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Delaware’s “Private” Court Hearings under Fire from Media

On Monday, major U.S. news organizations like Reuters America LLC, News Corp, New York Times, The Associated Press, and Bloomberg LLP filed an amicus brief in the 3rd U.S. Circuit Court of Appeals in Philadelphia in a lawsuit against Delaware’s practice of allowing sitting judges conduct business arbitration in private.

The organizations alleged the system created questions about preferential treatment of large corporations and raise doubts about the court’s integrity.

The brief observed, “This would lead to fundamental unfairness by creating suspicion that a different set of rules apply to corporations pursuing multimillion-dollar civil claims against each other.”

Delaware’s controversial law passed in 2009 allows its five Court of Chancery judges to preside over business arbitrations with at least $1 million in stake, and where at least one of the involved parties is a Delaware corporation. The hearings are conducted in utmost secrecy without even any case numbers on public dockets.

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The system went virtually unnoticed until 2011, when Skyworks Solutions Inc used the system to back out from an agreement to purchase Advanced Analogic Technologies Inc. The dispute made a transparency advocacy group bring a lawsuit alleging the court dispenses “secret justice to wealthy companies.”

U.S. District Judge Mary McLaughlin shut down the system, last year, who held that the system amounted to civil trials and not arbitration, and that the secrecy shrouding the procedures violated the First Amendment. However, the Court of Chancery judges appealed to the Third Circuit.

In their amicus brief, the news organizations also observed, “If Delaware’s bid for secrecy passes constitutional muster, other states may rush to enact similar procedures, and high-value business arbitrations that affect the public and the markets will proliferate behind closed doors, with the government’s endorsement.”

The case is Delaware Coalition for Open Government Inc v The Honorable Leo E Strine Jr et al, U.S. Court of Appeals for the Third Circuit, No. 12-3859.

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