Delaware has introduced landmark arbitration legislation, the Delaware Rapid Arbitration Act (DRAA), which establishes a voluntary, streamlined arbitration regime for Delaware businesses.
Freshfields attorneys were involved in advising the drafting committee on the terms of the legislation.
The stated purpose of the DRAA 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.”1 Parties may resolve a dispute under the DRAA if:
- they agree to arbitration and at least one party to the arbitration agreement is a business entity organized under Delaware law or having its principal place of business in Delaware;
- no party to the agreement is a consumer, as defined under Delaware law;
- the agreement is governed by Delaware law; and
- the agreement expressly refers to the DRAA.2
Previous arbitration program struck down by federal courts
The DRAA replaces an arbitration program implemented in 2009 under which judges of the Delaware Court of Chancery served as arbitrators. The US Court of Appeals for the Third Circuit found that earlier legislation to be unconstitutional, holding that confidential arbitration before active Court of Chancery judges violated the public’s right of access to judicial proceedings under the First Amendment to the US Constitution.3
Under the DRAA, by contrast, active judges will not serve as arbitrators. Instead, the parties may agree to appoint one or more arbitrators from outside the judiciary. If they fail or refuse to do so, then the Court of Chancery is vested with authority to make the appointment. A court-appointed arbitrator may only be either: (i) a person named in the parties’ agreement, (ii) an expert in a non-legal discipline described in the agreement, or (iii) a member of the Delaware Bar for at least 10 years.4
Key features designed to accelerate the arbitration process
The DRAA contains a number of innovative provisions designed to streamline the arbitration process. Key features include:
- Expedited decisions: The arbitrator is required to issue a final award within 120 days of accepting his or her appointment, unless otherwise specified in the arbitration agreement. That deadline may be extended only by the joint consent of the parties, and only up to 60 additional days.
- Penalties for tardy awards: If an arbitrator fails to issue a final award within the set timeframe, then his or her fees must be reduced – by up to 100 percent if the final award is more than 60 days late (absent exceptional circumstances, as determined by the Court of Chancery).
- Limited challenges: The parties’ arbitration agreement may provide for either: (i) no review of a final award, or (ii) appellate review by one or more arbitrators. Otherwise, the default procedure under the DRAA requires that any challenge to a final award be taken to the Delaware Supreme Court within 15 days of issuance of the award. The court may vacate or modify the award only in conformity with the limited grounds set out in the US Federal Arbitration Act.
- Summary confirmation of awards: Unless an award is challenged as described above, then it is automatically deemed to have been confirmed by the Court of Chancery five business days after the deadline for challenge has run.
The DRAA – which has the support of the state government, Delaware judges and the State Bar Association – is expected to be a popular dispute-resolution option for Delaware companies. Among its other potential benefits, it will give parties to complex business transactions the ability to have disputes resolved quickly and efficiently, and with a greater degree of flexibility than that offered by traditional court proceedings.