New Accelerated Adjudication Option Goes into Effect Today for New York State Supreme Court, Commercial DivisionJune 2, 2014
Effective today, there is a new Commercial Division, New York State Supreme Court rule that will permit parties, in a dispute exceeding $500,000, to "accelerate" adjudication.
No promises can be made yet that this new rule will materially expedite litigation. However, it does provide an alternative to arbitration clauses and places certain meaningful restrictions on litigants. As such, there are numerous strategic advantages and disadvantages which need to be carefully considered before adding an accelerated adjudication provision into a contract.
The Introduction of Accelerated Adjudication
Through this rule — Rule 9 of the Rules of Practice for the Commercial Division (22 NYCRR § 202.70) — parties may agree to an expedited lawsuit in the Commercial Division by including a contract provision in which both parties agree to submit to that court's exclusive jurisdiction and accelerated procedures. Indeed, the Rule includes a form provision that parties can incorporate into commercial contracts (though parties are free to use alternative language):
Subject to the requirements for a case to be heard in the Commercial Division, the parties agree to submit to the exclusive jurisdiction of the Commercial Division, New York State Supreme Court, and to the application of the Court's accelerated procedures, in connection with any dispute, claim or controversy arising out of or relating to this agreement, or the breach, termination, enforcement or validity thereof.
Opting for this accelerated adjudication means, in short, streamlined pre-trial proceedings. More specifically, pursuant to Rule 9, parties must be "trial-ready" within nine months of the request for judicial intervention.
To expedite the proceedings, parties invoking Rule 9 will be subject to certain limitations on discovery (though parties can negotiate around these limitations). As set forth in the following table, these limitations are not stringent with respect to document discovery, but place real limits on other forms of disclosure and provide the opportunity for challenging disproportionately expensive electronic discovery:
|Interrogatories||No more than seven per party.|
|Requests to Admit (rarely used)||No more than five per party.|
|Depositions||No more than seven per party, each for a maximum of seven hours.|
|Document Discovery||No concrete limitations
Limited to documents "relevant to claim or defense" and "restricted in terms of time frame, subject matter and persons or entities."
|E-Discovery||No concrete limitations, although certain efforts to manage costs and burden.
Most notably, the court can deny requests for e-discovery or require the requesting party to advance costs "where costs and burdens of e-discovery are disproportionate to the nature of the dispute or the amount in controversy."
In addition, choosing this expedited procedure will result in the waiver of certain material defenses and rights of a litigant that are perceived to prolong litigation:
- Trial by jury;
- Punitive and exemplary damages;
- Interlocutory appeals; and
- Objections based on personal jurisdiction or forum non conveniens.
Potential Implications & Strategic Considerations
Only time will tell how accelerated the accelerated adjudication turns out to be as questions abound as this pre-inception stage. What are the consequences if actions are not trial-ready in nine months? Once trial-ready, will judges fast-track the trial or will parties still wait many months to be heard? Will the judges in the Commercial Division genuinely approach these cases differently than the regularly-calendared docket?
Moreover, electing this option has real consequences (e.g., waiving jury trial and interlocutory appeals) that need to be carefully considered before adopting an accelerated adjudication contract clause. From a strategic perspective, there are certain clear advantages and disadvantages to incorporating Rule 9 into a contract. For example:
- For parties contracting with international or out-of-state parties, the waiver of personal jurisdiction and challenges to the forum can avoid a major hurdle to litigation.
- For institutional parties accustomed to unfavorable imbalances in the burdens of discovery, the potential for cost-shifting e-discovery, as well as limitations on depositions and other discovery devices, can offer significant protection.
- For parties anticipating straightforward claims (e.g., lenders vis-à-vis defaulting borrowers), this provision should provide some security against counsel who use delay tactics and motion practice as the primary weapon.
For foreign parties who are wary of the jury system and unlimited discovery, the waiver of a right to jury trial and the limitations on discovery might be compelling.
Accelerated Adjudication Clause or Arbitration Clause?
Accelerated adjudication will hopefully provide parties to commercial transactions the opportunity to limit the scope of potential litigation from the inception of the relationship. Thus parties can contractually agree to place restrictions on litigation rather than use arbitration clauses or other alternative dispute resolution mechanisms.
Specific reasons to consider using an accelerated adjudication clause over an arbitration clause include:
- A "middle ground": In theory, this option allows for the best of both worlds — relatively expedited relief backed by the weight of the court.
- An enforceable judgment: To enforce arbitration awards, prevailing parties need to go through the judicial system anyway. This shaves off that extra layer of process.
- Appellate review: The right to appellate review is preserved (albeit with a waiver of interlocutory appeal). Arbitration awards — which often lack transparency and do not set forth the basis for the decision reached — can only be overturned in extraordinary circumstances and not for mere mistakes of fact or law.
- Real discovery: The right to discovery is streamlined, but not as diminished as in most (but, not all) arbitrations. For example, depositions are critical to litigation, but are not often not a part of the arbitration process.
In contrast, arbitration still offers benefits that this new judicial mechanism cannot provide, including:
- Time: Though arbitration frequently lasts longer than expected, this "accelerated adjudication" route is still likely to extend beyond that of the standard arbitration.
- Confidentiality: Litigation is immediately public, especially now that court documents are almost all electronically filed. Confidentiality can still be preserved in arbitration where there is no public record or open court, and where parties can contractually agree to maintain the disputes in confidence.
- Costs: Absent motion practice and broad discovery, arbitration provides an opportunity to avoid some of the biggest cost pitfalls of litigation (especially where the parties are only paying for one arbitrator and not for a full panel).
- The ability to craft: With arbitration clauses, parties can craft their own process that can supersede or complement the default rules of the arbitration institutions. This freedom can provide additional protections, especially in situations where one party has negotiating leverage and can create a provision tailored to its own concerns..
Only time will tell whether the new accelerated adjudication option will have a material impact on the duration of litigation. However, this option may appeal to those that seek to avoid the morass of unlimited discovery and motion practice, but feel more comfortable and protected in a court of law than in an alternative forum.
For more information on the issues in this alert, or litigation matters generally, please contact:
Therese M. Doherty at + 1 212 592 1516 or [email protected]
Ronald J. Levine at +1 609 452 3801 or [email protected]
Ross L. Hirsch at + 1 212 592 5961 or [email protected]
Copyright © 2014 Herrick, Feinstein LLP. This alert is published by Herrick, Feinstein LLP for information purposes only.
Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.