TESTIMONY OF CLIFFORD E. HAINES,
CHANCELLOR, PHILADELPHIA BAR ASSOCIATION,
BEFORE PENNSYLVANIA SENATE JUDICIARY COMMITTEE
REGARDING CREATION OF A SPECIALIZED BUSINESS COURT

Wednesday, March 26, 1997

Good morning. My name is and I am a partner with the Philadelphia law firm of Litvin, Blumberg, Matusow & Young. More importantly, at least in this setting, I also have the privilege of serving as Chancellor of this Philadelphia Bar Association in 1997.


As Chancellor of the 14,000 member Philadelphia Bar Association, I am very pleased to be here today to communicate to you our very strong interest in creating a specialized forum for resolution of corporate governance and inter-business disputes.

In December of last year, I addressed the Philadelphia Bar Association's membership at our annual meeting. I spent a fair amount of time describing my plans and aspirations for the Association during my Chancellorship. That day's Philadelphia Inquirer story did not pick up on our plans to continue fighting for adequate legal services funding. It did not pick up on my remarks about the crisis in public confidence which I believe faces our system of justice. Rather, the headline read: New head of Phila. Bar advocates business courts. The Philadelphia Business Journal followed with an editorial entitled, Business People's Court, which began, It's about time that a chancellor of the Philadelphia Bar Association champion the concept of a business-only court.

Why did this idea, among all the others, appeal so strongly to the media? And why am I, a trial lawyer, trying to focus interest on an innovation that on its face at least appears to benefit only business?

I think the answer to these questions is pretty simple - if we do not take affirmative steps to make Pennsylvania a place where business can flourish, all of us will suffer. Without business, tax revenues shrink, unemployment rises, and the viability of Pennsylvania as a marketplace as well as a place to live, work and raise families becomes increasingly marginal. However we make our livings, we all stand to lose significantly if we do not foster and maintain a dynamic, productive business climate.

The attention my remarks received from the media suggests that the idea of creating a specialized forum for the resolution of business disputes is in some way new or novel. In fact, our Board of Governors adopted a resolution as early as 1983 which expressed concern even then about Pennsylvania's inability to compete with Delaware and other states in providing a positive environment for business. Our Association was, apparently, quite visionary at that time - according to a report issued by the Ad Hoc Committee on Business Courts of the American Bar Association's Business Law Section (ABA Business Law Section Report), major efforts to establish business courts began in this country in 1988..., fully five years after our Board adopted its resolution in support of a specialized forum for resolving business disputes.

That resolution identified three factors inhibiting Pennsylvania's ability to retain existing business as well as attract new businesses. First, one factor discouraging corporations from incorporating in this Commonwealth is the perception that other states, particularly Delaware, have a more modern corporate law... and a large base of judicial decisions under that law on which to predicate corporate decision-making. The resolution then identifies several specific areas where Delaware's laws are more amenable to business than Pennsylvania's. To address the inability to compete across state lines for business, particularly with Delaware, we recommended that 1) the corporate laws of the Commonwealth be modernized; and, 2) the tax laws applicable to businesses in Pennsylvania be amended so as to be competitive with those of neighboring states.

Similarly, the Commercial and Federal Litigation Section of the New York State Bar Association reported in January 1995 that business disputes should be resolved in a forum that fosters three goals:

First: Proper and efficient handling of cases of importance to business or commerce.

Second: Development of a clear and well-reasoned body of New York law to guide both lawyers and businesses in their affairs. To the extent businesses go outside the court system and utilize ADR services to resolve their disputes, the law creation aspect of dispute resolution is lost.

Third: Resolution of disputes by judges who are experienced in the substantive issues that arise and skilled in handling this type of case both at the pretrial and trial stage -- fostering, at once, efficiency and predictability of decisions.

A Commercial Court for New York, Report of the Commercial and Federal Litigation Section, New York State Bar Association (Jan. 19, 1996).

States looking to attract and retain business need to create an environment for business which allows efficient, predictable dispute resolution. Since 1983, Pennsylvania's outdated Corporations Code of 1933 has been replaced with the more modern, coherent Corporations Code of 1988. Administrative changes and innovations have modernized the Corporations Bureau, simplifying the administrative aspect of doing business in Pennsylvania. Today, the creation of a specialized business court - whether legislatively or as a special division of an existing court - represents another significant step toward establishing and maintaining a business-friendly environment.

A somewhat cynical criticism has been raised: that the reason lawyers are interested in creating a specialized business court is because they believe such a court will be good for lawyers. Yes, specialized business courts may well help lawyers. But any innovation that makes Pennsylvania a more business-friendly place will help not just lawyers but everyone with a stake in the future of the Commonwealth and who is capable of taking the long view. The bottom line - unless we consider every option that will make this Commonwealth a more attractive place for businesses to settle, everyone will lose: trial lawyers, bond lawyers, lawyers, non-lawyers, all of us.

Another argument raised is that it is wrong to create a special court for business but not for other substantive areas of the law, that business should not be singled out for special treatment. In law practice and throughout the legal profession, specialization is on the rise. There is so much information, so easily available, that it is almost impossible to keep up with changes and trends in the law. To survive and to stay competitive, many lawyers choose to concentrate in specialized areas of the law, making the true generalist as much a rarity as the family doctor who makes house calls. In today's competitive legal marketplace, this trend toward increased specialization is a natural reaction to the need to master increasingly complex bodies of law.

Specialization within the legal profession is likely to continue, primarily because specialization is a more efficient way to approach matters which may present legal as well as factual complexities. Given the challenges of funding any court system adequately, any device which enhances efficiency must be explored. A report issued by the Ad Hoc Committee on Business Courts of the American Bar Association's Business Law Section (ABA Business Law Section Report) states that because business litigation frequently involves issues which are of significant complexity, [t]hat complexity puts a premium on jurist knowledge of, and experience in, the substantive legal areas and underlying relationships in dealing with such matters. Business Courts: Toward a More Efficient Judiciary, A Report of the Ad Hoc Committee on Business Courts of the Business Law Section of the American Bar Association (August 1, 1996).

At the federal level, there are a number of specialized courts, including the U.S. Bankruptcy Court, the U.S. Court of Claims, the U.S. Court of International Trade, and the U.S. Tax Court. Here in Philadelphia some degree of specialization on the bench occurs even now. The trial level of the Philadelphia Court of Common Pleas is divided into the Family Court Division, the Orphans' Court Division and the Trial Division, which itself is divided into Civil and Criminal. On the Criminal side, certain judges handle homicides only, while others are assigned to hear jury trial waivers. On the Civil side of the Trial Division, certain judges handle only motions, others only discovery matters, with others assigned to handle jury and non-jury trials. The Family Court Division is divided into the Juvenile Branch and the Domestic Relations Branch. And so on.

Clearly the notion of judicial specialization per se is an accepted one here in Philadelphia, and one which I believe President Judge Bonavitacola would tell you has thus far yielded significant economies in terms of time and scarce judicial resources. The idea of segregating certain kinds of business and mercantile disputes also promises potential savings in judicial and other court resources. The ABA Business Law Section Report notes that while some of the economies to be reaped are obvious, some are not as readily apparent.

Less obviously, however, any efficiencies in the conduct of business cases that are part of a court of general jurisdiction can be of immense help in an era in which many states are experiencing an extraordinary scarcity of judicial resources. Those efficiencies in hearing business matters free up judicial resources to be utilized throughout a court of general jurisdiction wherever those resources are most needed. Three specialized judges assigned as members of a business court division, for example, who can handle the work of four non-specialized judges hearing similar cases, have for all practical purposes added the equivalent of a new full-time judge to an otherwise beleaguered court.

Business Courts: Toward a More Efficient Judiciary, A Report of the Ad Hoc Committee on Business Courts of the Business Law Section of the American Bar Association (August 1, 1996) (emphasis added). Imagine, getting the work of four judges from three. Isn't that something we should be looking at?

Another reason to cull business cases out of the larger civil docket is the complexity of business cases. The popular misconception is that tort cases are clogging our courts, but a comprehensive study of federal court dockets demonstrates that most intractable cases involve business disputes. Special Report: Probing the Backlog, National Law Journal, Aug. 7, 1995. The study found that in federal court, business litigation comprises 32.2 percent of the cases more than three years old. James DeAnda, former Chief Judge of the Federal District Court for the Southern District of Texas, is quoted as saying that business cases pose unique challenges and generally are more complicated and take more time and more preparation and more discovery.... There are no fender-benders in business litigation. There is always an 'et al.' at the end of it and 'et al.' means 'look out.' Id. Obviously, federal court docket information does not translate directly to the state court setting, but there is no reason to believe either that the business cases in our state courts are less complex than those in the federal courts, or that segregating business matters from the other civil cases would not achieve significant economies in terms of judicial resources.

There is no question that the notion of allocating certain court resources to the resolution of inter-business disputes is rapidly gaining popularity nationally. Currently, Delaware, Illinois, New York, New Jersey, North Carolina and Wisconsin all have specialized courts to handle business disputes. Ironically, the Report of the New York State Bar Association's Commercial and Federal Litigation Section identifies the fact that Pennsylvania, a neighboring state, is considering creating a business court to make Pennsylvania more attractive to business as a reason why New York should continue with its pilot program. A Commercial Court for New York, New York State Bar Association (Jan. 19, 1996). Apart from Delaware, all these courts are relatively new. Other states - California, Hawaii, Michigan, Minnesota, Ohio, Texas and Florida - are currently considering creating specialized forums for business. This is a situation where keeping up with our neighboring states may be the only way to avoid losing the competition for businesses to them.

A study released in earlier this year by Dun & Bradstreet indicates that Pennsylvania suffered the fifth largest loss of jobs and businesses of any state in the country from 1990-1995. Philadelphia Inquirer, January 7, 1997. Conversely, our neighbors, New Jersey and Delaware, were among the leaders nationally in attracting new businesses across state lines. Those should be frightening statistics for anyone who lives or works in Pennsylvania. They certainly frighten me. But even if we were not at a competitive disadvantage with Delaware, we should still be looking at every strategy that could make Pennsylvania a better business address. Even Delaware, the acknowledged king of business incorporations, continues to fine tune its procedures for handling business disputes. Business People's Court, Philadelphia Business Journal (December 6, 1996). In May, 1993, Governor Carper's Commission on Major Commercial Litigation Reform proposed a summary procedure for the accelerated resolution of business disputes. See Delaware's new summary procedure..., National Law Journal (April 4, 1994).

I know that this hearing is intended to focus primarily on Senate Bill 570, which would create a statewide Commerce Court for the resolution of such disputes. Although we have no formal position on that legislation in its current form, if we can be said to have served as a catalyst to spark debate regarding S.B. 570 or any of the alternative approaches to create a specialized forum for business disputes in Pennsylvania, we are pleased to have played that role.

As I stated in my remarks to our membership in December, Whether you support or oppose a specific proposal, can there be any doubt of our need to appeal to business and industry to look to Pennsylvania, not only as a legal marketplace but as a welcome home for growth and development?

Again, thank you for the opportunity to be here today and to be heard in support of efforts to make Pennsylvania a desirable corporate address. If you have any questions for me now, I would be happy to address them. I am grateful for your attention today and look forward to working together with you in the future on this and other issues.