Secret Arbitrations in Delaware Chancery – Good Idea, A Race to the Bottom or ….

"Secret arbitrations." Good, bad or otherwise, Delaware’s famed Chancery Court last year adopted rules permitting secret arbitrations conducted by the chancery judges, for significant fees. Now, an NGO has filed suit challenging the rules and demanding public disclosure of the records of the proceedings. The original AP article with the story is here, and is by Randall Chase. AmLaw Daily followed up this morning in this post by David Bario, with links to the Delaware rules and the lawsuit.

Some will say this is a non-event because private ADR groups make it a business to conduct secret arbitrations, and so why not involve courts. Some will say this more of a race to the bottom by Delaware – a prior post is here on Delaware tax policy, and here is a post on Professor Lynn LoPucki’s 2005 book, Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts. Some will say this is another way to generate business for the state, the Chancery Court, and for Delaware lawyers who are part of its litigation industry. Indeed, perhaps that’s been said already in this quote of a statement attributed to Chancellor Leo Strine, Jr., as published in the article by Randall Chase:


"Attorney General Beau Biden’s office, which represents state agencies in lawsuits, declined to comment. It instead issued a statement that it attributed to Chancellor Leo Strine Jr., head of the Court of Chancery.

Strine said that the law establishing the secret proceedings was designed to ensure that Delaware remains "the most attractive domicile in the world for the formation of business entities."

"Throughout American history, it has long been recognized that not all aspects of the judicial process are subject to public access and the courts of this state regularly mediate disputes among citizens, including businesses, and can only do so effectively if the confidentiality of the process is respected," Strine said.

Strine noted that public access to the courts has been historically limited in cases dealing with family matters such as child custody and guardianships. He also noted that state lawmakers approved similar secret arbitration for business disputes in Superior Court last year.

The bills, which passed both chambers of the General Assembly unanimously and were signed by Gov. Jack Markell, were intended "to advance compelling public policy interests related to the our state’s economic vitality," Strine said.

The Chancery Court charges a fee of $12,000 for filing an arbitration petition and a daily fee of $6,000 for each day after the first day that a judge is engaged in arbitration.

Markell spokesman Brian Selander had little comment on the lawsuit, other than to note that the legislation passed unanimously."

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Since becoming a lawyer in 1983, Kirk’s over 30 years of practice have focused on advising a wide range of corporations, associations, and individuals (as both plaintiffs and defendants) on both tort and commercial law issues centered around “mass torts.”

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