Delaware Rapid Arbitration Act–The Constitutional Question

As noted in last week's post, the Delaware Rapid Arbitration Act (DRAA), enacted in 2015, replaced an earlier judicial arbitration procedure that was declared unconstitutional for violating public access rights to courts. In 2009, the Delaware General Assembly and the Court of Chancery acted to implement voluntary arbitration rules for business disputes in a move to add a sophisticated, dispute-resolution product that was available to entities that had joined the Delaware franchise. But this procedure was struck down as unconstitutional by the Third Circuit Court of Appeals in Delaware Coalition for Open Government v. Strine because the court found that such arbitrations essentially functioned as civil bench trials conducted by taxpayer-paid judges in taxpayer-funded courthouses, which triggered First Amendment public access rights. The current version of the DRAA avoided these constitutional problems by using private arbitrators in private venues, maintaining the confidentiality of traditional arbitration while providing expedited business dispute resolution within 120-days and.

The Unconstitutional Predecessor: 2010 Judicial Arbitration Procedure

In January 2010, the Delaware Court of Chancery issued an order adopting new voluntary arbitration rules for business disputes involving claims solely for monetary damages. This procedure was designed to provide faster resolution of business disputes while maintaining judicial oversight. To that end, the 2010 procedures would have used members of the Court of Chancery to conduct private arbitrations between parties that would likely be conducted in the courthouses of Delaware. This procedure, however, turned out to be foundationally flawed because it blurred the line between public judicial proceedings and private arbitrations. The Third Circuit Court of Appeals declared this judicial arbitration procedure unconstitutional in Delaware Coalition for Open Government v. Strine. The court applied the Supreme Court's experience and logic test to determine whether the First Amendment required public access to these proceedings. Under the experience prong, the court found that civil trials had historically been open to the press and general public while arbitrations had historically been private in nature. Thus, the court held that "[t]aking the private nature of many arbitrations into account, the history of civil trials and arbitrations demonstrates a strong tradition of openness for proceedings like Delaware's government-sponsored arbitrations. Under the logic prong, the court determined that public access would ensure accountability of litigants, lawyers, and judges, and allow the public to maintain faith in the Delaware judicial system. Because the proposed arbitration proceedings would function essentially as civil bench trials to which there is a qualified right of public access under the First Amendment, the new statute and rules foundered on the rocks of the U.S. Constitution. The procedures violated the First Amendment because they attempted to maintain arbitration's private nature while using the judicial system's infrastructure and personnel, thus creating an irreconcilable conflict with constitutional requirements for public access to court proceedings.

The Delaware Rapid Arbitration Act: Constitutional Solution

In 2015, the Delaware General Assembly enacted the Delaware Rapid Arbitration Act in a second effort to provide Delaware-chartered entities with a rapid (and confidential) arbitration option. The DRAA was specifically designed to avoid the constitutional problems that doomed the 2010 judicial arbitration procedure. It did so by using private arbitrators conducting arbitrations in private facilities. Thus, the proceedings under the DRAA would be private and confidential, as with other private arbitrations, but if a challenge is filed with the Delaware Supreme Court, the proceedings would be treated as a typical appeal and subject to the court's public's right of access rules.

Since its enactment in 2015, the DRAA has not faced constitutional challenges. The DRAA's use of private arbitrators in private venues, combined with its limitation of public access to Supreme Court appeals only, successfully addressed the First Amendment concerns that invalidated the earlier judicial arbitration procedure. The constitutional success of the DRAA demonstrates how Delaware learned from the failure of its 2010 judicial arbitration experiment. By maintaining clear boundaries between public judicial proceedings and private arbitration, the DRAA provides the expedited business dispute resolution Delaware sought while respecting constitutional requirements for court access.

Next week, we'll take a look at some of the key features of the DRAA, so stay tuned!

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