Arbitration|Conflict Resolution|Courts

Public Courts as Private Arbitration Panels

Tom Stipanowich called the Delaware Court of Chancery’s arbitration program “a veritable trifecta of procedural advantages for commercial parties, including expert adjudication, efficient case management and short cycle time and, above all, a proceeding cloaked in secrecy.”  But he warned that its constitutionality was in doubt.  Now the Third Circuit Court of Appeals has, indeed, ruled it unconstitutional.  The grounds for the ruling go to some of the most profound assumptions of access to justice, and the distinction between public dispute resolution that is costly, long and uncertain, and alternative processes that the disputants privately agree to in order to avoid those encumbrances.

The arbitration program was established in 2009 as a way of “preserv[ing] Delaware’s preeminence in offering cost-effective options for resolving [commercial] disputes.”  Qualified parties may consent to avail themselves of arbitration before the same Chancery Court judges who would otherwise try the case.  The initial fee is $12,000 plus an additional $6,000 per day thereafter.  The proceeding is conducted in a Delaware courthouse during normal business hours.  The award is entered as an order of the Court of Chancery and is appealable to the Delaware Supreme Court, applying the deferential standards of the Federal Arbitration Act.  Pleadings are confidential and not publicly docketed, and public access to hearings and filings is denied.

This procedure was challenged in federal District Court on First Amendment grounds.  The District Court found, and the Third Circuit affirmed, that the constitutional ban on governmental abridgment of freedom of speech, determined by the Supreme Court to extend to public access to criminal trials, is violated when a publicly-funded court conducts civil proceedings barring public access.  The right of public access is not absolute; the Third Circuit noted that it has declined “to extend the right to the proceedings of judicial disciplinary boards, the records of state environmental agencies, deportation hearings, or the voting process.”  But when a proceeding taking place in a public courtroom is of the type to which there is a “tradition of accessibility,” such as a private commercial dispute, “a presumption of public access is established [that] may only be overridden by a compelling government interest.”

The District Court’s logic was that the arbitration was “sufficiently like a trial” to which public access is a right, that public access cannot be denied.  The Third Circuit used a different approach, of “experience and logic.”

The “experience” is that the place and nature of the adjudication have historically been open to the press and general public.  And the court reviewed the history of access to public trials of private disputes and to the courthouse itself.  It also noted that the development of arbitration involved private adjudication by privately chosen tribunals, not publicly paid judges, and indeed developed as an alternative to adjudication by courts.

The “logic” is that “access plays a significant positive role in the functioning of the particular process in question.”  All of the benefits that accrue from public access to civil trials of business disputes would accrue with public access to the arbitration of those disputes when that proceeding takes place in public Delaware courtrooms.  Dismissing arguments that public access would risk disclosure of sensitive proprietary information, or would result in the loss of “prestige and goodwill” on the part of the disputants, or that public airing of the dispute would encourage hostility and belligerence, the Third Circuit says, in effect, “join the crowd.”  If these are attributes of public trials, then arrange to resolve your disputes privately — but not in a public courtroom with public servants adjudicating.

In concurrence, Judge Fuentes notes that, were the First Amendment issues to be resolved, it may be that no constitutional obstacle presents itself to sitting judges’ conducting private arbitrations.  And in dissent, Judge Roth sees no problem with the Delaware legislature’s encouragement of highly-qualified arbitrators’ conducting private proceedings in light of (what she perceives as) the growing demand for arbitration services and the legitimate interest of the legislature “to prevent the diversion elsewhere of complex business and corporate cases.”

Unaddressed in this challenge is a feature of the Court of Chancery’s arbitration program that I find more troubling:  That two tracks of justice are provided to similarly situated disputants, distinguished by payment to the court of a substantial fee.  If you cough up $12,000 or more, you get a 90-day schedule, waiver of procedural requirements, streamlined discovery, and immediate docketing of a confidential outcome.  If you do not, you join the queue of all the other litigants before the Court of Chancery, with motion practice, extensive discovery, public scrutiny, engagement of local counsel, procedural guidelines, and very substantial delays.  (Indeed, the Court itself recently observed that delays of more than three years from petition to trial are not unreasonable.)

The question whether private adjudication of disputes is a social benefit or a threat to the development of the common law is a perennial one.  The question whether public courtrooms can be hired out by private disputants, and sitting judges be deflected from their public dockets in order to adjudicate non-public disputes, is more recent.  But the question whether, if you pay the court clerk $12,000, you can get faster and cheaper justice than those who don’t, ought to have been obvious.

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