Alternative Dispute Resolution

Court Arbitration: Fighting For Market Share

The Connecticut Law Tribune

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In a previous column, I wrote about litigation challenging court annexed arbitration in the state of Delaware.

The dispute arose from a Delaware judicial process allowing private litigants — generally corporations — to submit large disputes for arbitration before a sitting Chancery Court judge after the payment of a substantial fee ($12,000, plus $6,000 per additional day). Cases are arbitrated, with the consent of all parties, pursuant to Chancery Court rules, following the submission of a petition stating the nature of the controversy.

The matter qualifies for the arbitration program by meeting three threshold tests: (1) an amount in controversy of $1 million or more; (2) at least one party being a business entity organized in or doing business in Delaware; and (3) no consumer involvement. Once qualified, the dispute is assigned to a Chancery Court judge for arbitration within 90 days of the petition and the Court of Chancery rules concerning discovery apply. The matters are heard during normal business hours in public courthouses.

Despite the fact that the arbitration is conducted by a sitting judge in the courthouse during the course of his or her judicial duties, the rules specifically state that the matter is private and confidential. There is no record of the arbitration for the public to see unless the award is challenged. Only parties and their representatives are allowed to attend the proceeding: public access is barred. Interestingly, while the judge already has judicial immunity, the rules grant civil immunity to the "arbitrator" for any act or omission.

A federal court constitutional challenge was filed against the Delaware practice, claiming improper utilization of public courts for private arbitrations out of public view and essentially the creation of a second-class justice system for those who cannot afford the price tag. The federal district court granted the challengers' motion for judgment on the pleadings and ruled that the relevant portions of the Delaware Code and the Chancery Court rules were unconstitutional.

The matter was appealed to the U.S. Court of Appeals for the Third Circuit and that court affirmed the judgment on Oct. 23.

Conducting a de novo review, the Third Circuit reached the same conclusion as to the impermissibility of the private arbitrations in a court setting, but on different grounds. The higher court concluded that the First and Fourteenth amendments prohibit governments from abridging the freedom of speech or press which include a right to public access to trials. It utilized the "experience and logic" test in reaching its conclusion.

One judge concurred but limited his opinion to the confidentiality provision of the statute and rule in question and a second judge dissented.

The respective opinions contained some fascinating observations.

First, that a leading reason for the early use of arbitration in this country was "suspicion of law and lawyers."

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