Emerging Trends in Cross-Border Litigation
As globalization continues, companies increasingly find themselves caught up in complex cross-border disputes that involves multiple parties. Those based in countries such as Eastern and Central Europe, the Middle East and other regions that traditionally have little experience with handling commercial litigation often are uncertain about how best to proceed or even the venues open to the them.
In this month’s Emerging Trends, Kaye Scholer litigator James M. Catterson, previously an Associate Justice of the Appellate Division, First Department of the New York State Supreme Court, talks about the challenges of complex cross-border litigation and how filing a case in New York or other US jurisdiction helps foreign companies resolve matters more quickly and cost-effectively.
Q. In your many years as a judge, was it commonplace for companies based overseas to file cases in New York?
A. When I was appointed to the Appellate Division ten years ago, it was uncommon to find overseas companies using New York courts to resolve their disputes unless one of the companies was specifically named as a defendant in a New York lawsuit. That began to change in the last decade as more and more overseas companies chose to utilize the New York court system to resolve commercial disputes in what they accurately perceived to be a neutral forum. Sophisticated companies began drafting contracts for international commercial transactions to require New York courts as the forum for dispute resolution and New York law as controlling any dispute. This resulted in a series of decisions by New York courts that permitted actions to go forward in New York with foreign corporations suing other overseas companies concerning transactions outside of the United States.
The most recent example of this trend is Mashreqbank v. Ahmed Hamad Al Gosaibi, a September 2012 decision of the Appellate Division in Manhattan. Mashreqbank involved a dispute between banks in the Middle East, a claim of fraud, and witnesses and documents in the UAE, Saudi Arabia, the United Kingdom, and Qatar. In a decision that I wrote, the New York court refused to dismiss the case on forum non conveniens grounds and it will ultimately be tried in New York.
Q. Can a foreign company from a place like Poland or the Czech Republic, for example, file a case in the US even if the parties involved have no US connection?
A. The short answer is yes. The longer explanation is that you have to plan to protect your company when the contract is first drafted. The foreign company, whether it is based in the EU, Middle East or Asia, must draft its contracts in advance to provide for New York courts as the exclusive forum for any disputes that arise under the contract. Similarly, the contract must specify New York law as the only law applicable to the dispute. Of course, there are additional details that need to be addressed, but there is no bar to a foreign corporation agreeing to litigate in New York using New York law for a problem that happens in a transaction that takes place in some other part of the world.
Q. What are the benefits of litigating a case in New York?
A. The primary benefit to choosing New York as a forum is that the courts are wholly neutral; no regional or national bias that may affect the outcome of a dispute between two overseas companies exists. Furthermore, New York, unlike many jurisdictions throughout the world, has liberal discovery rules.
New York is a common law jurisdiction where the courts generally make decisions based on historical precedent. Discovery in New York has always been very permissive, allowing discovery of anything not privileged, that is at all relevant to the litigation. Most countries in the EU, on the other hand, have detailed civil codes that are judicially applied. Civil law jurisdictions generally have very limited discovery. In the Middle East region, discovery is frequently prohibited entirely.
Thus, in New York, parties are permitted extensive document discovery, can subject witnesses to questioning under oath, and can also question opposing parties under oath. All of these means to get at the truth of the dispute are commonly used in litigation in New York and uncommon or nonexistent in other parts of the world.
While some may think that will add the overall costs of litigation, liberal discovery will often enable you to resolve the dispute far in advance of trial, thus avoiding the expense of a protracted litigation and appeal.
There is another significant and perhaps decisive reason to choose New York as a dispute resolution forum. In the EU, communications between the company and in-house counsel may not be privileged and therefore subject to discovery. In New York, communications between the company and New York counsel will virtually always be considered privileged.
Q. Some people criticize the notion of forum non conveniens, or “forum shopping,” claiming that it hijacks the judicial process. As a former judge, did knowing that one party in the dispute “forum shopped” ever prejudice you against a plaintiff or defendant?
A. In international commercial cases there really is no question of “forum shopping” in the conventional sense. “Forum shopping” refers to cases brought in a particular venue or court solely to gain a tactical advantage, such as attempting to gain a favorable or “pro plaintiff” jury or to deprive the other side of that opportunity. However, I always viewed actions brought in New York by overseas companies as an attempt to gain a fair hearing rather than one party merely trying to secure an unfair advantage. If an overseas company opts to litigate in New York to escape the bias of some foreign forum or the inability to conduct reasonable discovery in that forum, New York courts usually respect that business decision. Courts in New York have always viewed New York City as the financial center of international commerce. That necessarily entails permitting litigation that flows from such commerce, and court oversight to protect that status.
Q. New York is an incredibly expensive place to live and work. Won’t litigating a matter in New York cost a lot more than if the case was handled in the company’s home country, particularly when you factor in travel, discovery costs and the duration of a typical corporate trial?
A. Several factors may reduce the cost of litigating in New York. First, the Commercial Division in New York Supreme Court is a dedicated court for resolving commercial disputes of all types. As such, the judges of the Commercial Division are adept at recognizing the issues in the case early on in the litigation and active in crafting an early resolution.
Second, in the electronic age, document production costs are substantially the same regardless of where the action is brought. The Commercial Division judges are cognizant of the costs involved in discovery and actively work to keep discovery abuses in check.
Third, New York law provides for interlocutory appeals. If you suffer an adverse ruling from the judge assigned to the action, you do not have to wait until the case is tried to verdict to attempt to correct that ruling. An appeal can be taken in the middle of the litigation to protect a party’s rights and hopefully curtail expenses incurred in an unnecessary litigation.
Q. What if I decide halfway through the trial that I no longer want to proceed, but would prefer to settle. What then?
A. There is no prohibition against settling an action at any time during the litigation. Indeed, the judge can often be called upon to assist in resolving the matter, whether it be after the case is first filed, mid trial, or even as the jury enters the courtroom to deliver a verdict. As the case develops during trial, changed circumstances may dictate that the case should be settled. Again, an action can be resolved through settlement at any point.
Q. What if lose the case? Can I then appeal back in a venue in my home country?
A. Any appeal from an adverse verdict would have to be filed and argued in New York. Like the judges of the Commercial Division of New York’s Supreme Court, the justices of the Appellate Division in Manhattan, my former court, are equally well versed in complex commercial disputes, whether they are domestic or international.
Q. My attorney knows my organization better than anyone but me. If I opt to litigate the case in the US rather than my home country, what are the rules regarding foreign attorneys trying cases in US venues?
A. As long as your attorney is admitted to practice in your home country and remains in good standing a member of that bar, the attorney may be admitted to practice before the courts in New York. Of course, that requires permission of the court where the case is pending as well as an association with a qualified local New York attorney or firm. The local counsel must remain as counsel of record to assist your attorney while the case is heard in New York.
Q. Isn’t it potentially risky to be party to a case when I’m unfamiliar with the courts, using a different judicial system, system of currency and documents not written in my own language?
A. In my experience, the client’s lack of familiarity with the courts or the judicial system itself is far outweighed by the upside of having a neutral arbiter for disputes. For example, if you manufacture a product in India for export to markets in Bolivia, you may have reservations about resorting to the Bolivian judicial system should a problem occur. Similarly, the buyer in Bolivia may be very reticent about having to litigate in India, for the same reasons. Choosing New York as the neutral forum solves these cross border issues. Furthermore, the vast majority of financial documents from international transactions are either in English already, are readily capable of being translated, and are usually digitized. Thus, litigating in New York poses no problems that would not exist in any other forum but offers many benefits that would be impossible to obtain elsewhere.
Emerging Trends is a regular feature from Kaye Scholer, highlighting emerging legal or business issues and the potential impact such issues may have for companies or executives operating in a particular space. For more about cross-border litigation issues, Jim Catterson can be reached at firstname.lastname@example.org.