Panel Suggest Ways to Execute Reforms to Commercial Division

Brendan Pierson

New York Law Journal

01-24-2013

The Commercial and Federal Litigation Section of the New York State Bar Association met yesterday at the Hilton in midtown Manhattan for a pair of panels exploring the future of commercial litigation in the state, with a heavy focus on recently proposed reforms to the Commercial Division.

The first panel, "The Chief Judge's Taskforce Report on Commercial Litigation in the 21st Century: From Ideas to Implementation," looked at how to execute some of the reforms to the Commercial Division proposed last June by the Taskforce on Commercial Litigation, convened by Chief Judge Jonathan Lippman nearly a year ago.

The panel was moderated by former Chief Judge Judith Kaye, now of counsel at Skadden, Arps, Slate, Meagher & Flom, who also cochaired the taskforce. The panelists were former Court of Appeals Judge Howard Levine, now a partner at Whiteman Osterman & Hanna in Albany; Suffolk County Supreme Court Justice Elizabeth Emerson (See Profile), who sits on the Commercial Division and was a member of the taskforce; Robert Giuffra Jr., a partner at Sullivan & Cromwell; and Mitchell Borger, assistant general counsel at Macy's Inc.

Kaye made clear at the outset that the panel would focus on reforms that could be accomplished by court rule and without new money, leaving aside the taskforce's recommendations for more judges and more judicial support.

She first asked the panelists to explain why reforming the Commercial Division is important. Panelists stressed that the Commercial Division has been successful, but said changes are needed to make certain it can maintain a high standard and attract major players with important cases.

"To be a great court, you gotta get great cases," Levine said. The Commercial Division, he said, has become, to some extent, a "victim of its success," as its popularity has meant a burdensome caseload.

Borger said that reforms ensuring the Commercial Division operates as efficiently as possible will keep the business community in the court.

"Litigation dollars are lost dollars to the company," he said. "It's about figuring out how to resolve the case as quickly and fairly as possible."

Turning to specifics, the panelists first raised the idea of boosting the threshold to enter the Commercial Division from its current $150,000 to $500,000 or more, which Giuffra touted as a way to lessen the "overworked" Commercial Division judges' caseload.

The Commercial and Federal Litigation Section's panel on the chief judge's taskforce report was moderated by Judith Kaye of Skadden, Arps, Slate, Meagher & Flom, at left, with panelists, from left, Howard Levine of Whiteman, Osterman & Hanna; Justice Elizabeth Emerson of the Suffolk County Commercial Division; Robert Giuffra of Sullivan & Cromwell; and Mitchell Borger, vice president/assistant general counsel of Macy's. NYLJ/Rick Kopstein

They also discussed how to make sure cases are assigned to the Commercial Division as early as possible, rather than at the motion to dismiss or summary judgment stage, which the panelists agreed was important. The taskforce proposed a rule that a party must ask to have a case assigned to the Commercial Division within 90 days, a measure the panelists supported.

"If you snooze, you lose," Borger said. Sophisticated parties, he said, should be able to comply with that deadline.

Panelists also agreed that increasing the use of special masters, which are paid by parties, to handle pretrial matters like discovery disputes is key to streamlining litigation.

"In a complex case, the cost of a special master is probably worth it," Borger said.

"It will gain momentum when parties see benefits," Emerson said, adding that a special master could often resolve discovery disputes simply by asking parties what they think they need and why they need it early in the case.

Emerson also discussed the use of letter submissions as a way of dealing with pretrial matters, though she cautioned against allowing them to become motions in disguise.

"The perfect letter submission should not have any adjectives in it," she said.

The panel also discussed expediting pretrial proceedings by having parties meet early and agreeing on electronic discovery and depositions. Giuffra suggested a rule that parties must have a preliminary conference within a certain number of days of the commencement of an action, using standard forms to answer key questions: what the major issues are, what dispositive motions could be filed, what kind of discovery will be needed.

Finally, the panel turned to the question of using mediation early on. The taskforce report included a proposal for a pilot program that would send randomly chosen cases to mandatory mediation. The panelists agreed that mediation could be beneficial, though they acknowledged that some litigants might resist. Parties that are "not sophisticated and practical" might want to push ahead with trial, Borger said.

Kaye summed up the panel as an effort at moving from ideas to execution.

"These are great ideas, and they need a more structured implementation," she said.

Second Panel

The second panel, "Financial Crisis Litigation in the Commercial Division and Federal Courts," examined the effects of the explosion of litigation in New York's state and federal courts following the financial collapse of 2008. It was moderated by Benjamin Nagin, a partner at Sidley Austin.

The other panelists were Manhattan Supreme Court Justice Shirley Kornreich (See Profile), who sits on the Commercial Division; Southern District Judge Victor Marrero (See Profile); James Gange, chief compliance officer of hedge fund manager Davidson Kempner Capital Management; J. Kevin McCarthy, deputy general counsel at BNY Mellon; and Dechert partner Hector Gonzalez.

A major theme that emerged was that New York courts have been inundated by lawsuits between large financial entities fighting over extremely complex investment instruments, and that these cases have created new law with uncertain consequences.

"These cases are being litigated without looking to the future," Kornreich said. Plaintiffs "are going all out, to go to trial with these cases, and they're creating new law… The plaintiffs, who will be defendants in the future, aren't thinking about the precedent."

In particular, she said, the post-crisis wave of litigation has created a precedent of contract claims proceeding alongside fraud claims based on the same case.

"It's really duplicative, but I can't throw it out because the law says that it can be," Kornreich said. "At least when I've said otherwise, I've been reversed."

Marrero said he had seen the same thing in federal court.

This precedent, Kornreich said, "may well cause a lot of uncertainty for the transactional bar."

The panel also discussed the logistics of dealing with multiple actions arising from the same facts. For example, a fraud allegation could give rise to a civil suit by the Securities and Exchange Commission, a private shareholder suit and criminal charges. Both Kornreich and Marrero advocated that judges coordinate with one another as much as possible.

Finally, Kornreich returned to themes raised by the first panel: the importance of getting parties into the Commercial Division early, and getting them to meet with each other early.

She said that she and other judges had already begun individually requiring parties to meet, and that the results were promising.

"It's really become much smoother," she said.

@|Brendan Pierson can be contacted at bpierson@alm.com.