In Delaware Coalition for Open Gov’t v. Strine, No. 12-3859 (3rd Cir. Oct. 23, 2013) (click here for a copy of the opinion), the Third Circuit held, in a 2-1 decision, that Delaware’s government-sponsored, confidential arbitration system for Delaware business entities violated the First Amendment. Under the ruling, the public must have access to such proceedings.
Delaware had created an arbitration system for Delaware companies in connection with disputes involving at least one million dollars. If qualified parties consented to an arbitration under the program, a Delaware Chancery Court judge would generally hear the dispute during normal business hours in the courthouse. The parties would have procedural flexibility and could modify court rules through consent. Also, the right to appeal was very limited; appellate review would track the standards found in the Federal Arbitration Act. Most significant for the purpose of this case, the Delaware program barred public access to these proceedings.
The Third Circuit recognized there is a long history of access to civil trials. With respect to arbitration, the Third Circuit observed there is a mixed record of public access. Historically, there is evidence that some arbitration proceedings were public, but the modern trend is for arbitrations to be confidential.
The Third Circuit then categorized the Delaware program as more like a civil trial as opposed to arbitration. The court reasoned that although the Delaware program shared some characteristics with arbitration (such as informality, flexibility, and limited review), the program’s proceedings “differed fundamentally” from arbitration “because they are conducted before active judges in a courthouse, because they result in a binding order of the Chancery Court, and because they allow only a limited right of appeal.”
Because of the tradition of accessibility associated with proceedings like Delaware’s state-sponsored program and because public access here would provide many benefits, the Third Circuit found there is a First Amendment right for the public to access these types of proceedings.
I find this case interesting because it raises a fundamental question regarding what is arbitration. The term arbitration is never defined in the Federal Arbitration Act, and the Third Circuit seemed to have a certain definition of arbitration in mind when it decided that the program’s characteristics (having an active judge conduct the proceedings in a courthouse) are fundamentally different from arbitration. In other words, the court was assuming certain, core fundamental attributes regarding arbitration (and I think the Third Circuit got it right.) However, I am concerned about the lack of a clear definition of arbitration. Without a clear definition, courts have to assume what are the fundamental attributes of arbitration, and this was an important issue in the Supreme Court’s controversial Concepcion decision. The majority in Concepcion assumed that class proceedings would be inconsistent with the fundamental attributes of arbitration, but reasonable people could disagree whether class proceedings are a fundamental attribute of arbitration. The broad, vague preemption standards recognized in Concepcion could easily preempt any rules that a particular judge finds inconsistent with the “fundamental attributes” of arbitration, but the Federal Arbitration Act never provides a clear definition of arbitration. For example, are med-arb agreements considered arbitration? If an arbitration agreement allows parties to opt-out and bring suit in court at any time, is the agreement covered by the Federal Arbitration Act? There are many aspects of the Federal Arbitration Act that should be fixed, and including a definition of arbitration, or perhaps some factors to help guide a court as to what is arbitration, would be helpful.