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Federal Judge rules open courts are healthy for Delaware and dealmakers

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The Judicial Update

September 9, 2012

Delaware: A federal judge has ruled that secret arbitration in business disputes is unconstitutional.[1]

A Delaware law that allows Court of Chancery judges to preside over secret arbitration in business disputes came under fire from a lawsuit filed by the Delaware Coalition for Open Government. The open-government coalition argued that rights of a citizen to attend judicial proceedings as well as have access to court records, were violated by these secret court proceedings.[1]

Those that supported the open-government coalition, included The Associated Press, The New York Times, The Washington Post and the Reporters Committee for Freedom of the Press, while those that supported the state's arbitration law included the corporate law section of the Delaware State Bar Association, the New York Stock Exchange and Nasdaq.[1]

The Chancery Courts often preside over high-profile business disputes, some of these involving the world's largest corporations, but United States District Court Judge Mary McLaughlin ruled that the Chancery Court cannot conduct secret arbitration because the public has a right of access and moreover open hearings and published opinions help to keep judges, as well as lawyers and witnesses, honest.[1][2]

"The court concludes that the Delaware proceeding functions essentially as a non-jury trial before a Chancery Court judge. Because it is a civil trial, there is a qualified right of access and this proceeding must be open to the public".[1] wrote Judge McLaughlin, in her 26-page ruling.

Attorney David Finger, who represented the open-government coalition, stated that Judge McLaughlin's ruling was a reminder in all branches of government of the importance of transparency.[1]

Lawrence Hamermesh, a law professor who helped to represent the state of Delaware, said that the state planned to appeal the ruling, noting the economic importance of bestowing to businesses "cost-effective ways to resolve disputes."[1]

Under the secret arbitration law, the court charges $12,000 for the filing of an arbitration petition, and after that $6,000 a day after the first day a judge has been engaged. Secret arbitration is only allowed in business disputes that involve claims for monetary damages that exceed $1 million.[1]

See also