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Delaware Commercial Arbitration Court Shut Down

Friday, September, 7, 2012

Delaware is shutting down what might be called a semi-official commercial arbitration court. Despite the fact that Delaware's judges are known around the U.S. and even the world for their knowledge in business matters, its chancery-court-as-arbitration-environment never quite took off.


And now it looks like it never will. A recent Delaware Supreme Court put the final nail in that coffin.


What was this deadly final decision--and why was the effort perhaps doomed from the beginning? Read on to find out.

How the Delaware "Arbitration Court" Got Started?


Delaware is known by many small business persons as a great place to file an LLC or S-Corp for tax reasons. But what many people don't know is that its judges are also well-known among large corporate business executives as being extremely well-versed in business matters.


So in 2009, the state decided to turn its chancery court into a place where businesses could go for private commercial arbitration. That way, businesses could work out disputes with each other without ever letting the public know they were in dispute (and therefore hurting images and share prices).


Delaware stood to make a tidy sum in the deal, charging $6,000 per day with a $12,000 filing fee. (Incidentally, these fees are small beans compared to the amount of money these megalithic companies stood to spend via litigation).

Trouble in Paradise in Delaware


The idea was proposed in 2009, and the Delaware Chancery Court accepted the changes in January, 2010. Unfortunately, there were only a handful of disputes resolved in the court. Perhaps that's because business leaders sensed a disturbing public/private ambiguity that they were unsure about.


Business leaders weren't the only ones unsure about the distinction. A group called The Delaware Coalition for Open Government also took exception to a public court issuing private decisions. The Delaware Supreme Court was called upon to decide the program's fate.

What Did the Supreme Court Decide?


The Delaware Supreme Court decided that any commercial arbitrations handled inside the chancery court counted as civil cases--and therefore were required to be public. This is a big no-no for publicly traded corporations whose shareholders might scare or become angry if a dispute between a close business partner is made public.


This decision isn't so much a surprise as it is a confirmation of what many big businesses already expected. While Delaware may be the low-key go-to state for many business needs, you won't likely see much arbitration between big firms in its public courts.


Need to help with commercial arbitration? Here is a list of top quality commercial arbitrators in Delaware.