Arbitration was originally created to provide parties with a speedy and less expensive forum for resolving disputes outside of the courts, but has eroded over the years to become equally, if not more, expensive and time consuming than litigation. To curb that trend, one state has enacted an innovative statutory scheme whose express purpose is to restore arbitration to its roots.
In May 2015, the State of Delaware adopted the Delaware Rapid Arbitration Act (the “DRAA”). The express 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.” 10 Del.C. § 5802.
By its terms, the DRAA serves as another option for sophisticated entities to consider when negotiating agreements that include alternative dispute resolution (“ADR”) provisions. The DRAA does not replace other more customary ADR methods available to parties, including arbitration provisions that afford lengthier procedures or more extensive discovery, as determined by the parties in their written agreements. Such options continue to be available.
To streamline arbitration, the DRAA sets forth a series of ground rules for handling arbitrations that the parties agree in writing to submit to the DRAA for resolution. These rules ensure that cases arbitrated under the DRAA are resolved quickly – not more than 180 days after the arbitrator accepts appointment – and with limited involvement of the courts. In a novel development for the legal industry, the DRAA actually enlists the arbitrator to ensure the prompt resolution of each matter. Specifically, the DRAA provides that an arbitrator who fails to issue the final award within a certain time period risks forfeiting some or all his or her arbitrator fees.
These and several other notable provisions of the DRAA are summarized below:
- The DRAA applies to business disputes only. Consumer cases and disputes involving homeowners’ associations are not subject to arbitration under its provisions.
- The DRAA is available for both monetary and non-monetary disputes, regardless of the amount in controversy.
- To invoke the DRAA, the parties must have a signed, written agreement that expressly identifies the DRAA by name. One of the parties to the arbitration must either have its principal offices in Delaware or be a Delaware-organized entity.
- The agreement to arbitrate must be governed by Delaware law. However, the parties may select another jurisdiction’s laws to govern their underlying contractual relationship. Thus, a Delaware-organized entity doing business in California could invoke the DRAA in its business contracts by having Delaware law govern the arbitration agreement while selecting California law to govern other aspects of its relationship. Moreover, the arbitration could be conducted in California, or elsewhere, even though Delaware law would control the administration of the proceeding.
- The DRAA eliminates common pre-arbitration squabbles that often wind up in time-consuming and expensive court proceedings, such as disputes over the scope of arbitration. Under the DRAA the arbitrator, not the court, has sole jurisdiction to decide such questions.
- The DRAA also eliminates post-arbitration confirmation proceedings entirely. Under the DRAA, the arbitrator’s final award is automatically confirmed approximately 20 days after its issuance. This procedure not only expedites the time it takes to have the award entered as a judgment, but promotes another purpose of the DRAA: allowing business litigants to have their disputes resolved almost entirely outside the purview of the courts, which means they are more likely to be resolved privately.
- The DRAA prohibits challenges to the arbitrator’s interim rulings. It also allows the parties to waive any right to challenge the final award. If the parties wish to preserve the right to challenge the final award, the DRAA provides for direct review by the Delaware Supreme Court, and that challenge must be filed within 15 days after the final award is issued. Even then, the Delaware Supreme Court’s review is limited – it may only “vacate, modify, or correct the final award in conformity with the Federal Arbitration Act.” The DRAA does allow the parties to agree to a “private” appeal of their matter, but any such provision is purely contractual and, again, does not involve the courts.
- The DRAA expects that arbitrators will be appointed promptly; thereby eliminating another common delay associated with traditional arbitration. The parties can name the arbitrator in their agreement, or provide a method for selecting the arbitrator. The DRAA also allows the parties to select an arbitrator not trained in the law, such as financial specialists, accountants or industry experts. Alternatively, if the parties are unable to agree or if the selected arbitrator is unavailable, the DRAA authorizes the Delaware Court of Chancery to appoint an arbitrator within 30 days after a petition is filed. There are some potential limits on who can serve as the arbitrator if the parties leave it up to the Court to decide.
- Finally, the DRAA provides that all matters must be determined within 120 days of the arbitrator’s acceptance of the appointment. This deadline can be extended up to 180 days, but not longer, by consent of all the parties and the arbitrator. If the arbitrator does not render a final award within the required time, the DRAA imposes a reduction in the arbitrator’s fees, including the possibility that the arbitrator could forfeit his or her entire fee if the final award is more than 60 days late.
While the DRAA is not suitable for every type of dispute, it presents a new, business-friendly approach for entities desiring a quick and cost-effective method for resolving their business disputes privately.
What should you do?
Companies organized in Delaware should consult legal counsel to discuss the benefits of revising their contracts to include DRAA provisions. Non-Delaware entities who enter into disputes with Delaware corporations should also be aware of the options provided by DRAA.