As we settle in to the New Year, we find that Manhattan has several new Commercial Division justices to replace those that have retired, while retaining the benefit of two of its most respected recently retired Commercial Division justices who have agreed to stay on as Judicial Hearing Officers, Charles Ramos and Eileen Bransten. All this, of course, is for the good, as the Division, buttressed by a host of new rules over the past several years from the Chief Judge’s Task Force and the Commercial Division Advisory Council—many modeled after the federal rules—have given each Commercial Division judge a “menu” from which to choose for their own individual practices as each justice sees fit.
A Little Background
And yet, as the adage goes, “success breeds success” and we find that the Manhattan Commercial Division continues to see even more complex cases, with higher amounts at stake. This has led to occasional rumblings from some members of the commercial bar that motions appear to be taking longer to decide. Some in the bar have suggested there may be too many new rules on each judge’s plate, and that in choosing to employ them, judges have placed too great a burden on their clerks to administer them. Now don’t get me wrong. The work of the Commercial Division is not only booming, but the court continues to enjoy an enthusiastic constituency of commercial counsel that firmly states they would rather litigate in the Commercial Division than anywhere else.
This article is written in the spirit of the Division’s mantra that there is always room for improvement, as is the case today. And so, we look at the Division’s experience with alternative dispute resolution (ADR)—which is enjoying its own surge in popularity—and the Division’s efforts to use that discipline to help manage its caseload.
Over these past few years there have been several experiments to encourage more litigants to try mediation, under the mandatory auspices of the Division to achieve faster results and eliminate a significant number of cases from the Division’s docket. Indeed, most advocates of mediation cite statistics that put mediation settlements in the 80-85 percent range. Two Commercial Division initiatives, unfortunately, have not proved very successful over the past few years and have led many to conclude that requiring mandatory mediation simply does not work.
Commercial Division Rule 15
In 2014, there was Rule 15, an 18-month pilot project, where every fifth case filed in the Commercial Division was to be automatically referred to mediation pursuant to Administrative Order by the Chief Clerk after having been assigned to a Division Justice and the filing of a Request for Judicial Intervention (RJI). The cases so designated went to mediation unless all parties stipulated the case was not suitable for mediation or the assigned Justice exempted the case upon a showing of good cause by a party as to why mediation would be ineffective, unduly burdensome or unjust.
The pilot project fell apart and ultimately was abandoned by the Division. Most parties and their counsel thought that mandatory mediation at the very beginning of a case was premature because the issues had yet to be flushed out in motion practice, including their sacrosanct motion to dismiss and conducting discovery. The project was abandoned in 2016.
Commercial Division Rules 10 and 11
A more recent effort began last year, 2018, and remains on the books. Rules 10 and 11 require counsel for any party in Division cases to serve, file and submit at the preliminary conference and each subsequent compliance conference a Certification stating that counsel has discussed with their respective client the availability of ADR mechanisms provided by the Division and/or private providers, and indicate whether the party is at present willing to pursue mediation at some point during the litigation. If the answer is “yes,” the preliminary conference order must contain a specific deadline for the identification of a mediator. Word so far is that such a representation in its present form also has not borne much fruit—especially where it requires one’s counsel to confer only with one’s own client without conferring with the other side.
In mediation, it takes “two to tango,” and it is unlikely that we will see one side sticking its neck out to admit willingness to negotiate without knowing if the other side feels the same way. Many clients also are reluctant to talk about mediation at the beginning of a legal battle because it might be viewed by their adversaries as a sign of weakness at such an early stage, and that one side, acting alone, would be reluctant to show such a hand.
What Is Creative Commercial Mediation?
With this background, how does one get both sides to the table in an enthusiastic frame of mind to negotiate? One concept to consider is creative mediation. It does not work in every kind of commercial case—especially where the parties have no personal relationship and have turned into litigation antagonists. But there are instances where being creative most definitely does have a place. From my past judicial experience, as well as in my recent commercial mediation work, I have become attuned to the subtleties of communication of one or both parties in status and other conferences. and often see openings where parties appear to share a mutual interest in continuing to do business together.
This often shows up in a commercial dispute where both sides have either done business with each other before and have had a relatively successful business relationship (but that now has gone awry), or a disagreement occurs between parties that are doing business for the first time. In both instances it may have been a misunderstanding of contract terms, or one party dropped the ball to the detriment of the other or some similar type of dispute. In these cases, common ground needs to be found between the parties to explore the possibility of putting aside their differences and making an effort to resolve their current dispute and craft a new business arrangement that enables them to continue to do business together.
The key to opening serious mediation talks of such disputes is to watch for a business-related opening from one or both parties. The importance of the Commercial Division judge or clerk in this regard cannot be overstated. This is because these hints are mere “openings” that must be seized upon at the earliest stage that they manifest themselves. It may occur during a preliminary conference, a status conference or a motion practice or discovery. The point is, one must be able to see the opening for what it really is—a business overture, not a legal one.
Creative Mediation vs. Commercial Litigation
So, what is it that should be conveyed to the parties? They should be told that in mediation, both sides have an opportunity to accomplish things in their negotiations that cannot ever be done in a court of law. The court is bound to decide the case strictly on the facts and the law before it.
The court cannot:
• grant extra-judicial relief to craft a business deal beyond the terms of the deal both sides originally made, and which form the basis of the dispute before it;
• look at the businesses of both sides and order new business terms, restructuring obligations, additional financing and payment terms, or even restructuring the businesses themselves;
• build into an existing contract creative business terms, such as guarantees, licenses, interest rate formulas, additional or different product lines, added or reduced business territories, incentive payments, different performance goals, buyouts, and other things that only the parties can create as business associates, to have a successful settlement.
The bottom line is that in mediation, parties have an opportunity that they can never have in court—even in a specialized commercial one. In creative mediation, the parties are the deciders, and the only limitation is their own business creativity and that of their experienced mediator.
ADR Working in Tandem With the Commercial Division
As stated at the outset, ADR has joined the Commercial Division with its own surge in popularity. It has enjoyed enormous growth in recent years as parties come to recognize its own benefits in addressing certain disputes. There is no reason why these two disciplines—litigation and mediation—cannot work in tandem to address the needs of our business community. And it need not require a mandatory Commercial Division rule for this to happen. Rather, as advocated here, it requires a certain level of sensitivity by jurists, judicial clerks and the lawyers for the parties themselves to identify the cases where the alternative of creative mediation should be deployed as opposed to continuing a fight in the courthouse.
There is more than enough room for this sharing of responsibility to serve not only the needs of our business community clients, but also to free Commercial Division jurists and staff of some of the congestion on the Division’s docket, so that everyone that has a role in this extraordinarily important sector of our economy walks away happier.
Melvin L. Schweitzer is a retired Acting Supreme Court Justice, New York County, Commercial Division. He is a member of NAM’s (National Arbitration and Mediation) Hearing Officer Panel and is available to arbitrate and mediate cases nationwide.