Delaware Business Lawyer Blog

Your adult child tells you she is having money problems and she asks to borrow money. Being a loving parent, you give her a check. Was this a gift or a loan? Are you expecting to be repaid in the future when your child's financial situation improves?

Let's assume it's a large amount of money, and you've been reading about the importance of having signed documents for family loans. So you mention to your child that it's time to sign something, and to your utter surprise, your child says it was a gift.

After agonizing about it, you decide to hire a lawyer and file a lawsuit to recover this money. In most lawsuits, a person who lends money to another person must prove it was a loan. The proof you have to submit in order to win must make the judge or the jury believe it's more likely that not that this was a loan rather than a gift. This means you must tip the scales ever so slightly in your favor, for example, 51% to 49%.

But if the person you loaned the money to is your child, the burden of proof is much higher. You now have to provide "clear and convincing evidence" that it was a loan. Why? Because the Court will presume that the transfer of money from a parent to a child is a gift.

Therefore, be sure to protect yourself and your spouse by having your child sign what's known as a demand note.

Here’s the situation. You filed a lawsuit in Wilmington, Delaware claiming to have an interest in a property owned by the person you’ve sued. Assuming you win, you’ll have a judgment against the defendant, and that judgment will automatically be a lien on all real property which the defendant owns in New Castle County. Lawsuits can take a long time, however, and you’re concerned that the defendant could sell the property before you get your judgment. Wouldn’t it be great if there was a way to notify all prospective buyers of the defendant’s property that you have a lawsuit pending that could affect the ownership interest in the property even if they were to become the owner?

Fortunately, a procedure like this exists. It’s usually referred to as a “Notice of Lis Pendens.” Although the procedure is simple, the following steps must be taken:
(1) Record the Notice of Lis Pendens in the Recorder of Deeds office.
(2) Send the defendant a copy of the notice that you recorded.
(3) File an affidavit in the Court stating that you complied with step 2.

Lis Pendens is governed by a statute, and so your attorney must be aware of all of the statute’s requirements.

As a Delaware litigation lawyer, I am sometimes consulted by clients who are being sued by their neighbors. While the facts are always different, the dispute usually centers around 1 neighbor who is upset over how he or his property is being affected by what another neighbor is doing. This is the first in a series of articles that addresses the balancing test the courts apply in deciding whose interests to protect.

Take the case of a homeowner's association which files a lawsuit in the Delaware Court of Chancery seking an injunction poreventing a homeowner from maintaining her property in a way that they say violates the deed restrictions, and requiring that she make alterations to bring her house into compliance. In this particular case, the complaint was that when she built her home, she used vinyl siding. The architectural review committee of the homeower's association had not approved the use of this kind of siding.

In these types of cases, the Delaware courts start with the age old legal doctrine that favors the free use of one's land. For this reason, the courts in Delaware look suspiciously at restrictions that give an architectural review commitee authority to review plans because restrictions of this nature tend to be what the courts call "arbitrary and capricious" or unreasonable. Nevertheless, if the review and approval process is controlled by clear, specific and reasonable standards that require plans to meet specific requirements, the courts feel that the potential for arbitrary decisions is minimal, and they enforce the restrictions. On the other hand, if the committee review process is based only on aesthetic considerations, they're viewed as vague, imprecise or unclear and do not usually result in evenhanded application. In these instaances, the authority granted to the review committee is not enforced.

In this lawsuit, the deed restrictions said nothing about vinyl siding. The reasom the committee objected was because they felt that property values might be adversely affected. The court ruled that "a homeowner may begin construction before obtaining approval where the approving authority unreasonably refuses to approve the homeowner's plans."

Injunctions in Delaware can fall into 1 of 3 categories:
(1) temporary restraining order, (2) preliminary injunction, and (3) permanent injunction. The Court that issues injunctive relief is the Delaware Court of Chancery. A permanent injunction is a final determination by the Court after a trial. A preliminary injunction is what’s granted on a temporary basis to maintain the staus quo until the Court decides whether to grant a permanent injunction. Where the plaintiff fears that the defendant will take action while the plaintiff is in the process of seeking a preliminary injunction, the plaintiff can request that the Court issue a temporary restraining order, even if there’s no notice to the defendant or an opportunity for the defendant to be heard. Before the Court will issue a temporary restraining order, it must be shown that there’s a treat of imminent and irreparable injury. Once this is shown, the temporary restraining order will be issued unless the Court believes that the plaintiff’s claim is frivolous,, or that the risk of harm to the defendant if the injunction is granted is greater than the risk of harm to the plaintiff if the injunction is denied, that the plaintiff has delayed in seeking the injunction which and is partly responsible for the emergency it claims exists.

The party seeking a preliminary injunction (the plaintiff) is required to show that there’s a reasonable probability that the plaintiff will prevail when there’s a final hearing on the merits of the case. In order to meet the standard for showing that the claim is meritorious as opposed to frivolous, the plaintiff only needs to show that if the facts alleged by the plaintiff are true, it will be entitled to relief.

Before the Court will issue a preliminary injunction, the plaintiff also has to show that it’s facing an imminent threat of irreparable injury if the preliminary injunction is not issued. In order to show irreparable harm, the plaintiff must demonstrate that money damages alone does not provide an adequate remedy. The Court of Chancery will not issue a preliminary injunction if the injury to the plaintiff is only speculative, or if the act the plaintiff is concerned about has already happened.

And, the final thing the plaintiff must show is that when the Court balances the interests of the plaintiff and the defendant, the scale tips in favor of the plaintiff. The balancing test involves the Court comparing the probability of harm to the plaintiff if the injunction is not granted, versus the probable harm to the defendant if the injunction is granted.

Let’s assume that a motion for a preliminary injunction is granted. What remedy does the defendant have if, after the final hearing on the merits, it’s ultimately determined that the plaintiff is not entitled to injunctive relief? To protect the defendant, the Court requires the plaintiff to post a bond in an amount that will compensate the defendant for its losses if it is wrongfully enjoined. The Court usually errs on the high side in determining the amount of the bond because the defendant’s damages are usually unknown until after the injunction is vacated.

Companies that are incorporated in Delaware but do no business in this state are sometimes sued in the Delaware courts simply because they are incorporated here. If the company has no offices in Delaware or anywhere else in the U.S. for that matter, it makes sense to try to get the lawsuit thrown out (dismissed) rather than have to litigate here.

Your Delaware attorney will file a Motion to Dismiss on your behalf. The argument supporting the motion is that the Delaware court has no jurisdiction over your company. Once the Motion to Dismiss is filed, the plaintiff has the burden of alleging facts that make a prima facie showing of personal jurisdiction over your company (the defendant). To meet this burden, the plaintiff is required to adduce facts which "establish with reasonable particularity'" that the defendant transacts business in Delaware. To assist the plaintiff in establishing with reasonable particularity that there is jurisdiction over the defendant, the Court generally allows the plaintiff to take what’s known as jurisdictional discovery before the Court decides whether to dismiss the case. However, jurisdictional discovery will not be allowed if the plaintiff’s claim is frivolous.

If the defendant files an affidavit with the Court stating facts that show the Court does not have jurisdiction, the plaintiff will not be allowed to rely on unsupported allegations in the Complaint.

For the Court to exercise jurisdiction over the defendant, the plaintiff has to show either:
(1) that defendant regularly does business or solicits business in Delaware, engages in any other persistent course of conduct in Delaware, or derives substantial revenues from the services or products used or consumed in Delaware; or
(2) that the defendant engaged in conduct that falls within at least one of the activities described in the Delaware long-arm statute, and that the plaintiff’s cause of action arises from defendant’s acts or omissions that took place in Delaware.

When the Court is faced with mere unsupported allegations regarding personal jurisdiction over the defendant, allowing the plaintiff to conduct jurisdictional discovery would amount to allowing it to conduct a fishing expedition in order to construct a basis for jurisdiction. In that event, jursdictional discovery will be denied, and the case will be dismissed.

In a previous article, I discussed Delaware’s long-arm statute which allows the Court, under certain circumstances, to take jurisdiction over a person or a company that is not a resident of Delaware. In that article, I showed how the non-resident defendant would have to be engaged in conduct that falls within at least one of the activities described in the statute, and the plaintiff’s cause of action has to arise from defendant’s acts. In this article, let’s examine a case where the plaintiff cannot prove that the non-resident defendant performed acts which would make him subject to personal jurisdiction in Delaware, but the plaintiff argues that under a conspiracy theory, the Court can still exercise jurisdiction over the defendant.

Here’s how the conspiracy theory works. The plaintiff tries to show that there was a conspiracy, and that one of the conspirators transacted business in Delaware. The theory is that the transaction of business in Delaware by the conspirator is attributable to the non-resident defendant. The Court considers a co-conspirator to be an agent of the non-resident conspirator.

The Delaware Supreme Court has established a 5-part test for applying the conspiracy theory of personal jurisdiction over non-residents. The Court said:
“We therefore hold that a conspirator who is absent from the forum state is subject to the jurisdiction of the court, assuming he is properly served under state law, if the plaintiff can make a factual showing that:
(1) a conspiracy to defraud existed;
(2) the defendant was a member of that conspiracy;
(3) a substantial act or substantial effect in furtherance of the conspiracy occurred in the forum state;
(4) the defendant knew or had reason to know of the act in the forum state or that acts outside the forum state would have an effect in the forum state; and
(5) the action, or effect on, the forum state was a direct and foreseeable result of the conduct in furtherance of the conspiracy.”

All 5 elements of the test must be met. If, for example, there was no conduct in Delaware in furtherance of a conspiracy, the long-arm statute will not give the Court personal jurisdiction over the non-resident defendant.

When there’s a dispute as to whether a broker has earned a commission, in Delaware (like many other states), the general rule is that a broker is entitled to recover a commission only when he is the procuring cause of a consummated transaction. A broker is the “procuring cause” of a sale if his efforts bring his principal and the purchaser together and lead directly to the consummation of the transaction.

In cases where the negotiations do not progress promptly to a conclusion, but, after considerable delay, are finally satisfactorily concluded between the principal and the purchaser, close questions arise. In such cases, the courts have evolved a subsidiary rule that in order for the broker to be the procuring cause of the sale, it must appear that there was no substantial break in the negotiations. Whether there was a substantial break in the negotiations depends not so much on lapse of time as upon the chain of circumstances.

A principal has the privilege of taking over the negotiations from his agent, after introduction of the prospect, and acting on his own behalf in the consummation of the transaction. Such substitution by the principal of himself for his agent, per se, does not amount to a dismissal of the broker. And the action of the principal in so doing does not become an intervening or predominant cause such as will constitute a break in the chain of causation that, otherwise, would "lead directly" from introduction to consummation and constitute procuring cause.

There are two exceptions to the general rule.

(1) if, after producing the prospect, the broker was dismissed by his principal in bad faith as a device to avoid the commission.

(2) if a broker produces a prospect ready, willing, and able to meet his principal's expressed terms, the commission is earned regardless of whether or not the transaction is thereafter consummated. and this is so even though the principal may thereafter withdraw the broker's authority and dismiss him.

The problem begins after the buyers move in to their new home and discover problems that were not disclosed to them. Depending on what the problem is and how much it will cost to repair, the buyers contact their real estate attorney for help. Many real estate attorneys do not get involved with litigation, and so they refer their buyers to an attorney who has experience litigating these kinds of disputes.

The easiest and least expensive way to get the problem resolved is for the attorney to write a letter to the sellers describing what’s wrong and asking for money. If the sellers refuse, the next step is to decide who to sue and what to ask for.

WHO TO FILE A LAWSUIT AGAINST
The obvious answer is the sellers. However, depending on the facts, it sometimes is appropriate to include the real estate agents and the buyer’s home inspector in the lawsuit.

WHAT TO ASK FOR
In most cases, the purpose of the lawsuit is to recover enough money so the buyers can pay to get the problem repaired. In some cases, however, money is not an adequate remedy, and so the buyers ask for rescission. If rescission is ordered by the Court, the buyers give the house back to the sellers, and the sellers return to the buyers the money the buyers paid for the house.

CLAIMS OF FRAUD
Fraud can arise from fraudulent concealment or fraudulent misrepresentation.

To prove fraudulent concealment, the buyer has to show that the seller took action intended to prevent (and which actually did prevent) the buyer from discovering the damage. This can occur when the seller takes action to conceal the defect. However, it can also occur when the seller takes action to dissuade or prevent the buyer from making an investigation that a buyer would have made and which would have disclosed the defect.

To prove fraudulent misrepresentation, the buyers must show the following 5 things:
(1) the seller made a substantial, material misrepresentation
(2) the representation was false
(3) the seller must have known it was false
(4) the seller made the representation with the intention of inducing the buyer to act upon it
(5) the buyer did act in reliance on the statement and was harmed as a result.

If you believe you've been the victim of fraud in connection with the purchase of your home, contact a Delaware real estate attorney to discuss your options.

I was recently contacted by a client who’s been sued in a Delaware Court even though he lives in another country and is not even a U.S. citizen. The first question that comes to mind is whether the Delaware Court can actually exercise personal jurisdiction over this nonresident. The answer to this question requires an explanation of Delaware’s Long Arm Statute.

The Delaware Courts apply a two-prong test in determining if personal jurisdiction exists over a nonresident. The first prong is statutory, where the Court must decide whether Delaware’s Long Arm Statute applies. The second prong is constitutional, and the Court must decide whether subjecting the nonresident to jurisdiction in Delaware violates the Due Process Clause of The Fourteenth Amendment (this is commonly referred to as the so-called “minium contacts requirement.”

To satisfy the first “prong” of the test relating to the Long Arm Statute, the plaintiff must show that the Court has either specific jurisdiction or general jurisdiction.

SPECIFIC JURISDICTION
For the Court to have specific jurisdiction, the plaintiff must show that (1) the defendant engaged in conduct that falls within at least one of the activities described below, and (2) that the plaintiff’s cause of action arises from defendant’s acts or omissions that took place in Delaware. The activities in question are:
(A) transacted any business or performed any character of work or service in Delaware;
(B) contracted to supply services or things in Delaware
(C) was present in Delaware when tortious acts or omissions occurred;
(D) had an interest in, used or possessed real property in Delaware; or
(E) contracted to insure or act as surety for, or on, any person, property, risk, contract, obligation or agreement located, executed or to be performed within Delaware.

GENERAL JURISDICTION
For the Court to exercise general jurisdiction, the plaintiff must show that:
(A) defendant engaged in tortious conduct outside of Delaware which caused injury in Delaware, and that defendant regularly does business or solicits business in Delaware;
(B) engages in any other persistent course of conduct in Delaware; or
(C) derives substantial revenues from the services or products used or consumed in Delaware.

Even if the plaintiff is able to establish that the Long Arm Statute applies to the defendant, that doesn’t end the inquiry because the Court must then determine whether exercising its jurisdiction over the defendant would violate the minimum contacts requirements of the Due Process Clause of the Fourteenth Amendment.

In a future article, I’ll discuss the minimum contacts requirements.

An injunction is a Court Order requiring someone to do something, preventing them from doing something, or making them stop doing something. A mandatory injunction seeks to change the status quo. are requested in a number of different situations. Here are a few examples.

(1) A school district in Sussex County refused to allow a student to enroll in a local high school. The parents sued for a Court order requiring the school district to enroll their child.

(2) A restaurant sued New Castle Count seeking an order requiring the Count to issue a certificate of occupancy.

(3) A homeowners association sued the owner of a house who they say built an encroachment in a common area. The Association asked for an order requiring him to remove it.

(4) A company sought injunctive relief against someone who obtained trade secrets by improper means.

(5) A widow sued several government officials seeking an injunction preventing them from publicly releasing the results of her husband’s autopsy report which would reveal the circumstances and cause of her husband’s death.

(6) An employer sues a former employee to obtain an order preventing him from soliciting the employer’s customers in violation of a contract.

One thing that all of these cases have in common is the requirement that the plaintiff establish that it does not have an adequate remedy at law. In other words, money damages will not provide the plaintiff with justice.

Even though the general rule is that an at-will employee can be terminated for any reason, with or without cause, and at any time, Delaware recognizes that there are exceptions which allow an at-will employee to sue for wrongful discharge. In a previous article, I listed the 4 exceptions. In this article, let's focus on 2 of them.

THE PUBLIC POLICY EXCEPTION
The concept behind the public policy exception is based on good faith and fair dealing. To qualify under this exception, a two-part test must be satisfied:
(1) the employee must assert a public interest recognized by some legislative, administrative or judicial authority and
(2) the employee must occupy a position with responsibility for advancing or sustaining that particular interest.

PROMISSORY ESTOPPEL
The purpose of promissory estoppel is to prevent injustice. And it applies not only to pre-hire promises but also to post-hire promises that at-will employees have relied on. In order to establish a claim for promissory estoppel, the employee must show by clear and convincing evidence that:
(1) a promise was made;
(2) it was the reasonable expectation of the employer to induce action or forbearance on the part of the employee;
(3) the employee reasonably relied on the promise and took action to his detriment; and
(4) such promise is binding because injustice can be avoided only by enforcement of the promise.

If you were an at-will employee who was fired for reasons you feel were unjust, consult with a Delaware attorney to discuss your rights.

When a company wants to prevent someone from misappropriating its trade secrets and confidential information, it can file a lawsuit in the Delaware Court of Chancery to obtain a preliminary injunction. A preliminary injunction is considered to be an extraordinary remedy that is granted sparingly. In order to convince the Court to issue a preliminary injunction, you have to show:
(1) a reasonable probability of success on the merits at a final hearing;
(2) an imminent threat of irreparable injury; and
(3) a balancing of the equities tips in its favor.

“Irreparable injury” exists where the injury can’t be adequately compensated by money damages and that to refuse the injunction would be a denial of justice.

A “balancing of the equities” means that the Court decides whether the imposition of a preliminary injunction will result in less harm to the defendants than the harm the plaintiff will suffer if the Court denies the request for an injunction, taking into account the parties' respective probabilities of success on the merits.

In Delaware, a person will be declared the owner of another’s property if he is in possession of that property for 20 years, and if his possession is determined by a judge to consist of the following 5 elements:
(1) actual possession
(2) continuous;
(3) open and notorious;
(4) hostile; and
(5) exclusive

Each of these 5 elements has been the subject of litigation, and the Court has had to look at these items based on the facts of each particular case because what might be open and notorious, for example, in one case might not be in another.

In the above example, actual possession could be found to exist when the neighbor actually used the land on his side of the fence as his own property and as a typical property owner would. Mowing the grass, gardening, storing fire wood, etc. are the kind of uses that establish actual ownership.

The same person does not have to use the property in question for 20 years in order for adverse possession to be continuous for 20 years. Instead, the Court allows tacking on between successive owners. What this means is that if the neighbor sells his property to another person who continues to use the property on his side of the fence in the same way that the previous owner did, the chain is not broken.

In my next article about adverse possession, I’ll address the other elements and I’ll give some real life examples.

When we think about filing a lawsuit to collect a debt, enforce a non-compete agreement, resolve disputes between partners, etc., we all know there’s a statute of limitations requiring that lawsuits get filed within a certain period of time. But there are numerous other Court imposed deadlines that must be met.

For example, once your lawsuit is filed, a summons and complaint have to be served upon the individual or company you’re suing. Usually, service is made by the Sheriff’s office. However, if the defendant has not been served within 120 days after your lawsuit was filed, the case will be dismissed.

Once the defendant is served, he has 20 days within which to file an Answer to The Complaint. Failure to file an Answer by this deadline can result in the entry of a judgment in favor of the plaintiff.

Another rule has to do with keeping the case moving once it’s filed. Let’s say the lawsuit is filed, some discovery is taken, and then no other documents are filed with the Court for 6 months. Even if the attorneys are having discussions and are exchanging letters, the rule provides that if nothing has actually been filed with the Court for 6 months, the clerk of the Court will send out a letter warning that if no action is taken within the next 30 days, the case will be dismissed “for want of prosecution.”

If one of the parties files a motion with the Court, it will be scheduled to be heard on a certain date. If the other party wishes to oppose the motion, a written response must be filed no later than 3 days before the motion is heard.

Once a case is assigned to a judge, a Scheduling Order is issued. This Order establishes deadlines for the identification of expert witnesses, the date by which discovery must be completed, due dates for status reports to the judge, and more.

The rules provide for extensions of time granted by the judge, and attorneys frequently agree to extensions when needed. However, severe consequences can occur when time deadlines are ignored.

As a Delaware trial lawyer, I'm proud that our court system allows parents to fight for the rights of their children. And I'm also proud that our system lets David go after Goliath, and win.

How many times have you gotten angry when your insurance company refused to pay for your medical treatment? Well, a group of parents in Michigan decided to take on BCBS when it refused to cover behavioral therapy for children with autism spectrum disorder. The case recently settled for over $1 million, and under the settlement, Blue Cross will pay for behavioral therapy rendered to over 100 children in the last six years.

According to BCBS, it had denied coverage claiming that the therapy was "experimental." Incredibly, during the lawsuit it was discovered that BCBS had internal documents that said:

"Applied behavioral analysis (ABA) is currently the most thoroughly researched treatment modality for early intervention approaches to autism spectrum disorders and is the standard of care recommended by the American Academy of Pediatrics, National Academy of Sciences Committee and the Association for Science in Autism Treatment."

Blue Cross' own documents further acknowledged that "The earlier the disorder is diagnosed, the sooner the child can be helped through treatment interventions."

If you believe a claim you submitted to your health insurance company was improperly denied, contact a Delaware trial lawyer to find out whether your rights have been violated.

A Delaware business owner recently asked me to explain the law of defamation. Defamation is a written or oral statement that harms the reputation of another person. To be considered harmful, the statement must lower the person in the eyes of the public or cause others not to associate or deal with him. We've all heard the words “libel” and “slander.” Libel is written defamation, and slander is oral defamation.

As a Delaware business attorney, I've found that there are defenses you can raise if you’re sued for defamation. The most absolute defense is truth. In other words, if a statement is true, you can tell as many people as you like even though the statement ruins a person’s reputation.

The average businessman is not the only one who becomes involved in a defamation lawsuit. Consider the following headlines you may have seen:

JERRY SEINFELD AND WIFE SUED FOR DEFAMATION

ROGER CLEMENS FILES DEFAMATION LAWSUIT OVER ALLEGATIONS OF USE OF PERFORMANCE ENHANCING DRUGS

WITNESS IN OJ SIMPSON TRIAL SUES DR PHIL FOR DEFAMATION

OPRAH SUED FOR DEFAMATION BY FORMER HEAD OF SCHOOL IN SOUTH AFRICA

DAN RATHER SUES CBS FOR DEFAMATION

In order for there to be defamation, the statement has to be made to someone other than the person the statement is about. In the law, this is known as "publication."

The person claiming that he was defamed has to prove that the statement he’s complaining about was in fact defamatory. However, there are 4 categories of statements that are automatically considered to be defamatory. They are statements that (1) malign someone in a trade, business or profession, (2) impute a crime, (3) imply that a person has a “loathsome” disease, and (4) impute the unchastity of a woman.

I mentioned earlier that truth is an absolute defense. There are also conditional privileges or defenses even if the statement turns out not to be true. For example, if you communicate to the police a suspected crime, that’s allowed. A statement that’s made in the course of the defamed person’s employment and it’s made on behalf of the employer, it’s considered privileged. Statements made by witnesses in a courtroom setting and the legal arguments made by attorneys in court are also privileged.

There are exceptions to everything, including exceptions. Under Delaware law, these conditional privileges must be exercised in good faith. So, even though a communication to the police is usually considered protected, there’s an exception if the statement was known to be false and it was made with malice or an intent to harm the defamed person.

As a Delaware business attorney, one of the issues I discuss with clients who want to have a contracted prepared is mandatory binding arbitration. The rest of this article is taken from a report issued by the American Association For Justice.

Mandatory binding arbitration clauses are hidden in the fine print of various consumer contracts which run the gamut from credit cards and cell phone contracts to nursing home care and employee contracts. Consumers and employees are often forced to sign these clauses in order to receive services or get hired. In the event of a dispute with the corporation, mandatory binding arbitration says that a consumer or an employee cannot take their case to court but instead must take it to a private arbitration forum. Often times the company picks the arbiter who will decide the outcome. The consumer can never take legal action and binding arbitration applies even if a consumer is seriously injured by a product or service. Americans overwhelmingly disapprove of mandatory binding arbitration (81 percent) when presented with all the facts.

Mandatory arbitration clauses are one-sided, pre-emptive and non-consensual; they legally bind people to arbitration at the time of purchase or signing, in order to receive a good or service, but are rarely known to those whose rights are taken away by them. Since these binding mandatory arbitration clauses are presented on a take-it-or-leave-it basis, people have no choice but to waive their rights.

Jamie Leigh Jones was raped, drugged, beaten, and then confined to a shipping container by KBR/Halliburton employees while working in Iraq. Because of a clause placed in her employment contract, KBR is trying to force Jamie to submit to a binding, secret, non-appealable arbitration. Jamie is now fighting to obtain access to the justice system because she unknowingly signed an arbitration clause as part of her 18-page employment contract.

In her testimony before the House Education and Labor’s Health, Employment, Labor and Pensions Subcommittee, Jamie revealed, “At age 20, I had no idea what arbitration was…,” and further explained in her testimony that, “I had no idea what an arbitration was other than a tiny paragraph included in the lengthy document that mandated that I could not get justice from the civil court system.”

Arbitration providers are biased decision makers, organized to serve corporations. Since only businesses are repeat users of an arbitrator, there is a disincentive for an arbitrator to rule in favor of a consumer if he expects further retentions. A September 2007 Public Citizen report on credit card arbitration analyzed more than 19,000 credit card arbitration cases in California, and found that the arbitrators ruled in favor of the corporation almost 95% of the time.

Consumers are also forced to pay steep filing fees just to initiate a case—seldom less than $750 – and pay their share of the arbitrator’s hourly charges, which are routinely $400 or more per hour. In addition, arbitration clauses often allow the corporation to choose the location, regardless of how inconvenient or costly travel will be for the consumer. Although corporations have the cash to pay these costs, many consumer do not and are forced to drop their cases.

In November of 2006, Erika Ricer thought she had purchased a safe car that would last her family for a number of years; however, the night Erika drove the car home, the wind shield wipers quit working while she was driving her six-year old daughter in a rain storm and the next morning on her way back to the dealership, the “Check Engine” light went on. Despite being assured by the dealer that the car had undergone quality assurance inspections and had never been in an accident, Erika was actually sold a rebuilt wreck that had been in a crash where the car was seriously damaged and the air bags deployed. Erika’s contract with the dealership contained a mandatory arbitration clause and a box that if checked, the buyer acknowledges the agreement contains an arbitration clause. Despite never checking the box, Erika is being forced into arbitration by the car dealership’s lawyers, a costly process she can not afford.

Before the Subcommittee on Commercial and Administrative Law, Erika testified “I can’t even afford the cost of going through with the arbitration process the dealer is demanding. In order to just start the process of arbitration, I would have to pay half or more of all the costs of arbitration. I have learned that arbitrators’ fees usually range from at least $700 - $1800 per day, with an average of $1300. In addition to the arbitration fees, I would also have to pay half of the administrative fees. I know that the cards are totally stacked against me in the arbitration process that the dealers want me to go through.”

Binding mandatory arbitration clauses often severely restrict the individual’s ability to argue their side of the case and obtain necessary evidence – which they would be allowed to obtain in court. Courts can also provide a range of remedies not available in arbitration and while proceedings and records of the courts are open to the public, most arbitration clauses require that proceedings be kept confidential, even if the case raises vital health and safety issues.

As a Delaware attorney, I frequently advise my clients about the benefits of alternate dispute resolution (ADR). Arbitration and mediation are the two most popular forms of ADR, but there’s a major difference between the two. With arbitration, a third party hears the facts as if he were a judge, and he decides who wins, who loses, and how much money, if any, is owed. With mediation, the third party makes no decisions about who wins and who loses. Instead, the mediator’s role is help the parties settle their dispute. It's been my experience that Delaware attorneys and their clients are generally very satisfied with ADR.

Mediation
Mediation is an informal process. The two sides who have a dispute meet with a mediator (a neutral third party), discuss what happened and how they would like to see the situation resolved. The mediator is usually a lawyer or a retired judge, and his job is to help the parties resolve their dispute. Mediation doesn’t mean you lose the right to go to trial. If the dispute isn’t resolved through mediation, your case follows the normal process.

Mediation usually begins with both sides and their lawyers in the same room. They take turns telling their story to the mediator. The mediator sometimes asks questions to make sure he understands what’s been said. At this point, the joint meeting ends, and the mediator separates the two sides by putting them in separate rooms. The mediator then talks to each side privately in an attempt to learn more information and to explore the possibility of reaching a settlement. Armed with this information, the mediator then meets with the other side and goes through the same process. It’s not unusual for a mediator to go back and forth between the two rooms numerous times. If mediation is successful, the case is over. If it’s not successful, the litigation process continues as both sides prepare for trial.

The benefits of mediation include: (1) The two sides reach a mutually agreed upon resolution of their dispute as opposed to having a decision made by someone else (a judge, a jury or an arbitrator) imposed upon them; (2) Mediation is less costly than going to trial; (3) You can get your case in front of a mediator quickly, thereby avoiding a long wait for trial; (4) There are times when the two sides to a dispute are able to continue to do business with one another after they have reached a mutually agreeable resolution

Arbitration
Arbitration is also an informal process which, in some respects, proceeds like a trial. Both sides attend a hearing accompanied by their attorneys. Instead of a judge and a jury, the decision maker is a neutral arbitrator. When both sides can agree, sometimes there’s only one arbitrator. When both sides can’t agree, each side chooses one arbitrator, and the two arbitrators choose a third.

All of the exhibits are submitted in advance to the arbitrator(s). The hearing usually begins with the arbitrator(s) laying down some ground rules. The plaintiff’s side goes first. Witness testimony is given, and as each witness finishes his testimony, the other side gets to cross examine him. After all of the evidence has been presented, each attorney gives a brief closing argument.

The entire hearing is much shorter than a trial. The attorneys don’t have to educate the arbitrators as would be the case if there were jurors. The rules of evidence are relaxed. The written reports of expert witnesses can be used in lieu of having the experts come in and testify. What might take a week of trial can often be presented in less than a day. Therefore, the cost in terms of time and money is greatly reduced.

At the conclusion of the hearing, the arbitrators usually say that they will announce their decision in a few days. Unless the parties agreed to binding arbitration in advance, their decision is not binding , and so either party who is not satisfied with the decision can require that the case go to trial.

Let’s say your company is owed money by one of your customers, and despite all your efforts to work with them, they fail to pay you what’s owed. Or, suppose you have a dispute with someone and it can’t be resolved without going to court. You start thinking about hiring a lawyer and filing a lawsuit to recover what’s owed. Would you think twice about suing if you knew you’d be required to pay the other side’s attorney’s fees if you lose the case?

In Delaware like in many other states, it’s believed that the risk of having to pay the other side’s attorney’s fees should not deter you from going to court to enforce your legal rights. For this reason, the general rule is that you don’t get reimbursed your attorney’s fees if you win, but you don’t have to pay the other side’s attorney’s fees if you lose. However, as is the case with most general rules, there are exceptions.

You can recover your attorney’s fees from the losing party if (1) your contract provides for reimbursement of attorney’s fees if you win your lawsuit, or (2) there’s a statute that awards attorney’s fees to the prevailing party.

Maybe it’s time to take a look at the contracts you use to see whether they contain a provision requiring the other side to pay your attorney’s fees if you have to go to court.