Three judges of the U.S. Court of Appeals for the Third Circuit, asked to consider the constitutionality of the Delaware Court of Chancery’s confidential arbitration program, focused at oral arguments Thursday on whether a 2009 statute enacted by the Delaware General Assembly gives the state’s Chancery Court judges additional powers to conduct those sessions in private.
The panel, composed of Judges Dolores K. Sloviter, Julio M. Fuentes and Jane Richards Roth, asked attorneys on both sides if the statute legally extended the Chancery Court’s power to conduct confidential arbitration hearings separately from their judicial roles.
The statute, Title 10, Section 349(a) of the Delaware Code, was declared unconstitutional in September 2012 by U.S. District Judge Mary A. McLaughlin of the Eastern District of Pennsylvania because it violated the public’s right to access civil trials under the First Amendment. McLaughlin’s ruling in Delaware Coalition for Open Government v. Strine effectively ended the Chancery Court’s confidential arbitration program.
"The powers that were conferred upon that person by the state of Delaware, do they confer the powers of a judge and the powers of an arbitrator?" Roth asked Andrew J. Pincus, an attorney with Mayer Brown who is representing the Chancery Court in this litigation.
"That’s exactly what the statute does," Pincus responded, comparing the Chancery Court’s judges’ role in arbitration to the role played by Chancellor Leo E. Strine Jr. on Delaware’s Board of Pardons.
"[In arbitration], he’s not acting in his role as chancellor presiding over proceedings that are not a function of consent, but proceedings where the parties can be coerced into appearing by any exercise of state power," Pincus said. "Here, he is in a different role as an arbitrator and the only reason he can act in that role is because the parties consented he can do it."
Later during the arguments, plaintiffs counsel David L. Finger of Finger & Slanina asserted that the Chancery Court’s program is essentially a public trial because it is judges acting under power granted through state statute. However, Roth replied that the judges are acting under a state statute that "grants them the power to be arbitrator."
Finger asked Roth how the judges’ arbitration role differed from their judicial responsibilities, and she responded, "Because the legislature of the state of Delaware has said that vice chancellors, besides their judicial duties, will also be handed these arbitration duties."
In response, Finger said the only difference between the vice chancellors’ judicial and arbitration duties was nomenclature.
"It has no practical functional difference," he said. "They use different terms, but do the terms have substantive differences?"
Later, Roth returned to her line of questioning about Delaware’s authority to statutorily grant additional powers to members of the state judiciary.
"Does not the state of Delaware have the option to create a private arbitration using those individuals who they’ve elected to designate as arbitrators and the fact that these individuals may have another function does not mean that they are not operating under their authority of the legislature to arbitrate when they arbitrate?" she asked.
"Their arbitrating functions are no different from their judicial functions," Finger responded. "The only distinction they have made is that the parties consented. The point of view has to be what do the judges do, not what do the parties do."
Meanwhile, Pincus argued that the Chancery Court’s arbitration program is akin to traditional arbitrations, which, he said, have been conducted by active judges since the 19th century. He also noted several differences between the Chancery Court’s arbitration program and a public trial, which has been a recurring theme among the court’s attorneys throughout the litigation.
He noted the ability to tailor discovery and witness rules to meet the parties’ needs, limited judicial review, a quicker resolution and the fact no one can participate in the arbitration program unless both consent.
"This is classic arbitration," he said. "I don’t think there is any aspect that is different from traditional arbitration."
Sloviter peppered Pincus about the arbitration program’s costs, which include a $12,000 fee for filing an arbitration petition and a $6,000 per day fee for each day a judge is engaged in arbitration. She asked the defense counsel if the fees and the fact that the program can only be used to resolve disputes involving monetary damage claims exceeding $1 million was nothing more than wealthy businesses paying for their own justice.
Pincus began to discuss the requirements, telling the court that "one of the reasons [for the fees] was to ensure …" when Sloviter quickly cut him off and finished his sentence by inserting her view: "that only wealthy corporations can take part in this."
"I think I would disagree with that, your honor, and say that it’s to focus on the kinds of business disputes that typically go to arbitration and to provide to the Delaware domiciliaries the kind of arbitration services that other countries are providing to their domiciliaries," he shot back.
That exchange followed an earlier exchange when Sloviter questioned Pincus about the fees and asked him what poor litigants can do to participate in this program.
"This is not for ordinary litigants," Sloviter said. "It is for extremely wealthy, well-financed litigants."
When Roth interrupted the judge to say that she asked a "loaded question," Sloviter snapped, "It was intended to be a loaded question. That was the whole point of it."
At the end of the arguments, Sloviter noted the complexity of the case, calling it "interesting."
"My guess is we won’t get an opinion in less than 24 hours," she said.
The Chancery Court was also represented by Lawrence A. Hamermesh, the Ruby R. Vale Professor of Corporate and Business Law at Widener University School of Law, and Andre G. Bouchard of Delaware firm Bouchard, Margules & Friedlander.
Both Finger and the Chancery Court’s attorneys declined to comment after the arguments concluded.