The Business Court issued a significant Order last week, in Composite Fabrics of America, LLC v. Edge Structural Composites, Inc., 2016 NCBC 11 that Judge Gale said was an "opportunity to clarify. . .how the Court interprets the statutory mandates for designating a case as a mandatory complex business case" and that the Business Court is not a court of separate jurisdiction. Order ¶2.
Some Guidance About Designating A Case To The Business Court As A Mandatory Business Case Based On A Counterclaim
A counterclaim can be the basis for a notice of designation. That Is true even though the statute governing a designation of a case to the Business Court (N.C. Gen. Stat. §7A-45.4(d)) does not mention a counterclaim as a basis for a designation. It says only that a notice of designation may be filed:
by the plaintiff, the third-party plaintiff, or the petitioner for judicial review contemporaneously with the filing of the complaint, third party complaint, or the petition for discretionary review in the action.
Notwithstanding the absence of any mention of a counterclaim in the statute, Judge Gale ruled that the Court interpreted that language to include counterclaim plaintiffs and counterclaims as well as the party against whom a counterclaim is being asserted. Order ¶18.
Thus, he concluded, that "a party may use its counterclaim as the basis for a notice of designation. Order ¶9.
If a party wants to base its notice of designation on both the Complaint and its own counterclaim, it needs to act quickly. The thirty day time limit on filing a notice of designation (contained in G.S. §7A-45.4(d)(3) plays a role here. Judge Gale said that:
if a counterclaimant wishes to rely on the opposing party’s complaint as well as its own counterclaim as a basis for mandatory designation, the notice of designation would need to be filed within thirty days of service of the complaint and contemporaneously with the counterclaim.
Order ¶19. That would require the Answer containing the counterclaim (and the contemporaneous notice of designation) to be filed more quickly than they might ordinarily be filed given the general practice of getting a thirty day extension of time to file an Answer.
If the counterclaim is the first pleading to warrant a designation, then the opposing party has thirty days from the date of service of that pleading to file a notice of designation. But things are different if the counterclaim is the first pleading to raise an issue that qualifies for mandatory designation. Then, the thirty day period is measured from the filing of the counterclaim. That’s so long as the new pleading "is not being made for an improper purpose." Order ¶21.
Things can be tricky if the notice of designation is based on the Complaint, before the counterclaim is filed. But what if the notice of designation is filed based upon the Complaint, and the party seeking designation then files a counterclaim that would warrant a designation? That was the situation faced by Judge Gale in the case before him. He said that "[w]hether [this type of situation] involves material issues within the scope of section 7A-45.4(a) must therefore depend on the allegations in the . . . Complaint." Order ¶22. But even so, the Business Court would consider the counterclaims "to inform it" whether [the claims made in the Complaint] necessarily include material issues that fall within the scope of the matters upon which a designation is allowed. Order ¶23.
You can lose your right to designate a case on a counterclaim. If you forego designating a case which would have been appropriate for a mandatory designation based on the Complaint and let the thirty day period for designating lapse, you can’t "renew [your] right to designation by filing a counterclaim." Order ¶20.
Beware of Business Court Rule 3.2
Business Court Rule 3.2 is titled "Contents of Notice of Designation." It directs the party filing a notice of designation "to not only describe how the case falls within one or more categories of section 7A-45.4, but to further identify factors that demonstrate why the Business Court is the appropriate venue for that case." Order ¶24.
The portion of that Rule requiring the designating party to "further identify factors" warranting designationis a survivor from the early days of the Business Court, before the NC General Assembly enacted the statute specifying "mandatory designations." Cases were then designated to the Business Court through a discretionary assignment by the Chief Justice of the NC Supreme Court.
Judge Gale said of BCR 3.2 that its factors:
are useful in managing and assigning cases among the Business Court judges and may be useful in resolving requests for discretionary assignments. But those factors do not provide a stand-alone basis for mandatory designation. For a case to be certified as a mandatory complex business case, the pleading upon which the designation is based must raise a material issue that falls within one of the categories specified in section 7A–45.4.
Business Court Rule 3.2 is not long for this world. Amended Rules are in the works. The new Rule 3.2, which I’ve had an opportunity to see, not longer deals with the "contents of a designation." The proposed new rule is captioned "Who may file", covering who can use the Court’s electronic filing system..
The Business Court Is Not A Court Of "Separate Jurisdiction"
Judge Gale observed that "litigants often refer to the ‘Business Court”s jurisdiction" and to its "subject-matter jurisdiction." Order ¶26.
But he questioned the use of those terms, stating that the Business Court is "merely an administrative division of the superior court in the General Court of Justice." And a Business Court Judge is just a type of Superior Court Judge:
Just as a special superior court judge may be assigned to matters in any of these counties, when a Business Court judge is assigned to a case that has been designated as a complex business case, whether by a mandatory or discretionary assignment, he is commissioned to preside over that entire case until its conclusion, and he proceeds with the same authority as any other superior court judge who may be commissioned to hear matters in that case.
Coincidentally, the North Carolina Court of Appeals observed this week that the Business Court "is a superior court." . It said in American Mechanical, Inc. v. Bostic that:
while the Business Court is tasked with the adjudication of cases involving specialized subject matters by judges who have been designated for this purpose, it remains a part of the superior court division of the General Court of Justice.
Id. at 14.
The Terms "Removal" And "Remand" Don’t Apply To Business Court Designations
I”m not sure why Judge Gale found it necessary to discuss the nature of the Business Court’s jurisdiction, but he did use the Composite Fabrics Order to point out that the words "removal" and "remand" shouldn’t be used when discussing a designation to the Business Court or a successful opposition to a designation. Those words are concepts of the process by which cases commenced in state court are transferred to federal court Cases are "removed" from state court to federal court per 28 U.S.C. §1446(a), and they can be sent back to state court (remanded) per 28 U.S.C. §1447.
Lawyers in the Business Court often pick up on those terms, saying that a case is "removed" to the Business Court upon a successful designation, and "remanded" when an Opposition to a designation is granted.
Judge Gale pointed out that the designation of a Business Court case does not "remove" a case, as it always remains venued in the county in which it originated. For that same reason — that "the case has never left its county of origin" — the withdrawal of a designation "does not constitute a ‘remand’." Order ¶28.
So avoid using those terms when designating a case to the Business Court, or contesting a designation via an Opposition.