The U.S. Supreme Court on Monday declined to review a ruling that shut down Delaware's novel program to have judges hear private arbitration cases, which critics blasted as "secret courts".
The U.S. Court of Appeals in Philadelphia ruled last year that having state judges decide arbitration cases in secret violated the U.S. Constitution.
"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," said Andrew Pincus, a Mayer Brown attorney who was hired by the state.
Pincus said in a statement it was premature to determine how the state should respond to the ruling.
The program was adopted by the state in 2009 as the first of its kind and was seen as a way for Delaware's courts to compete with increasingly popular private arbitration.
The state hoped that offering a binding decision from a judge on the Court of Chancery in a secret proceeding would be more appealing than traditional arbitration, which is usually decided by retired judges or lawyers.
Unlike litigation, where one party drags the other into court, both parties in an arbitration case agree on a particular forum and the ground rules. Businesses that are leery of the unpredictable nature of litigation often see arbitration as a less risky way of resolving a dispute.
Delaware's arbitration cases were heard in Chancery courtrooms, in front of judges wearing their robes, but everything was secret, even the filing of cases. It has since been disclosed that the program was used about six times.
In 2011, the Delaware Coalition for Open Government sued Leo Strine, then the chief judge of the Court of Chancery, and the court's four other judges for violating the First Amendment of the U.S. Constitution.
A federal judge shut the program down a year later.
The state may be able to rewrite the law to preserve some of the program's advantages, like the speed and ability to customize the proceedings, but a federal court ruled there must be public access to the proceedings.
While Delaware fears its courts may lose out to arbitration, the non-jury Court of Chancery remains a key venue for major disputes. For example, the Italian auto maker Fiat came to the court in 2012 to battle with a U.S. union trust over ownership of Chrysler.
Since the lawsuit was filed, Strine has become the chief justice on Delaware's Supreme Court. Andre Bouchard, the lawyer Delaware hired to defend the lawsuit, has been nominated to replace Strine on the Court of Chancery.
The case is Leo E. Strine Jr v Delaware Coalition for Open Government Inc, Supreme Court of the United States, No. 13-869.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Stephen Powell)