Delaware Allows Sitting Judges to Conduct Private Arbitration, Gets Constitutional Smackdown

In 2009, the Delaware legislature boldly went where no state had gone before, amending the state code governing the general jurisdiction and powers of its Chancery Court to allow sitting judges to conduct private arbitration proceedings. Specifically, Title 10, §349 of the Delaware Code gave the Chancery Court “the power to arbitrate business disputes” between corporations with civil claims involving over $1million, and provides that this arbitration “shall be considered confidential and not of public record.”

In other words, a Chancery Court judge can stop being a judge for just long enough to become an arbitrator, find facts, apply the relevant law, and issue a final award, and then become a judge again to confirm the award he himself just issued—all under seal.

The problem? The First Amendment. In a lawsuit filed against the Chancery Court in October 2011, the Delaware Coalition for Open Government (joined by several major media outlets) argued that the secrecy of the arbitration proceedings violated the public’s presumptive constitutional right of access to judicial proceedings in civil cases. U.S. District Court Judge Mary McLaughlin agreed.

Citing the First Amendment, Judge McLaughlin reasoned that the proceeding—in which a sitting judge hears evidence, finds facts, and issues a final binding order—essentially functions as a non-jury trial before a sitting judge. It follows that “because it is a civil trial, there is a qualified right of access and this proceeding must be open to the public.”[1] Judge McLaughlin emphasized that the “very different functions” of judges and arbitrators are not merely semantic, and that sitting judges in the United States do not take on both roles at once.

Although the Supreme Court has never directly addressed the constitutional right of access to civil proceedings, it has recognized the right of access to criminal proceedings, and every court of appeals in the country has held there is the same right of access in civil trials.[2] As an attorney for the Delaware Coalition for Open Government, David Finger, told the New York Times, “The public has a right to know what’s going on in its courts. That doesn’t change because you call it arbitration instead of trials.”[3]

But attorneys for the Delaware Chancery Court and the State argued that its arbitration proceeding is inherently different than a civil trial, and that the First Amendment right does not attach to a contractual agreement to arbitrate between two commercial entities. Furthermore, said attorney Lawrence Hamermesh, the Chancery Court’s arbitration proceeding allows swift resolution of commercial disputes, and “the United States cannot afford to be at a competitive disadvantage in providing efficient ways for businesses to resolve their disputes.”[4]

The not-so-secret fact that Delaware flirts shamelessly with corporate interest is evidenced by the fact that the state is home to “thousands upon thousands” of corporations who “conduct a vast amount of the world’s commercial affairs,” as the Chancery Court website aptly put it. But this truth brings up another issue: as a corporate mecca and, by extension, a prolific precedent-maker for commercial law, valuable judicial precedent would disappear under the seal of private arbitration.

On Monday, attorneys for the Chancery Court of Delaware filed a notice of appeal in the U.S. District Court in Wilmington, asking the 3rd Circuit to reinstate the arbitration process. It remains to be seen whether, and how, the State’s competitive disadvantage argument will play a role in the appeal. But as David Finger put it, “There is already a cost-efficient mechanism. It is called private arbitration.”


[1] Delaware Coal. for Open Gov’t v. Strine, 2012 WL 3744718 (D. Del. Aug. 30, 2012)

[2] Rita K. Farrell, “Judge Rules Against Arbitration by a Delaware Court,” New York Times, http://www.nytimes.com/2012/08/31/business/judge-rules-against-delaware-courts-use-of-arbitration.html?_r=0 (Aug. 30, 2012).

[3] Id.

[4] Sean O’Sullivan, “Chancery Court appeals ban on private arbitration,” The News Journal, http://www.delawareonline.com/article/20121001/NEWS/121001018/Chancery-Court-appeals-ban-private-arbitration?odyssey=tab|topnews|text|Home&gcheck=1&nclick_check=1 (Oct. 1, 2012)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: