Delaware's New Arbitration Act Is a ‘Breakthrough,' Practitioners Say

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By Michael Greene

June 24 — A recently enacted Delaware statute is a “real breakthrough,” providing businesses with a framework to avoid problems that increase the time and cost needed to resolve an arbitrated dispute, according to a June 24 Morris James LLP webcast.

The Delaware Rapid Arbitration Act, which became effective in May, allows business entities to opt into a streamlined process that requires resolution of arbitrated matter in 120 days, subject to an extension of up to 60 days, by unanimous consent of all parties.

The DRAA addresses problems associated with traditional commercial arbitrations, such as procedural fights and arbitration selection, that vex clients looking for cheaper and faster dispute resolution, said P. Clarkson Collins Jr., a partner at Morris James.

“The bottom line here is that the DRAA is built for speed, its built for efficiency, but it also preserves procedural and substantive fairness which are obviously key components to any alternative dispute resolution process,” said former Delaware Superior Court Judge Joseph R. Slights III, now a partner at Morris James.

During the webcast, attorneys discussed the ins and outs of the new statute and provided tips for parties seeking to use its framework.

Limiting Procedural Fights

While Slights noted that traditional arbitration is still effective, he observed that there are problems that can cause those proceedings to go off the rails.

According to Collins, some of these problem areas include procedural fights, arbitrator selection, extended discovery and multiple appeals.

In contrast, Slights said the DRAA allows parties to agree to a statutory framework that prohibits these distractions. The statute encourage parties to get to the point of resolving their dispute, he said.

Invoking the DRAA

Slight also observed that invoking the DRAA is pretty simple in that it requires parties to have a signed agreement that explicitly incorporates the Act.

However, he predicted that most stockholder disputes will not be covered under the Act because stockholders do not sign bylaw provisions.

One way in which such disputes could fall under the Act, however, is if a stockholder signs a separate agreement permitting resolution through the DRAA, noted Edward M. McNally, partner at Morris James.

McNally observed that using the DRAA could be useful in resolving disputes involving smaller corporations, particularly where there is an agreement to buy out a shareholder but the parties have not agreed to the price. In this scenario, the DRAA is a good way to get the valuation issue resolved without destroying the parties' relationship, he said.

Typical Schedule

Former Delaware Superior Court Judge Charles H. Toliver IV, now a partner at Morris James, noted that if the parties choose to have discovery, depositions, briefing and a hearing, it all must fit within the 120-day period that begins once an arbitrator accepts his or her appointment.

Tolliver went through a typical DRAA schedule that could include the following:

• 25 days to produce documents,

• another 25 days to conclude any depositions,

• another 30 days to submit pre-hearing briefs,

• a hearing within 10 days of the last brief and

• simultaneous post-hearing briefing to be concluded 10 days later.

 

Be Prepared

“Be prepared as much you can to manage these deadlines,” Collins advised

The disadvantage of speed is that it creates preparation challenges, he said.

Because parties must explicitly agree to DRAA proceedings, however, there are things they can do before an arbitrator is appointed, he noted. Some of these practices include: drafting a complaint in advance, and getting witnesses and documents lined up and ready for production, he said.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The DRAA is available at http://www.legis.delaware.gov/LIS/lis148.nsf/vwLegislation/HB+49/%24file/legis.html?open.

The webcast can be viewed at http://www.morrisjames.com/newsroom-news-442.html.