Corporate Law

Delaware’s Options for Alternative Dispute Resolution

Delaware Rapid Arbitration Act

The Delaware Rapid Arbitration Act (DRAA) establishes Delaware as a cutting-edge seat for business arbitrations. Crafted with extensive input from lawyers and businesses in the United States and across the globe, the DRAA was designed to make arbitration practice more timely and efficient.

Here’s how. The DRAA imposes time limitations on the arbitrator. DRAA arbitrations must be completed within 120 days after the arbitrator accepts appointment, although this period can be extended by 60 days. Arbitrators who miss the imposed deadlines are subject to financial penalties.

The DRAA expedites arbitration by providing limited roles for the courts. Litigants may not seek a determination in the courts about the scope of the disputes which may be arbitrated; only the arbitrator may make that determination. Also, if the parties cannot agree or if the chosen arbitrator cannot or will not serve, the Delaware Court of Chancery may appoint an arbitrator.

Once an arbitration is completed, the DRAA expedites the path to finality. An arbitrator’s final award is deemed to be confirmed automatically, without the requirement of further court action. Challenges to a final award may be taken directly to the Delaware Supreme Court, avoiding review by a trial court. Unless the parties agree otherwise, challenges to a final award are under the narrow Federal Arbitration Act standard of review.

Because of their expedited nature, DRAA arbitrations are designed for particular types of business disputes between sophisticated parties. No disputes with consumers may be arbitrated under the DRAA, and arbitrations may only proceed against parties who actually sign an agreement to arbitrate that expressly names the DRAA. At least one of the parties to a DRAA agreement must be a Delaware business entity, although it need not be located in Delaware. The DRAA contains no requirement that a particular amount be in controversy, and arbitrators may award injunctive relief.

Court of Chancery Mediation

The Chancery Court Rules allow parties in a litigation to seek mediation of their pending action in front of a judicial officer different from the one overseeing their litigation. Delaware law also allows for mediation of business and technology disputes where no litigation is already pending. Thus, parties may initiate a mediation in the Court of Chancery without filing a lawsuit. Business entities get access to the experienced Court of Chancery judges, but they also get to resolve their disputes in an efficient and confidential manner. The Court of Chancery’s tradition of flexibility applies in ADR as well, as the parties are able to customize the ADR process to meet their specific needs.

Generally, to commence mediation in the Court of Chancery, both parties must consent, and one entity must be organized or located in Delaware. The mediator will be one of the Court of Chancery’s judicial officers. Those judicial officers have extensive expertise in resolving complex business disputes, so Chancery ADR participants have access to some of the most experienced business judges in the world.

ADR in the Court of Chancery is also fast, unlike the increasingly slow pace of private ADR. When parties choose mediation, the expectation is that the principal conference or hearing will occur within only a few months after the process begins. If appropriate, the mediator can, in consultation with the parties, provide for a faster or slower schedule. ADR participants therefore do not have to follow a typical litigation calendar, but instead can get a result that matches their needs. This feature helps make Chancery ADR cost-efficient for its participants; as well, the fees charged by the Court are generally lower than similar proceedings in other locations.

Another substantial benefit to mediating in the Court of Chancery is the confidentiality of the proceedings. Unlike a complaint in litigation, a petition to mediate is treated as a confidential filing. Generally, all proceedings in Chancery mediation are confidential, including the parties’ resolution. Not only can Chancery ADR participants resolve complex disputes out of the public eye, but the ability to proceed confidentially can also help them preserve their business relationships and continue to do business together in the future.

For information on the law firms and corporate service providers that authored these articles, please visit our acknowledgements page. The State of Delaware is grateful for their assistance.

Legal Disclaimer: The materials contained herein are intended to provide information in regard to the subject matter covered. The Delaware Department of State is not engaged in rendering legal, accounting, or other professional services. If legal advice or other professional assistance is required, the services of a qualified professional should be sought.

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