RENEWING A COMMITMENT TO EXCELLENCE: NEW YORK S GROUNDBREAKING APPROACH

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1 RENEWING A COMMITMENT TO EXCELLENCE: NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION HON. A. GAIL PRUDENTI CHIEF ADMINISTRATIVE JUDGE NEW YORK STATE UNIFIED COURT SYSTEM LONDON DECEMBER 6, 2013 BRITISH INSURANCE LAW ASSOCIATION

2 TABLE OF CONTENTS I. INTRODUCTION II. COMMERCIAL DIVISION A. A BOLD EXPERIMENT B. GOALS AND ACCOMPLISHMENTS C. PLANNING FOR THE FUTURE D. THE ADVISORY COUNCIL & RECENT DEVELOPMENTS i. ADOPTION OF AN ENHANCED EXPERT DISCLOSURE RULE ii. CREATION OF A SEARCHABLE DATABASE OF COMMERCIAL DIVISION DECISIONS iii. DESIGNATION OF A SPECIALIST INTERNATIONAL ARBITRATION JUDGE iv. PROPOSED INCREASE IN THE MONETARY THRESHOLD FOR ACTIONS TO BE HEARD IN NEW YORK COUNTY S COMMERCIAL DIVISION v. PROPOSED LAUNCH OF A PILOT MANDATORY MEDIATION PROGRAM vi. PROPOSED ADOPTION OF AN ACCELERATED ADJUDICATION PROCEDURE vii. OTHER PENDING DEVELOPMENTS III. MEDICAL MALPRACTICE A. AN OVERVIEW OF MEDICAL MALPRACTICE IN NEW YORK STATE B. A NEW PRESCRIPTION FOR MEDICAL MALPRACTICE i. CURRENT STATUS ii. THE JUDGE-DIRECTED NEGOTIATION MODEL iii. THE NEW YORK CITY HEALTH AND HOSPITALS CORPORATION EXPERIMENT. 17 iv. THE MODEL IN PRACTICE C. THE NEW YORK STATE MEDICAL LIABILITY REFORM AND PATIENT SAFETY DEMONSTRATION PROJECT GRANT IV. THE ROLE OF COURT ADMINISTRATORS IN THE DEVELOPMENT AND IMPLEMENTATION OF NEW YORK S INNOVATIVE PROGRAMS V. CONCLUSION NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION iii

3 I. INTRODUCTION GOOD AFTERNOON LADIES AND GENTLEMEN AND DISTINGUISHED GUESTS. I am absolutely delighted to be here with all of you today. Almost exactly one year ago, I had the privilege of addressing a great audience from Lloyd s of London, and it is truly wonderful to be back here with today s distinguished group. By way of introduction, I am not a complete stranger to the United Kingdom, having resided in Scotland for over 4 years while I attended my third year of University abroad and Law School at the University of Aberdeen. I was captivated by the breathtaking beauty of the country and the kindness of its people, and have nothing but the fondest memories of my time in the United Kingdom. Following law school, I returned to the States, and am proud to say that I won my first case when I petitioned the New York Court of Appeals to take the bar examination. I began my career working at Surrogate s Court (which handles what are known as probate claims here in London), spent 2 years as a prosecutor in the District Attorney s office, and then entered private practice for several years, specializing in trusts and estates. I was first elected to the New York State Supreme Court in 1991, where I sat in a matrimonial part until 1995,when I was elected to serve as the Surrogate of Suffolk County. I began my first foray into administration when I was appointed the Administrative Judge for the Tenth Judicial District. After 6 years as a Surrogate, I was re-elected to the Supreme Court bench, and in 2001, was appointed as the Presiding Justice of the Appellate Division, Second Judicial Department one of the busiest appellate courts in the United States, serving one-half of the population of the State of New York, or in real numbers, 9 and a half million people. It was a very rewarding position with great responsibility and many challenges. But now I return to London in a new role that of Chief Administrative Judge of the New York State Unified Court System, responsible for overseeing the 3,600 judges and 15,000 non-judicial employees who serve our state s approximately 20 million residents. The task is even greater, the responsibilities broader, and the challenges far more daunting. But New York s Judiciary has long been a model for how to convert challenges NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 1

4 into opportunities through innovation and reform, and I am here today to share with you how we are continuing to innovate by exploring new approaches to case management, designed to improve the way our courts deliver justice. As a unique organization comprised of distinguished insurers, insurance brokers and other intermediaries, academic lawyers, solicitors and barristers from all over the world, the British Insurance Law Association (BILA) knows well that complex litigation in United States courts including commercial cases and medical malpractice actions can take several years to resolve, resulting in high litigation and transaction costs for all parties and delayed compensation to injured parties. Not content to stand idly by in the face of these realities, the New York State Unified Court System has taken a good hard look at how our system handles these actions and has developed new approaches that better respond to society s needs while still protecting the fundamental rights of litigants. This afternoon, I would first like to discuss with you the result of one of New York s most successful experiments The Commercial Division, which has brought increased efficiency and expertise to the world of commercial litigation. I will also share with you the ways in which we are continuing to innovate in and adapt the Commercial Division to ensure that it remains a world-class forum for the resolution of business disputes. I will then focus my remarks on our courts new initiatives in the field of medical malpractice, including the use of a Judge-Directed Negotiation case-management model designed to promote earlier resolution of medical malpractice claims. Achieving early resolutions of complex matters is in everyone s best interest; it leads to reduced litigation expenses and lower settlement amounts, while also allowing for more prompt payments to injured parties. Through these bold initiatives, New York is improving the quality and delivery of legal services for its citizens. Finally, in order to help you understand how these programs are developed and implemented within our system, I will also explain the roles that various court administrators play in pioneering these types of groundbreaking programs. These programs are just a few of the many initiatives that our courts are pursuing to deliver justice more efficiently and effectively. Our Judiciary has long been committed to excellence and a leader in innovation and, as a testament to our success, our bold experiments have evolved into models that are now being replicated on both a national and international scale. 2 RENEWING A COMMITMENT TO EXCELLENCE

5 I I. COMMERCIAL DIVISION A. A BOLD EXPERIMENT SINCE THE EARLY 1800 S, NEW YORK HAS BEEN KNOWN for the quality of its laws and jurisprudence and the reliability of its courts as a forum for resolving business disputes. This reputation has been essential in attracting business to our state and maintaining New York s prominence as a global commercial and financial center. By the early 1990 s, however, litigants in commercial disputes were choosing to go to Federal Court, to the state of Delaware, or to private dispute resolution in greater numbers to avoid New York s overburdened state court system. In response, the Chief Judge of the State of New York at the time, Judith S. Kaye, began an experiment that ushered in a fundamental change in the way commercial cases are litigated in our state courts. In 1993, Judge Kaye created four specialized commercial parts on a trial basis, dedicated to hearing commercial matters including contract disputes, corporate issues, insurance, the Uniform Commercial Code, business torts, bank transactions, complex real estate matters and other commercial law issues. By centralizing the process and assigning judicial volunteers who had expertise in commercial litigation, the experimental parts sought to increase efficiency in case processing and enhance the quality of judicial treatment of these complex cases. The experiment proved tremendously successful, and two years later, Judge Kaye established the Commercial Division of the Supreme Court. On November 6, 1995, the Commercial Division opened in the center of Manhattan, New York County, and at a location in upstate New York, Monroe County. In New York County alone, 6,500 new cases were filed within the first year. The Division received overwhelmingly positive reviews from business leaders and the commercial bar, and its success in improving case processing led to its expansion to 10 counties across the state judges now sit in Commercial Division parts statewide. B. GOALS AND ACCOMPLISHMENTS WHEN ANNOUNCING THE CREATION of the Commercial Division, Judge Kaye articulated three main goals. First, to provide litigants in commercial matters with a NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 3

6 justice system commensurate with New York s status as a world commercial and financial center. Second, to enhance the state s business climate. And third, to create a laboratory for new courtroom technologies and innovative practices that could be exported to the rest of the state court system. Since its creation 18 years ago, the Commercial Division has achieved significant success in all 3 of these areas. Through the use of efficient case management combining close judicial oversight with new computer technology, the Commercial Division allows parties to avoid the difficult, protracted and expensive discovery process typically associated with complex commercial litigation. In the Commercial Division parts, preliminary conferences are held as soon as possible to set firm timetables for discovery and dispositive motions and to select a target trial date. The courts also order the parties to stipulate to undisputed facts and identify their critical witnesses and deposition testimony early on in the discovery process. Judges manage discovery closely with the assistance of uniform case management software that produces computerized reports at regular intervals to ensure compliance with deadlines. With its dedicated parts and specialized judges, the Commercial Division has led to regularity in process and more efficient and streamlined case management. Litigants know what to expect and the judges are familiar with the cases on their docket and the applicable law and procedure. Statistics maintained by the court system during the first several years of the Commercial Division s operation reveal that the Division succeeded in reducing the overall length of time it takes to process contract actions the majority of cases in the Commercial Division. For cases in which a note of issue has been filed (meaning that discovery is complete and the case is trial ready), the length of time between the filing of a request for judicial intervention to disposition was reduced from 920 days in 1992 to 760 days in In cases in which no note of issue was filed, the length of time from inception to disposition dropped from 610 days in 1992 to 340 days in To further enhance efficiency and provide greater predictability of practice for the commercial bar, in 2006, the Administrative Board of the Courts adopted statewide uniform rules for all of the state s Commercial Division courts. The rules, which were developed in close collaboration with the Commercial Division Justices, clearly define what constitutes a Commercial Division case and establish consistency in rules regarding motion practice, electronic discovery, pre-trial conferences, temporary restraining orders and trial scheduling. 4 RENEWING A COMMITMENT TO EXCELLENCE

7 Under the Statewide Standards, a commercial case is one in which the principal claims involve or consist of certain enumerated categories, provided that a certain monetary threshold is met or equitable or declaratory relief is sought. The monetary thresholds for bringing a case in the Commercial Divisions vary from county to county, but generally range from $25,000 to $150,000, exclusive of punitive damages, interests, costs, disbursements and counsel fees claimed. Among the classes of cases heard in the Commercial Division are: breach of contract or fiduciary duty, business torts (e.g. unfair competition), transactions governed by the Uniform Commercial Code, transactions involving commercial real property, shareholder derivative actions, internal affairs of business organizations, dissolution of corporations, commercial class actions, environmental insurance coverage, commercial insurance coverage, and business transactions involving or arising out of dealings with commercial banks and other financial institutions. 2 To help resolve these complex matters, the Commercial Division makes full use of its Alternative Dispute Resolution Program ( ADR ). Alternative Dispute Resolution refers to a variety of mechanisms for the resolution of legal disputes other than by litigation, including mediation, neutral evaluation and arbitration. For litigants as well as the court, ADR offers the possibility of a settlement that is achieved sooner and at less expense than would be possible in the normal course of litigation. Justices may send matters to ADR at any time upon an order of referral, and cases can sometimes also be referred on consent of the parties. Parties who take part may choose the form of the ADR they wish to pursue, with mediation being the default, and most common, procedure. Experience has shown that even those cases that are perceived by the parties to be incapable of settlement, in fact often do settle through ADR, and lead to satisfying and cost-effective results for all parties involved. 3 In addition to increasing efficiency, the Division has improved the quality of decision-making by allowing a small group of specialized judges to focus their research and thinking on the complex issues that arise in commercial cases. In order to provide a comprehensive and accessible body of precedents and alert commercial practitioners about emerging legal issues and trends, Commercial Division decisions are posted electronically on the court website shortly after being issued, and summaries of leading opinions are published on a quarterly basis in the Commercial Division Law Report, available both online and in hard-copy format. In addition, as I will explain in greater detail later on, an online searchable database of Commercial Division decisions was recently created to expand access to case law for academics, practitioners and judges alike. NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 5

8 The entire court system has felt the impact of the Commercial Division s success. Other trial parts no longer have to handle complex, protracted commercial cases, and are therefore able to manage their own caseloads more efficiently. In addition, technological advances piloted in the Commercial Division, including electronic filing of court papers, have since taken hold throughout our court system. The user-friendly, secure e-filing system allows counsel to file online from any time and from any place, making the Commercial Division s dockets more accessible while eliminating the dreaded race to the courthouse for busy litigants. Consensual e-filing programs for commercial cases exist in nearly all counties throughout the state, with more and more counties in the process of making such filing mandatory. As electronic discovery increasingly becomes the norm in other types of cases, the Unified Court System is looking to the Commercial Division for best practices that can be applied to other types of cases and benefit the system as a whole. Recently, the Unified Court System amended the Uniform Rules of the Trial Courts to require counsel to confer on e-discovery issues prior to the preliminary conference where a case is reasonably likely to involve electronic discovery. This meet and confer requirement, which has existed in the Commercial Division since 2006, greatly enhances efficiency by ensuring that parties are prepared to discuss complex issues such as data preservation, identification of relevant data, the scope and form of production, the cost of data recovery, and confidentiality and privilege issues at the outset when disputes can be best addressed through judicial oversight and involvement. The success of the Commercial Division has also inspired other states to follow New York s lead. Many states have now either adopted a business court or a set of specialized rules for commercial dockets in an attempt to attract business to their jurisdictions. Even Delaware, which for years has had a well-known Chancery Court that handles large corporate litigation, chose to open a complex commercial trial court, no doubt aware of our Commercial Division s success. With states like Delaware, California and Texas competing for commercial business and the resulting economic growth for their states, New York is continuing to explore ways to enhance its Commercial Division and maintain its prominence in this field. C. PLANNING FOR THE FUTURE AS THE COMMERCIAL DIVISION APPROACHES its 20 th anniversary, it is adapting to an ever-changing world and the challenges of an increasing workload. The success 6 RENEWING A COMMITMENT TO EXCELLENCE

9 of the Commercial Division has attracted litigants to our courts in large numbers, and as a result, the number and complexity of cases have grown dramatically and our judges have adjudicated some of the most important and complex commercial disputes that have arisen in the wake of the recent financial crisis. To ensure that New York remains at the cutting-edge of how commercial disputes are resolved, in February of 2012, Chief Judge Jonathan Lippman created the Chief Judge s Task Force on Commercial Litigation in the 21 st Century, comprised of the Commercial Division s founder, former Chief Judge Judith S. Kaye, as well as some of the state s most renowned judges, commercial practitioners, professors of law and business leaders. 5 After months of study and consultation, the Task Force issued a Report with over 20 discrete proposals on how to ensure the continued success and vitality of the Commercial Division. Their recommendations ranged from matters of docket and procedural reform to issues of judicial support and engagement. For example, in order to address the dramatic growth in the size and complexity of the Commercial Division s cases, the Task Force endorsed the Chief Judge s legislative proposal to establish a new class of Court of Claims judges to serve in the Commercial Division, and recommended an increase in the monetary threshold for actions to be heard in the Commercial Division. To further assist in handling the Division s heavy caseload, the Task Force also recommended creating a panel of Special Masters, drawn from the state s seasoned commercial litigators, to handle discovery disputes and other matters upon the consent of the parties. In order to reduce delays and costs, the Task Force proposed a range of procedural reforms, including earlier assignment of cases; limits on privilege logs, document demands, interrogatories and depositions; and more uniform and thorough procedures for expert discovery. Given the importance of early judicial involvement in streamlining discovery and facilitating prompt resolution, the Task Force proposed a rule requiring that a party seek assignment of a case to the Commercial Division within 90 days following service of the complaint. With respect to expert discovery, the Task Force recommended a rule that would require that all expert disclosures including identification of expert witnesses, written reports and depositions of testifying experts be made within a short, fixed period after the close of fact discovery. The Task Force also recommended offering an accelerated adjudication procedure to parties in the Commercial Division and piloting a mandatory mediation program to facilitate earlier and cost-effective resolutions of business disputes. Continued explo- NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 7

10 ration of the cutting-edge opportunities presented by e-discovery and the expanded use of innovative technology in Commercial Division courtrooms are among the other future steps highly encouraged in the Task Force s Report. Finally, the Task Force suggested the creation of a permanent statewide Advisory Council on the Commercial Division, appointed by the Chief Judge, to continue evaluating practice in the Commercial Division, guide the implementation of the Report s recommendations, and periodically review and help achieve the long-term goals of New York s Commercial Division. 6 D. THE ADVISORY COUNCIL & RECENT DEVELOPMENTS: IN FEBRUARY 2013, THE CHIEF JUDGE INITIATED the next stage in the Commercial Division s evolution by establishing the permanent Commercial Division Advisory Council, as recommended by the Task Force. 7 Comprised of a diverse array of experienced litigators, general counsel, and distinguished active and retired judges from around the state who bring a wide range of perspectives, the Advisory Council s task is twofold. First, to carefully review each of the Task Force s recommendations and plan for their implementation. Secondly, to keep the court system informed as issues emerge and develop, so that we can better understand and respond to the needs of the business community in today s challenging and constantly evolving litigation environment. Underlying our constant quest to innovate in the Commercial Division is the recognition that when our courts are able to handle business disputes in an efficient and cost-effective manner, we can deliver justice while contributing to the economic well-being of the entire state, and in turn, benefit all New Yorkers. Since its creation, the Advisory Council has already studied and endorsed several significant proposals of the Commercial Division Task Force designed to improve commercial practice and enhance New York s national and international reputation as a reliable forum for the resolution of business disputes. i. Adoption of an Enhanced Expert Disclosure Rule: In early 2013, the Administrative Board of the Courts, the court system s policymaking body, approved the Task Force s proposed rule regarding enhanced expert disclosure, and sent it to the Advisory Council for its further review. The motivation for the rule change stems from the nature of commercial practice, in particular, the centrality of expert testimony in complex commercial cases being litigated before the Division. 8 RENEWING A COMMITMENT TO EXCELLENCE

11 One of the main reasons practitioners frequently cited in choosing to bring their case in Federal Court or another forum was the lack of predictability that resulted from the state court s requirement to disclose only limited information about an expert s qualifications and opinion, and the lack of deadlines by which expert disclosures must be made. This limited expert disclosure proved particularly problematic in complex commercial cases, which often involve controversies where expert opinion is necessary to quantify valuation or damages. Parties greatly value full and timely disclosure of this information because it allows them to weigh the risks of trial and assess the benefits of potential settlement. As a result, for a very long time, commercial practitioners made a strong argument for broadening the scope of expert disclosure in the court system s commercial division. Recognizing these concerns, the Advisory Council approved the proposed rule to enhance expert disclosure. The new Rule 13(c) of the Commercial Division Rules will bring the Commercial Division more in line with the Federal Court by providing for much more expansive expert discovery early on requiring that the identification of experts, the exchange of reports and the depositions of testifying witnesses be completed no later than 4 months after the close of fact discovery. The rule also clearly sets forth the consequences for a party s failure to meet these deadlines, stating that expert disclosure provided after these dates without good cause will be precluded from use at trial. The adoption of Rule 13(c) marks a major change in commercial practice that we are confident will promote efficiency, predictability and reliability and further enhance the success of our commercial parts. ii. Creation of a Searchable Database of Commercial Division Decisions: Among the other recommendations contained in the Task Force s report was the proposed creation of a searchable database of all Commercial Division decisions. The Task Force believed that such a database would not only assist practitioners, but would also improve the ability to analyze Commercial Division jurisprudence as a focus in corporate and commercial law scholarship. A subcommittee of the Advisory Council explored the logistics of the proposal and found that a database could be established relatively quickly and easily, and most importantly, without imposing significant burdens on Commercial Division judges or their staffs. The Advisory Council arranged for Commercial Division decisions to be published in a dedicated database on the website of the New York State Law Reporting Bureau NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 9

12 beginning in July The Law Reporting Bureau is the state agency charged with reviewing, selecting and publishing decisions of the entire court system. The State Reporter, who is appointed by the Court of Appeals and controls the Law Reporting Bureau, agreed to publish Commercial Division decisions and to work with legal research providers such as Westlaw and LexisNexis to provide access to their database of those decisions. The State Reporter has collected and posted commercial decisions from as far back as 2006 and intends to continue expanding and building its repertoire of both older and more recent case law. Compiling all Commercial Division decisions in one text-searchable database will enable practitioners to more comprehensively engage case law of the Commercial Division in their briefs and enhance the ability of Justices to build on existing precedent in their analysis and decisions. The creation of this new database marks yet another way in which the Commercial Division has embraced technology to improve practice in the field. iii. Designation of a Specialist International Arbitration Judge: In today s global economy, parties engaged in international commerce frequently choose to resolve their disputes through arbitration. The parties selection of a venue for that arbitration often depends on the degree to which the courts of a particular venue are perceived as sophisticated and experienced in international commercial and arbitration law. In its report, the Task Force found that the world s leading business centers actively compete for sophisticated international arbitration, not only because it reflects respect for their courts, but also because it promotes economic benefit for the state and law firms that handle such matters. To further signal to the international business community New York s ability to efficiently and effectively resolve such disputes, the Advisory Council endorsed, and the Administrative Board of the Courts approved, the Task Force s proposal to designate a specialist international arbitration judge in New York County, and the Honorable Charles E. Ramos now serves in this role. As a result of this change, all international arbitration matters will be heard by one judge, whose enhanced exposure to and familiarity with the issues arising in such cases and developed jurisprudence on the subject will provide clarity and certainty to parties and help raise the Commercial Division s profile in the international business and legal community. 9 iv. Proposed Increase in the Monetary Threshold For Actions To Be Heard in New York County s Commercial Division: The proper monetary threshold for a case to be eligible for assignment to the Com- 10 RENEWING A COMMITMENT TO EXCELLENCE

13 mercial Division has been a central topic of conversation since the Commercial Division was created in The amount initially proposed for New York County was $100,000, which was considered by some at the time to denote a significant case. Since that time, the Commercial Division has become a victim of its own success as well as the changing times, with both the volume and complexity of its cases growing steadily. To provide some context, consider that in the period , an average of 1,711 new cases per year were assigned to Commercial Division justices. From 2009 to 2011, the annual average grew to 1,828, a 12 percent increase. In light of the growth in value of complex commercial disputes and the proliferation of litigants seeking to direct their cases to the Commercial Division, the Task Force proposed a change to the monetary threshold for bringing an action in the Commercial Division. After consulting with court officials and Commercial Division Justices in New York County, the Task Force recommended increasing the threshold in New York County from $150,000 to $500,000. The Advisory Council took this recommendation under its review, and after considering various strategies for alleviating the burdens on the Commercial Division, agreed that raising the threshold in New York County would most effectively stem the tide of cases accepted into the Division. The Advisory Council has made this formal recommendation to the Administrative Board of the Courts for its further consideration. The Advisory Council also plans to study the monetary thresholds in other counties and consult with stakeholders and Commercial Division judges at each local level to determine whether additional adjustments should be recommended. v. Proposed Launch of a Pilot Mandatory Mediation Program: The Advisory Council also endorsed the Task Force s recommendation to launch a pilot mandatory mediation program that seeks to expand upon the current successful use of mediation in the Commercial Division. The program, proposed to be piloted in New York County for an 18-month period, would send every fifth new case filed in the Commercial Division to mandatory mediation within 180 days of assignment to a Commercial Division Justice, with certain opt-out provisions upon the consent of all parties or a showing of good cause as to why mediation would be ineffective or otherwise unjust. Parties maintain control and flexibility in the process by being able to select the mediator from the roster of ADR neutrals or choose a neutral that they can separately identify. After extensive consultation and study, the Task Force found that mediation, while NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 11

14 a highly effective technique in resolving cases efficiently and cost-effectively, is often underutilized in the Commercial Division due to the inherent adversarial nature of litigation and the varying degree to which judges refer matters to mediation. By requiring mediation at an early stage, with accordant safeguards and opt-out provisions, the Advisory Council believes that parties who might not otherwise be inclined to mediate will give the process a chance before the battle lines are drawn. With more than 90% of business disputes eventually ending in settlement, the Advisory Council also agreed that requiring mediation at an early stage can help the parties resolve their disputes before engaging in the protracted and expensive disclosure and motion practice that modern commercial practice typically entails. The Advisory Council submitted this proposal to the Administrative Board of the Courts, which has decided to send the proposal out for a period of public comment before its full and final consideration. vi. Proposed Adoption of an Accelerated Adjudication Procedure: As businesses frequently complain, litigating a dispute requires not only the substantial sums spent on legal fees, but also disruption to operations, repeated distraction to key business personnel and the costs of preserving electronic data. Often parties must wait years before a decision on the merits is reached and all appeals are exhausted. In another effort to streamline this process, eliminate waste, reduce costs and provide certainty for those practicing in New York s Commercial Division, the Advisory Council endorsed the Task Force s recommendation for an accelerated adjudication procedure to be implemented upon the consent of all parties. The Advisory Council took up the task of devising a rule that would permit parties to contract for this accelerated adjudication in a pre-dispute context. Under the proposed new rule, if parties agree to elect the accelerated process through a contract provision, all pre-trial proceedings, including discovery, pre-trial motions and mandatory mediation, must be completed within 9 months from the date of filing of a Request for Judicial Intervention. The parties irrevocably waive any objections based on lack of personal jurisdiction or forum non conveniens, the right to trial by jury, the right to recover punitive or exemplary damages, and the right to any interlocutory appeal. Discovery, including the number of depositions and interrogatories, is specifically limited, and electronic discovery is narrowly-tailored. This proposed new rule is designed to give parties a chance to contract in advance 12 RENEWING A COMMITMENT TO EXCELLENCE

15 for earlier, more active case management that can save them from the expense and aggravation associated with protracted litigation. The Administrative Board of the Courts will also be sending this proposal out for a period of public comment before its full and final consideration. vii. Other Pending Developments: The Advisory Council has also taken up several other Task Force recommendations to further streamline litigation in the Commercial Division, including proposing a rule that would limit the number and scope of interrogatories and designing a revised and modernized Preliminary Conference Form for use in the Division. These two proposals have been submitted to the Administrative Board of the Courts, and will be sent out for a period of public comment before final consideration. Recognizing that the appellate courts play an essential role in the development of commercial law in New York State, the Advisory Council has also begun a constructive dialogue with each Presiding Justice of the State s Four Appellate Divisions about how to improve the flow of cases into and out of the appellate courts. These are just a mere sampling of the promising initiatives being explored by the Advisory Council in its effort to improve Commercial practice at every level. The success of New York s Commercial Division is a direct result of our court system s commitment to innovation and constant striving to find better ways to do business. With new issues constantly emerging in the business world, the work of the Chief Judge s Task Force and the Advisory Council is essential to ensuring that New York continues to be a reliable and preferred forum for the resolution of business disputes. Chief Judge Lippman and I look forward to announcing additional measures in the near future designed to further enhance New York s world-class Commercial Division. NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 13

16 I I I. MEDICAL MALPRACTICE A. OVERVIEW OF MEDICAL MALPRACTICE IN NEW YORK STATE NEW YORK S BOLD EXPERIMENTATION HAS NOT BEEN LIMITED to the commercial world, however, and our courts have recently been exploring innovative new procedures in the field of medical malpractice, designed to increase efficiency in case processing and address the stark realities about medical liability costs in our state and in our nation. To provide some context, in 2008, the United States annual medical liability system costs were estimated to be $55.6 billion or 2.4 percent of total health care spending. 10 This figure includes legal expenses, defensive medicine costs, indemnity payments as well as lost clinician work time. Since 1999, medical malpractice insurance premium rates have increased dramatically, in large part due to the amount paid on medical malpractice claims. This issue is of particular importance to New York State, which leads the nation in the number of medical malpractice claims filed. 11 In addition, the claims paid in New York are also among the highest in the country in 2011, New York State paid 1,379 medical malpractice claims, totaling $627 million. 12 In 2009, New York State hospitals spent a startling $1.6 billion to cover medical malpractice expenses. 13 One New York City hospital s medical malpractice premiums increased from $53 million to $115 million in less than 5 years, and in another hospital, for every baby insured by Medicaid, our government program for the poor, the hospital loses $8,000 per delivery as a result of their medical malpractice premiums. 14 Even more dramatic than these figures themselves is the thought of their impact on hospitals, physicians, insurers, patients and the community at large. Some hospitals have already shut down their obstetrical units due to high malpractice rates, and many doctors have stopped practicing obstetrics all together because of the prohibitively high cost of insurance. In New York City, for example, the average annual malpractice premium for an obstetrician/gynecologist is a remarkable $170,000 (approximately 106,641 pounds) per year. 15 More and more frequently, doctors are leaving the work 14 RENEWING A COMMITMENT TO EXCELLENCE

17 force or practicing in lower-risk specialties, and hospitals are closing, leaving needy communities under-served and creating dire economic consequences for the people they employed. The scope of the health care dilemma facing our nation was highlighted in a United States Department of Health and Human Services study which found that patients are experiencing tremendous challenges with health care quality and patient safety, and that they are not well-served by the current medical liability system. One report estimated that as many as 98,000 patients die each year in the United States due to medical errors in hospitals. In addition, patients who are injured as a result of medical malpractice often have to wait long periods of time before receiving compensation under the current system. The same study examined the situation from the point of view of the medical community, and found that medical liability concerns are leading to defensive medicine, the practice of doctors ordering tests, procedures or visits, or avoiding high-risk procedures primarily to avoid liability rather than to benefit the patient. The fear of liability also impedes efforts of health care providers to encourage open discussion of medical errors and to develop transparent and effective patient safety initiatives. Not only are these trends detrimental to patients, but they are also significant contributors to our nation s rising health care costs. 16 The health care dilemma facing the United States has been at the center of political debates for several years now, and in response, many states have adopted various types of tort reform legislation. For instance, close to 30 states now place limits on the amount of money that may be awarded for certain categories of damages in malpractice lawsuits, with caps ranging from $250,000 to $1.75 million. 17 In New York, however, similar tort reform proposals have received little meaningful support to date in the Legislature. In the absence of consensus on legislative tort reform, New York has adopted alternative strategies to address the economic realities of the malpractice debate. B. A NEW PRESCRIPTION FOR MEDICAL MALPRACTICE i. Current Status: Due to the nature of the claims involved, pursuing or defending a medical malpractice action can be a quite lengthy and expensive process for all parties. Cases typically involve significant discovery, complex evidence and require expert testimony on the standard of care and the cause of the patient s injuries. NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 15

18 In New York, however, settlements of medical malpractice cases are prevalent. In 2012, over 4,100 medical malpractice cases were disposed of in New York state courts, 2,462 of which were in New York City. Out of the New York City cases that were not dismissed by the court or not prosecuted or defended by the parties (1,114 were disposed in that manner), 115 were tried to verdict, and 1,233 or 91 percent were settled. A similar breakdown can be seen statewide, with approximately 46 percent of all medical malpractice cases dismissed or not prosecuted, 48 percent settled and 6 percent tried to verdict. 18 This high-rate of settlement would be encouraging but for the fact that among all the categories of civil cases, settlement of medical malpractice cases takes the longest to achieve. In 2012, the average age of a medical malpractice case at the time of settlement was over 1,162 days statewide. By contrast, other torts, including products liability and environmental claims, settled at an average of approximately 968 days, and contract cases after approximately 658 days. Of the New York City cases resolved by settlement in 2012, 43 percent were three years or older at the time of settlement, with 281 cases more than five years old. 19 The particularly lengthy life of a medical malpractice action in New York is likely due to a combination of the complexity of the legal and medical issues involved and the traditional practice of waiting until all discovery is complete and a trial date is scheduled before engaging in serious settlement discussions. ii. The Judge-Directed Negotiation Model: Mindful of the financial and human costs associated with protracted litigation and always striving to find better ways to do business, the New York State Court System began to explore how to more efficiently handle these cases. The result was the development of the Judge-Directed Negotiation (JDN) Program, designed to provide greater opportunities for early settlement of medical malpractice litigation. The essential philosophy behind the Judge-Directed Negotiation model is that if we facilitate early and frank discussion about a case s pros and cons, and demonstrate that judges are willing to become involved in the settlement process in a fair and credible way, cases will come to an earlier resolution. The traditional approach to these cases can have the parties returning multiple times, before several different judges who may be unfamiliar with the details of the case, wasting time and resources for both the parties and the court. By contrast, under the Judge-Directed Negotiation model, one judge, who receives specialized training in med- 16 RENEWING A COMMITMENT TO EXCELLENCE

19 icine and negotiation techniques, is assigned to a case from the parties first appearance until trial or settlement. The cases are analyzed early on to determine whether they have the potential to settle. At the preliminary conference, discovery schedules are set and an effort is made to sort the cases into one of three categories: 1) one that requires no discovery, inasmuch as liability is not in dispute, and is appropriate for potential settlement; 2) one that can benefit from minimal and targeted discovery followed by a court conference to determine whether settlement conferences would be fruitful; or 3) one that is a no-pay case in which the hospital or doctor insists that there is no liability; these cases are put on an expedited schedule for trial. If the facts appear appropriate for potential settlement (scenarios 1 and 2), rather than wait until the eve-of-trial to consider settlement, discussions are initiated at the outset or after limited discovery. Regular conferences are held to monitor the case s progress, and must be attended by attorneys and other party representatives who are both familiar with the case and have real authority to settle. Each of these conferences provides an opportunity for a knowledgeable, specialized judge to become invested in the case, facilitate honest legal and medical analysis and candid discussion about the case, and help the parties fashion case-specific remedies. Through Judge-Directed Negotiation, our courts can resolve meritorious claims and help victims receive fair compensation promptly, while also weeding-out baseless claims before significant and costly discovery is undertaken. By cutting down court appearances and defense costs, the program is also designed to reduce the administrative expenses including those involving lawyers, experts and courts, which are estimated to constitute 54 percent of the dollars paid to plaintiffs. 20 iii. The New York City Health and Hospitals Corporation Experiment: The Judge-Directed Negotiation approach grew out of a model developed by one judge in the Bronx County Supreme Court, the Hon. Douglas McKeon, to address municipal hospital malpractice claims involving the New York City Health and Hospitals Corporation (HHC) hospitals in the Bronx and Manhattan. After years of presiding over civil claims in one of New York s busiest courts, Judge McKeon came to believe that a medical malpractice case with its unique complexities should not be treated in the same way as a slip and fall or motor vehicle accident. By getting judges involved from the earliest stages of litigation, identifying the cases ripe for settlement, and finding common ground before discovery begins, Judge McKeon found that medical malpractice cases NEW YORK S GROUNDBREAKING APPROACH TO COMPLEX LITIGATION 17

20 could be resolved more efficiently, saving time and costs for all involved. By way of background, the New York City Health and Hospitals Corporation represents all municipal hospitals in New York City, and most of the doctors who work there are employees of the hospital. As a result, the Corporation represents all defendants the hospitals and the doctors in the majority of cases, and the liability pay-outs are paid directly by New York City. Having the same lawyers representing the hospital and the individual doctors made the cases more manageable for the judge and provided a perfect testing-ground for the Judge-Directed Negotiation model. From 2006 to 2011, of the 695 medical malpractice dispositions in the Bronx County Supreme Court involving Health and Hospitals Corporation hospitals, only 4 required jury selection, and of those 4, only 2 resulted in jury verdicts. 21 Due to the success with Health and Hospitals Corporation claims in the Bronx, the Judge-Directed Negotiation Program was soon expanded to other counties in New York City. iv. The Model in Practice During a typical negotiation session, judges and attorneys discuss a case s strengths and weaknesses and delve into the medical aspects of the litigation, often reviewing standard techniques and acceptable methods for procedures. Achieving a successful compromise may take some time, with parties returning for 3 to 4 conferences, and continuing their discussions over the phone in the interim. But while a typical medical liability case will take approximately 3 years to resolve, Judge-Directed Negotiation has been reducing that time frame to about 9 months. 22 While data is still being formulated, the experience of the Bronx County Supreme Court demonstrates that pre-trial settlements can be obtained of the 970 medical malpractice cases resolved between 2006 and 2011 by a judge who adopted the judgedirected approach, 619 (64 percent) were resolved at the pre-trial stage, some within months of the initial conference. 23 In addition to saving all parties litigation costs through early settlements, our experience so far has also suggested that cases which settle sooner are generally settling for less, thereby saving additional money for insurers and the health care system. Substantial savings are already being reported. According to Crain s Health Pulse, New York City Health and Hospitals Corporation s malpractice indemnity costs dropped from a high-water mark of $190 million in 2003 to $144 million in The Corporation estimates that the Judge-Directed Negotiation approach, together with other hospital cost-saving measures, has led to a reduction in 18 RENEWING A COMMITMENT TO EXCELLENCE

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