Facing litigation in the United States: plan, don’t panic

July 2015 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

financierworldwide.com

For many companies, the big questions in terms of litigation are: “I have been sued in the United States. Will my company get a fair hearing? Can I trust the system in the courts of the United States?”

Most of the time the system will scare you, but it works well. Most of the judges are conscientious and try to be fair; but in a nation with 50 states, each with its own court system, most with elected judges, and a broad right to trial by jury, there are risks and exceptions.

The precise answer, of course, would require an assessment of where you are being sued, by whom and the nature of the case. And, most importantly, knowing how good or bad your facts are.

The good news is that, compared to 40 years ago, there are now so many non-US based companies operating credibly and on a large scale in the US, the litigation climate in that respect has improved greatly. Such non-US based companies have proven themselves to be fine employers, good corporate citizens and respected parts of the communities in which they operate. In almost every such location, the citizens have friends and relatives who are employed by non-US companies and they trust them and are happy with them. It is a global economy and across the US there is now much more respect for, and less distrust of ‘foreign corporations’.

Once again, however, the analysis of the case or cases must begin with an analysis of where you are being sued. Tort reform has been significant and positive in many states in the US, especially in Texas, but there are still ‘judicial hellholes’ where a corporate defendant faces greater risks in litigation. Elected judges and unusual juror attitudes in some venues contribute greatly to the risks – as does local politics on occasion.

Two types of companies that need to be especially careful in litigating in the US now, largely because of poor images in the media and populist sentiments, are financial institutions and makers of consumer products, including the automotive sector. Recalls, failure to recall and environmental and toxic tort issues involving chemicals are also high risk subjects.

It is almost always better to remove a case filed in state court to federal court if that is possible under the federal jurisdiction statutes. There are many fine state court judges but the quality of the judges, and law clerks, is better and more uniform in the federal system, especially at the appellate level. Finding a way to get your case into federal court reduces the risk of a runaway outcome.

A mistake which many non-US based companies often make is being represented by counsel who are not at home in the place of the litigation and are unfamiliar with local practices. Your very able New York counsel may not be the best choice to defend a case in Mississippi or West Virginia. Calling your regular California lawyer to help you defend a case in Montana, without involving quality local counsel, could be a costly mistake. Relying entirely on your insurer to select counsel for you, especially in a case with significant exposure, may not be a good idea. You may get low hourly rates but a costly outcome.

For large cases, especially if there is a risk of more cases of the same type being filed, or in the case of one of more class actions, a prudent company will often combine a high-powered national counsel with a savvy and respected local counsel to team on the case or cases.

Picking the right forum, and the right counsel, at the earliest stages is critically important. Being sued in a system, as exists in the US, where each side usually bears its own legal fees, where contingent fee agreements are used by plaintiffs’ counsel, where lawyer advertising and client solicitation are rampant, where there is an abundance of expert witnesses for hire on almost any subject and where juries can be unpredictable, introduces business risks beyond those usually encountered in the UK, in Europe or in the developed countries of Asia. There is much money to be made doing business in the US but a badly handled litigation matter can become – with punitive damages possible in many cases – a financial nightmare.

It is essential that a company being sued in the US in a case that presents a risk of great loss does a proper analysis of the facts and the law, with proper counsel involved, to make a realistic assessment of whether and how the case can be defended, or whether it should be settled, and to do this assessment early, before vast sums are spent on the litigation. Prudent companies analyse their big cases, early and often, and always have a plan or strategy. Those companies that are just ‘managing’ the cases and being reactive may think they are saving legal fees in the beginning, but too often wind up overpaying in the end.

Finally, if there are one or two primary lessons that a non-US company can learn from cases which have turned into financial disasters for corporate defendants they would be as follows. First, the defendant must fully discharge its obligations in the discovery process, in the deposition process and in producing documents. The US system of discovery is vast, expensive and beyond that found in most other nations. But, good counsel can manage it properly for the client. Being caught, or strongly suspected of failing to be honest and forthright in discovery, can incur the costly wrath of judges and jurors. Second, when one analyses disastrous outcomes for corporate defendants, especially in the last two decades, bad outcomes are often found to result from stupid emails written and sent by corporate employees. Thus, planning the defence of a big case in the US must involve learning your own facts early and, especially knowing what is in your own documents and emails.

The US litigation system is very good, but not perfect. Defendants should be careful, but not afraid.

Paul Michael Pohl is a partner at Jones Day. He can be contacted on +1 (412) 394 7900 or by email: pmpohl@jonesday.com.

Paul Michael Pohl

Jones Day