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Constitutional Law

Are secret arbitration panels illegal? Del. Chancery asks SCOTUS to nix 3rd Circuit ruling

In an unusual case pitting one of the nation’s most respected corporate law tribunals against a federal appeals court, the Delaware Court of Chancery is seeking a writ of certiorari from the U.S. Supreme Court concerning a recent ruling by the Philadelphia-based 3rd U.S. Circuit Court of Appeals that banned secret arbitration trials conducted by chancery court judges.

In October, a divided federal appellate panel issued a 2-1 ruling that a corporate arbitration program administered by the chancery court as an alternative to private arbitration was in violation of the First Amendment of the U.S. Constitution because it involved secret trials (and, the 3rd Circuit suggested, provided a special benefit to elite corporate litigants). Now the highly regarded state court is asking the nation’s top judges to reverse that ruling, arguing that the secret arbitration proceedings aren’t really trials and that the dispute resolution program, which was authorized by a 2009 state law, is needed to prevent lucrative corporate matters that bring money to the state from being sent overseas, the News Journal reports.

“Delaware strives to maintain a body of corporate law and set of dispute resolution mechanisms that are up-to-date, fair, predictable, efficient and respected—which is one of the key reasons why most large businesses organize here,” argues the chancery court in a petition filed late Tuesday. “If other developed nations provided a dispute resolution system for their corporate citizens better than what is available to businesses organized in Delaware, large multinational companies would have an incentive to relocate.”

Although one of the smallest states in the country, Delaware is where many companies choose to incorporate.

The chancery court is represented by Andrew J. Pincus, an appellate partner at Mayer Brown. He declined to answer the newspaper’s questions but said in a written statement that “the challenged statute provides an efficient, cost-effective, and prompt means of resolving business disputes, and an additional reason for global firms to domicile in the United States. Because of the importance of this issue, and the job-creating potential for Delaware and the nation of finding innovative solutions to temper the growing costs and delays of resolving business disputes, a definitive answer is being sought from the Supreme Court concerning the constitutionality of the Delaware statute,”

See also:

ABAJournal.com: “3rd Circuit says Delaware Chancery Court’s secret arbitration program trials violated 1st Amendment”