May 30, 2014 Articles

Third Circuit Rejects Delaware Court of Chancery's Confidential Arbitration Program

Court affirms earlier ruling finding confidentiality provisions unconstitutional

by Chad M. Shandler

In a case that has attracted the attention of legal experts from across the country, the U.S. Court of Appeals for the Third Circuit affirmed the U.S. District Court of Delaware's decision that found the confidentiality provisions of the Delaware Court of Chancery's arbitration program unconstitutional. Applying the well-known experience and logic test, the 2–1 majority concluded that the tradition and importance of public access to proceedings like Delaware's government-sponsored arbitration required that such proceedings be open to the public under the presumptive right of access afforded by the First Amendment.

Overview of the Court of Chancery's Arbitration Program
In an effort to maintain its status as the preeminent state in which to resolve business disputes, the Delaware General Assembly enacted a statute in 2009 that granted the Court of Chancery "the power to arbitrate business disputes." Del. Coal. for Open Gov't, Inc. v. Strine, 733 F.3d 510, 512 (3d Cir. 2013), petition for cert. filed, 82 U.S.L.W. 3463 (U.S. Jan 21, 2014 (No. 13-869). Under this statute and the Court of Chancery's corresponding arbitration rules, only certain disputes qualify for arbitration. See 10 Del. Code § 349 (2009); Del. Ct. Ch. R. 96–98. Specifically, at least one of the parties must be a "business entity formed or organized" under Delaware law, neither party can be a "consumer," and the amount-in-controversy must be at least $1 million. 10 Del. Code §§ 347, 349. Qualified parties must consent to arbitration by agreement or by stipulation.  Id. § 347(a)(1); Del. Ct. Ch. R. 97(a).

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