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New Laws Shift Jurisdiction in Business Court Cases and Challenges to Legislative Acts

New Laws Shift Jurisdiction in Business Court Cases and Challenges to Legislative Acts

NCBA's The Senior Lawyer
(October 21, 2014)

In the most significant jurisdictional laws passed in years, the General Assembly has reorganized how business cases and challenges to acts of the General Assembly are adjudicated at both the trial and appellate levels.  In short, the laws will move more business cases into the Business Court, will move facial constitutional challenges to acts of the General Assembly to specially formed three-judge panels in Wake County, and will allow many decisions in such cases to bypass the Court of Appeals for direct appeal to the Supreme Court of North Carolina.

Business Court Jurisdiction Grows

The Business Court has long enjoyed concurrent jurisdiction with other Superior Courts over most of the cases on the Business Court docket.  That is, in most cases, a Plaintiff may elect to designate a particular case meeting the statutory criteria as a "mandatory complex business case" and bring it in Business Court, or a Defendant or third party may "remove" such a case from Superior Court to Business Court, but neither is generally obligated to do so. 

Certain tax disputes and utility pole cases, however, have resided in the Business Court's exclusive jurisdiction.  Under Senate Bill 853, S.L. 2014-102, that exclusive jurisdiction will expand beginning on October 1, 2014, to include any "mandatory complex business case" with an amount in controversy of at least $5,000,000.  See N.C. Gen. Stat. § 7A-45.4(b).  In other words, high-dollar cases that could have been brought in Business Court before will now be required to be brought or removed to Business Court.  Indeed, even if the parties attempt to press ahead in Superior Court, the new law requires the Superior Court to enter an order, sua sponte, staying the action until the case is designated for the Business Court.  N.C. Gen. Stat. § 7A-45.4(g).

A related change in the law expands the Business Court's concurrent jurisdiction over ordinary contract disputes involving at least one party that is a business entity and in which the amount in controversy is at least $1,000,000.  See N.C. Gen. Stat. § 7A-45.4(a)(9).  Under the old law, ordinary contract disputes between businesses did not fall within the Business Court's jurisdiction unless the case presented something more, such as a dispute regarding securities, antitrust law, or intellectual property.  Now, however, provided all parties consent, any contract dispute with enough at stake can receive the more formalized, single-presiding-judge procedure that Business Court affords.

My sense is that many of the cases affected by these changes are already being handled by specially designated judges under Rule 2.1 of the General Rules of Practice.  That is, counsel in high-dollar cases tend to prefer the predictability of having a single assigned judge, and have made it a practice to seek a "Rule 2.1 designation" from the Chief Justice for such cases anyway.  If so, then these changes will have the immediate effect of reducing the demand for Rule 2.1 designations, while increasing the workload of the Business Court.

Business Court Orders Will Be Directly Appealable to the Supreme Court

The Business Court has long been required to "issue a written opinion upon final disposition" of a case before it.  Gen. R. Pract. 2.1(b).  The bar has been delighted by the Business Court's frequent practice of issuing written opinions in other matters, such as discovery disputes and the like, even when not required to do so by rule.  Nevertheless, the Business Court historically could exercise its discretion to, say, deny a motion to dismiss without going into great detail.  Under the new law, however, the Business Court will now be required to issue a written opinion in support of any order granting or denying a motion made under Rule 12, 56, 59, or 60.

This expansion of writing responsibilities for Business Court judges may be related to another major shift—all appeals from Business Court decisions, including interlocutory orders that are subject to immediate appeal, will now be heard directly in the Supreme Court of North Carolina. 

The significance of this change should not be understated.  By my calculations, the Supreme Court has considered just one appeal from the Business Court since January 1, 2013, and did not issue a published opinion in that appeal because the court was evenly divided, with one recusal.  The Court of Appeals, on the other hand, has published 11 opinions and 3 unpublished decisions in appeals from the Business Court during that same time period—a rate of 8 decisions per year.  Shifting these decisions to the Supreme Court will not make an appreciable difference in the Court of Appeals' workload, but will do so in the Supreme Court, which resolved 38 civil appeals (including appeals arising from petitions for discretionary review that were granted) during the last year for which data are available.  Furthermore, nearly every Supreme Court decision is published and precedential.  All told, businesses and their lawyers can expect a marked rise in controlling precedents from our state's highest court on the issues that govern their conduct and how their disputes are litigated.

Three-Judge Panels Will Hear Facial Constitutional Challenges in Civil Cases

Challenges to the "validity" of acts of the General Assembly have likewise been consolidated into specialized courts with direct appeal to the Supreme Court.  Buried deep in this summer's budget bill, Senate Bill 744, S.L. 2014-100, the revisions require that all facial challenges to such acts in civil cases be decided by specially-constituted three-judge panels of the Wake County Superior Court.  Though the statute is silent on the contours of such a challenge to the "validity" of an act of the General Assembly, it seems likely that most if not all such challenges would present the argument that the act violated the North Carolina Constitution, United States Constitution, or other controlling federal law.

Following the model in use for redistricting challenges, the new law requires the Chief Justice of the Supreme Court to appoint three resident superior court judges to a three-judge panel for each such contention that a legislative act is constitutionally invalid on its face.  Each panel will draw one judge from each of the three regions of the State: East (1st, 2nd, and 4th Divisions), Central (3rd, 5th, and 6th Divisions), and West (7th and 8th Divisions).   N.C. Gen. Stat. § 1-267.1.

Panels will not be constituted for "as applied" challenges, which can still be heard by the original Superior Court.  An order granting or denying an injunction that would enjoin the State or a political subdivision from enforcing such an act will now be immediately appealable to the Court of Appeals.  N.C. R. Civ. P. 62(h); N.C. Gen. Stat. § 7A-27(b)(3)f.

The three-judge panel procedure includes a number of details that are sure to lead to interesting fact patterns in the years to come.  For one, there is no provision for a "standing" panel—each such challenge requires the Chief Justice to constitute a panel for that particular challenge.  Moreover, the panels are not tasked with deciding the entire case; instead, any claims or issues other than the facial constitutional challenge remain venued in the originating county.  The original action is not automatically stayed upon the transfer, but the original court must "stay all matters that are contingent upon the outcome of the challenge to the act's facial validity" until the constitutional question is finally resolved, including any appeals.  But what does it mean for an issue to be "contingent upon the outcome of the [facial] challenge"?  If the constitutional challenge is necessarily "outcome determinative" for a given claim, is that claim stayed?

Further, how should the courts interpret the provision requiring that a challenge be transferred to a three-judge panel only if "after all other matters in the action have been resolved, a determination as to the facial validity of an act of the General Assembly must be made in order to completely resolve any matters in the case"?  N.C. R. Civ. P. 42(b)(4).  Take, for example, a case in which the plaintiff claims that the defendant violated a particular state statute.  The defendant might contend that it did not, as a factual matter, violate the statute, and, alternatively, that the statute is facially unconstitutional anyway.  Must the original superior court transfer the constitutional challenge immediately, or can it wait until the defendant's factual defense is resolved first, perhaps after protracted litigation and a trial? 

Orders Finding Legislative Acts Facially Invalid Will Be Directly Appealable to the Supreme Court

The statute also directs the appellate path for decisions of a three-judge panel on such a facial challenge.  If the panel finds the act of the General Assembly to be invalid, immediate appeal will lie as of right directly to the Supreme Court.  N.C. Gen. Stat. § 7A-27(a1).  If the panel finds that the act is not invalid, then the parties have their normal appellate rights to the Court of Appeals from the order itself (if it is properly subject to immediate appeal) or from the final judgment incorporating that order, entered in the original county.  In short, rulings that are adverse to the legislature are fast-tracked to the Supreme Court, while all other rulings follow the slower path applicable to most other civil cases.

This new appellate route may create some interesting fact patterns as well.  Continuing with our example above, suppose the original Superior Court takes the case all the way through trial, and finds the defendant liable under the statute.  The constitutional challenge is then transferred to the three-judge panel.  If that panel finds the statute invalid, then that issue alone becomes immediately appealable to the Supreme Court.  If the Supreme Court reverses and upholds the statute, then the case is returned to the original Superior Court, where the defendant may then initiate a second appeal, this time on the non-constitutional questions decided by the jury in the original county.  That appeal would go the Court of Appeals first.  Overall, the appellate process would be bifurcated and protracted.

Or, to complicate things even further, what if the case involving a challenge to a state statute is a Business Court case?  As written, the statute would appear to require a direct appeal to the Supreme Court on the constitutional question decided by the three-judge panel, followed by remand, followed by a second direct appeal to the Supreme Court on the non-constitutional questions.  Surely, at least in this situation, it would be more efficient to allow the entire case to be appealed together.

In sum, the jurisdictional changes are detailed, far-reaching, and are likely to provide fodder for further discussion in the years to come.  Moreover, with these laws fresh on the books, this article can only summarize the changes and make modest predictions of how the laws will be implemented.  In other words, paraphrasing Donald Rumsfeld, this article covers just the known unknowns.  Only time will reveal the unknown unknowns latent in the revisions that might arise in a particular case.

Article originally published in the North Carolina Bar Association's The Senior Lawyer, September 2014 issue, and is posted with the permission.

Matthew Nis Leerberg
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