The impact of jurisdictional rules and recognition practice on international business transactions: the U.S. regime.

• Author: Silberman, Linda J.
• Position: Transatlantic Business Transactions: Choice of Law, Jurisdiction, and Judgments

1. INTRODUCTION

   International business transactions are entered into in the shadow of both substantive and procedural rules. My paper focuses on the procedural framework for the litigation of disputes arising from international transactions and the impact those rules have on structuring transactions and litigating future disputes.

   Questions about judicial jurisdiction (along with discretionary rules of forum non conveniens and lis pendens) and the recognition of judgments become important at two different points in time with respect to international business transactions. The obvious one is when the transaction breaks down and litigation is imminent. A potential plaintiff will want to identify the best place to sue the defendant and will need to determine whether jurisdiction over the potential defendant can be obtained there. Of course, the analysis will be affected by information about where the defendant has assets, and if a judgment--particularly if obtained other than in the place where the defendant has assets--will be enforceable in the jurisdiction where the assets are located. In addition, the procedural advantages of one forum over another as well as the application of particular law will bear heavily on the choice of forum. The potential defendant will also be thinking about those same issues--and whether he wants to wait to be sued by his adversary or obtain a first-move advantage by initiating litigation in a forum of his own choice. Such situations can often give rise to parallel litigation in different countries with a subsequent race to judgment. Alternatively, a party in the posture of defendant may want to think about moving a case to a more desirable forum once he has been sued, either by resisting jurisdiction in the plaintiffs forum of choice or by relying on doctrines such as forum non conveniens to move the case to another and more desirable (from his perspective) forum. Among the strategic choices confronting the defendant are whether to contest jurisdiction at the outset, or to default and challenge any judgment at the enforcement stage.

   The less obvious but equally critical stage for these questions to be considered is at the time the transaction is entered into. That is because some of these matters can be settled in advance of any litigation, for example, by including a forum-selection clause either a choice-of-court or arbitration clause--as part of the contract or transaction, or by providing for a choice-of-law clause. Of course, the validity of such clauses will depend upon whether the particular country that is asked to decide the question will honor them. The use of such clauses is only effective if they will be upheld at the litigation, and later the judgment enforcement, stage. In a case involving an international business dispute between a U.S. and European party, it is important to have knowledge about both U.S. and European law on all of these questions. My paper addresses the "American side" of these issues--first, from the perspective of a lawyer considering the possibility of litigating a dispute in the United States and looking to obtain access to a forum in the United States; and second, assuming litigation has been undertaken elsewhere and a judgment has been entered by a foreign court, whether a court in the United States will enforce that foreign judgment against assets in the United States. (1)

2. JUDICIAL JURISDICTION IN THE UNITED STATES

   As I have noted in several other articles, rules of jurisdiction in the United States are in many respects actually more restrictive than rules of jurisdiction in Europe. (2) The United States is not a party to any treaty--such as Brussels, Lugano, or the E.U. Regulation--and thus the jurisdictional rules in the United States are the product of domestic law alone. Moreover, jurisdictional rules in the United States are more often than not the province of state law in the first instance. (3) Whether by common law or statute, most states provide for jurisdiction with respect to any claim--that is, general jurisdiction either at the residence or domicile of the defendant or on the basis of defendant's presence. Jurisdiction with respect to a particular claim related to the activity of the defendant--that is, specific jurisdiction--is predicated on the basis of certain acts by the defendant in the forum state or effects in the forum state caused by acts of the defendant elsewhere. With respect to specific jurisdiction, a defendant in a commercial case may be subject to jurisdiction in the forum state for a variety of different kinds of activity. (4) In tort cases, the forum nexus creating jurisdiction may be acts of the defendant in the forum state or injury or effects there caused by the defendant. (5) However, a unique feature of the exercise of judicial jurisdiction in the United States is that it is subject to the constitutional limitations of the Due Process Clause of the Constitution, (6) and an elaborate and somewhat confusing jurisprudence has emerged from a set of Supreme Court cases defining those limits on judicial jurisdiction. (7) The constitutional restraints on judicial jurisdiction in the United States focus upon the relationship between the individual defendant and the forum state (8) rather than on the connection between the dispute and the forum state, which is characteristic of the European system.

   There are two separate strands that have emerged in defining the U.S. constitutional standard. First, the defendant must have engaged in activity in the forum state "such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" (9) Thus, a defendant who sells goods that cause injury in the forum state will not be held subject to jurisdiction in the place of injury unless the defendant has exploited the market in the forum state through sale or distribution of the goods. (10) In addition, the leading Supreme Court case, Asahi Metal Industry Co. v. Superior Court, specifically addressing judicial jurisdiction in the international context, indicates that even where there is a sufficient connection between the defendant and the forum state, other factors--such as the burden imposed on a foreign defendant in defending in the United States--may make it unreasonable to require the defendant to defend in the United States. (11) The benchmark for commercial contractual disputes is found in the Supreme Court's opinion in Burger King Corp. v. Rudzewicz, where the defendant franchisees were held subject to jurisdiction in the franchisor's home state of Florida because the Michigan franchisees had embarked on a long-term contractual relationship with the Florida franchisor and there were continuing negotiations and communications between the franchisees and the Florida home office. (12) Although upholding jurisdiction on the facts before it, the Supreme Court in Burger King acknowledged that other factors could outweigh the forum's contacts with the defendant and make the assertion of jurisdiction unreasonable under the circumstances. Unlike the E.U. Regulation (and its predecessor, the Brussels Convention), the specific-act statutes in states of the United States have not generally included special jurisdictional provisions with respect to actions relating to employment and consumer contracts; (13) however, it would be in keeping with the jurisdictional standard of reasonableness for courts to take into account at the constitutional level such factors as the relative strength of the parties' bargaining positions.

   In some instances, the jurisdictional reach of U.S. courts turns out to be more restrictive than that of European courts; this is particularly true with respect to jurisdiction on behalf of consumers, who will generally not be able to sue in their home state unless the defendant has directed activity there. (14) At the same time, there is probably a broader range of connections between the defendant and the forum that will justify an assertion of judicial jurisdiction in the U.S. system than under the European rules. For example, under the E.U. Regulation, in matters relating to contract, apart from suit in the defendant's domicile, jurisdiction is appropriate only "in the courts for the place of performance of the obligation in question." (15) The solution in the E.U. Regulation reflects one of the objectives of the original Brussels regime--that rules adopted in the context of "special" jurisdiction should point to a single forum. (16) By contrast, in the United States, a defendant is often amenable to specific jurisdiction in a number of places--such as where the contract negotiations occurred, where the contract was performed, and possibly (if there are additional activities) where the contract was entered into--all, of course, subject to the standard of "reasonableness" as interpreted in case law.

   The one major area of jurisdiction where the assertion of jurisdiction by courts in the United States is different and broader than that of most civil law countries is the general "doing business" jurisdiction--that is, where jurisdiction may be asserted on the basis of defendant's substantial activity in the forum state, even when the claim is unrelated to those activities. (17) Various misconceptions exist about the nature of the U.S. "doing business" jurisdiction, particularly in the international context. First, this type of jurisdiction should not be confused with the much more minimal standard of "transaction of business" which is invoked for cases when there is a claim related to the activity in the forum state, that is, specific jurisdiction. The general "doing business" jurisdiction tends to be invoked in suits against corporate defendants involving disputes unrelated to the corporation's activity in the forum. The underlying rationale is that the extensive and continuous activities of the corporate defendant in the forum state represent a...