What Foreign Businesses Should Know About U.S. Lawsuits

United States Law Suits

I have represented countless foreign entrepreneurs and businesses evaluating or negotiating a potential business relationship in the United States. One of the toughest things I have to do is explain why the U.S. legal system is so different from what these clients are used to in Europe, Asia, or elsewhere.

Business owners who fail to appreciate the complexities of the United States legal system, and just how easy it is to be sued here, may be in for a rude awakening. In this post, I examine a few of the critical complexities of the U.S. legal system that foreign business owners must understand.

Suing in the United States is Easy

Suing a company or person in the United States is so easy that it even surprises many experienced U.S. business owners. Virtually anyone can file a complaint for virtually anything. There is no referee who looks at a lawsuit and dismisses it if it lacks merit or is based on a frivolous legal theory. That’s the job of the person or company sued, and they almost invariably need a lawyer to help. In fact, companies must be represented by a lawyer.

To make matters worse, getting a case dismissed may take years. In U.S. litigation, parties usually will not be able to argue the facts of the case until discovery has been undertaken, which takes years. Early challenges to a case are based solely on legal defects in a complaint. If there are no legal defects, the case will go on for a long time. And it will cost a lot.

For example, if a plaintiff sues for breach of contract with totally incorrect facts, that case will not get dismissed until the defendant can establish through discovery that the facts were wrong. And even then, in many cases it probably will not get dismissed and the parties will have to go through trial.

What this means is that many individuals and companies in the United States get sued or get demand letters for what they view as frivolous cases. The plaintiff often recognizes that the defendant would rather pay a small amount up front to avoid a long and expensive litigation process, even if the defendant knows they will win. And many business owners end up bitterly writing a check to avoid this.

While many lawsuits eventually settle before trial, the potential for high costs associated with US litigation underscores the importance of being prepared. Foreign business owners should consider alternative dispute resolution (ADR) options like arbitration in their contracts. These processes can be faster and less expensive than going to court, and they can still provide a fair resolution to both parties.

United States Lawsuits Take Forever

Getting from filing a complaint to a judgment after trail typically years. Most litigators will tell you two or three years is common, but in some courts, or in complex cases, U.S. litigation may take much longer. Litigation in a United States court that involves foreign companies can be much more complicated. This is because the foreign usually must be served under the Hague Convention and  depositions and written discovery in a foreign country may be required. Foreign business owners sometimes have an advantage due to complex international discovery processes, but at the end of the day, this may just kick the can down the road and accrue additional expenses.

Losing a Lawsuit Costs More in the United States

The types and amounts of damages available in US courts will nearly always exceed what is available for similar disputes in other countries. Things like punitive damages, which allow a jury to award multipliers of actual damages to punish egregious conduct, can result in enormous judgments. Some claims may involve strict liability (i.e., liability even without intentional or negligent conduct), such as product liability claims. In many countries, these concepts simply do not exist.

The Winning Party in U.S. Litigation Rarely Gets Its Attorneys’ Fees Paid

The “American rule” is that each party to a dispute is responsible for paying its own lawyers, even if it wins. The two main exceptions to this are (1) where attorneys’ fees are explicitly provided for in a statute (as they are with certain IP claims), or (2) where the parties agree by written contract to have the winning party be awarded its attorneys’ fees.

Foreign business owners need to understand that if they do business in the United States, they are likely to be responsible for their own attorney fees except in these limited circumstances.

What Should Foreign Business Owners Do?

Foreign business owners can best protect themselves against the many unknowns of the US legal system with good contracts. A good contract can include attorney fee-shifting provisions, explicit limitations on the type or even the amount of damages, and referrals to arbitration which usually proceed faster and with a more relaxed procedures than litigation in U.S. courts.

Of course, these provisions are not always the same in various contract settings, and a foreign business may want to limit some of them depending on the circumstances. For example, if the foreign business owner is the party more likely to be sued, it may not want an attorneys’ fee provision in its contracts.

That said, a good contract can address the many complexities of the US legal system with which most foreign business owners are not familiar, and mitigate some of the potential costs and expenses that may otherwise arise.

For more on United States Litigation, check out our United States Litigation Guide and U.S. Litigation Basics – What Are Your Options? written by am few of my law firm’s Dispute Resolution lawyers.