Alternative Dispute Resolution: Delaware Rapid Arbitration Act Promises Speedy Arbitrations for Many Companies in Colorado, 0716 COBJ, Vol. 45 No. 7 Pg. 55

AuthorHenry Chalmers, Rebecca Lunceford, J.

45 Colo.Law 55

Alternative Dispute Resolution: Delaware Rapid Arbitration Act Promises Speedy Arbitrations for Many Companies in Colorado

Vol. 45, No. 7 [Page 55]

The Colorado Lawyer

July, 2016

Henry Chalmers, Rebecca Lunceford, J.

Alternative Dispute Resolution articles are sponsored by the CBA Alternative Dispute Resolution Section. They describe recent developments in the evolving field of ADR, with a particular focus on issues affecting Colorado attorneys and ADR providers.

Coordinating Editor

Marshall A. Snider, Denver—(303) 885-6659, msniderarb@comcast. net

The authors express their gratitude to the Georgia Bar Journal, which published a similar article by the authors (Vol. 21, No. 5, Feb. 2016). Statements expressed within this article should not be considered endorsements of products or procedures by the State Bar of Georgia.

The Delaware Rapid Arbitration Act, enacted in 2015, provides an effective process for resolution of private business disputes. It is available for many commercial disputes that involve at least one business entity organized under Delaware law or having its principal place of business in Delaware.

Apowerful new tool exists for companies seeking quick, efficient, and private resolution of business disputes. The Delaware Rapid Arbitration Act (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 for speedy resolution of any challenges directly to the Delaware Supreme Court. It does this by, among other things, imposing financial penalties on the arbitrator if a final decision is not issued within 120 days of commencement. Despite its name, the DRAA is relevant to Colorado attorneys. 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 Delaware2 and is particularly well-suited for parties in continuing business relationships who need quick resolution of disputes. 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 Colorado connections choose to organize under Delaware law, many local entities can take advantage of the Act. Also, a Colorado 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 o f the Act’s provisions. Even if a client doesn’t qualify, another party to the contract might, and that is all that is needed.

Perhaps a homegrown version of the Act may emerge from the Colorado legislature in the not too distant future, because states such as Colorado often use Delaware law as a template for their own business statutes.

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 that the years and substantial costs necessary to achieve that result substantially diminish, or even negate, any actual success. And appeals can follow, which often take just as long as getting the “win.” 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.

Arbitration is often thought to be a viable alternative to litigation. Whether through the forethought of an arbitration clause in a contract, or by later agreement, once a dispute arises it can be sent to arbitration, where things progress quickly and without the exorbitant costs associated with protracted and exhaustive discovery, briefing, trial, and appeal. With the noblest of intentions, arbitration has been touted as the solution to the very real problems with litigation.

Unfortunately, it is becoming increasingly clear that arbitration no longer offers the panacea it once promised, as it often morphs 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 U.S. 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 may do everything possible to create it. This frequently leads 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 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 must govern only enforcement and construal of the arbitration agreement, without regard to principles of conflicts of law.7 Parties also may have their arbitration administered by an outside organization, or no organization at all, if they so choose. Thus, for example, parties may elect to have the American Arbitration Association manage their DRAA-governed arbitration in Denver, Colorado, or they may decide to administer it themselves anywhere in the world.

Selecting Arbitrators

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 on a panel...

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