The Delaware Court of Chancery recently adopted new rules that give potential litigants an expedited means for resolving certain high-dollar business disputes in arbitration before a sitting Chancery Court judge or master. These rules give commercial parties, so long as one is a business entity formed in, or having its principal place of business in, Delaware, the opportunity to take advantage of the experience and expertise found on the Court of Chancery, on the one hand, and the potential speed, cost savings, and confidentiality of arbitrations, on the other hand. Any Delaware company or deal lawyer should consider the potential benefits offered by these new rules.

The new Court of Chancery Rules 96, 97, and 98 now govern the procedure for arbitration proceedings set out in 10 Del. C. § 349. Section 349 gives parties the statutory authority to request either a judge or master sitting permanently in the Court of Chancery to arbitrate business disputes as long as certain eligibility criteria are met. This section was added as part of statutory amendments enacted in 2009 that were “intended to preserve Delaware’s pre-eminence in offering cost effective options for resolving disputes, particularly those involving commercial, corporate and technology matters.”¹    

To be eligible for arbitration under the new rules, the case must meet the following criteria: (1) the parties must have consented to arbitration by the Court of Chancery; (2) at least one party must be a business entity; (3) at least one party must be organized under Delaware law or have its principal place of business in Delaware; (4) no party can be a consumer; and (5) in the case of disputes involving solely acclaim for monetary damages, the amount in controversy must be at least one million dollars.²  

Some of the key provisions of the new rules are as follows:

• Arbitration is begun by submitting to the Register in Chancery a petition that must be signed by Delaware counsel. Among other things, the petition must contain a statement showing that all parties have consented to arbitration by agreement or stipulation and all other factors of eligibility for arbitration have been met.   
• The arbitrator will hold a preliminary conference to discuss issues such as conflicts, length of the arbitration hearing, and possibilities for mediation, within 10 days after the commencement of the arbitration unless the parties and the arbitrator agree to extend that time. With the consent of the arbitrator, the parties may change any of the arbitration rules or adopt additional rules by agreement.
• As soon as practical after the preliminary conference, the arbitrator will hold a preliminary hearing, at which the parties and their attorneys will consider a number of matters relating to the arbitration, including the scope of discovery and the date, time, and place of the arbitration hearing. 
• The arbitration hearing generally will occur no later than 90 days following the receipt of the petition.
• At least one representative of each party with an interest in the issues to be arbitrated and with authority to resolve the matter must participate in the arbitration hearing. Delaware counsel representing each party must also attend.
• All parties must consent, whether in writing or by oral agreement, to arbitrate in the Court of Chancery. A consent to arbitrate is acceptable if it contains the following language: “The parties agree that any dispute arising under this agreement shall be arbitrated in the Court of Chancery of the State of Delaware, pursuant to 10 Del. C. § 349.”
• Unless the parties agree otherwise, there will be a pre-hearing exchange of information necessary for the parties to prepare for the arbitration hearing and to enable the arbitrator to understand the dispute. 
• The arbitration is confidential and the arbitration proceeding is not included on the Chancery Court’s docket. The hearings are private proceedings such that only parties and their representatives may attend unless all parties agree otherwise. The arbitrator may not be compelled to testify in any judicial or administrative proceeding concerning any matter relating to the arbitration. Any communication made in or in connection with the arbitration that relates to controversy being arbitrated is confidential. 
• The fees for the new arbitration process include $12,000 for the cost of filing the petition and $6,000 for each day of arbitration, both of which shall be equally divided between the parties.

These new procedures for resolving business litigation in a short time frame through confidential arbitration before a sitting Chancery Court judge or master should be welcome by many. In particular, parties to a merger, purchase, or other transaction agreement who wish to agree in advance to submit eligible disputes arising out of the agreement to these new procedures should include the operative election and consent language in such agreement. Notably, there does not appear to be any requirement that the issues to be arbitrated arise under Delaware law; therefore, the arbitrator would presumably be obligated to apply the law chosen by the parties in the agreement giving rise to the issues to be arbitrated.

There are still downsides to arbitration, including most importantly the very limited right to appeal the arbitrator’s decision, but Delaware’s new rules provide an option that disputing parties should strongly consider as a means to lower potential litigation costs. 

For more information, please contact Vinson & Elkins lawyers Caroline Blitzer or David Woodcock. Visit our website to learn more about V&E's Mergers and Acquisitions and Securities Litigation practices, or e-mail one of the V&E Mergers and Acquisitions practice contacts or Securities Litigation practice contacts.

¹ 77 Del. Laws, c. 8, § 1.
² 10 Del. C. § 347; 10 Del. C. § 349.