Effective February 1, 2010, the Delaware Court of Chancery adopted new Rules 96, 97, and 98 to allow the filing of certain business and commercial disputes for the purpose of arbitration by a member of the Court. The rules were adopted to implement the newly created arbitration jurisdiction found in 10 Del. C. § 349. Consistent with Delaware’s long-standing philosophy of affording private parties significant flexibility in ordering their business affairs, the new arbitration rules create a procedural framework for speedy alternative dispute resolution with many advantages over traditional litigation—one that may be tailored to meet the specific needs of the parties. The following is a hands-on guide to the new rules.
What actions may be arbitrated in the Delaware Court of Chancery?
The new arbitration procedure is available to parties if five conditions are met. First, the parties must have consented to arbitration by the Court of Chancery by written or oral agreement. Second, at least one party must be a “business entity.” 1 Third, at least one party must be a business entity formed or organized under the laws of Delaware or having its principal place of business in Delaware. Fourth, no party can be a consumer (as that term is defined in Section 2731 of Title 6 of the Delaware Code) with respect to the business dispute. Fifth, in the case of disputes solely for monetary damages, the amount in controversy can be no less than $1 million.
What is the procedure for initiating such an arbitration?
The procedure for initiating an arbitration begins by retaining Delaware counsel to file a petition with the Register in Chancery, accompanied by a filing fee of $12,000. For each day the arbitrator is engaged in arbitration (excluding the first day), an additional fee of $6,000 will be assessed. All fees are to be borne equally by the parties.
The contents of the petition are defined broadly to include a statement setting forth the nature of the dispute, the names and addresses of all other parties, the claims, and the remedy sought. The petition must also contain a statement that the conditions to arbitration have been met.
How is an arbitrator selected?
Once the petition has been filed, the Chancellor will select an arbitrator from among the members of the Court, including the Masters in Chancery.3 The arbitrator will be ineligible to adjudicate any subsequent litigation arising from the issues identified in the petition.
What proceedings will occur before the arbitration hearing?
The parties will be contacted within 10 days of filing the petition to schedule a preliminary conference with the assigned arbitrator. This 10-day period can be changed by agreement of the parties and the arbitrator. At the preliminary conference, which will be held by telephone, the parties will provide the arbitrator with (i) additional information about the nature of the dispute, scheduling, and the anticipated length of hearings, and (ii) conflicts statements from the parties. A preliminary hearing will thereafter be scheduled to occur “as soon as reasonably practicable.” At the preliminary hearing, the arbitrator and the parties will address many of the things ordinarily considered at a pretrial conference.4
Is discovery available in the arbitration and, if so, what is its scope?
Discovery is available. The arbitration rules provide for a prehearing exchange of information. The scope of this exchange is subject to augmentation by the parties and the arbitrator, or in the appropriate circumstance can be waived altogether. In the first instance, the parties will be required to attempt to agree on the scope of the prehearing exchange of information, which may include depositions. Delaware Court of Chancery Rule 26, which provides general provisions governing discovery, will apply as will Rule 37, which governs sanctions for discovery violations. The parties are required to present their agreement as to the scope of discovery for approval at the preliminary hearing or as soon thereafter as possible. The arbitrator may require an additional exchange of information between and among the parties, or additional submission of information to the arbitrator. If the parties are unable to agree on the scope of discovery, they must present the dispute to the arbitrator, who shall direct such prehearing exchange of information as is deemed necessary and appropriate.
How will the arbitration hearing be conducted?
Once all issues with respect to the preliminary hearing and prehearing exchange of information are resolved, the arbitrator will issue an order setting forth the prehearing activities and the hearing procedures that will govern the arbitration. Generally, the arbitration hearing will occur no later than 90 days following receipt of the petition.
The arbitration hearing will be conducted in private session where each of the parties will present its position. At least one representative of each party with an interest in the issue or issues to be arbitrated and with authority to resolve the matter must participate in the arbitration hearing. Delaware counsel is also required to attend the arbitration hearing. No other person shall be permitted to attend the arbitration hearing unless all parties agree.
Are the proceedings confidential?
Yes. The petition and any supporting documents are considered confidential and not of public record until such time, if any, as the proceedings are the subject of an appeal. In the case of an appeal, the record shall be filed by the parties with the Supreme Court in accordance with its rules, and, to the extent applicable, the rules of the Court of Chancery.5
Are other alternative dispute resolution methods available once arbitration has been initiated?
Yes. During any phase of the arbitration proceedings, the parties may agree to submit the dispute to the Court for mediation. The judge or master assigned to mediate the dispute may not be the arbitrator unless the parties agree. In addition, the parties may seek the assistance of the arbitrator in reaching settlement prior to a final decision from the arbitrator. Any settlement agreement shall be reduced to writing and signed by the parties and the arbitrator.
What relief can granted in the arbitration?
The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of any applicable agreement of the parties. In addition to a final award, the arbitrator may make other decisions, including interim, interlocutory, or partial rulings, orders, and awards. Upon the granting of a final award, a final judgment or decree shall be entered in conformity therewith and be enforced as any other judgment or decree.
Is an arbitration award appealable?
Yes, but only to vacate, stay, or enforce the award. Such an appeal must be filed with the Supreme Court of Delaware, which shall exercise its authority in conformity with the Federal Arbitration Act, and such general principles of law and equity as are not inconsistent with that Act. As discussed above, proceedings in the Supreme Court will not be confidential, except as otherwise provided under applicable court rules.