Litigation and Arbitration in the USA
By Aaron N. Wise, Attorney at Law © 2009
Americans’ proclivity to start lawsuits or threaten to do so. Americans are, in general, inclined to start litigation or to threaten it - probably more so than just about anyone else. It is not just American lawyers that exhibit this tendency, but also (and particularly) American business people---in fact, Americas generally. The common expression Asue the bastards@ quite probably originated with an American business person, not a U.S. lawyer.
Americans often sue or threaten suit as a strategic device to obtain some sort of amicable settlement: a money payment, a new contract, an agreement by the other side to abandon its claims, or the like. The great majority of commercial litigations started are never decided by the court or arbitration panel. They are settled by the parties after the legal proceeding has begun. Sometimes, the threat of legal action is sufficient to bring about a settlement.
An example: a foreign firm sells goods to a U.S. buyer or grants a technology license to a U.S. party. The U.S. side does not pay for the goods or the royalties. The foreign firm sues the U.S. party in an American court. In such a case, the U.S. side=s lawyer will often respond by making strong counterclaims, possibly claiming high damages. Often such counterclaims are quite exaggerated and not at all justified. That is a strategy to frighten the foreign party into abandoning the lawsuit or concluding a settlement favorable to the U.S. side but not the foreign side. We would emphasize that in a U.S. litigation, the plaintiff or counterclaimant does not have to deposit any money with the court (e.g., in proportion to the damage amount claimed). Rather, in the USA, claims for very high amounts are commonly made in lawsuits, often for psychological reasons even though the party making them knows its chances of recovering them are small.
In this author’s experience, foreigners are particularly good targets for lawsuits and serious threats of litigation. They frequently do not understand the U.S. milieu, mentality and underestimate the chances and danger of a lawsuit. They often do not really fully appreciate the value in the U.S. climate of carefully drafted, American style contracts aimed at protecting them. They typically do not bring an American lawyer into the picture early enough to reduce significantly the risk of lawsuits and claims against the foreign party.
General Suggestions. At the time of contracting with a U.S. party, you, the foreign party, should keep the following in mind:
- to the extent possible, stay out of the US courts;
- provide for arbitration of all claims and disputes in its contracts with U.S. parties (including in your General Terms of Sale), typically in the USA;
- be sure that contracts with U.S. parties are drafted, or at the least carefully reviewed, by US legal counsel with experience in the area.
! Exceptions. There are situation in which serious consideration should be given to providing in a contract that a particular U.S. court will have jurisdiction for disputes and claims, or certain of them. One such situation might, for example be where the foreign party has licensed the U.S. side to use its Atrade secrets@ or confidential information. That might occur within the framework of a license agreement, a joint venture or a cooperation agreement. One of the main concerns of a licensor or JV partner is to be able to prevent the U.S. side from making authorized use or disclosure of the secret or confidential information. In such a situation, a U.S. court can react quickly by issuing first, a temporary restraining order and then, a Apreliminary injunction@ ordering the U.S. side not to take such action. While arbitrators might have the power to issue similar orders, often they will not be in the position to react quickly enough.
It is usually possible to state in the parties= contract that disputes and claims will be resolved by arbitration, but that one or both parties reserves the right to seek Ainterlocutory relief@ (of the type mentioned above) from a court