March 25, 2014

US Supreme Court Declines to Revive Delaware Arbitration Program

Here’s news from this WSJ article:

The U.S. Supreme Court refused to revive a Delaware arbitration program in which sitting judges would handle corporate disputes confidentially. Lower-court decisions held that the state-sponsored program was unconstitutional on First Amendment grounds because its arbitration proceedings weren’t open to the public. In a brief order Monday, the high court without comment declined to review those decisions.

The Supreme Court’s order was a blow to Delaware officials who saw the arbitration program, adopted in 2009, as a way to further the state’s business-friendly reputation. Many companies have chosen to incorporate in Delaware because of its favorable corporate and legal climate. Businesses like arbitration because it often is faster and less expensive than fighting in court—and because it takes place behind closed doors.

The Delaware program had added advantages. It was run through the state’s Court of Chancery, whose judges are known for their expertise in corporate disputes. That meant sitting judges could preside over the proceedings instead of private arbitrators, so long as a corporate litigants were willing to pay a $12,000 filing fee and $6,000 a day in arbitration costs.

Business groups supporting Delaware’s program said confidentiality was a time-honored and common-sense aspect of arbitration that allowed companies to protect trade secrets and sensitive financial information. Critics said corporations shouldn’t be able to pay for the services of a judge in secret. The Delaware Coalition for Open Government, a public-interest group, sued to challenge the program, saying that the public should have access to the arbitrations because they essentially were civil-court proceedings, conducted in a state courthouse with state resources. Dow Jones & Co., the publisher of The Wall Street Journal, was among several media organizations that signed a brief supporting the challenge to the program in the lower courts.

Ruling against Delaware last year, the Third U.S. Circuit Court of Appeals said allowing access to the proceedings would give stockholders and the public a better understanding of how the state resolves business disputes. Openness also would discourage companies from misrepresenting their activities to the public, the appeals court said. After that ruling, the Chancery Court asked the Supreme Court to hear the case. The Delaware court said the public enjoys a constitutional right of access only for proceedings in which there is a long history of openness. “That history is completely absent here,” the Chancery Court said in a brief. The state court said invalidating its program could make Delaware a less attractive home for corporations.

“We believe that our nation and Delaware have lost an important opportunity to provide cost-effective options to resolve business-to-business disputes to remain competitive with other countries around the world,” said Andrew Pincus, a Mayer Brown LLP lawyer representing the Chancery Court. He said the state “will continue to look for ways to achieve the objectives of the program.” David Finger, a lawyer for the Delaware Coalition for Open Government, said invalidating Delaware’s program “prevents an erosion of the concept of what is a court in our society.” “If the Supreme Court took this case, it could have set back almost 40 years of legal advances in obtaining access to court proceedings,” Mr. Finger said.