Business Court Litigation Business Court Litigation
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Business Court Litigation
Timothy A. Dinan, Dinan & Associates PC; Kenneth F. Neuman, Altior Law PC; Laura J. Eisele, Laura J Eisele PLC

I.   Summary

§1.1   Business courts in Michigan are relatively new. Technically they are not separate courts but are instead part of the relevant circuit court in which they are held. Business court cases have separate designated judges and separate administrative procedures, depending on the court. Understanding how business courts function will help practitioners navigate business courts and avoid minefields.

These materials provide an overview of business courts, when business courts have jurisdiction of a matter, procedure in business court, discovery, and alternative dispute procedures. The materials are designed to provide practical advice on deciding whether you need to be in business court and preparing your first business court case.

II.   Business Court Basics

A. Background

§1.2   The business court statute, MCL 600.8031 et seq., enacted in 2013, mandates that every circuit court with three or more judges create a “business court.” Courts with fewer than three judges may, but are not required to, form a business court. The purpose of the business court is to allow specialization in commercial and business disputes to streamline the disposition of such cases and enhance the consistency of decisions in those cases. MCL 600.8033(3). The business court is not a separate court; rather, it is a separate docket within the circuit court. Sixteen Michigan circuit courts have established business courts. The business court in each circuit court must submit a plan to the State Court Administrative Office and the Michigan Supreme Court for approval. MCL 600.8033(1). Thus, every circuit court may have slightly different procedures for the administration of business court cases.

B. Subject-Matter Jurisdiction

§1.3   When you have a potential business dispute to be litigated, the first issue to address is whether the business court has jurisdiction. The business court will have jurisdiction over a matter otherwise meeting circuit court jurisdictional requirements if the matter involves a “business or commercial dispute,” including matters in which equitable or declaratory relief is sought. MCL 600.8035. The phrase business or commercial dispute is defined in MCL 600.8031(1)(c):

  1. An action in which all of the parties are business enterprises. A business enterprise includes most profit and not-for-profit businesses, except that it does not include an ecclesiastical or a religious organization.
  2. An action in which one or more of the parties are business enterprises and the other parties are its or their present or former owners, managers, shareholders, members of a limited liability company, directors, officers, agents, employees, suppliers, guarantors of a commercial loan, or competitors.
  3. An action in which one of the parties is a nonprofit organization and the claims arise out of that party’s organizational structure, governance, or finances.

The types of action that constitute business disputes include actions arising out of or involving the following:

  1. The sale, merger, purchase, combination, dissolution, liquidation, organizational structure, governance, or finances of a business enterprise;
  2. Information technology, software, website development, maintenance, or hosting;
  3. The internal organization of business entities and the rights of owners, officers, directors, and managers;
  4. Those arising out of contractual arrangements and business dealings, including intellectual property, antitrust, securities, noncompete, nonsolicitation, and confidentiality agreements;
  5. Commercial transactions;
  6. Business or commercial insurance policies; or
  7. Commercial real property.

MCL 600.8031(2).

Certain types of matters are expressly excluded from the definition of business or commercial dispute such as personal injury, product liability, probate matters, criminal matters, and employment discrimination, to name a few. MCL 600.8031(3).

The business court has jurisdiction over an action that has been filed in that court if it meets the definition of a business or commercial dispute, even if the case also involves matters that do not meet the definition. MCL 600.8035. If the case does not meet the definition of a business or commercial dispute, the case cannot go to business court. Whether the business court has exclusive jurisdiction over business or commercial disputes has been litigated. For example, the Michigan Court of Appeals held that the probate court had jurisdiction over a trust matter that otherwise met the definition of business or commercial dispute. See, e.g. In re Rhea Brody Living Trust, 321 Mich App 304, ___ NW2d ___ (2017).

If you determine that the business court has jurisdiction, check the court’s local administrative orders and website, as well as Michigan Court Rules, for particular filing requirements, including the following:

  1. The complaint must include a statement verifying that the business court has jurisdiction and the reason for the jurisdiction. MCR 2.112(O).
  2. Some courts may require a pleading designating business court eligibility. For example, Wayne County Circuit Court requires the inclusion of a Business Court Verification and Assignment Form with your complaint.
  3. The caption for business court cases must have a “CB” case-type code. MCR 8.117.
  4. In the summons, check the box under civil cases that states: “This is a business case in which all or part of the action includes a business or commercial dispute under MCL 600.8035.”
  5. Determine whether the client has a right to a jury trial and review documents to see whether the right to a jury trial was waived.

In addition to specific filing requirements, many business courts have a variety of orders and documents governing various aspects of the case. For example, some courts have an early case management conference where the court may discuss the timing and amount of discovery, including the need for e-discovery protocol, mediation of the case, damages, procedural matters such as motion practice, and the status of settlement negotiations. Oakland County Circuit Court has a Case Management Protocol for business cases. Counsel for each party will be expected to know the facts of their case and discuss potential mediation or settlement with opposing counsel at the case management conference.

III.   Evidence and Discovery

A. In General

§1.4   Many business courts also have initial discovery protocols requiring the parties to exchange discovery early in the case. For example, Oakland and Macomb County Circuit Courts require that the parties exchange preliminary discovery within 30 days after responsive pleadings are filed. Thus, to avoid missing deadlines, it is important to understand early in the case whether the court requires preliminary discovery. In addition, many business courts now apply principles of proportionality to discovery, limiting the scope of discovery. Rather than allowing parties unlimited discovery, the court will limit discovery to what is proportional to the complexity of the case and the amount of damages sought.

Business court judges strongly encourage the parties to resolve discovery disputes without involving the court. If discovery motions are filed, some courts use volunteer attorneys, who act as “discovery facilitators.” The discovery facilitator tries to help the parties reach an agreement to avoid a hearing on the motion.

B. E-Discovery

§1.5   MCR 2.302(B), .310, .313, and .506 address discovery of electronically stored information (ESI). Electronic discovery is more prevalent in business cases due to the volume of relevant documents. Therefore, business courts may require that counsel for the parties be knowledgeable about e-discovery issues. For example, the Oakland County Circuit Court’s Business Court Case Management Protocol specifically addresses e-discovery and suggests that the parties refer to the model order relating to the discovery of ESI from the U.S. District Court for the Eastern District of Michigan for guidance on reaching agreements on e-discovery.

Categories of ESI that may be relevant in business court matters include e-mail messages, electronic documents (including Word, Excel, pdf, and PowerPoint documents), media files, picture files, voice mail messages, and social media content, among others. An e-discovery protocol for cases with large volumes of electronic information may include agreements on relevant time periods for identification of documents, types of systems to search, locations of electronic information, identification of custodians with electronic documents to search, and search methodology, including identification of search terms, among other matters.

C. Evidence Preservation

§1.6   Failure to preserve evidence may subject the parties to sanctions. Sanctions can be governed by statutes that require the preservation of specific types of evidence or by the inherent power of the court. “A trial court has the authority, derived from its inherent powers, to sanction a party for failing to preserve evidence that it knows or should know is relevant before litigation is commenced.” Bloemendaal v Town & Country Sports Ctr Inc, 255 Mich App 207, 211, 659 NW2d 684 (2002). The Michigan Court of Appeals has held that a court has “authority to sanction litigant misconduct, even when there is no statute or court rule addressing the particular form of misconduct, based on a court’s fundamental interest in protecting its integrity and that of the judicial system.” Brenner v Kolk, 226 Mich App 149, 160, 573 NW2d 65 (1997).

The test for when a party is required to preserve evidence is when litigation is reasonably anticipated. While in most cases the duty to preserve evidence will arise when a lawsuit is filed, the duty may arise much earlier. Explicit notice of litigation is not an absolute requirement: “As a general matter, it is beyond question that a party to civil litigation has a duty to preserve relevant information, including ESI, when that party ‘has notice that the evidence is relevant to litigation or … should have known that the evidence may be relevant to future litigation.’” John B v Goetz, 531 F3d 448, 459 (6th Cir 2008) (quoting Fujitsu Ltd v Fed Express Corp, 247 F3d 423, 436 (2d Cir 2001).

One common trigger for a duty to preserve is receipt of a preservation letter. This is a letter from a party threatening or commencing litigation and advising of a duty to preserve all documents. Preservation letters are common in business litigation and should be acted on by counseling your client on the possible sanctions for failing to preserve evidence and taking steps to preserve evidence.

Once a duty to preserve arises, the party with the duty to preserve must take all reasonable steps to ensure that evidence is not destroyed. This includes issuing a “litigation hold” to relevant custodians, advising that they must preserve all documents relevant to the potential litigation and may not delete documents.

D. Governing Documents

§1.7   Business court cases are usually driven by complex documents that govern the transaction that is the basis of the dispute. Understanding which documents govern the transaction and carefully reviewing those documents is critical to successful pursuit or defense of commercial cases. Depending on the nature of the dispute, these documents may include shareholder agreements, operating agreements, purchase agreements, licensing agreements, lease agreements, vendor or supplier contracts, noncompete agreements, loan documents, or insurance policies, among other documents. Typically, the relevant documents will be easily identifiable as signed by all relevant parties. Other times the relevant contract may need to be pieced together with a series of offers and acceptances that may be contained in e-mails or on scraps of paper.

The terms of these documents may also affect your strategy in the litigation. For example, commercial documents often contain a waiver of jury trial. They may also have an alternative dispute proceeding that must be followed before litigation can be brought. The documents may provide for attorney fees and costs to the prevailing party in litigation. It is critical that you understand the elements of your cause of action before reviewing the documents so that you identify and understand all relevant provisions of the documents.

Note that the parol evidence rule generally prohibits consideration of negotiations or discussions prior to signing the contract when reviewing contract disputes. Rather, those negotiations or discussions are merged into the written agreement. Brachman v Wheelock, Inc, 343 Mich 230, 72 NW2d 246 (1955). The purpose of the parol evidence rule “is to give stability to written agreements, and to remove the temptation and possibility of perjury.” Collier v Stebbins, 236 Mich 147, 156, 210 NW 264 (1926).

Nevertheless, understanding the intent of the parties when entering into the contract is an important prelitigation investigation tool. For example, courts will sometimes make exceptions to the parol evidence rule when a contract term is ambiguous. Klapp v United Ins Group Agency, Inc, 468 Mich 459, 469, 663 NW2d 447 (2003); see also Goodwin, Inc v Orson E Coe Pontiac, Inc, 392 Mich 195, 220 NW2d 664 (1974) (extrinsic evidence admissible to prove existence of ambiguity).

Understanding the governing documents early in the case is also important in business court cases where the court requires early disclosure of all documents that the parties are relying on in pursuit or defense of the case.

E. Protective Orders

§1.8   Discovery in business cases often involves documents that contain confidential or proprietary information related to a party’s own business or that of its customers. MCR 2.302(C) allows a party to move for a protective order, on reasonable notice and for good cause, to “protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” In rare cases, a party may obtain a protective order that avoids production of the information in its entirety—such as for trade secrets—but in most cases, courts will require disclosure but pursuant to the terms of a protective order to preserve the confidentiality of the information and limit who may view the information.

The Oakland County Circuit Court has a form of protective order that is encouraged for use in business court cases. Business court judges will encourage parties to agree on a form of protective order without involving the court and will typically enter such an order on stipulation of the parties.

IV.   Arbitration

§1.9   Arbitration of commercial disputes is a common alternative to litigating in the business courts throughout the state of Michigan (or in the federal district courts). First of all, whenever dealing with a written agreement, counsel should carefully review the contract to see if there is a provision requiring binding arbitration. If so, the parties will likely be compelled to arbitrate their dispute, as their claims would likely be barred because of “an agreement to arbitrate.” See MCR 2.116(C)(7). Furthermore, most business court judges will err on the side of compelling arbitration, given that Michigan public policy overwhelmingly favors arbitration to litigation. Rembert v Ryan’s Family Steak Houses, Inc, 235 Mich App 118, 123, 596 NW2d 208 (1999). Arbitration is a matter of contract. Kaleva-Norman-Dickson Sch Dist No 6 v Kaleva-Norman-Dickson Sch Teachers’ Ass’n, 393 Mich 583, 587, 227 NW2d 500 (1975).

In addition, although not required by contract, there are a myriad of reasons (such as expediency, cost, reduced appellate exposure, etc.) why the parties will decide it is better to resolve the issues through arbitration, with an experienced attorney presiding over the proceeding (or a retired judge, accountant, engineer, or other trained professional), familiar with the intricacies at issue in the dispute. Whatever the reason, if you find yourself in arbitration, it is critical that you ensure that your arbitration complies with the Uniform Arbitration Act (UAA), MCL 691.1681 et seq. If you are in federal court, the governing statute is the Federal Arbitration Act, 9 USC 1–16.

Arbitration can take many forms and can be governed by any one of a variety of rules. Typically, the rules governing the arbitration are set forth in the contract that mandated arbitration or are negotiated as part of the agreement to arbitrate. Moreover, the parties can agree up front to arbitrate through an organization such as the American Arbitration Association (AAA), the International Chamber of Commerce, or the Association for International Arbitration. If the arbitration is conducted within the confines of one of these organizations, the organization usually provides the procedures and potential list of candidates with which to select an arbitrator and sets forth the rules that will govern the proceeding. Moreover, these organizations have large staffs that will assist the lawyers in the process of selecting an arbitrator and facilitating the arbitration itself. However, there are typically significant fees involved connected to arbitrating through one of these associations.

Alternatively, the parties can agree to conduct a private arbitration. In that scenario, the parties can select the arbitrators on their own in a variety of ways, including but not limited to mutual consent of the parties or each side selecting a party-appointed arbitrator and those two selecting a third neutral arbitrator (who will typically serve as the chairperson of the panel). Alternatively, one party may seek the assistance of the business court to help in the selection of an arbitrator. Moreover, the parties can agree that the rules of civil procedure and the rules of evidence will be strictly followed, loosely followed, or that other rules will govern (such as the rules for commercial arbitration promulgated by the AAA).

If the matter is ultimately heard to conclusion, the arbitrators will issue an award, which can take different forms, from a one-sentence standard award to a detailed reasoned award. Upon receipt of the award, the prevailing party will proceed back to the business court (or other applicable circuit or federal district court) to have a hearing to confirm the award and obtain a judgment based on the arbitrator’s findings. Again, strict compliance of the UAA is critical to ensure your arbitration award becomes an enforceable judgment.

V.   Mediation and Case Evaluation

§1.10   MCR 2.410(C) provides that “[a]t any time, after consultation with the parties, the court may order that a case be submitted to an appropriate [alternative dispute resolution] process. More than one such order may be entered in a case.” More often, the business courts in Michigan are requiring that the parties engage mediation, often at the outset of the litigation, before the costs of discovery and motion practice are incurred. However, when early mediation is conducted, often times the parties don’t have a good enough feel for the strengths and weaknesses of each side’s case. Nonetheless, early mediation can be productive and does settle a significant number of business disputes.

In addition, judges will frequently send the parties to mediation after discovery is completed. Often, the court will order it while summary disposition motions are pending but before they are ruled on, so that all sides have risk and are incentivized to settle their dispute.

When mediating a dispute, it is important to find a neutral mediator with expertise on the subject matter at issue. The mediator should have plenty of prior experience litigating similar matters, so that he or she can share with the parties the risks each side is facing. The goal is to find a middle ground between the various positions taken by the parties to resolve the dispute. Unlike going to trial, mediation affords the parties an opportunity to fashion a business deal that can take many different forms other than simply awarding money to one side or the other. A creative mediator can not only solve the issue that is being litigated but also help with underlying systemic problems that are often at the root of the dispute. These underlying problems might not otherwise be capable of being addressed at a trial (for example, where feuding business partners make a deal where one party gets sole ownership of company A and the other of Company B).

When a case is successfully mediated, the parties will enter a form of settlement agreement that becomes a binding contract resolving the dispute. Unlike a trial that is in the open, mediation settlements can be kept confidential, which is often attractive to the litigants. Moreover, the business court typically retains jurisdiction over the parties for the purpose of enforcing the settlement.

VI.   More on This Topic

§1.11   The following are additional resources for this topic: