The Delaware Rapid Arbitration Act (DRAA), effective as of May 2, 2015, is a recent arbitration statute that promises to be popular among parties to a wide range of business agreements. The DRAA is intended to be used principally for the resolution of commercial disputes between businesses, but it has been appearing in venture capital financing documents. Will the Act prove to be effective in the intra-corporate context, as well?
What are the advantages of the DRAA?
The DRAA offers the possibility of prompt dispute resolution on a confidential basis. Speedier than both court proceedings and conventional arbitration, the DRAA promises a resolution within 120 days – a mere four months – unless the parties agree otherwise. Because the process is significantly faster than other alternatives, it is more economical, as well.
Are there any traps for the unwary?
In order to use the DRAA, the parties must satisfy certain criteria laid out in the Act.
Parties also face a host of drafting issues when considering whether or not to use the Act, including:
Will the Act work in the VC/PE context?
Many commentators have dismissed use of the Act in the intra-corporate context, especially for public companies. Time will tell if the Act gains favor among private companies. And because arbitration under the Act is confidential, it may be awhile before the Delaware Supreme Court can issue any definitive, public guidance. Relevant issues are likely to include:
These and other issues will need to be examined with care before deciding whether the benefits of the Act can be realized – without undue collateral cost – in a particular intra-corporate context. It is quite clear, however, that the possibility cannot simply be dismissed.