Delaware Corporate Law Update -The Court of Chancery Adopts New Arbitration Rules

January 28, 2010

Publication| Corporate Transactions| Corporate & Chancery Litigation

The Court of Chancery recently adopted new rules effective February 1, 2010, to govern the arbitration of business disputes.  Already well known for its business acumen and experienced judges, these rules further establish the Court of Chancery as the preeminent tribunal for business dispute resolution.  Existing law authorizes the Court to conduct confidential mediation proceedings of business and technology disputes where there is no pre-existing pending action.  Delaware legislation signed into law last April expanded this authority to allow the Court’s judges to arbitrate the same types of disputes, which include business-to-business disputes about major contracts, joint ventures or technology. 

With respect to the parties that may participate in an arbitration in the Court of Chancery, the enabling statute lays out four requirements:  first, parties must have consented to arbitration in the Court of Chancery by agreement or stipulation; second, at least one party must be a business entity; third, at least one party must be a business entity formed or organized under Delaware law or have its principal place of business in Delaware; and fourth, no party can be a consumer.  Where a claim is solely for monetary damages, the amount in controversy must also exceed one million dollars.  Under the new rules, the party commencing the arbitration must state in its petition that these requirements are satisfied and state the amount in controversy, if applicable.

The arbitration rules showcase two of the Court’s famous strengths:  swiftness and flexibility.  For instance, within ten days of the submission of a petition for arbitration (which submission is done confidentially and not as part of the public docketing system), the arbitrator will hold a telephonic conference to discuss the anticipated length of hearing and scheduling.  The actual arbitration hearing will generally occur within ninety days following receipt of the petition for arbitration by the Register in Chancery.  The events leading up to the arbitration hearing will be largely up to the parties and the arbitrator.  At the outset, the arbitration rules provide that, with the arbitrator’s consent, the parties may change any of the arbitration rules by agreement and/or adopt additional arbitration rules.  A familiar backdrop to Court of Chancery litigators, the Court’s discovery rules apply to the arbitration proceeding, except where such rules are inconsistent with the Court’s arbitration rules and subject to any modifications agreed to by the parties or made by the arbitrator. 

Other key features of a Court of Chancery arbitration include the confidentiality of the record until such time, if any, that the arbitration proceedings are the subject of an appeal.  The legislation that enabled the arbitration rules also vests Delaware’s Supreme Court, the state’s highest court, with authority to hear any appeals (although the parties, by agreement, may make the arbitration nonappealable).  In addition, the arbitrator may be a Vice Chancellor, the Chancellor or a Master sitting permanently in the Court.

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