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Court Opens Delaware Arbitrations to Public

(CN) - Delaware cannot close its state-sponsored business arbitration proceedings to the public, a divided 3rd Circuit panel ruled.

In 2009, the Delaware Legislature granted the Court of Chancery the power to arbitrate business disputes in an effort to cut costs.

The Court of Chancery then developed an arbitration process that lets parties to certain types of lawsuits settle their disagreements without going to trial.

To qualify for arbitration under the new law, at least one party must be a "business entity," and the amount in controversy must be $1 million or more.

As in private arbitrations, these proceedings are not open to the public.

Arbitration petitions are considered confidential and are not included on the public docket, according to the ruling. Only the parties and their representatives may attend the proceedings, and all arbitration "materials and communications" are kept confidential.

The Delaware Coalition for Open Government challenged the new law, and a federal judge agreed that it violates the public's right of access under the First Amendment.

The 3rd Circuit in Philadelphia upheld that ruling Wednesday, dismissing the Chancery Court's claim that making the proceedings public would effectively end the arbitration program.

"This argument assumes that confidentiality is the sole advantage of Delaware's proceeding over regular Chancery Court proceedings," Judge Dolores Sloviter wrote for the majority. "But if that were true - if Delaware's arbitration were just a secret civil trial - it would clearly contravene the First Amendment right of access."

Even if proceedings are opened to the public, confidential information such as patents and trade secrets may still be filed under seal, she noted.

"The benefits of openness weigh strongly in favor of granting access to Delaware's arbitration proceedings," Sloviter wrote. "In comparison, the drawbacks of openness that appellants cite are relatively slight."

She said arbitration proceedings have other advantages compared to regular court proceedings, such as procedural flexibility and a more limited review of the final award.

"Thus, disputants might still opt for arbitration if they would like access to Chancery Court judges in a proceeding that can be faster and more flexible than regular Chancery Court trials," Sloviter wrote.

"Because there has been a tradition of accessibility to proceedings like Delaware's government-sponsored arbitration, and because access plays an important role in such proceedings, we find that there is a First Amendment right of access to Delaware's government-sponsored arbitrations," the court concluded.

In dissent, Judge Jane Roth said the Legislature had modeled the program on traditional arbitration, and that a lack of confidentiality would encourage corporations to take their disputes elsewhere.

"It appears to me to be very clear that, when the State of Delaware decided to create its arbitration system, it was looking at traditional arbitration, in a confidential setting, before arbitrators experienced in business and corporate litigation," Roth wrote. "Delaware did not intend the arbitration system to supplant civil trials. Delaware did not intend to preclude the public from attending proceedings that historically have been open to the public. The new system was created to provide arbitration in Delaware to businesses that consented to arbitration - and that would go elsewhere if Delaware did not offer arbitration before experienced arbitrators in a confidential setting."

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