Why it matters

In a hurry? A new law in Delaware could impact businesses and financial institutions across the country by establishing a streamlined arbitration process for the “prompt, cost-effective, and efficient” resolution of business disputes. The Delaware Rapid Arbitration Act was signed into law by Governor Jack Markell in April and will take effect May 4. The new process is completely voluntary and all parties must explicitly agree to arbitration under the Act with Delaware law governing the agreement. The statute is limited to disputes between business entities and not available to resolve consumer disputes. In addition, the Act does not restrict disputing parties from utilizing other forms of dispute resolution. Pursuant to the new law, arbitrators are endowed with the authority to make interim rulings and issue interim orders; to speed up the process, neither can be challenged. Arbitrators can also administer oaths, compel attendance of witnesses or document production, issue subpoenas, and even impose sanctions. To ensure a timely outcome in line with the Act’s goals, arbitrators must issue a final award within 120 days of the acceptance of his or her appointment to the dispute, with the power to grant whatever legal or equitable relief deemed appropriate, absent limitations in the parties’ agreement. The speed of resolution (with financial penalties for arbitrator awards that run late), limited review options, and exclusive arbitrator jurisdiction over issues related to arbitrability may appeal to business entities looking for a quick, private, and inexpensive dispute resolution.

Detailed discussion

Beginning May 4, 2015, businesses and financial institutions will have the opportunity to take part in Delaware’s new high-speed arbitration process. As the legislation itself states, the “purpose of the Delaware Rapid Arbitration Act is to give Delaware business entities a method by which they may resolve business disputes in a prompt, cost-effective, and efficient manner, through voluntary arbitration conducted by expert arbitrators, and to ensure rapid resolution of those business disputes.”

To take advantage of the Delaware Rapid Arbitration Act (DRAA), at least one of the parties must be a business entity formed in Delaware or have its principal place of business in the state (only business entities are allowed to partake of the new law, which does not apply to consumer disputes). All parties must explicitly agree to arbitration under the DRAA, with Delaware law governing the process.

To begin the process, parties will agree in writing to submit to arbitration under the DRAA. The parties have options for selecting an arbitrator, with the law permitting a specific individual to be designated by the parties, allowing the agreement between the parties to set forth a selection process, or having the Delaware Court of Chancery appoint an arbitrator.

The selected arbitrator is invested with a host of powers to keep the process streamlined and fast-paced. Issues related to substantive and procedural arbitrability are decided by the arbitrator (not the courts) and arbitrators are endowed with the ability to make interim rulings and issue interim orders with regard to evidence and witnesses, decisions which cannot be appealed.

A hearing at which the parties may present evidence and cross-examine witnesses is included in the DRAA process unless the parties agree otherwise. Arbitrators have the authority to compel witnesses and the production of evidence and documents, to issue subpoenas, and administer oaths. Rulings, orders, and even the imposition of sanctions are also within the arbitrator’s purview.

Arbitrators have 120 days from acceptance of the appointment over a case to issue a final award. The DRAA does permit extensions with the unanimous consent of parties, but no more than 60 days after the expiration of the original deadline. To encourage timeliness, the Act provides for financial penalties imposed on an arbitrator who can’t issue a decision within the set period (a 25 percent reduction in the arbitrator’s fee if the final award is less than 30 days late; a 75 percent reduction if the final award comes between 30 and 60 days late; and a complete loss of fees if the award is more than 60 days late).

The relief ordered by an arbitrator can be legal or equitable in nature—including money damages, injunctions, and specific performance—unless the parties have placed limitations in their agreement. An appeal of the arbitrator’s award is limited to a single direct challenge to the Delaware Supreme Court within 15 days. An appeal to the court is public and subject to review under the standards of the Federal Arbitration Act. The parties may agree to waive appellate review in their agreement or provide for a review by another arbitrator.

To read the Delaware Rapid Arbitration Act, click here.