Diamond Post

 Business & Commercial Newsletter

SOUTH CAROLINA BUSINESS COURT IN FULL SWING

On September 7, 2007, Chief Justice Jean Toal ordered the establishment of a pilot program in South Carolina creating a business court in the circuit courts of the state to handle complex business, corporate, and commercial matters.  Effective October 1, 2007, certain civil matters properly filed and subject to jurisdiction and venue in Charleston, Greenville, and Richland counties or properly transferred to one of these counties have been assigned to the Business Court.  The civil matters that the business courts have jurisdiction over, irrespective of amount in controversy, are matters where the principlal claim or claims are filed under certain business statutes including the South Carolina Business Corporation Act,  South Carolina Uniform Securities Act and the South Carolina Uniform Commercial Code.

Procedurally, cases may be assigned to the business courts by the Chief Justice sua sponte or at the request of counsel.  Counsel must make a request to the Business Court judge for assignment at least 180 days after the commencement of the action.  Thereafter and through Court Administration, the business court judge will make a recommendation to the Chief Justice regarding the request.  The Chief Justice's decision on whether assignment is appropriate will be provided "by Court Administration to counsel of record, the assigned business court judge, chief judge for administrative purposes (civil), and clerk of court for the respective pilot county."  If the assignment is approved, the applicable business court will be granted exclusive jurisdiction.  This assignment does not waive the parties' right to a jury trial.  After exclusive jurisdiction is granted, the business court will coordinate with Court Administration and the chief judge for administrative purposes (civil) to schedule hearings and/or the trial.  All orders by the business court judges on motions to dismiss and motions for summary judgment will be in writing and available online.

Three circuit court judges have been assigned to preside over the business courts in the three counties of establishment.  The Honorable Roger W. Young presides in Charleston County.  The Honorable Edward W. Miller presides in Greenville County, and the Honorable J. Michelle Childs presides in Richland County.

The benefits of these Business Courts will be formally evaluated but hope to develop judicial expertise, develop consistent case law on reoccurring issues, provide scheduling relief to the circuit courts, implement standard procedures, promote the efficient use of the judicial system, provide economic stimulus to the community and promote the use of technology.  The Chief Justice monitors this program for efficiency and proper use of judicial resources. We have been representing clients in South Carolina's Business Courts and believe it is an efficient form of resolution of business disputes.

BUSINESS LITIGATION LAW UPDATE

In the past several months, there have been decisions by the South Carolina courts and by the Fourth Circuit that are relevant in the corporate litigation arena, including three decisions in which involved derivative actions by shareholders.  However, most significant is the South Carolina decision, State v. White, which clarified the analytical framework for the admissibility of nonscientic expert testimony under Rule 702.

In State v. White, 2009 WL 1108881 (S.C. April 27, 2009), the South Carolina Supreme Court held that nonscientific expert testimony was subject to the same "gatekeeping" analysis for the witness' qualifications and for the reliability of the testimony as required for scientific experts.  The Supreme Court had the chance to review a decision by the Court of Appeals that suggested that the initial determination of reliability with respect to nonscientific expert testimony was not part of the trial court's gatekeeping role.  The Supreme Court first noted that Rule 702 of the SCRCP imposed an affirmative and meaningful gatekeeping duty on trial courts with respect to both nonscientific (or experienced based) expert testimony as well as scientific expert testimony.  The Court then held that "[n]onscientific expert testimony must satisfy Rule 702, both in terms of expert qualifications and reliability of the subject matter," overruling State v. Morgan, 485 S.E.2d 112 (S.C. Ct. App. 1997) to the extent "it suggests that only scientific expert testimony must pass a threshold reliability determination by the trial court prior to its admission in evidence." 

The Court noted that the standard reliability factors for scientific evidence provided in State v. Council, 515 S.E.2d 508 (S.C. 1999) served no purpose when evaluating nonscientific evidence and stated there was no "formulaic approach that would apply in the generality of cases."  The Court stated: "trial courts of this state have a gatekeeping role with respect to all evidence sought to be admitted under Rule 702, whether the evidence is scientific or nonscientific.  In the discharge of its gatekeeping role, a trial court must assess the threshold foundational requirements of qualifications and reliability and further find that the proposed evidence will assist the trier of fact.  The familiar evidentiary mantra that a challenge to evidence goes to 'weight, not admissibility' may be invoked only after the trial court has vetted the matters of qualification and reliability and admitted the evidence."

This is an important decision because it requires a more rigorous standard for the introduction of evidence from nonscientific experts.  It does not allow trial courts to accept such evidence without finding such experts qualified and their testimony reliable.

Additional Cases
In addition to the above, the following are cases were decided in the recent months and are relevant to corporate litigation in South Carolina:

Haney v. USAA Casualty Ins. Co., United Services Auto. Assoc., USAA General Indem. Co., No. 07-1941 (4th Cir. May 15, 2009) (unpublished): shareholder derivative action on appeal by shareholder challenging the district court's finding there "were no issues of material fact with respect to the Defendants' duty to pay auto dividends" and arguing that the lower court "erred in granting summary judgment on his claims for breach of contract, violation of the North Carolina's Unfair and Deceptive Trade Practices Act...and declaratory judgment."  The Fourth Circuit affirmed the district court's ruling in all respects finding that the policy's provision with respect to dividends was unambiguous and per the policy, Haney did not have a contractual right to dividends from either USAA or USAA Casualty; therefore, there was no breach of contract.  Further, the Court found there was no evidence of unfair or deceptive trade practice.  Finally, the Court found that Haney was "not entitled to declaratory judgment because he had no contractual right to dividends from the Defendants."

Straight v. Gross, 2009 WL 1037588 (S.C. Ct. App. April 16, 2009): shareholder derivative action on appeal by shareholder challenging the special referee's ruling that certain acts by the defendants--salary overrides, purchases of property, and distributions of money--were not conflict of interest transactions under SC Code Ann. 33-8-310; offsetting the attorney's fees and special discounts against disbursements, essentially performing an accounting when it was not requested; applying the unclean hands doctrine in a derivative action; applying the common paymaster doctrine; and ruling that acquisition of certain property and creation of a company were not misappropriated corporate opportunities.  The Court of Appeals affirmed the special referee's order in all respects.

Stevenson v. Kavanaugh and Force Protection, Inc., No. 2008-CP-10-1735 and Hughes and Reed v. Moody and Force Protection, Inc., No. 2008-CP-10-2444 (S.C. Court of Common Pleas, 9th Jud. Cir. February 10, 2009): Defendants filed a joint motion to dismiss the Plaintiffs' complaints on the grounds that the Plaintiffs lacked standing and otherwise failed to plead claims for relief.  The Court dismissed the Hughes complaint because it did not allege continuous ownership of stock but granted Hughes leave to modify his complaint.  Regarding Defendants' failure to allege demand futility argument, the Court, applying Nevada law, found that allegations of events and dates giving rise to their causes of action were sufficient to survive Rule 23(b)(1).  Finally, the Court found sufficient allegations to overcome the business judgment rule and thus, denied Defendants' motion to dismiss for failure to state a claim.