United States: Delaware Supreme Court Adopts Rules To Streamline Arbitrations Under The Delaware Rapid Arbitration Act

The Delaware Rapid Arbitration Act ("DRAA"), effective May 2, 2015, creates a streamlined arbitration process resulting in swift, confidential, and cost-effective resolutions of business disputes. This arbitration process benefits those who are willing to forgo lengthy discovery and appeals processes, and resolve business disputes in a shorter time frame with lower costs. Under the DRAA, Arbitrators are required to decide the dispute within 120 days of accepting their appointment. If both parties are in agreement, the parties have the option to extend the 120-day window for a maximum of 60 days by submitting a written extension request either before or after the 120-day period expires. Any challenges to the Arbitrator's final decision must be appealed within 15 days of the decision, but the parties can agree at the outset to forgo any appeals.

In order to opt into the DRAA process, both parties sign an Arbitration Agreement ("Agreement") that must include an explicit reference to the Delaware Rapid Arbitration Act. Additionally, at least one of the parties must be a Delaware corporation, limited liability company, or other business entity with a principal place of business in Delaware. Neither party can be a consumer.

On June 17, 2015, the Delaware Supreme Court adopted the Delaware Rapid Arbitration Rules (the "Rules"), which establish procedural rules that govern arbitrations brought under the DRAA. Although the parties may modify or add to these Rules in writing, the Rules provide the necessary guidelines for ensuring that an arbitration brought under the DRAA is cost-effective and resolved promptly. The parties cannot, however, amend (1) the place of arbitration, (2) the maximum time period for the Arbitrator to make a decision, or (3) the reduction of the Arbitrator's compensation in the event of an untimely award.

The following is an overview of the key Rules set forth by the Delaware Supreme Court:

Arbitrator Selection Process

  • Parties may (1) specifically select the Arbitrator in their Agreement, (2) designate the process for selecting the Arbitrator, or (3) petition the Court of Chancery to appoint an Arbitrator. Parties should keep in mind that the state of Delaware is the place of arbitration under the DRAA, and this cannot be changed in their Agreement.
  • The Arbitrator accepts appointment by serving written notice of acceptance of appointment upon all parties. After the Arbitrator serves a written notice of acceptance, no party may withdraw from the arbitration without written agreement of all parties to the arbitration.
  • The 120-day time period begins following the service of the written notice of acceptance.

Communications with Arbitrator

  • After receiving the Arbitrator's written notice of acceptance, parties should not engage in ex parte communications with the Arbitrator.
  • Any written communication to the Arbitrator and other parties will be delivered in the manner specified in the notice of acceptance.

Pleadings

  • Arbitration claimant must file a complaint within two business days after service of the written notice of acceptance of appointment by the Arbitrator.
  • Answers must be served within five business days after service of the complaint.
  • Replies to counterclaims are required within three business days after service of answer.

Limited Discovery

  • Parties are required to agree on a pre-hearing exchange of information. If the parties cannot agree, then the Arbitrator will decide the scope of the exchange of information.
  • The scope of information should be substantially narrower than the scope of information that might be subject to discovery in civil litigation.

Pre-Arbitration Hearings

  • Preliminary Conference should take place, by phone, within 10 calendar days of the service of written notice of acceptance of appointment by the Arbitrator.
  • Arbitrator may schedule a Preliminary Hearing to handle a variety of issues (i.e., stipulations of facts; scope of exchange of information). These hearings take place over the phone.
  • Before the hearing, each party must disclose to the Arbitrator and other parties: (1) identity of all fact and expert witnesses, (2) a brief description of expected testimony of each witness, and (3) a list of exhibits.

Arbitration Hearing

  • At least one representative of each party with an interest in the issue being arbitrated and with authority to resolve the matter must participate in the arbitration hearing.
  • Hearing is limited to one day - unless the Agreement specifies a different time period or unless the Arbitrator determines that a different time period is needed.
  • The Arbitrator controls the order of proof throughout the hearing and resolves all substantive and procedural issues that arise throughout the arbitration.
  • The Arbitrator has the authority to provide either a legal or equitable final award, and must issue the final award within the time fixed in the Agreement, or, if not fixed, within the 120 days from acceptance of the Arbitrator's appointment.

Confidentiality

  • Arbitrations are confidential proceedings and any documents or communications will not become part of public record or disclosed in any judicial or administrative proceeding. However, an appeal to the Delaware Supreme Court will not preserve this confidentiality.

Fees and Costs

  • The Arbitrator's fees and expenses are included in the final award, which incorporates the fees and costs of an attorney the Arbitrator may retain to assist with the arbitration.
  • The Arbitrator's fees will be reduced by 25 percent if the final award is less than 30 days late; reduced by 75 percent if the final award is between 30 and 60 days late; and will be reduced by 100 percent if the final award is more than 60 days late.
  • Counsel fees for the parties are not included in the final award.

Brian Rostocki is a partner in Reed Smith LLP's Wilmington, Delaware, office. His practice emphasizes business and complex litigation. Brian has litigated numerous complex business disputes in the Delaware courts and has also appeared on behalf of the firm's clients in state and federal courts throughout the United States, including private arbitrations and mediations.

Diana Rabeh is a senior associate in Reed Smith's Product Liability Group. Diana's practice focuses on complex commercial litigation matters involving a number of substantive areas, including contract disputes, business torts, aviation and products liability.

Brian and Diana were counsel for the first filed and tried arbitration under the Court of Chancery prior confidential arbitration program. Brian was also counsel in the last filed arbitration under that program.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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