Federal Judge Bars Delaware Chancery Court from Hearing Private Arbitrations

08/31/12

On Thursday, a federal judge, Mary McLaughlin of the Eastern District of Pennsylvania ruled that arbitration cases amount to nonjury trials and must be open to the public. The ruling barred Court of Chancery judges in Delaware from presiding over arbitration proceedings that are closed to the public.


In her 26-page opinion, the judge said, “Openness of civil trials promotes the integrity of the courts and the perception of fairness essential to their legitimacy.” She also asserted public access encouraged those possessing relevant information to come forward and discouraged perjury.

The ruling deals a blow to the Delaware’s attempts to expand the state’s legal industry. In 2009 Delaware’s legislature adopted private arbitrations as a means to preserve the state’s role in resolving business disputes. According to legal experts, Delaware is the first state to have private arbitrations before sitting judges. The system has been criticized for overstepping the First Amendment of the US Constitution.

The present law in Delaware allows companies involved in a dispute worth over $ 1 million to go before the Chancery Court and have an expedited private hearing. All court documents, hearings, and even the names of the companies engaged in such private arbitration at the Chancery Court remain sealed.

With the new law, Delaware offered its Chancery judges to the legal industry as a better alternative to traditional private arbitration which is overseen by a lawyer or retired judge agreed upon by the parties. Proponents of the law claim that it would make Delaware a center for international arbitration. A line of thought reflected in the opinion of Larry Hamermesh, a professor at Widener Law School, “In an increasingly competitive global marketplace, the United States cannot afford to be at a competitive disadvantage in providing efficient ways for businesses to resolve their disputes.”

The five judges of the Chancery Court had been sued by the Delaware Coalition for Open Government, a group fighting for greater government transparency, which held that the private arbitrations at the Chancery Court amounted to “secret” hearings to settle big business disputes.