Delaware Court Arbitration Proceedings Declared Unconstitutional

The United States District Court for the District of Delaware recently struck down the Delaware Court of Chancery's one-of-a-kind arbitration program, holding that it violated the First Amendment's right of access to the courts. The program allowed sitting Court of Chancery judges to act as arbitrators and to host private arbitration sessions within their courtrooms. In a case brought by the Delaware Coalition for Open Government, U.S. District Court Judge Mary A. McLaughlin found that the proceeding functions essentially as a non-jury trial before a Court of Chancery judge and must be opened to public access.1 The decision strikes down only Delaware's unique court-based arbitration program. Private arbitrations and Delaware mediation programs are not affected.

The Delaware General Assembly amended the Court of Chancery Rules in April 2009 to create the arbitration program. Pursuant to the legislation, the Court of Chancery may "arbitrate business disputes when the parties request a member of the Court of Chancery, or such other person as may be authorized under the rules of the Court, to arbitrate a dispute."2 Court of Chancery Rules were adopted in January 2010 to implement the change. To qualify for the program, both parties must have consented to the arbitration and the parties must have met the eligibility criteria for Court of Chancery mediation, including: at least one party had to be a "business entity,"3 and at least one party had to be formed or organized under the laws of Delaware or have its principal place of business in Delaware, and in the case of claims solely for monetary damages, the amount in controversy had to be no less than $1 million dollars.4 Parties did not have to have a prior arbitration agreement in place, but both parties must have consented to arbitration by the Court of Chancery.

The court-based arbitration program was to provide many of the traditional benefits of arbitration: cost-effective dispute resolution, prompt issuance of an award, and, importantly, confidentiality of the proceedings. Proceedings were to be conducted outside the view of the public and press, and awards (while themselves kept confidential) were made immediately enforceable by a public court judgment. The stated purpose of the Court of Chancery arbitration program was to "preserve Delaware's pre-eminence in offering cost-effective options for resolving disputes, particularly those involving commercial, corporate, and technology...