BBA Public Policy - Adjudication of Complex Commercial Cases
A PROPOSAL FOR ADJUDICATION OF COMPLEX COMMERCIAL CASES

Summary

The Boston Bar Association ("BBA") herewith submits a proposal for the adjudication of complex commercial cases by the Superior Court. The proposal may be implemented by order of the Chief Justice of the Superior Court. It does not require any legislation, additional jurists or additional expenditures. The proposal contemplates the designation, initially, of a maximum of four justices who would sit initially in Suffolk County, and thereafter, as may be required, in additional counties, to hear complex commercial cases when so designated by one of the parties. Complex commercial cases are identified in the proposal below. Based upon the excellent results of a similar program in New York State, the BBA believes its proposal would provide efficiencies for both the bar and bench, a more hospitable climate for business, and an improved system for administering justice for all Massachusetts citizens. Key to achieving these objectives is an adjudicative process which produces timely, informed, and legally consistent commercial opinions.

Background

The Delaware Chancery Court has long been regarded as the forum of choice for determining complex corporate matters. There are three principal reasons for this. There are just five chancellors who continually deal with such matters, whose decisions, interlocutory and final, are always in writing. The decisions may be immediately appealed to the Delaware Supreme Court where the cases are argued promptly on the briefs submitted below. Also, Delaware's business statutes are well drafted, well interpreted and continually amended to reflect current business practices. The state has created and maintains a hospitable environment for business.

The result is that many businesses are organized under the laws of Delaware when they have no other connection with the State. These businesses produce revenue for Delaware in the form of franchise taxes and the like as well as interesting cases for its lawyers and judges. Many non-Delaware lawyers, when pressed by their knowledgeable clients as to the most favorable laws under which their businesses should be organized, have advised that Delaware's statutes and courts offer a degree of certainty which other states in the past have not matched.

The New York Approach

During the last decade of the last century the New York judiciary and bar addressed what might be done to improve disposition of complex commercial cases in their state. New York courts earlier in the century had been responsible for issuing major far-reaching corporate decisions. The object was to regain this prestige by making New York state courts the leader in setting precedents for their lawyers. "It's important to clients and lawyers to have available a well-developed body of commercial law, with precedents that can guide the clients' business behavior . . . Having a specialized court enhances that body of law which can be relied on."[1] In fact, the New York business community had become increasingly dissatisfied with its state courts, and members were voting with their feet, going to Delaware whenever they could, or to federal court, or to private arbitration. They were concerned about expense of litigation, case loads, cost-effectiveness, and a perceived lack of experience and sophistication in New York courts handling commercial litigation.

On January 1, 1993, four justices of the State Supreme Court were assigned administratively to hear commercial cases in New York County (Manhattan). This experiment was an immediate success. The disposition of trial ready commercial cases increased 35% in 1993 over 1992, an efficiency attributed to the introduction of the specialized jurists.[2] The perception was that "the work of more than four generalist judges can be accomplished by three specialty business judges."[3]

In February 1995, the Chief Judge of the State of New York, the Honorable Judith S. Kaye, established a task force of bar leaders, judges, commercial litigators and business leaders to create a Commercial Division of the State Supreme Court. The Division began operation on November 6, 1995; more than 5,000 new commercial cases were filed with it in New York County between November 6, 1995 and June 30, 1996. A Commercial Division was established in Monroe County (Rochester). Today, Commercial Divisions are, or will be shortly, operating in four additional counties.

In November 1996, the Chief Administrative Judge of the New York State Unified Court System reported in a press release that since 1992, overall there had been:

  • A 29% reduction in the average time to dispose of cases
  • An 85% increase in the number of cases settled before trial
  • A 26% decrease in the volume of pending cases
  • A 6% increase in case dispositions.

Further, in Rochester, over 50% of the cases handled in the Commercial Division were now being resolved within 90 days, with trials set within 30 days.[4] Judge Kaye said, "In its first year of operation, the Commercial Division has effectively enhanced commercial litigation for the entire business community in this state, from small businesses to large corporations."[5]

In 1992 the average contract case in New York County had taken 648 days from filing to disposition. By 1998 the time had been reduced to 412 days, and 58% of those cases referred to the Division's ADR program has been settled. The Chairman of the Business Council of New York State and Chairman of the Board and Chief Executive Officer of Texaco, Inc., Peter I. Bijar, said: "We have now gone . . . from a court system that often evoked frustration among businesses, to a business court that is the envy of other states . . . [T]he Commercial Division is an asset to the business community in New York State."[6]

Perceived Objections and Responses

In May 1997 the ABA Ad Hoc Committee on Business Courts ("ABA") reviewed the progress of business courts (as it has continued to do) in the Business Lawyer, Vol. 52, and noted objections frequently made.

First: Specialized business courts give a higher quality of judicial resources to certain cases at the expense of others. The goal, however, said the ABA is to increase efficiency, as criminal, probate, family law, and juvenile courts and divisions are intended to do.

Second: No litigants should have "better" justice than others: that is, the so-called "elitist" objection. Such a view, the ABA found, "would result in the rejection of every non-universally adopted improvement in the judiciary, from specialized family courts to evening hours for traffic courts, to expedited calendaring for special situations."[7] (To avoid the "elitist" charge, New York did not specify a minimum ad damnum for jurisdiction.)

Third: Judges and lawyers enjoy being generalists. While the ABA recognized merit in this argument it observed:

"Unfortunately, the failure to build an expertise and the cost of being a Renaissance lawyer exacts a high price which must be paid by someone. In the case of the private bar, that someone, namely the public that retains lawyers to provide services, simply refused any longer to pay the price for the non-expert lawyer to dabble in various fields. The public has forced reluctant lawyers to develop experience, expertise and knowledge in the field of law which they practice . . . There are no similar direct pressures on the judiciary, but to the extent that it resists specialization, it imposes significant costs on society."[8]

Fourth: Another expressed concern is the perceived loss of flexibility in administering judicial resources. However, the ABA advised that judges assigned to a commercial division can be available for other assignments.[9]

The ABA expressed concern that, increasingly, disputants seek resolution outside the judiciary. It noted that the American Arbitration Association reported over 62,000 cases filed with it in 1995, an increase of over 100% from 1982. These figures do not reflect numerous ADR cases handled by non-judiciary organizations.

In addition to the foregoing, Massachusetts Superior Court Justices have raised the following problems:

• Special assignments are usually available upon request by counsel for complicated commercial cases. However, special assignments do not satisfy the need for a limited number of judges who can specialize in complex commercial cases, so that Massachusetts can develop a comprehensive decisional law on business and financial matters in order that attorneys may better serve the needs of their business clients.

• The business judges will be perceived as an elite group. However, judges will not be selected on the basis of their I.Q.s or law school grades. More likely, they will be jurists who in private practice concentrated in complex commercial and financial matters and would prefer to hear cases involving such matters.

• There will not be a sufficient number of cases to keep the business judges occupied. That could be so initially. New York solved the problem by transferring existing commercial cases to the new Commercial Division and Philadelphia County had 40 new cases in its first two months of operation. Massachusetts appears to be losing business cases to other tribunals. Chief Justice del Vecchio has publicly stated her concern in this regard. The belief is that many of these cases could be recaptured by the Superior Court if litigants believe that the adjudicative process will produce timely, informed, legally consistent commercial opinions.

• A group of litigants (i.e., the business community) will receive selective treatment on an expedited basis, not available to other litigants. However, the experience in New York has been that non-business litigants have been benefited by having the time-consuming cases removed from the regular dockets.

Present Commercial Litigation Courts

• In New York State the Commercial Division was created through the court's rule-making powers. No new courthouses or even courtrooms have been constructed, but an aggressive use of new technology is being applied to a separate docket which has become a paradigm for other dockets.

• On January 1, 2000 the Court of Common Pleas of Philadelphia County, Pennsylvania, instituted by rule-making a Commercial Case Management Program. Initially, two judges, called "Commerce Program Judges", have been assigned by the Administrative Judge. The Program includes three separate tracking schedules for better case management.

• In Connecticut, commencing March 1, 1998, one or more judges of the Superior Court in each Judicial District has been designated to handle all "Complex Litigation" in addition to normal duties.

• Since 1992 Illinois has maintained in Cook County (Chicago) a special commercial calendar where, currently, six judges deal only with commercial cases.

• In 1996 the Governor of North Carolina appointed a state-wide Superior Court Judge to hear complex business cases from start to finish. The amount in controversy must exceed $500,000.

The Boston Bar Association Study

During 1995-1996 a few members of the BBA Corporate Law and Business Litigation Committees, with the approval of then BBA President Joel Reck, began a study of whether establishing a business court division within the Superior Court would be beneficial and feasible. After almost a year of inquiry and study, the group sought to explore such a division with the Justices of the Superior Court. The Justices voted unanimously against such a division.

In 1999, Senator David Magnani filed a bill in the Senate (S. 846, still pending) to establish a Complex Case Division. His bill was based, in part, on a bill which had been filed in 1988 but which had never advanced. Senator Magnani sought the input of the BBA group which had previously addressed the issue. Senator Magnani's bill was later considered at a joint meeting of the BBA Corporate Law and the Business Litigation Committees, and approved by a 55-1 vote. BBA President, Lauren Stiller Rickleen, then appointed an Ad Hoc Committee to study the advisability and feasibility of dealing separately with complex commercial matters in the Superior Court.

The Ad Hoc Committee held a number of meetings with Senator Magnani, with several Superior Court Justices, including the former Chief Justice, Robert A. Mulligan, the Chief Justice for Administration and Management, Barbara A. Dortch-O'Kara, and with the Administration of Justice Section of the BBA. Both that Section and the Superior Court Justices have questioned any arrangement which would treat complex commercial cases differently from other Superior Court cases.

The Ad Hoc Committee has concluded that specialization is required for the reasons advanced by the ABA's Ad Hoc Committee as summarized above and because many of its members who practice in the Superior Court, and their clients, believe it would result in prompt and more predictable dispositions of their cases. Current members of the BBA Ad Hoc Committee include three former Superior Court Judges, ten lawyers who regularly practice in the Superior Court and a lesser number of representatives of the business community, and business transaction lawyers.

The Proposal

Initially, we propose that two Justices be assigned by the Chief Justice of the Superior Court to a Special Sitting of the Superior Court in Suffolk County. They would be available to hear complex commercial cases wherever arising in Massachusetts. We anticipate and encourage additional assignments of Justices to an additional three or four counties within two years as the case load mandates. The Justices would not ride circuit. Initial appointments would be for a term of up to 3 years. Cases would qualify as complex commercial cases for the Special Sitting, whether the litigants are individuals or entities, when issues come within, or meet the qualifications for inclusion in, one or more of the following categories, with the Justice then having jurisdiction over all of the issues of the case:

  • claims relating to the governance and conduct of internal affairs of all business enterprises and not-for-profit institutions, however organized, including, without limitation, employment agreement disputes; liability of officers, directors, partners, managers and trustees under statutes and common laws arising out of the governance and conduct of affairs of the enterprise or institution;
  • shareholder derivative claims and claims relating to or arising out of securities transactions;
  • claims involving mergers, consolidations, sales of assets, issuance of debt, equity and other like interests of business enterprises and not-for-profit institutions;
  • claims to determine the use or status of, or claims involving, intellectual property, confidential, proprietary or trade secret information; claims involving restrictive covenants;
  • claims involving alleged breaches of contract or fiduciary duties, fraud, misrepresentation, business torts or other violations involving business relationships (e.g. unfair competition), if they have complex factual or legal issues or are likely to require complex case management;
  • claims under the Uniform Commercial Code, if the claims involve complex factual or legal issues or are likely to require complex case management;
  • claims arising from transactions with banks, investment bankers and financial advisers, brokerage firms, mutual and money funds of all kinds, if the claims involve complex factual or legal issues or are likely to require complex case management;
  • claims for alleged violations of antitrust and other restraint of trade laws; claims of unfair trade practices if the claims involve complex factual or legal issues or are likely to require complex case management;
  • malpractice claims brought by business enterprises and not-for-profit institutions against professionals relating to rendering of professional services;
  • claims to which a governmental entity or authority is a party if the claims are described by any of the above categories and are not excluded from the Business Sitting as set out in the next section; and
  • other commercial claims, including those involving insurance, construction, real estate and consumer matters, which have complex factual or legal issues or are likely to require complex case management.

There would be no minimum ad damnum other than the $25,000 presently set by the Superior Court. The civil action cover sheet would be amended so that the case could be designated for assignment to the Special Sitting. When the plaintiff checked the Special Sitting box, the case wherever filed in the Commonwealth would be immediately directed by the clerk's office in which the case was filed to the Special Sitting, and the matter would be specially assigned to one of the Justices on a random basis. If the plaintiff did not check the Special Sitting box, but the defendant believed the case would appropriately be designated for the Special Sitting, the defendant would so designate the case in a statement with its answer or responsive pleading. If the defendant submitted such a designation, the matter would be immediately directed by the clerk's office in which the case was filed to the Special Sitting. If neither party checked the box, the Justice to whom the case was originally assigned could on his own initiative transfer the case to the Special Sitting. The Sitting Justice to whom the case was assigned or transferred would continue with the case until final disposition even if the Justice were later assigned to another sitting of the Superior Court.

Cases involving the following would not be eligible for assignment to the Special Sitting for complex commercial cases unless (except for cases within clause (a) below) they were issues in a case where one or more of the other issues qualifies for the Special Sitting Justice:

  • matters subject to compulsory arbitration or to the exclusive jurisdiction of the Probate, Land and Housing Courts, the District Courts or the Boston Municipal Court;
  • personal injury, survival or wrongful death matters;
  • individual (non-class) consumer claims against businesses or insurers, including product liability and personal injury cases;
  • environmental claims not involved in the sale or disposition of a business;
  • eminent domain matters;
  • malpractice claims other than those designated above for the Special Sitting Justice;
  • employment disputes not involving written contracts and employment discrimination cases;
  • administrative agency review under G.L. 30, §14, zoning and other appeals from administrative agency orders;
  • residential real estate and non-commercial landlord-tenant disputes; and
  • occupational health or safety matters.

Based upon New York's experience, it is anticipated that these non-Business Sitting cases would receive more prompt attention than they now do because they would not be on the same docket as the complex commercial cases.

Reassignment

On motion of any party, made within 30 days after the service of the initial pleading in an action assigned to the Special Sitting, or, within 30 days after the service of the responsive pleading designating an action for the Special Sitting, the Justice to whom the case was assigned could transfer the action out of the Special Sitting to another appropriate session of the Superior Court. The Justice could also sua sponte, at any time after the service of the initial pleading of any action initially assigned to the Special Sitting, reassign any such action to another appropriate session of the Superior Court, in order to avoid an undue burden, expense or hardship upon a party or for any other reason, legal, equitable or administrative. No appeal could be taken from any reassignment.

A case management program involving possibly two or three different tracking orders, depending upon the nature of the case, would be utilized. Juries could be impaneled.

Each substantive order, interlocutory or otherwise, would be accompanied by a written decision in order to facilitate appeals and establish precedents. These decisions would be reported.

Implementation of this Proposal could be facilitated by the designation of a clerk to be assigned to the Special Sittings docket. In time, Special Sittings might become paperless, with all pleadings, briefs, motions, etc. filed electronically.

It is recommended that the Chief Justice appoint a panel to monitor the Special Sittings, including recommendations as to procedure, resolution of questions and recommendations for modifications.


Footnotes:

[1] Mark C. Zanderer, Chair of the New York State Bar Association (October
1966).

[2] See The Business Lawyer (American Bar Association), Volume 52, May
1997 at p. 952.

[3] Ibid.

[4] Press Release of November 7, 1996.

[5] Ibid.

[6] The Metropolitan Corporate Counsel, December 1999

[7] The Business Lawyer, Vol. 52, at p. 953.

[8] Ibid., at p. 954.

[9] Ibid.