04.12.2013 Arbitration Option Up in Air for Delaware Businesses


For many companies, Delaware has been an attractive location in which to organize.  One of the attractions has been the availability of a court system that was business oriented and efficient in dealing with corporate matters.  A few years ago, Delaware enhanced that attractiveness by making arbitration in the Chancery Court available to companies involved in corporate disputes.  That arbitration option offered companies the opportunity to resolve disputes behind closed doors in front of judges who regularly dealt with commercial litigation cases, but without any public reporting of the subject matter in dispute or the result.  That dispute resolution mechanism proved popular with many corporations that wanted to avoid the washing of dirty laundry in public.  The process was also speedy and generally perceived to be cheaper than conventional litigation.

Unfortunately, the arbitration option is no longer available, having been struck down earlier this year as unconstitutional.  In essence, the U.S. District Court for the District of Delaware ruled that the arbitration option simply represented a secret trial that was being conducted behind closed doors rather than a true arbitration.  As a result, the exclusion of the public from such a proceeding violated the rights of public access to civil trials under the First Amendment and was therefore unconstitutional.

The judges connected to the Delaware Chancery Court have appealed the ruling, and briefs were filed by each side in December and January.