UPDATE: On March 19th, the House of Representatives passed the Delaware Rapid Arbitration Act by voice vote. The DRAA is now pending for review by the Senate’s Judicial Committee.
Delaware is home to more than one million business entities making commercial litigation big business in this small, yet influential state. In addition to the venerable Chancery bench with its unrivaled body of consistent legal opinions, businesses choose to incorporate in Delaware because the state legislature is responsive to the needs of its corporate residents. To this end, if enacted, the Delaware Rapid Arbitration Act
(DRAA) will reintroduce prompt and cost-effective arbitration of commercial disputes as an alternative to traditional litigation for Delaware businesses.
As with the former statute, arbitration will only be available in commercial disputes between businesses. No party may be a consumer and at least one party must be a Delaware business entity. Unlike the former statute that was ultimately declared unconstitutional
, the arbitration hearing will not occur before a member of the state’s judiciary. Rather, an arbitrator may be a long-standing member of the Delaware bar or an expert in a non-legal field. The DRAA allows for one or more neutral arbitrators to be chosen by the parties or selected by the Court of Chancery.
The noteworthy provisions of the DRAA include the following:
- The Court of Chancery will appoint an arbitrator within 30 days of receipt of the parties’ petition for arbitration. The arbitrator will have the power to award legal and equitable remedies as appropriate. The scope of the arbitration hearing will be determined by the arbitrator.
- The arbitrator must issue a final award within the time frame provided by the parties’ agreement or, if not agreed upon, within 120 days of his or her acceptance of the case. However, the parties may agree to extend the time for the issuance of the final award up to 60 days. The arbitrator’s fee will be reduced, by up to 100%, if the issuance of the final award is untimely.
- Both the Court of Chancery and the Delaware Superior Court may enter judgments from final awards. The Court of Chancery may also determine reasonable arbitrator’s fees.
- A challenge to the final award may be heard by the Delaware Supreme Court. The Delaware Supreme Court will review challenges within the framework of the Federal Arbitration Act. Alternatively, the parties’ agreement may preclude appellate review of the final award or it may provide for limited appellate review by a neutral appellate arbitrator appointed by the Court of Chancery.
The DRAA will provide a streamlined, cost-effective and results-driven vehicle for dispute resolution. Such an alternative to traditional litigation benefits existing Delaware businesses, but it might also serve to attract new businesses to Delaware. Delaware Chief Justice Leo E. Strine, Jr., has stated
that the purpose of the DRAA “is to give entrepreneurs around the world an incentive to form entities in Delaware, because if they do, those entities will have the advantages not only of our well-developed corporate law, but of our state's proven ability to help them resolve commercial disputes swiftly and expertly."
As of March 17th, the DRAA was approved by the House’s Judiciary Committee with bipartisan support and eight favorable votes. We will continue to monitor the DRAA and provide updates as it journeys through Leg Hall.