Delaware District Court Strikes Down Delaware Chancery's Confidential Arbitration Procedures As Unconstitutional

Delaware Corporate Litigation

Yesterday, the United States District Court for the District of Delaware held that arbitration procedures enacted by the Delaware legislature and established by the Chancery Court Rules to streamline and expedite lawsuits were unconstitutional because they permitted state court proceedings to be conducted without access to the public.

The Delaware Coalition for Open Government (the "Coalition") had sued the four Vice Chancellors and the Chancellor of the Delaware Court of Chancery challenging a confidential arbitration proceeding established by Delaware law and implemented by the Delaware Court of Chancery. The Coalition argued that the confidential arbitrations that are closed to the public and press and that do not appear on the Court's docket violate the First Amendment's qualified right of access. [full opinion available here]

Ruling on the parties' cross-motions for judgment on the pleadings, the Delaware District Court agreed with the Coalition and struck down the Delaware law establishing the confidential arbitration proceeding in the Court of Chancery and the Court's enabling rules.

In April of 2009, the Delaware State Legislature amended the rules governing the resolution of disputes in the Court of Chancery. The Amendment gave the Court of Chancery "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." 10 Del. C. 349(a). Access to this "judicial" arbitration, however, mandates that the parties (at least one of which must be an entity and a citizen of Delaware) consent to proceed in accordance with a set of rules designed to achieve a prompt resolution (the process contemplates a merit hearing within 90 days of the submission of the arbitration petition). The Court's rules also contemplate an expedited schedule and lightning-speed discovery, including depositions and document exchange, all on the terms agreed upon by the parties and the Court. Notably, none of the pleadings, motion, or notices are filed with the Court's Registrar or ever appear on the Court's official docket–indeed everything is submitted directly to the chambers as confidential. Even the very pendency of any such arbitration is entirely concealed from the rest of the world, unless, and only if, one of the parties ultimately appeals the judge's decision to the Delaware's Supreme Court...