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Will Rapid Arbitration Jettison Lengthy Litigation in Delaware?

Will Rapid Arbitration Jettison Lengthy Litigation in Delaware?

A recent entrant to the Nashville legal market remarked that Tennessee’s capital city is “the health care mecca of the U.S.” The proliferation of healthcare companies, hospitals, and other businesses in the Music City has contributed to a push to create a forum for faster, more efficient resolution of commercial disputes. That push bore fruit last month with the creation of the Davidson County Business Court Pilot Project, through which claims that relate to the internal affairs of a business; involve real property disputes; or address non-compete, trade secret, or intellectual property issues now may be assigned to a separate court that specializes in such matters. Business courts are hardly an anomaly, having been established in over half of the United States.

But the trend has manifested differently in the corporate law mecca of the country, Delaware. There, legislation that will take effect on May 4, 2015 will enable businesses to engage in high-speed, streamlined arbitration as “a real alternative to the litigation process.” Among the many appealing aspects of resolution under the Delaware Rapid Arbitration Act (DRAA) is reduced discovery. Foremost, however, is the speed with which the act is intended to settle disputes: Unless the parties agree otherwise, arbitration under the DRAA will begin and end in 180 days or fewer. In fact, arbitrators will face financial penalties for failing to comply with the DRAA’s timing requirements.

The process will work as follows. First, parties must agree in writing to submit to arbitration under the DRAA. Then, they may select an arbitrator, designate a process for selecting an arbitrator, or ask the Delaware Court of Chancery to appoint an arbitrator for them. The DRAA will empower arbitrators so tapped to rule on issues of substantive and procedural arbitrability and to preside over hearings in which evidence is presented and witnesses, examined. DRAA arbitrators also will be able to administer oaths, issue subpoenas, and impose sanctions. Parties will have fifteen days after an arbitrator’s final ruling to appeal to the Delaware Supreme Court; but parties also may stipulate to the elimination of appellate review or agree to appellate review by one or more arbitrators.

The DRAA process may not be suitable for all commercial disputes. In fact, as presently drafted, the act extends only to the kinds of matters that might ordinarily go before the chancery court—e.g., merger agreements. But arbitration under the DRAA may be especially appropriate for parties with continuing business dealings. And “[g]iven the privacy and the apparent time and cost-savings” that it affords, the DRAA ultimately may prove to have broader appeal.

Gadson William (Will) Perry