Increasing globalization is exposing more foreign companies to U.S. litigation than ever before. While the United States is known as a business-friendly environment with dependable rule-of-law, it also has a reputation for expensive and expansive litigation.
New entrants to our marketplace need to understand the basics of the U.S. legal system and legal environment.
Can You Be Served?
Lawsuits in the United States begin upon “service” of a complaint. Of note, the complaint and other court filings are typically public documents, which may be available for all to see. U.S. civil litigation is rarely kept from the public eye, and the press often reports on major new cases before the defendant has formally responded to the asserted claims.
How easily you can be served depends on mix of factors, including your physical presence in the U.S., international treaty, and the laws of your home country. As a general matter, if you have a physical presence in the United States (such as a corporate office), you can be served with court papers. And individuals in the United States can generally be served with court papers while on American soil, even if they are only visiting.
But you also cannot avoid service by merely staying abroad. The United States is a party to the Hague Service Convention, along with approximately 70 other countries (including most major economies). The Convention provides a streamlined procedure for cross-border service of court papers, but implementation depends on the cooperation of the receiving country and specific procedures may vary. In countries that are not signatories to the Convention, service of court papers often happens through diplomatic channels.
Understanding whether you have been properly served is important. Because if you have been served with court papers, you will be expected to either answer them or appear in court to contest them—even if you do not believe that you are subject to U.S. jurisdiction. Failure to respond to court papers may result in judgment entered against you.
Jurisdiction—General and Specific
That said, just because you are served with court papers does not mean the court actually has the power to hear a lawsuit against you. That question depends on U.S. law and the claims alleged.
As a basic principle, if a corporation has continuous and systematic contacts in a U.S. state, courts there may have the power to hear almost any claim against that corporation (general jurisdiction).
If a corporation’s contacts with a state are more minimal, its courts may only hear claims related to activities within that state (specific jurisdiction)—and, if the state has a “long arm statute,” claims related to activities outside the state that caused harm within the state. Recently, U.S. courts have been on a trend of limiting the application of general jurisdiction to foreign defendants.
In general, if you are doing business in the United States, it is likely that you are subject to the jurisdiction of one or more U.S. courts. For example, if a foreign company sells a product in the United States that causes an injury or death, that company could face a consumer lawsuit or regulatory action here.
Likewise, if a company listed on a foreign stock exchange sells American depositary receipts or similar instruments in the United States, it could be held liable for violations of U.S. securities laws.
Foreign corporations may also be subject to U.S. jurisdiction based on consent—typically by contract. Often, contracts entered in the United States will include language consenting to the jurisdiction of one or more specific courts for the resolution of any dispute related to the contract. A party’s consent to jurisdiction will normally be enforced.
Nonetheless, even if a court has jurisdiction over a foreign company, U.S. law does not always reach activity that occurs outside the United States. The Alien Tort Statute, for example, permits foreign citizens to bring claims in U.S. courts for violations of human rights or international treaty—even where the underlying activity took place outside U.S. borders.
The U.S. Supreme Court in 2018 held that the act does not apply to foreign corporations. Courts have also reigned in attempts to apply U.S. law to foreign conduct in other contexts, such as securities law.
In a major Supreme Court case decided in 2010, the high court refused to apply U.S. law to a fraud lawsuit concerning securities traded on foreign exchanges. In yet another example, an appellate court refused to apply U.S. trademark law to overseas conduct by a foreign defendant.
Foreign firms facing litigation, or the risk of litigation, in the United States should carefully evaluate their rights under U.S. law and international treaties.
Whether you have been properly named as a defendant in a U.S. proceeding, and whether the court has the power to hear a case against you, are delicate questions that can only be answered with a careful look at the facts and a thorough understanding of cross-border litigation. Proactive engagement on these topics is key to minimizing your exposure and maximizing predictability.
Atif Khawaja is a partner at Kirkland & Ellis in New York. He has broad experience litigating major disputes across a variety of industries. He regularly advises foreign corporations on matters of U.S. law and litigation strategy, and he has extensive experience litigating cross-border disputes in U.S. courts.