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“Delaware Rapid Arbitration Act” Is Adopted

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In Corporate Litigation | On April 3, 2015

On April 2, 2015, Delaware Governor Jack Markell signed into law the Delaware Rapid Arbitration Act (“DRAA” or the “Act”), which had been approved by the Delaware General Assembly two days earlier. The Act becomes effective 30 days after its enactment, and thus will be an available option as of May 2015.

The Act describes its purpose as follows: “The purpose of the Delaware Rapid Arbitration Act is to give Delaware business entities a method by which they may resolve business disputes in a prompt, cost-effective, and efficient manner, through voluntary arbitration conducted by expert arbitrators, and to ensure rapid resolution of those business disputes.” Consistent with this purpose, the Act requires that an arbitrator issue a written, signed award within strict time limits. Absent an agreement to the contrary, the arbitrator must issue a final award within 120 days after the arbitrator’s acceptance of the appointment as arbitrator. The Act permits parties to extend the time for the final award by unanimous consent in writing either before or after the expiration of that time, but the extension may not exceed 60 days. The Act puts “teeth” in these deadlines by generally imposing financial penalties on an arbitrator for failure to comply: i.e., the arbitrator’s fees are reduced by 25% if the final award is late by less than 30 days; by 75% if the final award is between 30 and 60 days late; and by 100% if the final award is more than 60 days late.

The limited length (generally 120 days) of the arbitration proceeding necessarily seems to preclude the possibility of lengthy pre-hearing discovery in connection with an arbitration under the Act. In addition, the Act limits on the arbitrator’s power to compel evidence, stating that, “[u]nless otherwise provided in an agreement, an arbitrator has the power to administer oaths and may compel the attendance of witnesses and the production of … documents and evidence[;]” but the arbitrator will have the power to issue subpoenas and award commissions to permit a deposition to be taken of a witness who cannot be subpoenaed “[o]nly if provided in an agreement.” An “FAQ” document disseminated by the drafters of the Act describes arbitration under the proposed Act as “old-style arbitration,” in which the parties forgo “comprehensive and therefore costly and time-consuming pre-hearing evidence gathering in exchange for a prompt resolution of their dispute.”

The DRAA provides for limited appeal to the Delaware Supreme Court, stating that “the Supreme Court of the State may only vacate, modify, or correct the final award in conformity with the Federal Arbitration Act.” Notably, an appeal to the Delaware Supreme Court would be a public proceeding to the same extent as non-arbitration appeals to that Court. However, the parties to an arbitration agreement under the DRAA may preclude public review by agreeing that there will be no appeal from the award, or that appellate review be conducted by an appellate arbitrator or arbitrators on a confidential basis if agreed among the parties.

The DRAA will apply to arbitration agreements between parties who specifically invoke its application in a signed, written agreement. At least one of the parties to the arbitration must be a Delaware business entity. The Act may not be used to arbitrate “consumer” claims, nor may it be made applicable to any party who has not expressly agreed to arbitrate the matter at issue. The Act makes clear that it provides “an additional option” by which sophisticated entities may resolve their business disputes, and that it is not intended to preclude the use of other arbitral proceedings that parties may choose, “including procedures that afford lengthier proceedings and allow for more extensive discovery.”

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