.
Suggested Citation: Alexander Bonder, Accelerated Arbitration Rejuvenation: State Passes the Delaware Rapid Arbitration Act, Del. J. Corp. L. (Apr. 20, 2015), www.djcl.org/blog.