Thursday, March 12, 2015
As Lawrence Cunningham noted, tenacity, thy name is Delaware! Along with the recent proposed amendments to the corporate law, the Delaware General Assembly will also consider the new Delaware Rapid Arbitration Act - to replace the Chancery Arbitration procedure that was deemed unconstitutional.
Regular readers of this blog might remember that I was opposed to Chancery arbitration as it was originally conceived. Here's a paper I wrote on the subject. Ultimately, the Federal Appellate Courts agreed with my view. Public judges sitting in public courts conducting confidential hearings is not a good look for many reasons.
In any event, the new approach - Chancery facilitated arbitration - an improvement and will likely pass constitutional muster. Also, the way the act has been written, there is little fear that firms might attempt to put Chancery arbitration provisions in corporate charters. In order to be eligible for Chancery arbitration, among other conditions, the arbitration agreement has to be signed by both parties, thus making it difficult to make constructive notice arguments in connection with the purchase of stock. Consequently, as it is currently drafted, the scope of arbitration-eligible disputes is relatively narrow - merger agreements and other commercial agreements that might typically appear before the Chancery Court. Also, although the arbitral proceedings are facilitated by the Chancery court, the arbitrators are not sitting judges and are paid directly by the parties. Proceedings will be confidential, judgments will be treated consistent with the FAA.
This attempt to create an arbitration regime will likely stick. All in all, not a bad effort.