For many years academics have debated how states compete to become centers of corporate law. One key element of the competition is a competent judiciary, an area in which Delaware, with its Court of Chancery, has a significant advantage. Chancery focuses on disputes involving corporate law, but numerous other states have used it as a model in trying to set up courts with an expertise in commercial law. Since New York formed the Commercial Division of its Supreme Court in 1995, 17 other states have created specialized business courts. Even Delaware established a complex commercial litigation division in its Superior Court two years ago. But Chancery retains a far stronger institution than its epigones for reasons suggested by a recent report on New York's commercial division.
Last month, a task force convened by Jonathan Lippman, chief judge of the New York Court of Appeals, the state's highest court, published a 31-page report in which it made recommendations for the commercial division. Judith Kaye, Lippman's predecessor as chief judge and now of counsel at Skadden, Arps, Slate, Meagher & Flom LLP, and Martin Lipton of Wachtell, Lipton, Rosen & Katz, co-chaired the task force, whose 31 members included numerous New York litigators and the general counsel of Pfizer Inc. and JPMorgan Chase & Co.
That elite body delivered a very simple message, says John Kiernan, a partner at Debevoise & Plimpton LLP in New York: "The first portion of the report is an elaborate way of saying, 'Devote some more resources to this. Have more judges, have more law clerks and have a commission that thinks about how to run the commercial division more efficiently.' "
The commercial division currently has 27 judges, nine of whom are based in Manhattan, and Kiernan and other lawyers say the judges are severely overworked. The task force blessed Lippman's suggestion that six judges be added and also recommended that commercial division judges have more clerks, special masters who can help manage complex cases and a dedicated support office, and that the judicial branch develop a searchable database of its decisions.
By way of comparison, William B. Chandler III implemented several of these reforms during his tenure as the chancellor of Delaware's Court of Chancery, which ended last year, and in the past decade the state has opened two multimillion-dollar courthouses with cutting-edge technology.
In addition to suggesting a number of procedural reforms, the task force also focused on arbitration and mediation. The group recommended that certain judges in the commercial division be given responsibility for matters related to international arbitration, which would provide a boost to a practice in which New York is trying to develop a profile to rival London, Paris, Stockholm and Hong Kong, Kiernan says.
Several task force members have an interest in the area. Stephen Younger, a partner at Patterson Belknap Webb & Tyler LLP, has been a leader of efforts to increase New York's profile as a center for international arbitration. Stephen Crane, a former New York Supreme Court judge now affiliated with Jams, which specializes in alternative dispute resolution, was also a member of the task force, as were Lewis Liman of Cleary Gottlieb Steen & Hamilton LLP, Phillip Ruegger of Simpson Thacher & Bartlett LLP and Roberta Kaplan of Paul, Weiss, Rifkind, Wharton & Garrison LLP, all firms with strong international arbitration practices.
The task force also recommended that the commercial division make much greater use of mediation. Over 90% of business disputes are eventually settled, the report notes before recommending a pilot program for mandatory mediation in the Manhattan branch of the commercial division. The report suggests that every fifth case brought in the Manhattan Commercial Division be sent to mediation unless one or both parties protest. The litigants could use a court-appointed mediator or pay for one of their own choosing. The program would be the first of its kind in the country.
But the promotion of mediation only underscores how overworked the commercial division is, a persistent problem for state courts that has become more pressing, given the financial difficulties that many states face. In contrast, the Delaware courts have been able to command the resources they need to do their job. Whether New York's commercial division will be able to do the same remains to be seen.
David Marcus covers legal matters for The Deal magazine.