Andrew Solomon
It’s ironic that arbitration, created to swiftly resolve conflicts outside of the courtroom, can become so bogged down that the state of Delaware has created a “rapid” arbitration process to remove the obstacles. Yet few would argue that it is not needed.
Arbitration today suffers from many of the ills it initially was intended to cure. It can be as time-consuming and expensive as litigation. Parties who initially agreed to arbitration under a contract often end up in court anyway. They file motions to compel arbitration and motions to enjoin arbitration. Then come the appeals and confirmation proceedings. It makes you wonder why they agreed to arbitration in the first place.
Consequently many commercial parties are seeking a more cost-effective and efficient dispute resolution method. The Delaware Rapid Arbitration Act (DRAA) is intended to be such a fast-track process. This is not a good fit for parties unwilling to move to a quick resolution of a dispute. If they’re inclined to question the scope of an arbitrator’s authority, run up interim challenges to the arbitrator’s rulings or just bring the proceedings to a halt with numerous motions, they’ve chosen the wrong route.
The goal of the DRAA is to achieve a prompt outcome. It requires a final award within 120 days of the arbitrator’s appointment. The parties may agree to extend the time for the issuance of a final award, but only for an additional 60 days. In other words, the DRAA is designed to resolve a dispute within a maximum of six months.
The arbitrator has broad authority under the DRAA, but also an incentive to move swiftly. If the award is just a day late, the arbitrator’s fees are reduced 25 percent. If the award is more than 30 days late the fee is cut 75 percent and if it is more than 60 days late 100 percent of the fee is lost.
A party challenging a decision must file within 15 days of the award. The review skips the lower courts and goes directly to the Delaware Supreme Court. The court may “vacate, modify or correct” an award only as permitted under the Federal Arbitration Act, which is restricted in scope and generally limited to egregious arbitrator misconduct, arbitrator bias and technical errors.
New York V. Delaware
Clark Freeman
The DRAA provides an attractive option to parties seeking an expedited procedure, but it’s not the only accelerated procedure out there, further demonstrating the frustration many parties have with traditional arbitration. The Commercial Division of the Supreme Court of New York has an “accelerated adjudication” procedure that aims to have cases trial-ready in nine months. Parties can agree to the accelerated procedure either as the resolution mechanism for disputes arising under a contract or at the outset of an action, as long as the dispute meets the jurisdictional requirements for the Commercial Division.
By agreeing to the accelerated procedures parties waive various rights such as a jury trial, punitive or exemplary damages and interlocutory appeals. Discovery is limited to seven interrogatories, five requests for admission and seven depositions per side.
There are other differences between the Delaware and New York procedures. The DRAA is available only if one of the parties to the arbitration is organized under Delaware law or has its principal place of business in Delaware. In the New York program, no special connection is required to access its courts, provided that the amounts in controversy meet New York’s requirements. Additionally, the state pays for the judge. In arbitration the parties are responsible for the arbitrator’s fees. In Delaware the DRAA authorizes the arbitrator to retain counsel, which could further drive up costs.
Lastly, while Delaware’s procedure is likely to be faster and gives the parties more discretion in shaping the dispute resolution process, the New York program offers a meaningful right of appeal that Delaware does not. The parties have more protection from an erroneous verdict under the New York procedure, but they risk an appeal that could add time and expense to resolve the matter.
People who enter arbitration in good faith expect a no-nonsense course that will resolve a business dispute, often occurring between two parties that have an ongoing business relationship. They understand that drawn-out litigation can strain that relationship and damage the profitability of both parties. These recent accelerated dispute resolution proceedings are not meant to preempt the traditional arbitration process. Rather they acknowledge a corporate concern and make swift, efficient and binding arbitration a valuable process once again.
