Corporate lawyers get ready- it’s time to revise those alternative dispute resolution provisions. The Delaware Rapid Arbitration Act (DRAA) was recently approved by the Delaware House of Representatives and Delaware Senate and will become effective on May 4, 2015. The DRAA is heralded as a “real alternative to the litigation process“. Arbitration is strongly preferred by companies to litigation, which can be expensive, unpredictable and time consuming. Arbitration is not a new concept for companies and lawyers. Most have included arbitration clauses in contractual agreements, such as arbitration through JAMS (Judicial Arbitration and Mediation Service). The DRAA establishes a clear arbitration procedure for Delaware business entities “by which they may resolve business disputes in a prompt, cost-effective, and efficient manner, through voluntary arbitration conducted by expert arbitrators, and to ensure rapid resolution of those business disputes.” (Delaware House Bill No. 49).
Requirements of the DRAA
In order to avail of the DRAA, certain requirements must be met:
- At least one of the parties must be a Delaware business entity or have a principal place of business in Delaware. No party to the agreement may be a consumer.
- All parties must explicitly agree to arbitration under the DRAA and select Delaware law to govern the agreement.
DRAA Process
The parties can identify the arbitrator or arbitrators to hear the dispute or set forth the process by which such arbitrator(s) will be selected. If an arbitrator is unable to hear the dispute or the parties cannot agree to an arbitrator under the process specified, then the Court of Chancery can select the arbitrators.
As the provision is deemed rapid arbitration, the arbitrator must issue a final award within 120 days from the date appointment was accepted or as otherwise provided by the agreement, and any extensions cannot exceed 60 days. Lawyers should be aware that if for some reason a client wants an option for a longer period for arbitration, they must specify that in the agreement, as 180 days is the default limit.
The arbitrator will decide all substantive issues and has broad discretion in granting relief. To keep them up to speed, the bill provides that arbitrators can face a penalty for not meeting the deadlines. Once a final ruling is issued, the parties have 15 days to bring a challenge to the Delaware Supreme Court, which will review pursuant to the Federal Arbitration Act.
According to the Global Delaware Blog, Delaware is home to over 1.1 million business entities. Given the strong preference for both incorporation/formation in Delaware and arbitration as the method of dispute resolution, it is very likely that many agreements going forward will be relying on the DRAA. Corporate lawyers should prepare to draft and include a DRAA provision in agreements going forward.