Justice Saliann Scarpulla (Photo: Rick Kopstein/ALM)
A significant purpose of the Commercial Division of the state Supreme Court is to provide the New York business community with an efficient, effective and just forum for resolving complicated business disputes. To assist us in this goal, Commercial Division justices continually examine and evaluate the Commercial Division Rules, so that they may be refined to reflect the contemporary demands of complex commercial litigation. In fact, the rules of the Commercial Division have changed 35 times since their initial enactment in 2006.
This column is designed to highlight some new and evolving features of the Commercial Division Rules, including refinements to the division’s jurisdiction, changes to the privilege log rule, corporate deposition rule, the rule concerning the submission of orders to show cause, and the addition of a new rule concerning settlement conferences. The column will also outline additional proposals under consideration for inclusion in the rules in an effort to provide a useful synopsis of the ins and outs of litigating complex commercial cases in New York in 2017 and beyond.
Changes to Jurisdiction
Over the past year, the Commercial Division has further refined the types of commercial cases that it handles. Commercial Division Rules 202.70(b) and (c) have been amended to exclude from Commercial Division jurisdiction certain actions to compel or stay domestic arbitration proceedings, and actions to affirm or disaffirm domestic arbitration awards. Specifically, for the Commercial Division to have jurisdiction, such actions must involve one of the subject matters set forth in 22 NYCRR §202.70(b), and either meet the applicable monetary threshold or seek equitable and/or declaratory relief. However, commercial cases arising out of international arbitrations are exempt from the monetary threshold. Parties are encouraged to litigate issues arising out of their international arbitration disputes in the New York County Commercial Division International Arbitration Part (Justice Charles Ramos).
In addition, the Commercial Division has eliminated its jurisdiction over disputes involving home improvement contracts for certain residential properties by adding these types of cases to the list of matters ineligible for Commercial Division resolution, even if the monetary threshold is met.
Streamlining Privilege Logs
Commercial Division Rule 11-b was enacted to streamline the privilege log process in Commercial Division cases. In recognition of the fact that complex commercial litigation cases often involve copious amounts of documents, due largely to the proliferation of electronically stored information, Rule 11-b aims to decrease the costs and burdens associated with privilege logs.
Under Rule 11-b, parties are instructed to meet and confer as soon as practicable after the commencement of the action, and throughout the case as needed, to discuss all aspects of a document privilege review, including the scope of the review, the amount of information that the privilege log should contain, and whether there are categories of information that may be exempt from the logging requirement.
Rather than the traditional document-specific privilege logs, Commercial Division Rule 11-b states a “preference” for the use of a categorical approach to privilege logs. The use of categories enables parties to reduce the time and cost entailed by document-by-document privilege logging. Under Rule 11-b, for each category of documents that the parties agree upon, the producing party must provide a certification “setting forth with specificity those facts supporting the privileged or protected status of the information included within the category” and describing the steps taken to identify the categorized documents. In addition, the certification must be signed by a “responsible attorney” defined as the attorney with supervisory responsibility of the privilege review and active involvement in the process.
Although the rule favors the categorical approach, it also provides for those situations in which the requesting party insists on a privilege log with document-by-document listings. In that event, if good cause is shown, the producing party may ask the court to shift the costs of producing the log to the requesting party. Even if the document-specific approach is insisted upon, Rule 11-b still promotes efficiency by enabling the producing party to count each uninterrupted email chain as a single entry instead of treating each email in the chain as a unique document.
Lastly, in complex cases that seem likely to raise serious privilege issues, Rule 11-b encourages parties to retain a special master to help them create privilege logs and to share the costs.
Unsurprisingly, commercial disputes most often involve corporate entities, making corporate depositions inevitable, and the recently added Commercial Division Rule 11-f, pertaining to the deposition of corporate entities, aims to facilitate information gathering from corporate entities. Unlike the generally applicable CPLR 3106(d), which effectively permits the corporate entity to choose a representative to submit for deposition, and places no affirmative duty on such an individual, a party in the Commercial Division may now alternatively list topics for discussion in the deposition notice, in which case the corporate entity must then designate a representative capable of testifying on those topics at least 10 days before the scheduled deposition.
Under Rule 11-f, the corporate representative must be prepared to testify not only to information known, but also information reasonably available to the entity. Because corporate entities, unlike individuals, represent a network of many working parts, this affirmative duty prevents the corporate entity from designating a representative who is willfully blind or uninformed as to the broader information known by the corporate entity at large. Parties should expect the selected representative to prepare in good faith and gather information from documents, other employees or internal departments to address topics listed in the deposition notice or subpoena. Because the representative will prepare based on the topics listed in the notice or subpoena, the noticing party should carefully describe those topics for discussion with reasonable particularity.
Rule 11-f will surely streamline the deposition of corporate entities, making it less a game of cat and mouse, and more about the resolution of disputes between sophisticated parties. I urge commercial litigants to review Rule 11-f in its entirety to understand the rule’s scope and effect, particularly regarding its interplay with CPLR 3106(d) and other parts of Commercial Division rules.
Orders to Show Cause
In the Commercial Division, parties often bring orders to show cause to resolve emergency issues such as the day-to-day control within a partnership or closed corporation; alleged violations of non-compete clauses and/or confidentiality agreements; or potential immediate misappropriation of confidential information or trade secrets. A well-drafted order to show cause may provide the judge with an early opportunity to assist the parties in resolving their dispute without resort to full-blown litigation.
Commercial Division Rule 20 governs procedures for seeking a temporary restraining order (TRO) in the Commercial Division. It states that “[u]nless the moving party can demonstrate that there will be significant prejudice by reason of giving notice, a temporary restraining order will not be issued.” The current rule is silent as to whether movants must provide adversaries with copies of papers supporting their TRO application when notice is provided. An amendment to Rule 20 has recently been proposed by the Commercial Division Advisory Council, that would require a party moving for a TRO to provide advance copies of papers supporting an application for the order, unless significant prejudice to providing notice is demonstrated.
Aside from the obvious salutary purpose of avoiding the issuance of ex parte orders, the purpose of Rule 20 is to permit the Commercial Division justice to see the parties, face to face and when conflict is high. The court’s early intervention, before the parties have hardened their litigation stance or taken ill-advised retaliatory action against each other, often facilitates a more productive and less expensive resolution of the immediate issue, and, in some cases, the entire action.
Complex commercial disputes are often set for trial before the judge to whom the action has been assigned, rather than before a jury. Because the assigned justice is the ultimate fact finder in many commercial division actions, the parties may be uncomfortable discussing the strengths and weaknesses in their cases with that justice. Commercial Division Rule 3 affords parties the opportunity to jointly request a settlement conference before a judge other than the judge assigned to their case. This request may be made at any time in the litigation.
Commercial Division Rule 3 stems from federal court practice, in which parties may have a settlement conference before the magistrate rather than the district judge that hears their case. Engaging in settlement discussions before a judge not assigned to their case may give the parties a platform to more candidly assess their positions and settlement options and eliminates any concern of prejudicing the judicial fact finder before trial.
New Proposals for Rules
One of the current proposed amendments to the Commercial Division rules concerns the judge setting the total number of trial hours that it will permit for each party. Presently, Rule 26 requires parties to furnish the court with a realistic estimate of the length of the trial, at least 10 days prior to the trial. The proposed amendment empowers the court to request parties to outline the time period they believe will be necessary for direct examination, cross examination, redirect examination, and argument during the trial. It further makes clear that the court may set the total number of trial hours it will permit for each party.
Another proposed rule seeks to clarify the court’s power to require counsel to consult in good faith on expert testimony before trial in commercial division matters. The language of the proposed rule states that prior to the pre-trial conference, the court may direct counsel for the parties to consult in good faith and identify aspects of their respective anticipated experts’ testimony that are not in dispute. This proposed rule is intended to streamline the trial process and reduce unnecessary technical testimony.
Proposals for new Commercial Division rules may be found online at www.nycourts.gov/RULES/comments. The Office of Court Administration and the Commercial Division justices welcome comments from the legal profession and interested members of the public on any proposed amendments to the Commercial Division Rules.