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A Delaware Rapid Arbitration Act Primer

Who may use the DRAA?

Use of the DRAA is open to any parties that sign an agreement to arbitrate under the DRAA, when at least one of them is a business entity organized under Delaware law or with its principal place of business in Delaware, and is not a "consumer." The agreement (which may be a simple clause in a longer agreement) must adopt Delaware law to govern its arbitration provisions and refer to the DRAA.

Who is the arbitrator?

The parties are free to select anyone they want to be the arbitrator or to provide a method for selecting the arbitrator. But if they fail to do so (or their method fails or their selected arbitrator is unavailable), the Delaware Court of Chancery will promptly appoint an arbitrator who is either selected by a method described in the DRAA agreement or a member of the Delaware bar for at least 10 years.

Where will the arbitration be held?

The arbitration hearing will be wherever the parties agree or, absent agreement, wherever the arbitrator decides. It may be within or outside of the United States.

How does the DRAA speed up arbitration?

Traditional arbitration has often been delayed by arguments in court over the scope of the arbitration and by arbitrator-imposed scheduling and decision-rendering delays. The DRAA minimizes those delays by eliminating pre-arbitration objections to the scope of the arbitration and any appeals of interim rulings by the arbitrator, and by reducing the fees of arbitrators who do not issue decisions within the tight timeframe set by the DRAA.

How does an arbitration commence under the DRAA?

Under the DRAA, an arbitration may be commenced in either of two ways. First, if the parties have agreed on who will be the arbitrator, they will notify the arbitrator of his or her selection and the arbitration proceedings will be deemed to have commenced when the arbitrator serves on the parties his or her notice of acceptance of his or her appointment. Second, if the parties do not agree on the arbitrator, a petition will be filed in the Court of Chancery to request it to appoint the arbitrator. The arbitration will then be deemed to have commenced upon the court's appointment of the arbitrator and his or her acceptance of that appointment.

How does the DRAA reduce costs?

By eliminating costly procedural battles and penalizing tardy arbitrators, the DRAA will reduce the cost of arbitrating any dispute. It is expected that arbitrators will control the scope of discovery and any hearings to permit the arbitrator to meet the DRAA's timeline for an award to be issued. For example, the arbitrators will often require that discovery be completed in 60 days, that a hearing be held thereafter in 30 days and that an award will issue shortly after the hearing to enable the arbitrator to render an award within 120 days of accepting his or her appointment and avoid a reduction in his or her fees.

What appeals are permitted?

The DRAA only permits an appeal of a final award to the Delaware Supreme Court, unless the parties have agreed to an intermediate appeal to one or more appellate arbitrators. The grounds for an appeal are limited to those permitted by the Federal Arbitration Act.

How is an arbitration award enforced?

The DRAA provides an expedited method to enforce an arbitration award. Absent an appeal, the award will be deemed confirmed within five business days after it is issued. Depending on whether the award is for money damages or provides other relief, either the Court of Chancery or the Superior Court will then enter a judgment that reflects the award. Such a judgment has all the effects of a typical judgment of that court and may be enforced by the usual methods judgments are enforced. 

May the DRAA be forced on stockholders?

The DRAA may not be adopted by a corporate bylaw or certificate of incorporation that would require stockholders or class members to arbitrate under the DRAA. Only those stockholders who have signed an agreement to arbitrate under the DRAA will be bound.

May the parties customize their arbitration?

The DRAA permits the parties to structure how their arbitration will be conducted. For example, an arbitrator may only issue subpoenas or commissions to permit depositions if the parties' agreement provides that power. Hence, the parties should consider these options when drafting their agreement to arbitrate.

What disputes are best suited for the DRAA?

While the DRAA will be useful to any business dispute where cost and timeliness are important, it should be particularly attractive to certain types of investors. Some investors have comparatively short investment horizons and do not want to be tied up in long litigation. Private equity investors are an example. Using the DRAA will serve their needs for expedition, while preserving privacy.

Other investors may have long-term relationships they want preserved, such as joint venturers. Resolving a dispute privately and quickly will help to save those relationships. The DRAA will help to do so.

The DRAA offers the promise of expedited, less-costly arbitrations of business disputes. To get the most out of what the DRAA has to offer, an arbitration agreement should be drafted with care. But for all the reasons that arbitration has been used in the past, such as confidentiality, the DRAA should fulfill those expectations.

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