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Chancery Confidential: Third Circuit Eliminates Confidential Arbitration

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In a rare setback to the growing arbitration field, the Third Circuit Court of Appeals recently struck down on a 2 to 1 vote Delaware’s confidential state-sponsored arbitration program. The Court held that, as with the chancery courts, the public had a First Amendment right of access to the court’s arbitration proceedings.

The Delaware-sponsored arbitration program at issue is a unique one. Delaware legislators gave Delaware courts the “power to arbitrate business disputes.” This created an arbitration process where, in essence, Delaware judges arbitrated disputes where at least one million dollars were involved and where at least one of the parties was a Delaware corporation. For their troubles, the court received a $12,000 filing fee and would be due $6,000 per day after the first day. The benefit to litigants resided in a faster, more expeditious dispute resolution process that also enjoyed confidentiality protection.

Now, in Delaware Coalition for Open Government, Inc. v. Strine, the Third Circuit Court of Appeals held that the confidentiality accorded to the arbitration hearings is unconstitutional, as the public has a First Amendment right of access to court proceedings. This ruling might surprise those who understand arbitration to be a confidential affair. However, the court does distinguish confidential, private arbitral proceedings from the Delaware model, which “are conducted before active judges in a courthouse . . . result in a binding order of the Chancery Court, and . . . allow only a limited right of appeal.” The Court also left the possibility of arbitration open in the Delaware courts, albeit without the confidentiality protections just struck down. Whether this issue is appealed to the Supreme Court is yet to be determined, but its developments bear watching as more and more states create court-sponsored arbitration proceedings.

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