By Clara Flebus
The cold weather did not deter over 400 lawyers and judges from attending the Commercial and Federal Litigation Section’s Annual Meeting and Luncheon on January 23, 2013, at the Hilton New York Hotel in midtown Manhattan. This year’s programming featured two CLEs addressing changes that are broadly reshaping the way commercial litigation is practiced in both state and federal courts in New York.
The ﬁrst program, entitled “The Chief Judge’s Task Force Report on Commercial Litigation in the 21st Century: From Ideas to Implementation,” highlighted some of the innovations to business
litigation proposed in June 2012 by the Task Force on Commercial Litigation for the 21st Century created by Chief Judge Jonathan Lippman. Chief Judge Lippman, who attended a portion of the CLE, stated that the Task Force’s goal was “to make sure that New York remains at the cutting edge of how commercial disputes re resolved.” In exploring the Task Force’s recommendations, the CLE panel focused on reforms that would be easiest to implement—those that can be implemented without legislative action by adopting new court rules.
Former Chief Judge Judith S. Kaye, now Of Counsel at Skadden, Arps, Slate, Meagher & Flom and co-chair of the Task Force, moderated the panel. At the outset, she asked the panelists to explain why it is important to implement reforms in the Commercial Division. There was a consensus that the Commercial Division has succeeded in providing a specialized, competitive forum that contributes to the development of commercial law—law that is both respected and regularly incorporated into contracts throughout the world. Still, the panel felt continuing innovations are necessary to ensure that business disputes can be handled with the judicial resources and attention that parties demand and that complex matters require. Former Court of Appeals Judge Howard A. Levine, who now practices with Whiteman Osterman & Hanna in Albany, explained that the court has become a “victim of its success,” with the number of cases ﬁled having an impact on expeditious resolution. Mitchell F. Borger, assistant general counsel at Macy’s Inc. and the Chair of the Commercial and Federal Litigation Section’s Faster Cheaper Smarter Working Group, remarked that from an in-house counsel standpoint it is important to have court procedures that help a litigant ﬁgure out how to resolve cases as quickly and fairly as possible because “litigation dollars are lost dollars to the company.”
Turning to the Task Force proposals, the panel ﬁrst addressed a group of reforms deﬁned as “structural.” Robert J. Giuffra, Jr., a partner at Sullivan & Cromwell LP, explained that increasing the monetary threshold to ﬁle a case in the Commercial Division in New York County from $150,000 to $500,000 would reduce the caseload of commercial judges who are overworked. He also noted that the suggestion of periodically reviewing the categories of cases eligible for the Division would help limit docket congestion.
The panel also examined the possibility of increasing the use of special masters drawn from seasoned commercial litigators no longer in practice to handle discovery disputes or other pretrial matters. Unlike in the federal courts, where Magistrate Judges frequently handle discovery issues, the Supreme Court Justices in the Commercial Division either have no such resource or must rely on the limited pool of Judicial Hearing Officers available to assist with the increased volume of discovery disputes arising from the burgeoning sources of data available from electronically
stored information. Suffolk County Commercial Division Justice Elizabeth Hazlitt Emerson observed that special masters can make “a tremendous amount of difference in he resolution of a case,” when they are referred speciﬁc issues early in the process, as they allow the court to allocate time more efﬁciently in “an almost like a triage situation.” Although parties have to pay for special masters, she added that this practice would gain momentum once clients saw the beneﬁts of a more streamlined litigation process. Mr. Borger agreed that in a complex case paying for a special master may be money well spent, and Mr. Giuffra proposed that the procedure could be standardized by having a court rule allowing judges to direct
the parties to a special master above a certain dispute amount.
The discussion then turned to the implementation of “procedural” reforms. The panel emphasized the importance of getting cases assigned to the Commercial Division before substantial motion practice or discovery has occurred, so that judges may help in ﬁnding pragmatic and cost-effective ways to manage and resolve disputes. Panelists generally supported the Task Force proposal to have a court rule providing that any party seeking assignment of a case to the Commercial Division must do so within 90 days of service of the complaint. “If you snooze, you lose,” offered Mr. Borger, pointing out that sophisticated parties should be able to comply with that deadline.
The panel also discussed measures to enhance efﬁciency in handling pretrial proceedings. Justice Emerson raised the point that using letter submissions is a way of luickly identifying and dealing with pretrial issues, so long as the letters do not become “stealth” motions with myriad of attachments or contain communications that may implicate a judge’s ethical obligations. She pointed out that rules are needed to set forth parameters deﬁning what letter submissions are, what they are used for, and that to do if they fail to comply with the rules. Justice Emerson emphasized that a process should be devised to make sure a letter is well published and memorialized in the record. Mr. Borger supported the use of letter submissions, stating they
save a client from having to pay for its lawyer’s time and travel to the courthouse.
The panel also agreed that pretrial proceedings could be expedited by promulgating court rules setting limits, similar to the Federal Rules of Civil Procedure, on the number of depositions
and interrogatories and allowing parties to exceed that amount only upon court’s approval. Mr. Giuffra opined that this is a realistic proposal because it happens all the time in complex civil matters in federal court. He also suggested using a standard form at the preliminary conference to delineate key issues in the case, expected dispositive motions, the shape of discovery, and potential settlement. He stressed the importance of having someone knowledgeable in e-discovery issues attend the preliminary conference “because the amount of money that
can be spent on e-discovery can be, in some cases, literally into the millions of dollars.”
Finally, the panel addressed the use of mandatory mediation as a cost-effective means to resolve disputes early in the process. The Task Force proposed the implementation of a pilot program with a target that one out of every ﬁve cases assigned to the Commercial Division be sent to mediation within 180 days of the assignment. The panelists supported the proposal, agreeing that mediation is effective because clients are involved in the process early on and can gauge their expectations. Judge Levine underlined that mediation provides the client with
an opportunity to get some feedback about the merits of its case from a knowledgeable and credible person, while also getting exposed to the other side’s views. To address the concern that parties may not have sufﬁcient information to conduct meaningful settlement talks, the Task Force provides a mechanism to allow for settlement related disclosure early in a case, a proposal that Mr. Borger agreed would help make mediation more successful.
In closing, former Chief Judge Kaye commented that “these are great ideas, and they need more structured implementation.” She stressed that bench and bar should work together
to seek ways to implement the proposed reforms discussed by the panel.
The second program, entitled “Financial Crisis litigation in the Commercial Division and Federal Courts,” explored how the landscape of commercial litigation has changed in New York state and federal courts after the ﬁnancial meltdown of 008. The moderator, Benjamin R. Nagin, a partner at Sidley Austin, began the discussion by asking panelists to comment on the new phenomenon of “deep pocket” plaintiffs, such as banks, hedge funds, insurance companies and other ﬁnancial institutions, increasingly bringing lawsuits for common law breach of contract and fraud. New York County Commercial Division Justice Shirley Werner Kornreich conﬁrmed that cases arising from the
credit crisis involve sophisticated entities on both sides, and can become very complicated because fraud claims require extensive discovery. he observed that institutional plaintiffs “are going all out” in these cases, and they are creating new law. She cautioned these institutions, however, to consider the consequences of the case law being created, and how such precedent will affect them if they are defendants in future litigation. Justice Kornreich also noted that a typical case now includes substantially overlapping claims for breach of contract, breach of warranty, and fraud. While the noncontract claims have typically been subject to dismissal based on the economic loss rule, recent Appellate Division precedent has allowed these claims to proceed.
Southern District Judge Victor Marrero stated that he sees the same type of fraud, breach of contract, and breach of warranty actions in federal court. By way of example, he pointed to the case of Dodona I, LLC v. Goldman, Sachs & Co., 847 F. Supp. 2d 624 (S.D.N.Y. 2012), a putative class action in which sophisticated plaintiffs invested large amounts of money in a complex
subspecies of ﬁnancial instrument called “synthetic CDOs.” The functioning of the synthetic CDOs could barely be explained or understood, and plaintiffs claimed they were defrauded by the investment bank after suffering substantial losses.
Panelists commented that from a practitioner’s perspective some of the cases resulting from the ﬁnancial crisis are challenging because they require balancing business relationships among several actors and also implicate dealings with regulatory and law enforcement agencies. The panel used the Article 77 proceeding titled In the Matter of the Application of Bank of New York Mellon, Index No. 651786/2011, currently pending in the Commercial Division (Kapnick, J.), as a primary example. In that action, the bank trustee for 530 trusts containing mortgage-backed
securities sought court approval of a proposed $8.5 billion settlement to resolve claims for breach of representations and warranties in the agreements that govern the trusts. J. Kevin McCarthy, deputy general counsel at BNY Mellon, noted that the attorneys general of both New York and Delaware intervened in the action for public policy reasons.
Hector Gonzalez, partner at Dechert LLP, commented that when an institutional client is facing various claims at state and federal level, it is important that both outside and in-house counsel conduct an early case assessment. He explained that the overlay of the regulatory liability has an impact on institutions that have ﬁduciary liabilities, institutions that must evaluate not only the litigation risk but also the risk to their reputations. Mr. McCarthy noted that “there is a tremendous amount of pressure on institutions to coordinate, cooperate, inform, and bring along the various regulatory constituencies…. You don’t want to learn in a press release from a regulator about what’s happening to your institution.”
The discussion then turned to the phenomenon of multiple actions in different venues arising from the same facts and coordination among courts. Judge Marrero explained that allegations of fraud may give rise to three or more actions—a civil action brought by the Securities and Exchange Commission, civil cases ﬁled by individual plaintiffs (sometimes multiple cases consolidated
into a Multi-District Litgation), and a criminal action. In such situations, judges can effect judicial economy by conferring, when appropriate, about conﬂicting or overlapping case management issues. Justice Kornreich recalled that she had a positive experience when she coordinated with judges from other jurisdictions in pharmaceutical cases and greed that such coordination would be useful in commercial disputes.
Finally, Justice Kornreich addressed some of the issues discussed by the ﬁrst (Task Force) panel. She strongly supported proposals geared toward bringing cases before a Commercial Division justice as early as possible. She also observed that since judges have been requiring the parties to meet and confer before the preliminary conference, the dispute resolution process “has become much smoother than it used to be.”
The Section’s program concluded with a luncheon reception and presentation of the Stanley H. Fuld Award for Outstanding Contributions to Commercial Law and Litigation to the Hon. Jed S. Rakoff, United States District Court Judge for the Southern District of New York. Judge Rakoff was recognized for his commitment to justice and judicial independence, his expertise
and dedication to the development of business and securities law, and his ability to handle high-proﬁle matters with creativity. The award was presented to Judge Rakoff by the Hon. Robert A. Katzmann, United States Circuit Judge for the United States Court of Appeals, Second Circuit. After receiving the Fuld Award, Judge Rakoff spoke about a newly created International Commercial Court in Iraq with exclusive jurisdiction over commercial cases in which at least one of the parties is a foreign person or entity. He underscored the importance of the rule of law in
fostering commercial development and attracting foreign investment and praised the courage of Iraqi judges who, despite violence and assassinations, remain committed to the development of a functioning judicial system free of corruption.
Clara Flebus is an appellate court attorney in New York State Supreme Court. She has clerked in the Commercial Division of the court and holds an LL.M. degree in International Business Regulation, Litigation and Arbitration from NYU School of Law