ADR – Duane Morris Delaware Business Law

October 27, 2025October 27, 2025 by Richard L. Renck

Delaware Rapid Arbitration Act–The Constitutional Question

As noted in last week’s post, the Delaware Rapid Arbitration Act (DRAA), enacted in 2015, replaced an earlier judicial arbitration procedure that was declared unconstitutional for violating public access rights to courts. In 2009, the Delaware General Assembly and the Court of Chancery acted to implement voluntary arbitration rules for business disputes in a move to add a sophisticated, dispute-resolution product that was available to entities that had joined the Delaware franchise. But this procedure was struck down as unconstitutional by the Third Circuit Court of Appeals in Delaware Coalition for Open Government v. Strine because the court found that such arbitrations essentially functioned as civil bench trials conducted by taxpayer-paid judges in taxpayer-funded courthouses, which triggered First Amendment public access rights. The current version of the DRAA avoided these constitutional problems by using private arbitrators in private venues, maintaining the confidentiality of traditional arbitration while providing expedited business dispute resolution within 120-days and.

The Unconstitutional Predecessor: 2010 Judicial Arbitration Procedure

In January 2010, the Delaware Court of Chancery issued an order adopting new voluntary arbitration rules for business disputes involving claims solely for monetary damages. This procedure was designed to provide faster resolution of business disputes while maintaining judicial oversight. To that end, the 2010 procedures would have used members of the Court of Chancery to conduct private arbitrations between parties that would likely be conducted in the courthouses of Delaware. This procedure, however, turned out to be foundationally flawed because it blurred the line between public judicial proceedings and private arbitrations. The Third Circuit Court of Appeals declared this judicial arbitration procedure unconstitutional in Delaware Coalition for Open Government v. Strine. The court applied the Supreme Court’s experience and logic test to determine whether the First Amendment required public access to these proceedings. Under the experience prong, the court found that civil trials had historically been open to the press and general public while arbitrations had historically been private in nature. Thus, the court held that “[t]aking the private nature of many arbitrations into account, the history of civil trials and arbitrations demonstrates a strong tradition of openness for proceedings like Delaware’s government-sponsored arbitrations. Under the logic prong, the court determined that public access would ensure accountability of litigants, lawyers, and judges, and allow the public to maintain faith in the Delaware judicial system. Because the proposed arbitration proceedings would function essentially as civil bench trials to which there is a qualified right of public access under the First Amendment, the new statute and rules foundered on the rocks of the U.S. Constitution. The procedures violated the First Amendment because they attempted to maintain arbitration’s private nature while using the judicial system’s infrastructure and personnel, thus creating an irreconcilable conflict with constitutional requirements for public access to court proceedings.

The Delaware Rapid Arbitration Act: Constitutional Solution

In 2015, the Delaware General Assembly enacted the Delaware Rapid Arbitration Act in a second effort to provide Delaware-chartered entities with a rapid (and confidential) arbitration option. The DRAA was specifically designed to avoid the constitutional problems that doomed the 2010 judicial arbitration procedure. It did so by using private arbitrators conducting arbitrations in private facilities. Thus, the proceedings under the DRAA would be private and confidential, as with other private arbitrations, but if a challenge is filed with the Delaware Supreme Court, the proceedings would be treated as a typical appeal and subject to the court’s public’s right of access rules.

Since its enactment in 2015, the DRAA has not faced constitutional challenges. The DRAA’s use of private arbitrators in private venues, combined with its limitation of public access to Supreme Court appeals only, successfully addressed the First Amendment concerns that invalidated the earlier judicial arbitration procedure. The constitutional success of the DRAA demonstrates how Delaware learned from the failure of its 2010 judicial arbitration experiment. By maintaining clear boundaries between public judicial proceedings and private arbitration, the DRAA provides the expedited business dispute resolution Delaware sought while respecting constitutional requirements for court access.

Next week, we’ll take a look at some of the key features of the DRAA, so stay tuned!

October 20, 2025October 20, 2025 by Richard L. Renck

Delaware Rapid Arbitration Act–After a Decade, Has Its Day Arrived?

In 2015, Delaware adopted a new statute, the Delaware Rapid Arbitration Act (the “DRAA”), designed to address an identified need of parties for a very rapid and streamlined way to address disputes confidentially and outside the four walls of a courtroom. This new statue replaced an earlier statutory scheme that would have used sitting jurists of Delaware’s famed Court of Chancery as decisionmakers in private arbitrations because that statute was found to violate the constitutionally-protected access of the state’s citizens to “open courts.”

Over the course of the next few weeks, we’ll explore in this blog the history behind the DRAA, its key features, the kinds of disputes that are best suited for resolution under the act, how to adopt the DRAA in contracts, and some practice tips for presenting and resolving disputes under the DRAA.

While the DRAA has been in place for a decade now, there is little data beyond anecdotal evidence for how often this type of ADR is happening “in the wild.” Rumors are, however, that it has not been used with the frequency that its original proponents had envisioned. But the winds appear to be changing.

The Court of Chancery has seen rapidly-rising case loads year-over-year, a pace that show no signs of slowing. The addition of chancellors (from 5 to 7) and magistrates in chancery (from 1 to 5) has done little to lighten the collective load for those judges. That rise in case load has also been accompanied by a material increase in the number of cases that are being filed that seek expedited treatment–which comes with the concomitant upheaval to the dockets of the individual chambers to which they are assigned.

The DRAA, if adopted by more parties in their agreements, could play a key role in both (a) allowing parties with certain types of disputes access to a very quick (120 days) and streamlined ADR procedure, and (b) perhaps, help take some of the case load off the shoulders of the Delaware courts and place it in the hands of private arbitrators. Last week, the Delaware State Bar Association and Delaware ADR, LLC put on a day’s worth of CLE panels, two of which specifically discussed the DRAA. Indeed, two of the former judges on the panels noted that in recent months they have each completed an arbitration for parties under the DRAA–so there have been recent sightings of DRAA proceedings in the wild! The CLE event had the flavor of a “re-launch” for the DRAA, and it is a statue worth highlighting and discussing.

So watch this page over the coming weeks as we walk through the DRAA–particularly when and how it might be useful for parties to adopt as their ADR method for disputes.

February 1, 2019 by Richard L. Renck

Resolving Contractual Disputes With “An Expert Not An Arbitrator”

The Delaware courts have been asked several times in the last few years to interpret contracting parties’ intent when they have relegated certain disputes to “an expert not an arbitrator” as a form of alternative dispute resolution. On January 29, 2019, the Court of Chancery issued the latest opinion on this topic in Ray Beyond Corp. v. Trimaran Fund Mgt., LLC, C.A. No. 2018-0497-KSJM., and reiterated that such language will be construed as limiting the ADR professional’s jurisdiction to deciding “factual disputes within the decision maker’s expertise.”

In this case, the decision maker was to be an independent accountant, and thus, the court found that the clause at issue was to delegate factual disputes regarding calculation disputes to that “expert” but that legal disputes were reserved for the courts to decide as judicial officers.

The takeaway from these decisions continues to be a lesson in “words matter.” If contracting parties wish certain disputes that might arise be decided by someone other than through litigation in courts, they should carefully spell out the authority of the persons resolving those disputes. “Experts” will likely be relegated to deciding factual matters within their expertise, while “arbitrators” will likely be found to exercise judicial-like functions.

December 5, 2016 by Richard L. Renck

“Fraud in the Inducement” Is No Defense To Advancement Claims By Officers and Directors

On November 28, 2016, the Supreme Court of Delaware confirmed what had become a common thread in several previous decisions by the Court of Chancery–that a Delaware entity cannot avoid expansive advancement rights it has granted to its officers and directors by arguing that they had fraudulently induced the company to grant those rights. In Trascent Mgm’t Consulting, LLC v. Bouri, No. 126, 2016 (Del. Supr.), the Supreme Court held that such a challenge to an officer’s right to advancement of fees and expenses for litigation was more properly heard during later proceedings to determine whether the officer was ultimately entitled to a right to indemnification upon the close of the underlying proceedings.

Trascent had hired Mr. Bouri as an officer and manager of the LLC with responsibility for the human resources, IT, and finance functions. Mr. Bouri was employed pursuant to an employment agreement, which among other things, granted him broad rights to advancement of any fees and expenses he incurred in certain types of proceedings. Trascent and Mr. Bouri parted ways, and Trascent sued Mr. Bouri for, among other things, breaches of his employment agreement. Pointing to the terms of that employment agreement, Mr. Bouri sought advancement of his fees and expenses for defending against his former employer’s claims. Trascent, however, argued that the same agreement upon which its claims were founded was induced by fraud, and therefore, Mr. Bouri’s claims for advancement should be denied.

The Court of Chancery rejected this defense, and the Supreme Court (with Chief Justice Strine writing for the court) affirmed that ruling. As the Supreme Court noted: “[A]llowing Trascent to avoid its contractual duty to make immediate advancement payments by making a belated fraudulent inducement claim would impede the efficiency of the summary mechanism provided by 8 Del. C. 145(k) and impair the public policies served by contractual advancement provisions made in reliance upon that provision of the DGCL as well as the Limited Liability Company Act,” and therefore “the Court of Chancery properly refused to delay enforcing the plain language of the contract.”

The Supreme Court, in a footnote, also noted that the reasoning and public policy supporting this ruling was equally applicable to agreements to arbitrate disputes–another area where the Court found these fraudulent inducement arguments to reflect “unproductive gamesmanship.” The court warned that parties should make such arguments to the arbitrator in the first instance and not a court in trying to avoid the contractual choice of venue for dispute resolution.