Status of Federal Suit Challenging Confidential Arbitration in Delaware Court of Chancery

Status of Federal Suit Challenging Confidential Arbitration in Delaware Court of Chancery

The Delaware Court of Chancery's confidential and expedited arbitration procedure, in which selected disputes are heard before a member of the Court at a final hearing within 90 days of a complaint being filed, as described in a prior post here, have been challenged in a federal lawsuit that was filed in October to contest the constitutionality of the procedure. The Court of Chancery sits in Wilmington in the New Castle County Courthouse pictured below at the left.

The Court of Chancery Courthouse in Georgetown is featured in the photo below at the right. The Court of Chancery also sits in Dover. Due to the recusal of all the members of the U.S. District Court for the District of Delaware, the case is being heard be federal judge Mary McLaughlin of the U.S. District Court for the Eastern District of Pennsylvania, sitting in Philadelphia. Prof. Brian J.M. Quinn wrote about an oral argument in the case before Judge McLaughlin recently in which she expressed some skepticism about the alleged secrecy of the arbitration conducted by members of the Court of Chancery.  David Marcus of The Deal wrote about the hearing as well. Sean O'Sullivan of the Wilmington News Journal also discussed the arguments that both sides made to the federal court. Reportedly, only about 6 cases have taken advantage of this procedure in the more than two years since it has been available.

The actual rules allowing for confidential arbitration by one of the five members of Delaware's court of equity, are available here.  Key points about the relatively new procedure and rules include the following:

  • As a prerequisite for cases seeking money damages, the amount in controversy must exceed one million dollars.
  • The arbitrator will be a permanent sitting member of the Court.
  • A preliminary conference will be scheduled within 10 days of the commencement of the case to address procedural and substantive aspects of the case.
  • The statutory authority for the parties to consent to this procedure is 10 Del. C. Section 349.
  • The arbitration hearing will generally "occur no later than 90 days following receipt of the petition". See Del. Ch. Ct. R. 97(c).
  • The arbitration proceedings will be confidential.
  • Discovery and motion practice are expected to be limited.
  • Appeals will be directly to the Delaware Supreme Court
  • Filing and hearing fees are as follows: $12,000 for filing the petition, and $6,000 for each day of arbitration (to be shared by the parties). See Order of Jan. 4, 2010 establishing fee schedule here.

(Parenthetically, the fact that a decision on the validity of a procedure used in a Delaware state court, is being made by a judge in Philadelphia may be indicative of the overlapping business and cultural ties between Wilmington and the birthplace of U.S. independence about 30 miles north of Wilmington. Though the customs, standards and "unwritten rules" of practicing law differ greatly in Wilmington compared to Philadelphia, there is a substantial amount of "cross-pollination" that occurs from lawyers and firms-and businesses-that operate in both cities.)

Read more Delaware business litigation case summaries and commentary on Delaware Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X. Pileggi, of Eckert Seamans.

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