Henry R. Chalmers, W. Jerad Rissler and Rebecca Lunceford Kolb, J.
A powerful new tool exists for companies seeking quick, efficient and private resolution of business disputes. The Delaware Rapid Arbitration Act (the “Act” or “DRAA”),1 enacted in April 2015, streamlines the process for initiating arbitrations, sets tight deadlines for concluding them, automatically confirms arbitration awards, and provides speedy resolution of any challenges directly to the Delaware Supreme Court. How does it do this? Here’s a teaser: Among other things, it imposes financial penalties on the arbitrator if a final decision is not issued within 120 days of commencement. Intrigued? Read on.
Despite its name, the DRAA is relevant to you as a South Carolina attorney. The Act is available for almost any commercial dispute involving at least one business entity organized under Delaware law or with its principal place of business in Delaware.2 This includes not only Delaware corporations, but also limited liability companies, partnerships and trusts organized or principally located in Delaware.3 Because so many businesses with South Carolina connections choose to organize under Delaware law, the number of local entities that can take advantage of the Act is much larger than one might think. Also, a South Carolina company anxious to take advantage of the DRAA can simply create a Delaware subsidiary to act as its contracting party, and the subsidiary, in turn, can avail itself of the Act’s provisions. Even if your client doesn’t qualify, another party to your contract might, and that is all that is needed.
Need for an alternative
The need for a speedier and more efficient form of confidential alternative dispute resolution is clear. Businesses have long complained about the duration and expenses of litigating their disputes through the courts. Even parties that “win” their cases often feel the years and substantial costs necessary to achieve that result substantially diminish, or even negate, any actual success. And let us not forget the appeals that can follow, which often take just as long as getting the “win” to begin with. Add to this the time commitment and emotional toll on those involved, and it is easy to understand the antipathy many companies have toward traditional litigation.
“But wait,” say lawyers to these frustrated clients, “we have an alternative that will make everything faster, easier and cheaper. Arbitration is the answer. Whether through the forethought of an arbitration clause in a contract, or by later agreement, once a dispute arises, we will send it to arbitration where things will progress quickly and without those exorbitant costs associated with protracted and exhaustive discovery, briefing, trial and appeal.”
With the noblest of intentions, arbitration is often touted as the solution to many of the most frequently-cited problems with litigation. Unfortunately, that does not always turn out to be the case. If not properly managed, arbitration can often morph into simply another venue for a costly and lengthy dispute resolution process similar to that provided in the courts.4 Possibly driven by the standard practice of United States lawyers to leave no stone unturned, arbitration now commonly provides for extensive discovery, which, in today’s electronic world, with nearly every communication, document and note kept in some electronically-recoverable form, is often the most expensive part of the dispute resolution process. Additionally, sophisticated parties take every advantage available to them, and if delay favors their position, they will do everything possible to create it. This can lead to preliminary litigation over such issues as arbitrability of the dispute and the arbitrator’s authority to issue interim relief, all before meaningful progress in the arbitration can even begin.
Recognizing these potential shortfalls, Delaware passed the DRAA to reclaim the speed and efficiency originally promised by the arbitration process. The Act gives parties significant latitude in drafting arbitration provisions, but tempers that freedom with selected default and mandatory provisions to ensure the Act’s overarching goals are not lost.
A relatively non-Delaware-centric process
Despite the Act’s Delaware roots, parties submitting themselves to the DRAA may select any substantive law to govern their dispute5 and may designate any location in the world as their venue.6 Delaware law only must govern enforcement and construal of the arbitration agreement, without regard to principles of conflicts of l a w. 7 Parties also may have their arbitration administered by an outside organization, or no organization at all if they so choose. Thus, for example, they may elect to have the American Arbitration Association manage their DRAA-governed arbitration in Columbia, South Carolina, or they may decide to administer it themselves in Victoria City, Hong Kong.
Selecting the arbitrator(s)
As with other arbitrations, the parties can dictate in their agreement the number, qualifications and even the identities of their arbitrators. If, however, the parties fail to agree upon a panel, the Act steps in to ensure the process does not lag. Upon encountering such a roadblock, either party may petition the Delaware Court of Chancery to exercise its exclusive jurisdiction to appoint the arbitrators, after which the Court of Chancery has 30 days to make the appointment.8 And lest a crafty litigator attempt to...