From NFOIC: A federal appeals court has agreed with NFOIC’s Delaware-based member organization, the Delaware Coalition for Open Government, that Delaware’s Chancery Court judges’ practice of overseeing and resolving business disputes in secret arbitrations is unconstitutional.
Following the ruling, handed down last Wednesday by the Third U.S. Circuit Court of Appeals, state and court officials, including a spokesman for Gov. Gov. Jack Markell’s office, indicated they are considering an appeal.
John Flaherty, president of the DelCOG, which filed a lawsuit challenging the Chancery Court’s secret practices in 2009, applauded the ruling.
“We have a right, when public officials are conducting business, that it be done in public,” Flaherty said.
Many US corporations use Delaware addresses as their headquarters to avoid accountability, taxes and various kinds of scrutiny.
Please see an article from The Washington Post for more. Also, see a letter from the Delaware Coalition for Open Government (PDF/77KB) and the court opinion (PDF/657KB).
US Circuit Court rules against Delaware Chancery arbitration process
From delawareonline.com: (Oct. 24, 2013) WILMINGTON — A divided three-judge panel of the U.S. Third Circuit Court of Appeals delivered a blow to Delaware on Wednesday when it ruled that its “secret” arbitration process in Chancery Court is unconstitutional.
The state made no secret that the program was designed to help maintain Delaware’s lucrative place as the preferred legal home to big business.
For decades, the franchise has generated as much as a third of the state’s annual revenues.
The decision upholds a 2012 ruling by U.S. District Judge Mary A. McLaughlin who found the program, which created a special forum that would allow sitting judges to confidentially arbitrate businesses-to-business disputes, violates the First Amendment.
The Chancery Court program is fundamentally different from other arbitration programs “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 limited right of appeal,” wrote Circuit Judge Dolores Sloviter for the 2-1 majority.
“The First Amendment ... protection of speech includes a right of public access to trials,” said Sloviter, finding that Chancery arbitration process amounts to a civil trial and must be open. “[T]he interests of the state and the public in openness must be given weight, not just the interests of rich businesspersons in confidentiality.” wrote Sloviter.
The Chancery arbitration program, created by the state Legislature in 2009, is only open to business entities involved in a dispute for more than $1 million. The court keeps secret the names of the parties and the nature of the dispute, and proceedings are closed to the public.
It is unknown if the state will appeal Wednesday’s ruling but officials can ask for the full appeals court to review the case and also seek a review by the U.S. Supreme Court.
David Finger, attorney for the Delaware Coalition for Open Government which first filed suit against the Chancery Court program in 2011, praised Wednesday’s ruling.“The court gave a very thorough analysis and we’re happy with the result,” said Finger.
A number of media outlets, including The News Journal, joined the case on the side of the coalition after the suit was filed. Business groups joined on the side of the Chancery Court.
John Flaherty, president of the coalition, said the ruling is a win for the rule of law and openness and transparency in government.
“We have a right, when public officials are conducting business, that it be done in public,” he said.
Gov. Jack Markell’s office issued a statement expressing disappointment in the decision. “We feel strongly that it is important to our nation and our state to provide cost-effective options to resolve business-to-business disputes to remain competitive with other countries around the world. Given the importance of this issue, we will be evaluating the appellate options after we have an opportunity to further study the three opinions,” said Andy Pincus, an outside attorney hired to argue the state’s case, in the statement.
Visit delawareonline.com for more.
The Delaware Coalition for Open Government is a member of NFOIC. --eds
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