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Stepping up the pace at NC Business Court

The state Business Court aims for swifter turn-around times as the legislature seeks to ‘modernize’ the court

Barack Obama was not yet president when a Charlotte-based company called SCR-Tech sued one of its competitors for stealing trade secrets. The case was designated to the North Carolina Business Court in 2008 and it is still on the docket – and still churning in the discovery phase – six years and many gray hairs later.Time clock

The lawsuit, which hinges on technology used to make filters that remove pollution spewed from the exhaust of coal-fired plants, is one of the oldest active cases on the court’s docket. But it is among more than 50 active cases that have been on the docket for two years or longer.

Business Court Chief Judge James Gale says the court was created to “have prompt dispositions.” But some lawyers complain that the bench’s three judges, who preside in Charlotte, Greensboro and Raleigh, are overworked and take too long to issue orders, which can cost their clients millions.

“Cases go into our Business Court and languish for an inordinate amount of time. That is undermining the effectiveness of the court,” said Kieran Shanahan of the Shanahan Law Group in Raleigh.

Gale, who is in Greensboro and recently was appointed to helm the Business Court following Chief Judge John Jolly’s retirement, said he and his fellow judges – Louis Bledsoe in Charlotte and Gregory McGuire in Raleigh – are not deaf to the grumbling.

“I’ll acknowledge the historical perception that it took the court a long time to rule on motions,” he said. “But I believe that you’ll find the situation is being reversed rather steadily.”

‘These numbers have to improve’

In 2009, the legislature began requiring the Administrative Office of the Courts to submit annual reports on the Business Court detailing the number of new, closed, and pending cases, average age of pending cases, and annual expenditures for the prior fiscal year.

The latest numbers from the 2013 report show that the court as a whole had 233 pending cases and had closed 147 cases while taking 134 new ones. Since 2012, the court has closed more cases than it accepted on an annual basis.

Gale cites the in-out statistic as a measure of the court’s efficiency. But the average age of all the cases on the court’s docket has never fallen below a year old. In most cases, the average age is more than two years. In Charlotte, the average age of all the cases on the docket last year was 902 days, compared with 755 days in Raleigh and 652 days in Greensboro.

Those numbers factor the age of all cases, including those that are on appeal. Prior reports had included the average age of only active cases, which excludes cases on appeal and arguably provides a more accurate picture of what’s happening in the individual Business Court locations.

In 2012, the average age of an active case in Charlotte was 591 days, compared with

663 days in Raleigh and 399 days in Greensboro. The latter two courts reported reductions in the average age of active cases from 2011 to 2012. The average age of an active case in Charlotte increased during that time, though only by 14 days.

According to Gale, the Administrative Office of the Courts in 2013 altered its formula for calculating average case ages and began including all cases based on “a strict reading of the legislative requirement for reporting.”

The change frustrates efforts to compare the latest report with those from earlier years and makes it appear that the average age of cases in each of the three courts increased dramatically last year while the numbers of open cases edged down slightly.

“I didn’t know they had changed the numbers. That’s not useful to us,” said Sen. Tamara Barringer, a Wake County Republican and business law professor at the University of North Carolina in Chapel Hill who monitors the Business Court.

She added, “We might need to take a look at that [reporting] statute and adjust the language.”

Barringer co-wrote the so-called Business Court “modernization bill,” which was ratified in August and expands and refines the court’s jurisdiction to include tax cases, among other matters. While crafting the legislation, Barringer said, she talked with many stakeholders and found that delays were not a recurring theme of their conversations.

However, she was surprised to learn about the length of time that an average case spends in the court before it’s resolved.

“If it’s an intellectual property case the [product] could become obsolete. What you have will be worthless,” she said. “These numbers have to improve.”

‘Delay can be maddening’

An attorney for SCR-Tech, Timothy Barber of King & Spalding in Charlotte, did not blame Gale, who inherited the case from a retired colleague, for the length of time that the suit has lingered on the docket.

“I think the sheer number of cases filed in the Business Court and the limited number of judges has caused this problem,” he said. “I think the court has a very hardworking bench and does a superb job of adjudicating cases.”

Gale issued 27 opinions last year, while Jolly wrote 16 and Murphy had 12, for a total of 55 opinions. In 2012, the court released 61 opinions, up from a total of 46 in 2011 and 22 in 2010. Each of the judges received a second law clerk in late 2011, which helps explain the increase in opinion output in subsequent years.

Barber, speaking generally and not about the SCR-Tech suit, added, “Any time that a case drags on for years you have problems with witnesses’ memories, availability, documents becoming lost. You also have an impact on the marketplace.”

Players in the legal marketplace are paying close attention to a high stakes case pitting one of the most prominent online companies in the country, LegalZoom, against the North Carolina State Bar.

LegalZoom wants Gale to rule on the legality of its business model, which the bar says constitutes the unauthorized practice of law, but the case is grinding along in its fourth year and has not yet entered the discovery phase.

“Delay can be maddening and terribly prejudicial, depending on your point of view,” said LegalZoom’s attorney, A.P. Carlton of Raleigh. “It can be expensive. It can create problems for the enterprise you’re representing while you’re being held up.”

“It’s not all the trial judges’ fault by a long shot,” he added. “They deal with very complicated cases and they know the chances are 90 percent that there will be an appeal so they have to be very careful in their rulings. I don’t blame any individual judge for delays.”

Reid Phillips, a business litigator at Brooks Pierce in Greensboro, said cases should be resolved within two years. And while that doesn’t always happen, he believes that the Business Court has become more efficient.

“There was a time before the three current judges that in advising clients you had to say that the Business Court is not necessarily going to be faster, that it might take longer because of their workloads,” he said. “Now I don’t say that. The judges that we have now get things looked at pretty quickly.”

Rep. Leo Daughtry, a Smithfield lawyer and Republican who heads the House’s judiciary committee, said lawmakers became concerned about delays in the Business Court a year and a half ago.

“It was just common knowledge that it was too slow. That’s been a problem and I think it’s going to be rectified,” he said, referring to a budget provision that will add two new judges to the Business Court. Gov. Pat McCrory is expected to appoint the judges next year.

“This is part of our effort to become the best economic state as far as growth and job creation,” said Republican Sen. Bob Rucho, a dentist who represents Mecklenburg County and worked on the modernization bill with Barringer.

With the addition of two new judges, the Business Court’s five-member bench will be the same size as Delaware’s Court of Chancery – the gold standard of business courts. But whether North Carolina’s court will rise to that level remains to be seen. A recent study found that the Chancery Court took an average of seven days to rule on a motion for a temporary restraining order.

“We’re committed to catching up,” Gale said, “and I’m hopeful that a year from now that the historical perception that it takes the court a long time to rule on motions will no longer be the perception that people have.”

Follow Phillip Bantz on Twitter @NCLWBantz


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