Delaware Rapid Arbitration Act: Frequently Asked Questions
Q. What is the purpose of the Act?
A. The Act is designed to address a growing unmet need for businesses engaged in complex commercial and corporation transactions: the ability to have disputes resolved promptly, cost-effectively and certainly through old-style arbitration, where the parties forego comprehensive and therefore costly and time-consuming pre-hearing evidence gathering in exchange for a prompt resolution of their dispute. The Act meets this need by providing for the resolution of disputes under the Act by expert arbitrators within as few as 120 days, by putting in place procedures designed to limit delay, control excessive prehearing evidence gathering, and streamlining the judicial review process.
Q. Does the Act limit the ability of parties to use other existing arbitration alternatives?
A. No. The Act simply adds a new option for parties who desire a more rapid resolution of their disputes and are willing to forego the plenary pre-hearing evidence gathering and slower judicial review processes that now characterize typical commercial arbitrations.
Q. Who may use the Act?
A. The Act is available to businesses, one of whom must be a business organization formed in Delaware or with its principal place of business in the State. In no event may the Act be used to force arbitration with consumers, or with others who have not signed a written agreement to submit their disputes to resolution under the Act.
Q. Why is the Act not available for the resolution of consumer disputes involving individuals?
A. The Act is designed for sophisticated parties willing to trade off the protections of the litigation process -- such as extensive rights to discovery and full-blown appellate review -- for a rapid resolution of their disputes. To ensure that the Act is not misused to impose an unfair requirement on individual consumers and deny them the protections of traditional litigation, the Act is not available in the case of consumer disputes. In other words, the Act is intended to be used by parties who specifically contract at arm's length for its application and not to be imposed by form contracts on vulnerable individuals.
Q. What are the benefits of the Act?
A. The Act addresses common concerns with more traditional arbitration. Specifically, the Act requires all arbitrations commenced under the Act to be completed within 120 days, with the possibility of only one extension, by agreement of all parties and the Arbitrator, to 180 days. The Act imposes financial penalties on an Arbitrator who fails to decide a dispute within the time frames specified by the Act. It also vests in the Arbitrator sole authority to determine the scope of the arbitration itself, thus avoiding pre-arbitration court skirmishes relating to what is "arbitrable." To cut delay even further, the Act provides that any review under the FAA will be conducted by the Delaware Supreme Court, thus cutting out a review layer that is typical in traditional arbitration in both federal and state systems in the United States.
Q. What role do the Courts play under the Act?
A. The Act provides only limited, and public, roles for the Courts. At the outset, the Court of Chancery is vested with jurisdiction to enter relief in aid of arbitration until the arbitrator is appointed. In addition, the Court of Chancery is vested with authority to appoint an arbitrator in the event that the parties fail to do so, or the arbitrator they chose is unable or unwilling to serve. The Court of Chancery is also vested with jurisdiction to hear petitions for relief from arbitrators who, due to "exceptional circumstances" believe that the financial penalties of the Act should not apply to them. Finally, the Act provides for limited (FAA) review of arbitral awards in the Supreme Court of Delaware, unless the parties contract for no review or, alternatively, for review before an appellate arbitral panel. The judges of the Court of Chancery do not act as arbitrators under the Act.
Q. Who may act as arbitrator under the Act?
A. Any person appointed by the parties may serve as Arbitrator under the Act. In the event that the parties do not specify a person or a category of persons to serve, or where the person specified by the parties fails to serve, the Court of Chancery is vested with discretion to appoint an Arbitrator.
Q. Are proceedings under the Act confidential?
A. Like any private arbitration, proceedings under the Act are confidential, until and unless a challenge is filed to the Delaware Supreme Court, in which case such matter would proceed as a typical appeal, and the public's right of access would be subject to the rules of the Supreme Court.
Q. Does the Act address the constitutionality issues that arose in connection with the Chancery and Superior Court arbitration experiments?
A. Yes. Unlike the prior court-annexed arbitration experiments, here the arbitrators are not judges and the arbitrations themselves do not take place in the courthouse.
Q. What types of disputes are well suited to resolution under the Act?
A. The Act is designed to provide prompt resolution of business disputes that arise among sophisticated parties. The Act may be most useful in connection with the resolution of disputes where the parties have an ongoing business relationship and do not wish to engage in protracted dispute resolution.
Q. What types of disputes are not well suited to resolution under the Act?
A. Disputes involving the need for extensive discovery; disputes involving unsophisticated parties; stockholder claims conventionally brought in a representative capacity; or disputes where one or the other party may perceive some benefit from a more traditional form of arbitration or litigation are not suitable to resolution under the Act. Such matters may still be resolved in more traditional arbitration, which remains available, and in litigation. Specifically, the requirement that the arbitration agreement is signed by all parties to the arbitration is meant to exclude the possibility that provisions in a certificate of incorporation of by-laws would bind stockholders who did not personally sign a document expressly agreeing to arbitration under the Act.
Q. How is an arbitration commenced under the Act?
A. Parties who wish to use the Act provide in their business contracts for resolution of disputes under the Act. Model forms for use in contracts are available on the web site of the Delaware Secretary of State, and may be accessed at __________. Alternatively, parties who have not provided for resolution under the Act in advance may enter into a contract to resolve a dispute under the Act at the time that such dispute arises.
*These questions and answers accompanied legislation submitted to the Delaware General Assembly.