Lisa Gerson ()
The New York State Supreme Court Commercial Division is designed to handle complex “commercial cases,” defined as actions in which the principal claims involve or consist of one or more of 12 specified categories.1 The rules of the Commercial Division are found in Section 202.70 of the Uniform Rules of the Supreme and County Courts (22 NYCRR §202.70), which rules may be amended from time to time by the chief administrative judge. The past four months have seen the most changes to the Commercial Division rules of any year since the initial adoption of Section 202.70 in 2006. These changes include amendments to the jurisdictional requirements, changes to procedure, and additions to rules of discovery. In addition, two pilot projects were recently established for the First Judicial District—New York County—relating to mandatory mediation and referral of discovery disputes to special masters. Each of these additions, amendments and changes are explored below.
With certain exceptions, including cases where equitable or declaratory relief is sought, assignment to the Commercial Division requires that certain monetary thresholds are met. These thresholds are considered jurisdictional and are county/district specific. See Rule 202.70(a) for the specific thresholds. Effective Sept. 2, 2014, the monetary thresholds for seven of the 10 judicial districts will double. At that time, the minimum threshold in any of the judicial districts will be $50,000.
The highest monetary threshold, not surprisingly, is in New York County, where actions may only be heard in the Commercial Division if the amount in controversy is at least $500,000. The New York County threshold was raised from its previous level of $150,000 in February 2014.
Assignment to Division
Prior to recent amendment, assignment to the Commercial Division could be accomplished by filing a request for judicial intervention and attaching a Commercial Division RJI addendum certifying that the case meets the jurisdictional requirements. Effective Sept. 2, however, parties seeking assignment to the Commercial Division will have to act within 90 days of service of the complaint and, absent good cause shown for delay, failure to do so will preclude a party from seeking assignment to the Commercial Division. (Notwithstanding the above, a non-Commercial Division justice assigned a case may sua sponte request the administrative judge to transfer the case to the Commercial Division provided the jurisdictional requirements are met.) The amended rules regarding assignment are found at section 202.70(d).
Rules of Practice
Within Section 202.70(g), practitioners will find the Rules of Practice for the Commercial Division. These rules generally must be read in conjunction with the remaining rules of Part 202 (Uniform Civil Rules for the Supreme Court and the County Court). However, the Commercial Division Rules of Practice supersede sections 202.8 (regarding motion procedure) and section 202.12 (regarding the preliminary conference). The chief administrative judge has recently issued three additions and one amendment to the Rules of Practice.
Rule 8. Consultation Prior to Preliminary and Compliance Conferences. Perhaps the most minor of the recent changes, although by no means insignificant, effective Sept. 2, 2014, Rule 8 will require that pre-conference consultation between the parties include a good faith effort to reach agreement on “any voluntary and informal exchange of information that the parties agree would help aid early settlement of the case.”
Rule 9. Accelerated Adjudication Actions. This new rule became effective June 2, 2014, and applies to all actions, except class actions, in which the parties have provided written consent to apply accelerated adjudication procedures. The rule contemplates that parties may express their consent to the accelerated adjudication procedures by including a clause to that effect in a contract.
As its name suggests, the rule provides streamlined procedures for pre-trial proceedings and requires that all discovery, pre-trial motions and mandatory mediation must be completed and ready for trial within nine months from the filing of a request for judicial intervention. No procedure for seeking an extension of that period is provided in the rule. In addition, consent to proceed under Rule 9 involves waiver of several important rights, including the right to trial by jury, the right to recover punitive damages, and the right to interlocutory appeal. The rule also limits available discovery, such as the number of interrogatories and depositions that may be taken; however, the parties may agree to engage in additional discovery so long as they act within the nine-month period.
Rule 11-a. Interrogatories. Effective June 2, 2014, discovery in the Commercial Division is subject to specific limitations on the use of interrogatories. In addition to limiting the numbers of interrogatories served—25, including subparts, unless another limit is specified in the preliminary conference order—Rule 11-a limits the topics on which interrogatories may be served to the following three: (1) names of witnesses with knowledge “material and necessary to the subject matter of the action”; (2) computation of each category of damages alleged; and (3) the existence, custodian, location and general description of “material and necessary” documents and physical evidence. Interrogatories on topics other than those listed above are allowed only by consent of the parties or upon order from the court for good cause shown.
Finally, contention interrogatories may be served at the conclusion of other discovery, but at least 30 days prior to the discovery cut-off date. Practitioners familiar with the rules of the Southern District will recognize certain of these requirements—relating to the limitation on topics and contention interrogatories—from SDNY Local Rule 33.3.
Rule 11-b—Privilege Logs. For several years now, judges and practitioners alike have explored the effects of voluminous electronic discovery on the costs and burdens of preparing privilege logs and potential ways to alleviate these burdens. For example, consider the 2009 article, “Asserting and Challenging Privilege Claims in Modern Litigation: The Facciola-Redgrave Framework” (a joint work between Judge John M. Facciola and Nixon Peabody partner Jonathan Redgrave), which suggests “that the majority of cases should reject the traditional document-by-document privilege log in favor of a new approach that is premised on counsel’s cooperation….”
Beginning Sept. 2, 2014, practitioners in the Commercial Division will be asked to do the same. Parties will be required to meet and confer to discuss the scope of privilege review, the information to be included in privilege logs, the use of categories to reduce document-by-document logging, and whether any categories of information may be excluded from the parties’ logs. The new rule establishes an explicit “preference in the Commercial Division…for parties to use categorical designations, where appropriate, to reduce the time and costs associated with preparing privilege logs.” While a party may refuse to accept a categorical approach, the court may, upon good cause shown, allocate the costs of preparing the document-by-document log to the refusing party.
Furthermore, law firm associates will be happy to hear that where document-by-document logging is demanded, uninterrupted email chains may be logged in a single entry. Like Rule 11-a, hints of the new Commercial Division rule already are found in SDNY Local Rule 26.2(c) (“A party receiving a privilege log that groups documents or otherwise departs from a document-by-document or communication-by-communication listing may not object solely on that basis, but may object if the substantive information required by this rule has not been provided in a comprehensible form.”).
On June 23, 2014, Judge Sherry Klein Heitler, Administrative Judge for Civil Matters in the First Judicial District—i.e., New York County—signed an administrative order establishing a pilot project for the automatic referral of certain Commercial Division cases to mandatory mediation. Under the pilot project, the clerk of the court will designate for automatic referral to mediation every fifth case of those cases newly assigned to the Commercial Division.
Despite the seemingly mandatory nature of the new program, designated cases will not proceed to mediation if all parties stipulate that the case “is not suitable for mediation.” In addition, an individual party may seek exemption from the pilot program by showing good cause as to why mediation would be ineffective, unduly burdensome, or unjust.
The procedures for the new pilot project are found in Rule 15 of the rules and procedures of the Alternative Dispute Resolution Program. With certain exceptions, including the procedures for assignment of the mediator, pilot project mediations generally will follow the existing rules of the ADR Program.
Special Masters Pilot Project
On Aug. 4, 2014, the chief administrative judge of the Commercial Division issued an order creating a pilot program for the referral of complex discovery issues to special masters. The program goes into effect Sept. 2 and will remain in effect for 18 months. The initial Aug. 4 order provided limited detail on the procedures to be followed and, instead, requires that the justices designated to participate in the pilot project work with the Office of Court Administration to determine the procedures and forms to be used.
The use of special masters was recommended in 2012 by the Chief Judge’s Task Force on Commercial Litigation in the 21st Century. The task force likened the use of special masters to the use of magistrate judges of the federal court system. However, unlike the federal system (see FRCP 72), the Commercial Division pilot project requires consent of the parties.
1. (1) Breach of contract or fiduciary duty, fraud, misrepresentation, business tort, or statutory and/or common law violation where the breach or violation is alleged to “arise out of business dealings”; (2) Transactions governed by the Uniform Commercial Code; (3) Transactions involving commercial real property; (4) Shareholder derivative actions; (5) Commercial class actions; (6) Business transactions involving or arising out of dealings with commercial banks and other financial institutions; (7) Internal affairs of business organizations; (8) Malpractice by accountants or actuaries, and legal malpractice arising out of representation in commercial matters; (9) Environmental insurance coverage; (10) Commercial insurance coverage; (11) Dissolution of corporations, partnership, limi­ted liability companies, limited liability partnerships and joint ventures; and (12) Application to stay or compel arbitration or to affirm or disaffirm arbitration awards and related injunctive relief pursuant to CPLR Article 75 involving any of the above-listed “commercial” issues. The bolded categories—4, 5, 11 and 12—are not subject to the monetary thresholds discussed infra.