Update: Delaware Arbitration Gets Constitutional Smackdown, Challenges Federal Court to Rematch

Back in early October, we reported on an unprecedented case in which the Delaware Chancery Court had, pursuant to an amendment to §349 of the Delaware state code, allowed sitting judges to conduct private arbitration procedures between corporations with civil disputes involving over $1 million. Hooray! A way to milk the legal system for state revenue! But the revelry was short-lived. The Chancery Court heard only six cases under §349 before the Delaware Coalition for Open Government (“DelCOG”), a nonprofit corporation that promotes government transparency, swooped in and cried constitutional corruption. And, as previously reported, on August 30, 2012, U.S. District Judge Mary McLaughlin ultimately sided with DelCOG, holding that the Chancery Court proceeding essentially functioned as a non-jury civil trial and was therefore subject to the First Amendment right of access.

After the ruling, Lawrence Hamermesh, a professor of law at Widener University who had helped in the case, issued a written statement on behalf of the Defendants stating that they would appeal the decision. On October 1, 2012, attorneys for the Chancery Court filed a one-page notice of appeal in the Third Circuit, but did not elaborate on the reasons for appeal.

Then, last Tuesday, December 11, 2012, a 69-page appellate brief was filed in the United States Court of Appeals for the Third Circuit on behalf of the Chancery Court judges, also defendants. The original Defendants’ Reply Brief, filed in the District Court in response to DelCOG’s complaint, had asked the court to apply the “experience and logic” test to the case at bar. “Basically, the test says that if a proceeding like arbitration is traditionally closed to the public – that’s the experience part – and if maintaining that logically promotes a better proceeding, it need not be public.”[1]

But a rather strong (and comparatively convincing) brief submitted by Plaintiff DelCOG evidently convinced Judge McLaughlin that the experience and logic test was not the, erm, logical candidate for the case. Instead, McLaughlin took more of a common sense approach, concluding that, while the Chancery Court procedure admittedly resembles arbitration, at its core it is merely a civil trial.

And it is upon this point appellants intend to seize: “If the district court had applied the experience and logic test,” the appeal stated, “it could have reached only one conclusion – there is no First Amendment access right to the arbitration proceedings themselves.”[2] They’ve since hired a new lawyer, Andrew Pincus of D.C.-based Mayer Brown, who won last year’s landmark arbitration Supreme Court case, Concepcion.[3]

DelCOG’s reply brief is due in approximately 21 days. Looks like things could get interesting in 2013, and we’re looking forward to it.

[1] Tom Hals, “Delaware’s Business Court Presses for Secret Arbitration,” Thomson Reuters (Dec. 12, 2012) available at http://newsandinsight.thomsonreuters.com/Legal/News/2012/12_-_December/Delaware_s_business_court_presses_for_secret_arbitration/.

[2] Id.

[3] AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011).


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