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Delaware Chancery Court sued for "secret" hearings

/ Source: Reuters

The judges on Delaware's prominent business court are violating the First Amendment of the Constitution by holding "secret" hearings, according to a nonprofit group that sued to unseal the proceedings.

The Delaware Coalition for Open Government Inc sued the five judges on the state's Chancery Court to open the court's arbitration hearings to the public.

The court, which has been a venue for prominent corporate law trials involving Walt Disney Co and eBay Inc, adopted private business arbitration rules last year. The proceedings take place before a sitting judge, can run for days and include the presentation of evidence.

"The only difference is that now these procedures and rulings occur behind closed doors instead of in open court," said the complaint, filed in Delaware's federal district court.

John Flaherty, a public interest lobbyist and spokesman for the coalition, said the arbitration "flew under the radar" until recently.

Last month, Advanced Analogic Technologies Inc took a disputed merger with Skyworks Solutions Inc into the state's arbitration process. While the companies announced they had entered the proceeding, court rules prevent further disclosures.

"Such actions amount to a secret judicial proceeding," said the coalition's complaint.

Flaherty said the parties have the option of going to private mediation, but once a sitting judge oversees the arbitration, the process should be opened.

"Government should not be going backward to more secrecy," said Flaherty.

Chancellor Leo Strine, the court's chief judge, said in a statement that "throughout American history, it has long been recognized that not all aspects of the judicial process are subject to public access, and the courts of this state regularly mediate disputes among citizens, including businesses, and can only do so effectively if the confidentiality of the process is respected."

He added that the arbitration legislation was designed to ensure "Delaware remains the most attractive domicile in the world for the formation of business entities."

Delaware has become a favored state of incorporation for more than half of the listed companies in the United States, in part because of experienced judges on the Chancery Court.

Critics complain that the court is too eager to protect management at the expense of investors.

The case is Delaware Coalition for Open Government Inc v The Honorable Leo E Strine Jr et al, U.S. District Court, District of Delaware, No. 11-1015.