Sean O’Sullivan

The News Journal

WILMINGTON – The U.S. Supreme Court declined a petition by the Delaware Court of Chancery on Monday to revive a controversial secret arbitration process for business litigants. 

This means that the October 2013 ruling of the U.S. Third Circuit Court of Appeals, which found that the program was unconstitutional because it denied the public's First Amendment right of access to the courts, stands as the final word on the matter.  Earlier, a U.S. District Court judge had also found the program was unconstitutional. 

As is tradition, the U.S. Supreme Court did not state the reasons why it did not take up the petition.  Every year the nation's highest court reviews only about 80 of the more than 9,000 petitions it receives. 

"I think it was a real victory for the public and for the rule of transparency and openness," said John Flaherty, president of the Delaware Coalition for Open Government which first filed suit challenging the closed-door process. 

Coalition attorney David Finger said the ruling the high court let stand, "will only strengthen public confidence in the courts." 

The coalition filed suit against the secret arbitration program in October 2011 and later was joined by a long list of media organizations including the New York Times, Washington Post, Associated Press and The News Journal. 

Andrew Pincus, counsel for the the state and Chancery Court in the appeal, issued a statement through Gov. Jack Markell's office expressing disappointment on Monday. " We believe that our nation and Delaware have lost an important opportunity to provide cost-effective options to resolve business-to-business disputes to remain competitive with other countries around the world.  Although it is premature to determine whether any particular statutory amendment or other change is an appropriate response to the outcome of the court proceedings, Delaware will continue to look for ways to achieve the objectives of the program that was the subject of the litigation." 

During the legal fight, a number of national business groups filed briefs on behalf of the state and the arbitration program including the U.S. Chamber of Commerce, the NASDAQ and New York Stock Exchange, along with a group of large law firms and a separate group representing technology companies. 

Delaware Chancery Court officials and state leaders had touted the arbitration program, which was created in 2009, as necessary to maintain Delaware's position as the premier court system for business litigation in the nation and to keep the Chancery Court competitive with overseas courts that offer similar programs. 

The Chancery Court, and its reputation for handling corporate law matters, is one of the reasons why so many businesses choose to incorporate in Delaware.  Those incorporations bring in $1.4 billion in taxes and fees every year. 

Pincus' statement on Monday appeared to leave open the possibility that the state might try to re-visit the controversial arbitration program in some way, which Flaherty and Finger said would be a mistake. 

"I would hope they would read and study this ruling in light of the greater public good," Flaherty said. " We all have money problems, no doubt about that, but I think that we just can't have a double standard where those with a lot of money have one [standard] and those with a little money have another." 

"I hope the state of Delaware will recognize that the constitutional rights of its citizens should not be restricted by its own economic interests," said Finger. 

The arbitration process, where a sitting Chancery Court judge presided over cases behind closed doors, with no case information being made public on any court docket, was only open to business litigants for disputes involving $1 million or more.  In court papers, attorneys representing the Chancery Court argued that closed-door arbitration is legal and widely available in the private sector. 

The cost for a business plaintiff to purchase the service was a $12,000 up-front filing fee followed by an additional charge of $6,000 a day for the proceedings.  According to court staff, the money generated by the program went into Chancery Court's general fund.  Between February 2010, when it started, and October 2011, when the citizens' group filed suit challenging the process, at least five disputes were resolved through the program. 

The coalition argued that the program was different than private sector programs precisely because it involved a sitting state court judge making binding rulings. 

Finger said Monday that the legal fight was about protecting the public's right of access to the courts. 

"The right of public access is designed to foster public confidence in our courts, this promotes respect for the rule of law," he said. " If there are certain things being done in private for one group and in public for another group, this creates a suspicion that the private group is getting one kind of justice and the public group another," Finger said. 

Contact Sean O'Sullivan at (302) 324-2777 or sosullivan@delawareonline.com or on Twitter @SeanGOSullivan