Delaware Mulls Voluntary Arbitration Act; 120-Day Timeline, Arbitrator Fixes Scope

Stay current on changes and developments in corporate law with a wide variety of resources and tools.

March 17 — The Delaware General Assembly is considering a bill to provide Delaware business entities with an option for more-efficient alternative dispute resolution.

Primarily sponsored by Rep. Melanie Smith (D-Bear/Newark) and introduced March 17, the Delaware Rapid Arbitration Act (HB 49) is designed to give Delaware-incorporated business entities greater capacity to resolve disputes through voluntary arbitration conducted under strict timelines.

According to the draft bill, all arbitrated matters must be resolved in no more than 120 days, subject to an extension of up to 60 days by unanimous consent of all parties. The Act provides significant flexibility to select an appropriate arbitrator (and provides for a Delaware Chancery Court-supervised appointment process if the parties don't select one or the chosen arbitrator refuses to serve). Under the bill, the arbitrator has exclusive jurisdiction to determine the scope of the arbitration.

The Act cannot be used in cases where there is a danger that vulnerable parties’ rights are at stake, such as in controversies between business entities and consumers of their goods and services, according to a synopsis of the bill. Parties may appeal arbitration awards to the Delaware Supreme Court in certain circumstances and pursuant to the Federal Arbitration Act's limited standards of review.

‘Innovative Solution.'

Norman Monhait, chairman of the Corporation Law Section of the Delaware State Bar Association and shareholder with Rosenthal, Monhait & Goddess, P.A., told the Delaware State Department's Corporate & Legal Services Blog that the Act is a result of collaboration between the Bar, judges and state officials.

“Delaware entities are used in business transactions worldwide and there is virtually no geographic limitation to the [Act],” Delaware’s Secretary of State Jeffrey W. Bullock said in a statement on the blog. “We think this bill provides an innovative solution for businesses that require speedy, efficient, and just resolution of disputes.”

Invalidated Plan

The U.S. Supreme Court in March 2014 declined to review a federal appeals court ruling that struck down a Delaware plan to have sitting chancery court judges oversee closed-door arbitration proceedings in business disputes. A divided U.S. Court of Appeals for the Third Circuit held in October 2013 that the statutory scheme creating the private arbitrations violated the public's First Amendment right of access to the proceedings.

The text of HB 49 is available at$file/legis.html?open.

Request Corporate on Bloomberg Law