Thursday, September 13, 2012
Tom Hals at Reuters has a good piece on the potential for Chancery arbitration following the recent district court decision. Backers of Chancery arbitration are looking to appeal the ruling that struck down teh ability of parties to maintain confidentiality of the proceedings. That seems like the right result. Now, they are seeking to appeal the ruling and get Chancery arbitration back on track. This struck me in Hals' piece:
Supporters said that despite the legal setback, they expect that Delaware Chancery arbitrations, in some form, will likely take root in the coming years.
"In five years, we could see substantial growth in the number of these cases, said Gregory Varallo, of Richards, Layton & Finger in Wilmington, "It could even rival the number of public business cases."
That's what I'm afraid of. I'm working on a paper on Chancery arbitration (now have to rework parts of it given that it's been overtaken by events in the district court). The key problem as I see it with respect to arbitration for me is the long-term impacts of having a significant number of public business cases decided by arbitration before the Delaware courts rather than by the Delaware courts themselves. Though backers seem to think Chancery arbitration is critical to maintaining Delaware's competitive position, I take the position over the long term - or even five years if there is a significant move in that direction - Chancery arbitration could in fact weaken Delaware's position with respect to its corporate law franchise. Sure, there may be a lot of cases (arb/formal) being decided, but the number of precedents being set and the continued maintenance of the law will suffer. Good for the short term but bad for the long term -- and not just for Delaware if one thinks that there are positive network effects associated with the Delaware corporate law franchise.
But that's just me and I don't know much.