2005 law journal.

AuthorKinney, Ben

Running a business is a full-time job. Most executives have more than enough to do just to stay on top of their day-to-day duties. Coming up with ways to generate more revenue, keep employees productive and happy, operate more efficiently and deal with myriad other tasks--while trying to decide where it is they want to take their companies and the best ways to get there--doesn't leave much time for mulling the fine points of business jurisprudence and how it's changing. But all businesses, no matter what kind, operate upon a foundation of laws, and to ignore this legal framework is not only foolish but also dangerous. In fact, it can be fatal to a venture.

In his time, Jefferson wrote, "Ignorance is preferable to error." But for the modern American executive, ignorance is error--and certainly no defense for what can go wrong. That's why, once again, BUSINESS NORTH CAROLINA has published its annual Law Journal. It features nine articles written especially for a business audience by some of the state's top practitioners of business-related legal specialties. This is truly news our readers can use. And should. We would like to thank the authors for their efforts and their firms for the financial support that made the project possible.

THE N.C. BUSINESS COURT EXPANDS IMPORTANT ROLE

The North Carolina Business Court is nearly 10 years old and its judge, Ben F. Tennille, remains the only special Superior Court judge who tries complex business cases. He has a judicial clerk and the ability to publish his decisions in highly complicated disputes. The Business Court is in the process of reform that could expand its jurisdiction not only geographically but in the scope and stature of its rulings. Reform could help North Carolina keep pace with other states that have special courts for complicated business litigation.

Change also has occurred at the federal level for class-action litigation, traditionally a large part of Tennille's docket. In February, the federal Class Action Fairness Act of 2005--known in short as CAFA--became law. It will divert many class-action cases to the federal courts, although Tennille's class-action rulings will remain significant.

The growing court

North Carolina rules of practice were changed in 1995 to permit certain types of disputes--designated either as complex business or exceptional cases--to be handled by a special Superior Court judge. Since January 1996, Tennille has decided issues and written opinions in hundreds of disputes, including class-action matters. However, cases that qualify as complex or exceptional subject matter have increased to the point that additional judges are needed.

Rulings on North Carolina corporate law and commerce are restricted by the capacity of the Business Court. It handles about a third of the state's exceptional and complex cases. Various Superior Court judges, who operate without law clerks and make rulings that typically aren't published, handle two-thirds. That's particularly true in Wake and Mecklenburg counties. Consequently, the Business Court presides over only 50% of cases from Wake County designated as either exceptional or complex business cases, and Wake's cases comprise 45% of the active Business Court's docket. About a third of its docket comes from Mecklenburg County.

To address the growing demand, a report issued by Chief Justice Beverly Lake upon recommendation of a special study commission suggests expanding the Business Court to three locations. The Greensboro location would be retained, with Tennille presiding. New locations would be in Raleigh and Charlotte, and two Superior Court judges would be named to head them.

Broader jurisdiction

The Business Court uses a system in which senior Superior Court judges in various counties, together with the chief justice of the N.C. Supreme Court, screen cases before assigning them. A recent survey of national business courts published in the American Bar Association's The Business Lawyer shows this gatekeeper-based system is a minority method for administration. Most business courts include all cases that fall within explicitly defined categories. For example, New York, Delaware, Massachusetts, Florida and Colorado use a subject-matter or list-based method of jurisdiction.

The chief justice's reform report recommends some new guidelines. It would be mandatory that cases involving disputes in seven categories be tried in Business Court: corporate law; securities--including proxy and tender-offer disputes; state and local taxation; most antitrust cases; trademark and unfair-competition allegations; intellectual property, including software-licensing disputes; and cases concerning the Internet, electronic commerce and biotechnology. The Business Court itself would initially rule on any disagreements over whether a case fit the mandatory designation, with a possible appeal to the N.C. Supreme Court's chief justice.

Discretionary provisions would preserve the existing intake system. Exceptional cases with complex or novel issues, or both, but not included in the list of seven mandatory topics, could still be designated for the Business Court. Acceptance would be up to the chief justice, after a recommendation by the senior resident Superior Court judge in the county where the case was filed. Whether to accept the case as "exceptional" or "complex business" could not be appealed.

Setting precedents

Decisions of one North Carolina trial judge are not binding on another. However, the goal of the Business Court is to improve predictability in complex business matters and to promote understanding of business operations. That's why the reform report suggests that rulings of a Business-Court judge should set precedents that could be used in subsequent business cases. The report also recommends that six to eight existing North Carolina appellate judges be trained in legal issues likely to arise in Business Court cases. The chief judge would assign at least two of the three judges on an appellate panel from among the specially trained judges. Appeals should result in a written appellate opinion.

The new class-action arena

About 30% of the Business Court's typical docket involves class-action claims that, if filed after Feb. 18, could be channeled into federal courts by CAFA. The new law shifts many class actions out of state courts and into the hands of politically appointed, rather than elected, judges. Another intent is to invoke more restrictive federal rules disfavoring certification of class actions. However, certain class actions may continue to be litigated in the state court system.

There are two noteworthy exceptions in CAFA. One, called the local-controversy exception, requires that the class-action lawsuit stay in state court if issues are predominantly of local concern, based on four factors: more than two-thirds of the class members are local; they and one or more defendants are citizens of the state where the case was filed; the damage or injury occurred in the state; and there have been no similar class actions within three years.

The home-state exception is two-pronged. A state court must hear the case if two-thirds of the class members and the primary defendants are citizens of the state in which the action was filed; however, trying the case in state court is optional if one-third to two-thirds of the class members and the primary defendants are citizens of the state. A balance of other factors is also required

The reform proposed by the chief justice and the commission, if funded by the General Assembly, could give the Business Court an opportunity to broaden its influence over complicated business disputes in the three largest metropolitan regions of the state. And, even after passage of CAFA in February, the Business Court may continue to play a significant role in shaping North Carolina class-action jurisprudence.

Frank A. Hirsch Jr.

A partner in the Raleigh office of Nelson Mullins LLP, Frank Hirsch concentrates on commercial disputes and class actions. He handles cases before the North Carolina Business Court and was general counsel for Centura Banks from 2000 through 2002. He is a member of the University of North Carolina Banking Institute's board of advisers. A graduate of UNC Chapel Hill, he received his law degree from Vanderbilt University.

CONSIDER STATE INCENTIVES BEFORE DECIDING TO EXPAND

As the economy improves, more companies are considering expansion within North Carolina. Following is a summary of certain incentives that any business planning a move to North Carolina or an expansion within the state should be aware of and evaluate as part of its corporate decision-making process.

Generally speaking, businesses should consider at least seven North Carolina economic-development programs. The first two are tax programs, which offer credits and reductions against tax liability. Eligibility is straightforward: A project either meets the statutory criteria or does not. Four others involve a significant amount of discretion by the N.C. Department of Commerce and the Economic Investment Committee. The committee comprises the secretary of commerce, secretary of revenue, director of the Office of State Budget and Management and two members appointed by the General Assembly. The panel has funds available under discretionary programs and makes awards among competing proposals based on the attractiveness of the projects and its assessment of which projects will produce the most economic benefit for North Carolina. The final program is largely administered by the Commerce Department but involves discretion by the governor's office.

Tax incentives

Companies should assess two tax programs as part of an expansion project. The first is the William S. Lee Act. The second, the Sales Tax Exclusion, provides exemptions from the sales tax and was enacted in 2004.

* The William S. Lee Act authorizes tax credits for the creation of jobs, depending on the type. It also gives tax...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT