July 5, 2022

Volume XII, Number 186

Advertisement
Advertisement

Third Circuit Finds Delaware Chancery’s Arbitration Program Unconstitutional

A three-judge panel of the US Court of Appeals for the Third Circuit recently affirmed an injunction against the Delaware Court of Chancery’s arbitration program, finding that the confidential proceedings violate the First Amendment right of public access. 

In 2011, the Delaware Coalition for Open Government challenged an arbitration program created by the Delaware General Assembly in 2009. Under the program, parties may agree to submit private business disputes for arbitration before any sitting judge of the Court of Chancery, provided that at least one of the parties is a Delaware entity, neither party is a consumer and the amount in controversy exceeds $1 million.

In 2012, the US District Court for the District of Delaware enjoined the arbitration program, holding that the proceedings were no different than regular civil trials, and thus must provide a right of public access.

The Third Circuit upheld the district court’s decision. The court applied the “experience and logic test,” by which “[a] proceeding qualifies for the First Amendment right of public access when ‘there has been a tradition of accessibility’ to that kind of proceeding, and when ‘access plays a significant positive role in the functioning of the particular process in question.’”

Writing for the majority, Judge Sloviter found that civil trials have historically been open to the public. She concluded that arbitrations had a more mixed history: although private arbitrations have generally been closed to the public, government-sponsored arbitrations have not. Because the latter type of proceeding was most relevant, and the benefits of access outweighed any potential drawbacks, Judge Sloviter held that both prongs of the “experience and logic” test were satisfied. As such, there was a right of public access to the arbitrations, and their confidentiality ran afoul of the Constitution.

Judge Fuentes’s concurrence emphasized that only the program’s confidentiality was problematic; he saw no inherent issues with a judge-run arbitration scheme. Consequently, Judge Fuentes sought to specify which provisions implementing the program were impermissible.

In her dissent, Judge Roth emphasized that arbitrations, both public and especially private, have historically been closed to the public. She also argued that arbitration’s principal benefit is its confidentiality, which allows businesses to protect trade secrets and other information, and promotes efficient resolution of issues. Believing the Chancery program to be a “perfect model” for arbitration, Judge Roth expressed concern that the Third Circuit’s decision would jeopardize Delaware’s status as the “leading state for incorporations.”

Delaware Coalition for Open Gov’t, Inc. v. Strine, et al., No. 12-3859 (3d Cir. 2013).a

©2022 Katten Muchin Rosenman LLPNational Law Review, Volume III, Number 322
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Tenley Mochizuki, Katten Muchin Law Firm, Litigation Lawyer
Associate

Tenley Mochizuki concentrates her practice in litigation and dispute resolution matters.

While attending law school, Tenley participated in the Advocacy for the Elderly Clinic and worked on the Virginia Environmental Law Journal. Before joining the firm, she worked in a medical office, a primate cognition laboratory and various nonprofit organizations.

212-940-8568
Advertisement
Advertisement
Advertisement