US business litigation: Monte Silver, Attorney
This article deals with business litigation in the United States. The article is intended for non-US businesses and their non-US lawyers and provides pragmatic considerations and suggestions to (i) help non-US businesses avoid US litigation and (ii) improve the client’s position in the case that litigation becomes unavoidable.
The terms of the contract
As opposed to non-contractual US litigation (US probate litigation or US criminal litigation) business litigation often takes place in circumstances where a contract exists between the parties. Thus, before a party to a dispute can sue or be sued in the United States, the parties must scrutinize the contract to determine if it governs the manner in which disputes are to be resolved.
Such contractual provisions can address a wide variety of issues, such as where disputes are to be resolved (the country and specific court – called “forum” in legal terms), choice of law, whether the dispute is to be resolved in court or by way of ADR (alternative dispute resolution – arbitration, mediation), and whether or not the winner is awarded attorney fees and costs.
As a litigator, I know that the importance of well-drafted contractual dispute resolution clauses cannot be exaggerated. Assume a non-US business conducts business with a California entity and the contract specifies that disputes must be resolved in California courts. In seeking to resolve the differences between the parties, the leverage of the non-US business is drastically impaired. Should the dispute reach the courts, the situation of the non-US business is much worse, given the need for the non-US party to sue or defend itself in the United States. Participating in US litigation, where the other side is a US-based party, places the non-US based business at a serious disadvantage.
Also, should the contract fail to provide for attorney fees and costs to the prevailing party, the non-US business will not be entitled to recover such amounts expended even if it prevails. Why? Because in most states in America, there is no recovery of legal fees and costs absent a contractual provision. And US litigation is expensive.
Given the above, the US party will have significantly better leverage to force the non-US party to accept settlement terms which are far less favorable that what the latter would otherwise accept.
What can the non-US business do to avoid this situation?
Here are a few suggestions:
Choice of forum which is inconvenient to the US party.
The US party may refuse to accept a forum in the non-US-party’s country. This is for the exact reasons that the non-US party should refuse to accept the US as forum. If the US party has enough leverage to refuse to litigation in the non-US party’s country, what to do?
Demand a forum that is equally inconvenient to both sides. If the US party is from California and the non-US party is from Australia, then select a forum in London or at least New York. This will make the US party think twice about going to court.
In most cases, resolving disputes by way of arbitration is significantly preferable to litigation. Arbitration is faster, far less expensive, private and confidential. Furthermore, courts will almost always enforce arbitration provisions.
What about enforcing an arbitration award?
That will be discussed in future articles.