I’ve Just Been Sued in the U.S. Now What Do I Do?

November 16, 2010

A primer for non-U.S. companies facing litigation in the States

Chances are, at some point in your company’s future, you’ll be involved in legal disputes.  If you have commercial activity in the United States, you may be subject to legal proceedings in the United States, even though you are not a U.S. company. The legal system in the U.S. is increasingly complex and unique and there are many pitfalls that must be avoided in order to successfully navigate a lawsuit.  Litigation in the U.S. is often lengthy and can be very expensive.  The first steps you take when sued are vital to protecting your legal interests and assets. 

What follows is a brief primer on what to expect when you receive notice that you have been sued in the U.S. and what to do about it.  Remember, it is vitally important for you to consult legal counsel as soon as possible for them to assist you in your company’s protection.

The U.S. Legal System

The United States is a common law nation.  That means that in addition to the many statutes and legislation that put the nation’s laws into place, the U.S. courts regularly rely on past “common law” decisions by other courts in determining the legal principles and laws that apply in resolving disputes.  This concept is unique in much of the world, and gives a great breadth of power and lawmaking ability to judges in deciding commercial and business cases. 

Lawsuits typically are filed in one of two types of courts: Federal courts (courts put in place by and governed by federal law) or state courts (courts subject to the laws of the fifty States).  The laws and procedures governing the different courts are sometimes similar but vary in very important ways.  Both federal and state courts have a complex system of appeals courts in which parties may request review of decisions made by lower courts.  The United States Supreme Court is the highest court in the United States, and in special circumstances some cases may be appealed as far as this court. 

Appeals in all U.S. courts are common. This is one of the many reasons that litigation in the U.S. can be so expensive and prolonged.  It often take several years from the start of a lawsuit until the case is finally decided by an appeals court.  Litigation itself is very common in the U.S., and filing a lawsuit is fairly easy.  Whether or not a court has the power to hear a particular matter is called its jurisdiction. Different courts have different jurisdictions. Whether a court has jurisdiction is determined by looking at both the subject matter of the controversy, and at the company or party that is being sued—whether based on that company’s presence in a particular jurisdiction or the nature of the company’s business there.  This is called personal jurisdiction, and it is very complex, but vitally important to determining whether a non-U.S. company can be sued in U.S. courts. 

Courts in the United States may only exercise personal jurisdiction over a non-U.S. party if the party has sufficient “minimum contacts” with the state or district of a particular court.  Minimum contacts may be established by the defendant having committed some act in the state, contracting to provide or receive goods or services from that state, or owning property within the state.  Determining whether a party has minimum contacts is a highly complex art that is determined on a case-by-case basis.  However, in today’s global economy, personal jurisdiction and minimum contacts are increasingly blurred by the internet, e-commerce, and advertising in the U.S.  Even if you have not been sued, You should consult with experienced legal counsel to determine whether or not you may be subject to jurisdiction in the United States.

Even if think you might be subject to jurisdiction in the U.S., you should consult with a qualified U.S. attorney.  There are many defenses available that may help you avoid a lawsuit in the United States.

The Lawsuit, the Trial, and Procedure

When a plaintiff sues a company in the United States, it begins by filing a “complaint” with the proper court laying out the facts and legal authority for its argument against the company, or defendant.  In order for the lawsuit to proceed, the defendant company must be put on official notice of the pending litigation.  This is called service of process.  For non-U.S. companies, many U.S. and international laws govern the proper procedures necessary to properly serve process in order to protect the defendant. 

Once the defendant has been served, it typically has 30 days in which to appear before the court to file its “answer” to the Plaintiff’s complaint.  A non-U.S. company appears before the court through its attorney in the United States.  Prior to filing its answer, a defendant has several tools and defenses that it may use to try to have the lawsuit dismissed.  The U.S. legal system utilizes a method of communicating with the court known as “motion practice.” Requests (such as a request to dismiss a claim or a request to set a date for a hearing) are filed with the court as formal motions, in writing.  If there is a dispute over a particular motion, the judge may call the attorneys for the parties into court for a hearing.  Typically, many motions are filed over the course of a lawsuit. 

Once the complaint and the answer have been filed, the lawsuit enters “discovery.” This is the point in the lawsuit where each party is allowed to obtain documents and evidence from the opposing party in order to prove its case or to learn about the opposing party’s strategy.  Discovery can take the form of depositions (interviews taken under oath), written questions, or requests for the production of certain documents.

Discovery is unique in the U.S. in that discovery is extremely broad and far reaching and may entitle the plaintiff to massive amounts of information, even confidential information, that you may consider as being of little value or relevance to the lawsuit.  Discovery has the power to obtain access to your computers and see your confidential emails and files.  U.S. Courts also have the power to order discovery outside the United States even from companies that are not parties to a lawsuit through the service of a subpoena from the court.  Discovery can be time consuming, exhaustive and very expensive.

Once the parties have gathered all necessary evidence, the lawsuit proceeds to trial.  Lawsuits may, but need not, be heard by juries.  A jury is a group of ordinary citizens called upon by the court to decide questions of fact in a lawsuit.  They may decide which witnesses are telling the truth and which evidence is important in deciding the winner in a lawsuit.  Juries also often decide the amount of money or other reward should be given to the prevailing party.  There are many disadvantages to having a jury trial, however, and many parties to commercial disputes agree to let a single judge determine all important matters in the lawsuit.

If a party believes that it can win the lawsuit without having to go through a trial, it may file a “motion for summary judgment.”  This is a special dispositive motion made where the facts of the lawsuit are not in dispute, and the only decision to be made is the interpretation of the law to the facts. 

Once a case has been decided either through trial or summary judgment, the parties are responsible for the costs of the lawsuit.  Unlike many other countries, the “American Rule” generally requires that each party, regardless of who wins, pays its own costs of litigation and attorneys’ fees.  However, there are exceptions to this rule and in some cases the winner is entitled to costs and attorneys’ fees.

After trial or summary judgment, the losing party has a certain amount of time to appeal the case to a higher court.  If the case is appealed, the appeals court will review the record and the arguments of both parties to determine if the initial decision should be upheld or reversed.  If the decision is reversed, the case is often sent back down to the original court for a new trial, which starts much of this process all over again. 

Judgments obtained in U.S. Courts can often be difficult to collect—depending on which nation of which the defendant is a resident, the laws and international rules on collecting judgment can range from nonexistent to relatively easy to collect.  If you have a judgment from a U.S. court or are subject to a judgment, you should contact an attorney experienced in international law for guidance. 

Dos and Don’ts When You are Sued

If you have received notice that you have been sued or are about to be sued, there are many things that your company needs to do in order to protect itself.  Because of the complex nature of U.S. lawsuits, it is important that you consult with legal counsel at every step to receive the proper counsel and advice that you need to successfully defend your lawsuit.  Here are some tips to help you when you are sued.

DO contact your insurance company.  Your insurance company needs to know if there is a potential claim for which it may be responsible.  Carefully study your insurance policies to see if the claim covered by your insurance company and for instructions from your carrier.  Your insurance company may provide assistance in retaining legal counsel in the U.S. and locally, as well as paying for some or all of the costs of your defense.  However, in many cases your insurance policy will not cover the subject of the dispute (such as a contract for services); in which case it will become necessary for your company to take full responsibility for the defense.

DO examine the facts of the lawsuit.  Is it a dispute over a contract?  Does it only tell one side of the story?  Begin a file and keep all relevant information in that file.  Does the contract require arbitration or litigation in a specific nation or jurisdiction?   All of these facts are relevant to your successful defense of the lawsuit. 

DO contact legal representation immediately.  It is vitally important that you hire lawyers both locally and in the U.S. as soon as possible to ensure that you get the best possible defense.  An experienced U.S. lawyer will be able to identify the strengths of your case and the best strategies for defending the lawsuit.  Many of the best defenses may only be raised in the first few weeks after the commencement of the lawsuit. 

When you meet with your attorney, have all relevant documents ready for the attorney to review, including the lawsuit papers themselves and all the documents in your case file.  Be sure to be very candid with your U.S. counsel and to tell him everything.  In the U.S. communications and conversations are protected by the attorney/client privilege—that is, everything you say to your lawyer you can count on being kept confidential and not able to be used against you in court. 

DON’T destroy documents relevant to your case.  In the U.S., strict rules govern the destruction of relevant documents.  As a good rule of thumb, when you have received notice that you have been sued, or even if you receive notice that you might be sued, “Don’t create, and don’t destroy.”  Make sure all employees preserve all emails and don’t delete them.  Save all memos, notes, and correspondence.  Put them in your case file for your attorney to review.  And remember, the plaintiff will be able to read just about everything you say regarding the lawsuit, so it is vitally important that you do not say anything, if only inadvertently, that might be interpreted as detrimental to your case.  Be very careful and avoid discussing the lawsuit with others, especially via email or in writing. 

DON’T be impatient.  Often, defendants become frustrated by the length and expense of a lawsuit in the U.S.  Be patient.  Understand that lawsuits can take years to resolve.  Trust your attorney.  You have hired him because of his or her experience and skill.  Your attorney has strategies to provide you with the best possible defense and legal arguments.  Sometimes, these may seem counter to what you think is best.  But, listen to your counsel, and be careful to take his or her advice and to follow his instructions. 

No lawsuit is fun or easy.  But by following these tips, and working closely with your attorney, you can be as prepared as possible to successfully defend your lawsuit.

If you have any questions, the attorneys at Maucere Law Group LLC are experienced in representing non-U.S. companies in U.S. litigation and we would be happy to hear from you.  srm@maucerelawgroup.com or +1 423.855.1755.

Remember, this is not legal advice.  Always make sure you consult qualified legal counsel before making important decisions.  No representation is made that the quality of representation by Maucere Law Group LLC is greater than any other legal representation.

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