Privatizing Delaware Courts

by Gilles Cuniberti on March 4, 2014

I was not aware of this development in Delaware, which was introduced by a statute of 2009. For USD 6,000 a day and USD 12,000 filing fees, the prestigious Delaware court and judges can be rented for settling disputes above USD 1 million. One of the parties at least must be a Delaware business entity. The Delaware law maker called it "arbitration", but the resulting decision is an "order of the Chancery Court", not an arbitral award. The scheme is closer to litigation behind closed doors than to arbitration. One of the goals is to compete to attract business disputes to Delaware by offering a cheaper mode of dispute resolution. As a US judge has recently emphasized:
The State of Delaware has become interested in sponsoring arbitration as a part of its efforts to preserve its position as the leading state for incorporations in the U.S. One of the reasons that Delaware has maintained this position is the Delaware Court of Chancery, where the judges are experienced in corporate and business law and readily available to resolve this type of dispute. Nevertheless, judicial proceedings in the Court of Chancery are more formal, time consuming and expensive than arbitration proceedings. For that reason, the Court of Chancery, as a formal adjudicator of disputes, may not be able to compete with the new arbitration systems being set up in other states and countries.
The constitutionality of this law, however, has been challenged, and the Supreme Court may decide to hear the case.  In Delaware Coalition for Open Government, Inc. v. Strine, the U.S. Court of Appeals for the Third Circuit found the Delaware law unconstitutional as the proceedings would not be open to the public:
Because there has been a tradition of accessibility to proceedings like Delaware's government-sponsored arbitration, and because access plays an important role in such proceedings, we find that there is a First Amendment right of access to Delaware's government-sponsored arbitrations
See also this Op Ed of Judith Resnik in the New York Times. I have tremendous respect for Judith Resnik, who is a professor at Yale Law School and one of the leading US scholars on civil procedure. Readers unfamiliar with the US legal academy should know, however, that Resnik belongs to a school of thought which is highly critical of alternative dispute resolution. This is probably the result of the development of arbitration for consumer and labour disputes in the US. I am not sure, however, that this peculiarity of US law should impact our perception and analysis of commercial dispute resolution.

{ 5 comments }

Noor Kadhim March 4, 2014 at 2:49 pm

Hi there – nice blog. However – how does one follow the blog to receive regular updates?

Sandrine Clavel March 5, 2014 at 5:53 pm

Thanks for the information! Very interesting “hybridization” between Courts and ADR!
I was not patient enough to read the whole CA’s decision, but I am not mistaken if I understand that privatization is still possible if the proceedings are open to the public? Of course, one may wonder is it still privatization then, and if parties still be willing to participate…

Gilles Cuniberti March 5, 2014 at 6:36 pm

I think you are right that a publuc hearing would suffice to resolve the constitutional question.

What I wonder is what parties pay for, since they could simply provide for the jurisdiction of the court. Would the Delaware Chancery court now decline jurisdiction if parties do not pay?

Sandrine Clavel March 5, 2014 at 6:51 pm

Now, that would be very interesting indeed! I am planning to check the 20O9 Statute to understand what are the differences -if any, now that they should be both public- between the “public” and “private” proceedings. But maybe you did this already? In the meantime, my imagination is at work. For instance, in the “private” proceedings, you could have assurance that the judges will carefully read all your memos; or maybe you could select which judge(s) will actually rule on your case, among the different members of the Court…

Verity Winship March 27, 2014 at 2:55 pm

The U.S. Supreme Court just decided not to hear the case. (No. 13-869, 2014 WL 271920 (U.S. Mar. 24, 2014)). As a practical matter, that leaves in place the appellate court’s decision invalidating Delaware’s use of its judges for private arbitration.

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