Court Holds the Chancery Court's Nonpublic Arbitrations Violate the First Amendment

In April 2009, the Delaware General Assembly amended the rules governing disputes in the Court of Chancery to give the court power to arbitrate business disputes before a member of the Court of Chancery. The arbitration required amounts in controversy of more than $1 million (unless equitable relief is sought) and one party being a business entity and a Delaware citizen. All parts of the arbitration were "confidential and not of public record." The hearings were closed to the public. The arbitrator's final award was not public. The case was not listed on any docket. The fee for these closed arbitrations was $12,000 and went to the Court of Chancery.

A nonprofit sued the Chancery Court and its five judges claiming the nonpublic arbitrations violated the public's constitutional right of access to civil and criminal trials. The U.S. district judge in Delaware agreed that the nonpublic arbitrations amounted to a "secret judicial proceeding" that impermissibly violated the First Amendment. The court agreed that the arbitration functions essentially as a non-jury trial and thus must be open to the public.

The court has announced it intends to appeal the decision to the Third Circuit. Amicus briefs had argued that if businesses were not afforded the opportunity to resolve their disputes confidentially with chancellors from the Delaware Court of Chancery, they would seek to use other dispute resolution procedures, which may be outside the United States. While there were no public records showing the number of companies using this procedure, some public reports have suggested that only five disputes have been resolved in the closed arbitrations to date.

Delaware Coalition for Open Gov't v. Strine, D. Del., 11-01-15, 8/30/12