Aficionados of Commercial Division practice know that the ComDiv rules originally were — and, as evidenced by an Administrative Order earlier this month, continue to be — modeled after the federal rules. Efficiency begets efficiency.
Earlier this month, on October 4, Chief Administrative Judge Lawrence K. Marks promulgated new ComDiv Rule 35, which, as of December 1 of this year, will require non-governmental corporate parties to file at the commencement of an action or proceeding a Commercial Division version of the disclosure statement required under FRCP 7.1.
Among the many checks and balances built into our adversarial system of justice are rules and procedures designed to root out conflicts of interest, including interests of an economic nature. Such rules and procedures affect parties, lawyers, and judges alike.
The corporate disclosure requirement under FRCP 7.1 for example, allows a judge assigned to a new case to determine whether the judge has an economic interest in any corporate party or any of the party’s affiliated corporate entities. Thus, counsel filing a new action in federal court on behalf of a corporate client must “identif[y] any parent corporation and any publicly held corporation owning 10% or more of its stock,” or otherwise “state that there is no such corporation.”
In September of last year, the Subcommittee on Procedural Rules to Promote Efficient Case Resolution sent the Commercial Division Advisory Council a memo proposing a rule requiring similar statements for cases filed in the Commercial Division, which would “require minimal financial information, but which [would] help protect the judge and the parties from litigating a case where the judge has or could be accused of having an improper interest or bias. ”
Flagging a certain tension between private interest and public disclosure, and perhaps anticipating some pushback from the bar in this regard, the Subcommittee looked to precedent to reiterate the purpose behind the rule and to support its promulgation in the Commercial Division:
Corporate disclosure statements exist to assist district judges in determining whether they might have a financial interest in a corporate entity that is related to a corporate party in a case before them and therefore requires their recusal. Recusal issues involve the operations of the courts and the judicial conduct of judges, and thus are matters of utmost public concern (citations and quotations omitted).
In particular, the Subcommittee cited a 2016 decision out of the Southern District of Georgia, Steel Erectors, Inc. v. AIM Steel Int’l, Inc., 312 F.R.D. 673, 676 (S.D. Ga. 2016), for the proposition that the public’s interest in a disclosure of this kind trumps a private corporation’s interest in concealing the identity of its parent, even if disclosure would mean a reduction in market share for the party corporation.
New ComDiv Rule 35 is virtually identical to FRCP 7.1:
Rule 35. Disclosure Statement.
(A) Who Must File: Contents. A non-governmental corporate party and a non-governmental corporation that seeks to intervene must file a disclosure statement that:
(1) identifies any parent corporation and any publicly held corporation owning 10% or more of its stock; or
(2) states that there is no such corporation.
(B) Time to File: Supplemental Filing. A party or a proposed intervenor must:
(1) file the disclosure statement with its first appearance, pleading, petition, motion, response, or other request addressed to the court; and
(2) promptly file a supplemental statement f any required information changes.
Again, the corporate disclosure requirement under new ComDiv Rule 35 goes into effect on December 1, 2021, a little under six weeks from the date of this post.