Navigating The Delaware Rapid Arbitration Act

July 14, 2015Articles Law360

Reprinted with permission from Law360. (c) 2015 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.

In April 2015, the Delaware Rapid Arbitration Act, 10 Del. C. Secs. 5801 – 5812, (DRAA) was signed in to law by Gov. Jack Markell. The DRAA presents a rigorous arbitration regimen for resolving business disputes involving at least one Delaware entity. This is a law on steroids. While the legislation is voluntary, once parties sign a written agreement to arbitrate under the DRAA (making “an express reference to the Delaware Arbitration Act”) they are subject to stringent, statutorily imposed time limits, to be managed by an arbitrator who dare not be a shrinking violet.

As its synopsis suggests, the DRAA is designed “… to resolve business disputes in a rapid and efficient manner through voluntary arbitration conducted by expert arbitrators under strict guidelines.” To advance the goal of efficiency, the arbitrator is given the authority to conclusively determine the scope of the arbitration both procedurally and substantively, and has authority to manage the case to bring the matter to resolution in no more than 120 days (unless a longer time period is provided by the agreement to arbitrate), subject to an extension of no more than 60 additional days.

While the agreement may be amended with the approval of the arbitrator to alter the procedures of the arbitration, the agreement may not be amended to alter the timelines. To achieve ultimate efficiency, where no appellate review is sought (within 15 days of the issuance of a final award), the award is deemed to have been confirmed by the Court of Chancery five business days after the award is issued.

Thus, the formula is easy: An arbitrator with broad authority + 120 days after acceptance of the appointment + no more than 60 days = award. If no award is forthcoming within 30 days of the deadline, the arbitrator’s fee is reduced by 25 percent. If no award is forthcoming between 31 and 60 days of the deadline, the arbitrator’s fee is reduced 75 percent. And, if no award is forthcoming 60 days after the deadline, the arbitrator’s fee is reduced to $0.

While the DRAA does not set any limitations on who the arbitrator will be, the law does provide that the arbitrator may be selected by agreement of the parties, by a method of selection agreed to by the parties, or by appointment by the Court of Chancery (which is designated as the default manner of selection of the arbitrator if the parties cannot agree on an arbitrator or method of selection).

Because the DRAA is not for the faint of heart, it behooves the parties to first understand the statute. An understanding of the DRAA underscores the importance of choosing an arbitrator with the requisite legal or professional expertise, with demonstrated strong management skills of both people and the process and one with a case load that permits the arbitrator to devote sufficient and timely attention to the matter.

Should one or both of the parties dispute the award issued by the arbitrator, their appeal rights (or waiver thereof) are governed by their agreement. The DRAA allows for appeals of a final award to be handled in one of two ways: (1) A public appeal can be taken on limited grounds to the Delaware Supreme Court; or (2) a plenary nonpublic appeal (or a scope broader than one before the Supreme Court) can be taken to an arbitration panel. The DRAA does not provide for anything other than the final award to be appealed.

The Supreme Court may only vacate, modify or correct a final award in conformity with the Federal Arbitration Act. The Federal Arbitration Act allows for a court to change an award only in cases where (1) the award was procured by corruption or fraud, (2) where the arbitrator was corrupt, (3) where the arbitrator committed misconduct that prejudiced a party, or (4) where the arbitrator exceeded its power or failed to issue a final and definite award.

An appeal to an arbitration panel is entirely the product of the parties’ agreement. The parties therefore determine the scope of the panel, who the appeals arbitrator or panel will be, and all other aspects of the appeal.

While speed and efficiency form the bases of the DRAA, the overriding principle of the law is to give maximum effect to the freedom of contract. Each arbitration under the DRAA is customized to fit the needs of the parties. For example, the parties determine the arbitrator’s authority regarding discovery and the nature of the award. This construct is ideal for situations involving private parties (or parties that are not constrained by time-consuming decision-making layers) where time is of the essence and the amount in dispute is sufficient to warrant the cost of the neutral. An example would be a dispute over an agreement for supply of a component of an electronic product. The issue (1) may involve intellectual property with a shelf life limited by evolving technology, (2) probably is tied to tight production time frames, and (3) requires expedient resolution, which is likely critical to the bottom line of the parties.

The time frames inherent in the DRAA dictate, to some degree, the efficacy of the law. While it encourages expedient resolution, it could have the unintended consequence of creating a result not intended by any party because the time frame does not allow adequate time to arbitrate the matter properly. Disputes involving multiple parties, multiple issues, voluminous fact discovery and/or significant expert discovery may fall into this category. Some of the most glaring examples of such disputes would be mass tort cases, multiparty/multisite environmental litigation and multiparty intellectual property and trademark litigation.

Understanding how to navigate the DRAA, choose the right arbitrator and negotiate the right agreement will provide members of the business community a platform to resolve certain business disputes in a Delaware-based forum in a rapid and cost-efficient way.

Reprinted with permission from Law360. (c) 2015 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.