TESTIMONY OF STEPHEN P. MULLIN
DIRECTOR OF COMMERCE & CITY REPRESENTATIVE
FOR THE CITY OF PHILADELPHIA
BEFORE THE COMMONWEALTH OF PENNSYLVANIA
SENATE JUDICIARY COMMITTEE

MARCH 26, 1997
S.B. 570, p.n. 599

ESTABLISHMENT OF A COMMERCE COURT

INTRODUCTION:

Good Morning, Chairman Greenleaf, Vice-Chairman Heckler and Members of the State Senate Judiciary Committee. My name is Stephen Mullin and I currently serve as the Director of Commerce and City Representative for the City of Philadelphia. I am here today to present testimony on behalf of the Rendell Administration and the City of Philadelphia regarding the creation of a Commerce Court in the Commonwealth of Pennsylvania.

Philadelphia's Commerce Department serves as the gatekeeper and coordinator of all economic development policy, programs, and initiatives for the City of Philadelphia. This function encompasses a broad landscape of economic development policy under which each Administration is able to identify and implement its own priorities. For Mayor Rendell, the improvement of the overall business climate for the City of Philadelphia is of paramount concern and has made it a central component of the City's Economic Stimulus Program. This Administration recognizes that a city's business climate (including imposed regulatory burdens and fees, taxes, efficient delivery of quality services, and governance structure among others) directly affects a business's ability to remain productive, profitable, and viable. It is, therefore, an important consideration that weighs heavily in every business's locational decisions. With this in mind, this Administration seeks and supports policies, initiatives, programs, and legislation that reduce the cost of doing business in Philadelphia.

Toward that end, this Administration has implemented a seven-year plan to cut wage and business privilege taxes saving Philadelphia's taxpayers and businesses close to half-a-billion dollars, improved and monitored the performance and delivery of city services, lessened regulatory burdens, and created the Mayor's Business Action Team to work directly with businesses to ensure the full delivery of city services. Furthermore, this Administration has supported the concepts of many State proposals aimed at reducing the overall cost of doing business in Pennsylvania such as Worker's Compensation reform, and statewide electric deregulation to name a couple of recent examples.

As you can see, this Administration takes initiatives designed to create a positive business climate seriously. Today, we are here to discuss the creation of a Commerce Court in Pennsylvania. Philadelphia is home to many of Pennsylvania's most profitable and complex businesses and, therefore, has a direct interest in any State proposal that seeks to improve the conditions under which these organizations operate. The concept of a Commerce Court as we understand it attempts to directly improve a state's legal infrastructure to the benefit of both business and government alike. It is for this reason that I am here, on behalf of the Rendell Administration, to support the concept of a Commerce Court in Pennsylvania.

Commerce Court Concept

First, let me say that the Rendell Administration is in favor of a Commerce Court that is cost neutral. As I understand the proposal, while the funding structure for S.B. 570 places surcharges on existing document and licensing fees, the costly and controversial surcharges under its predecessor-- SB 616 -- have been greatly reduced. Furthermore, the intent of the funding structure in S.B. 570 looks to eventually eliminate these surcharges. While this may result in increased up front fees to businesses, the evidence supplied by the American Bar Association, the New York Supreme Court Commercial Division, and the Pennsylvania Corporation Bureau Advisory Committee suggest greater long-term savings to businesses through brevity in the life of litigation and more consistent rulings achieved through the specialization of a Commerce Court.

Businesses are currently paying out large amounts of money for private arbitration to avoid use of the current general court system. With a specialized Commerce Court, businesses would return to the State's judiciary system and realize up-front savings in lower arbitration fees. Moreover, the establishment of such a court would shift burdens away from existing courts and create commensurate savings in the use of public funds for the general court's own operations.

As is the case with other fields, business, commercial, and corporate law has become increasingly complex and the needs of businesses have forced lawyers to become specialists rather than generalists. Judiciaries, on the other hand, burdened by limited resources and heavy case loads, have not had the ability to do so. The result for everyone is numerous delays, lengthy litigation, inconsistent and unpredictable law, and overburdened generalist judges. Because of our business community's lack of confidence in the system, they often seek alternatives to the current system such as pursuing out of court settlements, establishment of Federal jurisdiction, and commercial arbitration. Each of these negatives can result in huge costs and risks for businesses, ultimately making it difficult for them to remain profitable, productive, and viable.

Because the complexity of business cases is often greater, the cost impacts of inconsistent court decisions and lengthy delays not only affects the business, but also numerous persons and entities throughout the area economy, including employees, shareholders, creditors, suppliers, customers, and service providers. Because of this ripple effect on a large segment of society, it is important to the economy that such cases be handled efficiently, expeditiously, and correctly. Any savings yielded from such a system eventually will be passed on to each of these segments.

A separate Commerce Court would allow for judges to develop expertise in complex commercial, business, and corporate law. By focusing on a specific area of law, judges are enabled to perform their jobs more effficiently and proficiently while increasing the quality of their decisions and using fewer resources. The length of litigation is, therefore, decreased through gained familiarity with business law.

These benefits fall on both sides of the equation. A study by the Business Law Section of the American Bar Association showed that in the first year of New York's implementation of its business court, the disposition of trial-ready commercial cases increased 35% over the previous year. The result of this efficiency was that with the same resources, the work of four generalist judges was accomplished by three specialized business judges. At the same time that Commerce Court judges develop expertise in business law, this frees up judicial resources to be utilized in courts of general jurisdictions and allows for these judges to develop expertise in their remaining areas of litigation. Through the gained expertise on both sides, we will witness more accurate applications of governing legal principles. Savings will be felt by both businesses and governments alike.

The creation of a Commerce Court will offer Pennsylvania an additional qualitative feature to make Pennsylvania and Philadelphia a more attractive place to do business and to level the economic development playing field with several states with which we compete directly. Currently, Delaware, New Jersey, New York, and North Carolina have some form of a specialized court to hear complex business cases. Pennsylvania is at a disadvantage relative to these other states because it cannot offer a similar service. When surrounded by states that have specialized commerce courts in place, it serves as a discouragement to businesses incorporating in Pennsylvania, remaining incorporated here, and resolving disputes here. It encourages a perception that Pennsylvania does not have as comprehensive and efficient a judicial system to review issues of corporate governance and commercial disputes as states like Delaware, New Jersey, and New York. It demonstrates to businesses that these other states are far more advanced in developing an environment that is conducive to business.

It is actually through the fact that our competitors have Commerce Courts that we can see actual benefits and savings to businesses. The most recent publication of caseload trends for Delaware's Chancery Court shows a substantial increase in both civil filings and civil dispositions during FY1995. While civil filings rose by approximately 31 % from FY94 to FY95, civil dispositions increased by close to 40% from FY94 to FY95. The greater rise in dispositions than filings resulted in the civil cases pending in the Court decreasing by close to 2% during the same period. Furthermore, Delaware saw a dramatic increase of 112% in dispositions from FY94 to FY95 relating to miscellaneous matters and also saw a slight drop in pending cases. Estate cases closed in Delaware's Chancery Court during the period from FY94 to FY95 increased almost 11 %.

In a report issued by the Supreme Court, Civil Branch Commercial Division of New York County on its progress since inception in 1993, we see very positive results which demonstrate tangible benefits to businesses:

  • the average disposition time for cases has been reduced by 29%;
  • the mean period of time in days between trial readiness and the disposition of contract cases by trial or settlement has declined dramatically from a mean of 404 days in 1992 to a mean of 271 days in 1996 -- a decrease of 33%;
  • the rate of settlements rose by 85% between 1992 and 1996;
  • the number of pending contract cases has been significantly reduced since 1992 by 26%; the number of pending Notes of Issue in contract cases also has been reduced by 27% since 1992.

While the proposed Commerce Court for Pennsylvania would not be structured in the exact same way as Delaware's Chancery Court or New York's Commercial Division, these statistics demonstrate that specialized commerce courts operate more efficiently, thus yielding benefits and cost savings to businesses and government alike.

Closing Remarks:

In closing, this Administration favors the concept of a Commerce Court on the basis that it yields savings to businesses, thereby reducing the overall costs of doing business here, provides an environment more conducive and responsive to doing business in the State and thereby Philadelphia, and makes us more economically competitive with other States that offer some form of a commerce court.

I would like to take this opportunity to thank the members of this committee for its time and for its attention to this important matter. I would be pleased to respond to any questions you may have.