Delaware Rapid Arbitration Act to Take Effect in May 2015

15 April 2015 Legal News Alert: Litigation Publication
Authors: Nancy J. Sennett

Legal News Alert: Litigation

On April 2, 2015, Delaware Governor Jack Markell signed into law the Delaware Rapid Arbitration Act (the DRAA). The bill (H.B. 49) had been passed overwhelmingly by the Delaware House and unanimously by the Delaware Senate in March. It will take effect on May 4, 2015. The law provides for the fast-tracked resolution of business disputes, for parties choosing to take advantage of it by agreement. It is the product of work by the state’s Bar, judges, and state officials. The DRAA’s stated goal of “prompt, cost-effective, and efficient” resolution reflects the desire of many businesses to avoid the expensive, lengthy discovery that often accompanies full-blown litigation.

The requirements for application of the DRAA include the following: 

  • All parties must agree to arbitrate under the DRAA – either before or after a specific dispute arises
  • At least one of the parties to the arbitration agreement must be a Delaware business entity or have its principal place of business in Delaware
  • The agreement must provide that it will be governed by Delaware law and must explicitly refer to the DRAA
  • No party to the agreement can be a consumer

Key features of the DRAA include the following:

Arbitrator Selection and Scope: The parties have primary responsibility for choosing one or more arbitrators. If the parties cannot agree, or if they fail to secure the services of the desired arbitrator, the Court of Chancery can appoint one or more arbitrators from the parties’ lists of willing arbitrators. All issues of arbitrability, including procedural and substantive arbitration, are vested in the arbitrators, not the courts, preventing cases from flipping back and forth between the courts and arbitration.

Timing and Enforcement of Dates: An arbitrator must issue a final award within 120 days of the arbitrator’s acceptance of appointment (unless otherwise agreed by the parties), with the parties permitted only to agree to extensions of a total of 60 days or less. Moreover, the DRAA puts the onus for speed on the arbitrator, by providing that if the award is late, his or her fees must be reduced by 25 percent (if tardy by 1 to 29 days), 75 percent (30 to 60 days), or even 100 percent (more than 60 days). Arbitrators are empowered to limit evidence presented at a hearing and to issue other appropriate orders to ensure a timely award.

Confirmation and Appeal: The parties can provide for no appellate review or appellate review only by another arbitrator. Otherwise, the Delaware Supreme Court has jurisdiction to hear appeals of final awards, with no intermediate level of review and no appeals from interim orders. An award may only be vacated, modified or corrected in conformity with the grounds provided in the Federal Arbitration Act. If there is no appeal, a final award would be deemed to be confirmed by the Court of Chancery five business days after the period for any appeal runs.

The DRAA evidences Delaware’s determination to remain the venue of first resort for the business world. The House committee that approved the bill found that the DRAA would attract new business and revenue to Delaware and that, while not requiring parties and arbitrators to retain Delaware attorneys (unlike parties to litigation in Delaware courts), it would still bring additional work for Delaware lawyers. The proposed act would replace a previous Delaware arbitration regime in which vice chancellors of the Court of Chancery served as arbitrators out of the public view. That system was declared unconstitutional in 2013 by the U.S. Court of Appeals for the Third Circuit as violating the First Amendment’s guarantee of public access to court proceedings, in Del. Coal. for Open Gov’t v. Strine, No. 12-3859. The U.S. Supreme Court denied a petition for certiorari in that case.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Nancy J. Sennett
Securities Enforcement & Litigation Practice
Milwaukee, Wisconsin

Kellen C. Kasper
Business Litigation & Dispute Resolution Practice
Milwaukee, Wisconsin