New York Supreme Court Commercial Division Adopts New Accelerated Adjudication Rule

Diana Uhimov, May 15, 2014.

Starting on June 2, 2014, businesses will have the option to choose an accelerated procedure for dispute resolution in New York’s Commercial Division. The new rule, Rule 9 of section 202.70(g) of the Rules of Practice for the Commercial Division, authorizes the court to apply the accelerated adjudication procedures with the parties’ express consent in writing.  While new Rule 9 provides a prompt and efficient alternative to the choice between arbitration and prolonged litigation, it also curtails the scope of discovery and time to be ready for trial, and deems some significant rights to be waived.

All Commercial Division actions, except for class actions, qualify for the accelerated procedures. The new accelerated procedures can be adopted by contract or the filing of a stipulation adopting the rules. Parties are free to negotiate their own contract language to impose limitations on the accelerated process. Alternatively, the new rule provides a proposed provision that parties may insert into their contracts:

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.

Rule 9’s streamlined process requires that all pre-trial proceedings, including all discovery, pre-trial motions and mandatory mediation, must be completed and the parties ready for trial within nine months from the date of filing of a Request of Judicial Intervention (RJI). The rule is silent, however, on a time frame for holding the trial.

Under the new rule, discovery is limited to seven interrogatories, five requests to admit, and seven depositions per side, unless the parties come to a different agreement with respect to discovery. Further, document requests must be “restricted in terms of time frame, subject matter and persons or entities to which the requests pertain”.  Electronic discovery must be “narrowly tailored to include only those individuals whose documents are reasonably expected to contain evidence that is material to the dispute.” The court may also deny requests where the costs and burdens of e-discovery are disproportionate to the amount at issue or to the relevance of the materials requested, or order the requesting party to shoulder the costs.

Parties to an accelerated action waive the following rights:

• Any objections based on lack of personal jurisdiction or forum non conveniens;
• The right to a jury trial
• The right to recover punitive or exemplary damages; and
• The right to interlocutory appeal.

These rights can have a substantial impact on the outcome of the dispute.  Personal jurisdiction can normally be challenged on the basis that the party does not have “sufficient minimal contacts” with the state and, as a result, the court’s rulings cannot be enforced upon that party. Additionally, defendants in non-accelerated litigation may move to dismiss an action on the ground of forum non conveniens, which means that although the plaintiff properly invoked the jurisdiction of the court, it is inconvenient for the court and the defendant to have a trial in the original jurisdiction. In a jury trial, a jury of peers makes the decision, whereas in a bench trial, a judge or panel of judges makes all decisions. Many believe that a jury is likely to provide a more sympathetic or fair hearing, but this is debatable.  Punitive damages—awarded only in special cases—are intended to deter the conduct that is the basis of the lawsuit, and are often imposed where compensatory damages are deemed inadequate.  Finally, waiver of the right to interlocutory appeal precludes, for example, appeals from the denial of a motion to dismiss, a temporary restraining order, preliminary injunction, or other interim relief.

Businesses should determine whether to select the accelerated adjudication procedure based on the types of disputes that are foreseeable in connection with a particular contract. A party that anticipates being a plaintiff is likely to benefit from the accelerated procedure if, for example, it is a lender that seeks prompt collection from a delinquent borrower. On the other hand, in matters where a jury trial or the threat of punitive damages would be effective, a plaintiff would not want the accelerated procedure. Likely defendants must weigh the advantages of limited discovery and no punitive damages against the disadvantages of waiving the right to certain objections and interlocutory appeals.

Regardless of what side of the conflict an entity may find itself on, all companies should exercise caution in reviewing contracts, since language regarding accelerated procedures may subject parties to the new Rule 9 process, which eliminates several important procedural rights. Including an accelerated adjudication clause merits serious consideration when entering into a contract that establishes New York state court as the forum for dispute resolution.