You will continue with the course project in this module by reviewing specific areas concerning labor and legal issues, capitalization of the company in the marketplace, and competition.

Carry out individual research on the following with your chosen MNC IKEA in USA market

The company’s capitalization in the foreign market
Current capitalization
Opportunities to tap into new capital in the markets where it operates
Major challenges the company is facing or can anticipate
Labor market
Competition
From the textbook, International business law and its environment, read the following chapters:
Resolving International Commercial DisputesLegal issues

CHAPTER 3: Resolving International Commercial Disputes

AVOIDING BUSINESS DISPUTES

Long-term business relationships are generally the most profitable ones. Experienced executives and international managers know this, and they work very hard to foster them, at both the personal and organizational levels. Long-term relationships are based on trust. In a world where we do business with people who look, speak, and act differently from ourselves and who live and work oceans away, trust takes on a new and even more important significance. Indeed, it has been said that all of international business is based on trust. Any dispute that threatens the bonds of trust can threaten future business opportunities, do irreparable harm to individual and corporate reputations, and permanently damage long-term relationships. Moreover, when disputes become combative, it can be costly, time consuming, and physically and mentally exhausting for all parties. After all, there is the real possibility that one or both of the parties will have to litigate in a protracted and expensive trial in a foreign court, before a foreign judge, and in a foreign language, and have their rights determined under foreign procedural rules and possibly foreign law. Quite often the parties must retain attorneys in more than one country. So, when disagreements break out, amicable settlements are usually the best outcome and offer the best hope of salvaging a business relationship. It is always helpful if the parties have a reservoir of trust and goodwill that they can draw on to settle the dispute in a friendly way. But, of course, this is not always possible, and the prudent international businessperson, in any contract or any venture, will seek good legal advice and always “hope for the best and plan for the worst.”

Nowhere is this more important than in negotiating and drafting business contracts. The contract is the basis of any bargain and its importance cannot be overstated. If and when a dispute arises, the terms of the contract provide the basis for dispute resolution.

Cultural Attitudes toward Disputes

Keep in mind that cultural factors will influence a party’s attitude toward how disputes are settled. Americans are notorious litigators, quickly turning to the courts to redress grievances. Their combative stance can result in a “win or lose” mentality. On the other hand, Asians are notable for going to great lengths to seek an amicable settlement. After all, by tradition, it is a virtue to seek harmony and a vice to seek discord. These differences are evident in the way American and Japanese businesspeople approach contract or business negotiations. It is quite common for Americans to include their attorney or corporate counsel as a member of the negotiating team. Indeed, many Western managers and executives would never dream of it being any other way. But to the Japanese, this may seem a little confrontational, a little unnecessary, and a bad omen or a sign that disagreement is inevitable.

All too often, Americans view the negotiating process as something to be gotten out of the way so the deal can be closed, the contract signed, and all can go back home. People of many other cultures, from Asia to Latin America, might see the negotiating process as a time to build a relationship and new friendships. Of course, these attitudes differ throughout the world, and from country to country, and no generalizations should be made. But one thing is certain, and that is that the rest of the world views Americans as confrontational and quick to call in the lawyers. Perhaps the words of the English Lord Denning best sum up the foreign view:

As the moth drawn to the light, so is a litigant drawn to the United States. If he can only get his case into their courts, he stands to win a fortune. At no cost to himself; and at no risk of having to pay anything to the other side…. The lawyers will charge the litigant nothing for their services but instead they will take forty percent of the damages…. If they lose, the litigant will have nothing to pay to the other side. The courts in the United States have no such cost deterrents as we have. There is also in the United States a right to trial by jury. These are prone to award fabulous damages. They are notoriously sympathetic and know that the lawyers will take their forty percent before the plaintiff gets anything. All this means that the defendant can be readily forced into a settlement. Smith Kline and French Laboratories v. Bloch, [1983] 1 W.L.R. 730, 733–4 (Eng. C.A.).

The resolution of disputes between citizens of different countries, with business transactions that span continents and cultures, raises many complicated legal and tactical problems. Consider a dispute involving an American manufacturer that purchases thousands of meters of cloth from a Chinese supplier. The cloth is shipped to Vietnam where the manufacturer contracted to have it embroidered and sewn into pillow shams. When the finished goods arrive in the United States, it is discovered that they are damaged. Apparently the fabric was shipped from China in a defective condition, but the Vietnamese firm failed to inspect for damage as it normally did. The Chinese company claims that the time for bringing the defective fabric to its attention has long passed. The Vietnamese company says it was not its responsibility. Consider all the questions presented. To whom does the manufacturer look for remuneration? Is the relationship between the parties worth keeping, and is the case capable of being settled or should the manufacturer “take the gloves off”? Was there a contract with either party and did it specify the method of resolution, such as mediation, arbitration, or litigation, and, if so, where and under what law? If the contract does not specify, what legal rules apply to determine where the case should be heard and what law should govern? Finally, if a judgment is obtained through litigation, how will it be enforced across international borders? These are some of the questions discussed in this chapter.

Methods of Resolution

This chapter presents several alternatives for dispute resolution, including mediation, arbitration, and litigation. Consider a domestic dispute in which a New York supplier tries to sue a Texas distributor. This situation raises several questions: Should the parties settle, mediate, arbitrate, or litigate? Where should the dispute be heard—in New York or Texas? In federal or state court? Which law applies to the transaction—the law of New York, Texas, or some other jurisdiction? Finally, if a resolution is reached (be it a settlement, a verdict, or a judgment), how will it be enforced?

Changing the parties to an American supplier and a foreign distributor adds several dimensions to the problem. Many of the same questions that are relevant to a domestic dispute are equally relevant to an international dispute, but they become infinitely more complex. This chapter examines these questions as they apply to commercial disputes in international business.

ALTERNATIVE DISPUTE RESOLUTION

Alternative dispute resolution (ADR) usually offers a faster, cheaper, and more efficient alternative to resolving international commercial disputes than litigation. Unlike litigation, ADR requires that the parties voluntarily submit to the resolution process.

Mediation

Mediation is a voluntary, nonbinding, conciliation process. The parties agree on an impartial mediator who helps them amicably reach a solution. The final decision to settle rests with the parties themselves. It is private, and there are no public court records or glaring articles in the local press to influence local opinion about the firms. The parties reserve all legal rights to resort to binding arbitration or litigation.

Arbitration

Arbitration is a more formalized process resulting in a binding award that will be enforced by courts of law in many countries. The parties must agree to arbitration, but once they do, they may not withdraw. Arbitration is frequently used in international business because it “levels the playing field” since the case may be heard in a more impartial tribunal. First, arbitration may permit the resolution of the case in a third “neutral” country, rather than in the country of one of the parties. The parties are generally free to choose a location for arbitration that is mutually convenient. For example, a dispute between an American company and a Russian company might be arbitrated in Paris or Stockholm. Disputes between American companies and Chinese companies are often arbitrated in Hong Kong. (Not only is Hong Kong still considered a neutral site, but its awards are enforceable by the courts of both the United States and China.) Secondly, the arbitrator may be chosen by the parties from a roster of impartial industry experts or distinguished lawyers, who may also be from a third country. Finally, the case may be resolved using the impartial and straightforward rules of the arbitrating organization, rather than the procedures buried in the statutes or rules of a court of the country of one of the parties. Arbitration rules are the rules of arbitral tribunals that address issues such as the qualification and appointment of arbitrators, the conduct of proceedings, procedures for finding the facts and applying the law, and the making of awards. These rules are often published in multiple languages.

There are other advantages to arbitration besides neutrality. Pretrial discovery is faster and more limited than that available in the United States, resulting in less expense and delay. The process is private and records of proceedings are not publicly available as are court records. Arbitration and attorney fees are far less than similar fees in a court of law. The rules for evidence admissibility are more flexible than in many national courts. And finally, a party’s right to appeal is more limited.

Although parties can always agree to arbitration, a requirement to submit to arbitration is often set out in many international contracts. Arbitration clauses might be used in contracts for the sale of goods, commodities, or raw materials. They are used in international shipping contracts, employment contracts, international construction contracts, financing agreements, and cruise ship tickets, to name a few, as well as in multimillion- or billion-dollar contracts. Today, arbitration is being used more to resolve disputes over intellectual property and licensing agreements.

Despite its reputation for being less costly than litigation, arbitration is not cheap. The International Chamber of Commerce (ICC) estimates that for a $1 million claim before its International Court of Arbitration in Paris, the average arbitrator’s fee would be approximately $37,000, with about $19,500 in administrative expenses, for a total of approximately $56,500 in costs—or about 5 percent. For a $100,000 claim, the average arbitrator’s fee would be approximately $9,325, with about $4,650 in administrative expenses, for a total of approximately $13,975 in costs—or about 13 percent.

National Arbitral Laws.

Most commercial nations today have laws permitting arbitration and specifying the effect of an arbitral award (see Exhibit 3.1). The British Arbitration Act went into effect in 1996. The Arbitration Law of the People’s Republic of China became effective in 1994 (it provides that arbitrators must have eight years’ prior legal experience), and the Russian arbitration law was enacted in 1993. (Notably, it provides that arbitration may be conducted in Russia in any language agreed upon by the parties). The laws of many countries, such as China, Russia, Mexico, and Canada, were patterned after the 1985 Model Law on International Commercial Arbitration of the United Nations’ Commission on International Trade Law (UNCITRAL). The U.S. Federal Arbitration Act dates back to 1925, but it has been modernized. It applies to both domestic and international arbitration and defers to the specific procedural rules of the arbitral body conducting the arbitration proceedings. Many U.S. states (e.g., California, Connecticut, Illinois, Oregon, and Texas) have enacted statutes on international commercial arbitration, some patterned after the UNCITRAL model.

Exhibit 3.1: Some Arbitration Treaties in Force Worldwide

Arab Convention on Commercial Arbitration (1987)

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention, 1959)

Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (Washington Convention, 1966)

European Convention Providing a Uniform Law on Arbitration (Strasbourg Convention, 1966)

Geneva Protocol on Arbitration Clauses (1923)

Geneva Convention on the Execution of Foreign Arbitral Awards (1927)

Inter-American Convention on International Commercial Arbitration (Organization of American States, Panama Convention, 1975)

Arbitration Bodies.

There are many organizations worldwide providing arbitral services. The choice is up to the parties, and this is often decided in advance and set out in the terms of the contract. Some of the leading private organizations for arbitration of commercial disputes are the following:

• American Arbitration Association

• Arbitration Institute of the Stockholm Chamber of Commerce

• Cairo Regional Center for International Commercial Arbitration

• China International Economic and Trade Arbitration Commission

• Dubai International Arbitration Center

• Hong Kong International Arbitration Centre and the HK Mediation Centre

• International Court of Arbitration of the International Chamber of Commerce (ICC)

• Japan Commercial Arbitration Association

• London Court of Arbitration

• St. Petersburg International Commercial Arbitration Court

• Singapore International Arbitration Centre

• World Intellectual Property Organization (WIPO) Arbitration and Mediation Center

Two additional organizations provide dispute resolution between private parties and national governments:

• The International Centre for Settlement of Investment Disputes (ICSID), a part of the World Bank group, provides arbitration for the settlement of disputes between member countries and investors who qualify as nationals of other member countries.

• The Permanent Court of Arbitration at The Hague provides arbitral services for commercial disputes to states, private parties, and intergovernmental organizations, including handling mass claims and environmental disputes where one of the parties is a national government.

Each of these organizations operates under a different set of procedural rules. The ICC uses its own rules, which are highly respected. Many other arbitral bodies use the widely accepted rules drafted by UNCITRAL, which take into account the various legal systems and countries in which they might be used. The UNCITRAL rules, for example, are used by the Hong Kong Arbitration Center, by the WIPO, and by other organizations throughout the world.

Arbitration Clauses.

Many contracts contain clauses requiring that disputes be submitted for arbitration because it removes much of the uncertainty in the event of a breach of contract or other dispute. Here is a typical example:

All disputes or claims arising out of this contract, or breach thereof, shall be resolved by arbitration before [name of arbitral body], and according to the rules of that body. Any award rendered thereby may be entered in any court of competent jurisdiction.

While the validity of these clauses is now generally accepted, that was not always clear. In the following case, Scherk v. Alberto-Culver, the U.S. Supreme Court considered an arbitration clause in an international contract calling for arbitration in Paris.

Enforcement of Arbitration Awards.

Arbitral awards are recognized and enforceable by the courts of most nations. In the United States, an arbitral award will usually be enforced if the following conditions are met:

• The award is enforceable under the local law of the country where the award was made

• The defendant was properly subject to the jurisdiction of the arbitral tribunal

• The defendant was given notice of the arbitration proceeding and an opportunity to be heard

• Enforcement of the award is not contrary to public policy

• The subject matter of the contract at issue is not unlawful under applicable law

• The contract at issue is not void for reasons of fraud or the incapacity of one of the parties

Scherk v. Alberto-Culver

417 U.S. 506 (1974) United States Supreme Court

BACKGROUND AND FACTS

Alberto-Culver Co., a Delaware corporation with its principal office in Illinois, manufactured toiletries and hair products in the United States and abroad. In February 1969, Alberto-Culver signed a contract in Austria to purchase three businesses of Fritz Scherk (a German citizen) that were organized under German and Liechtenstein law, as well as the trademarks to related cosmetics. In the contract, Scherk warranted that he had the sole and unencumbered ownership of these trademarks. The contract also contained a clause that provided that “any controversy or claim [that] shall arise out of this agreement or the breach thereof would be referred to arbitration before the International Chamber of Commerce in Paris, France, and that the laws of Illinois shall govern.” One year after the closing, Alberto-Culver discovered that others had claims to Scherk’s trademarks. Alberto-Culver tried to rescind the contract; Scherk refused, and Alberto-Culver filed suit in federal court in Illinois claiming that the misrepresentations violated the Securities and Exchange Act, Sec. 10(b), and SEC rule 10b-5. Scherk moved to dismiss or to stay the action pending arbitration. In the U.S. District Court, the motion to dismiss was denied and arbitration was enjoined. The U.S. Court of Appeals affirmed. The U.S. Supreme Court granted certiorari.

JUSTICE STEWART

The United States Arbitration Act, now 9 U.S.C. 1 et seq., reversing centuries of judicial hostility to arbitration agreements, was designed to allow parties to avoid “the costliness and delays of litigation,” and to place arbitration agreements “upon the same footing as other contracts….”

Alberto-Culver’s contract to purchase the business entities belonging to Scherk was a truly international agreement. Alberto-Culver is an American corporation with its principal place of business and the vast bulk of its activity in this country, while Scherk is a citizen of Germany whose companies were organized under the laws of Germany and Liechtenstein. The negotiations leading to the signing of the contract in Austria and to the closing in Switzerland took place in the United States, England, and Germany, and involved consultations with legal and trademark experts from each of those countries and from Liechtenstein. Finally, and most significantly, the subject matter of the contract concerned the sale of business enterprises organized under the laws of and primarily situated in European countries, whose activities were largely, if not entirely, directed to European markets.

Such a contract involves considerations and policies significantly different from those found controlling in Wilko v. Swan [citation omitted]. In Wilko, quite apart from the arbitration provision, there was no question but that the laws of the United States generally, and the federal securities laws in particular, would govern disputes arising out of the stock-purchase agreement. The parties, the negotiations, and the subject matter of the contract were all situated in this country, and no credible claim could have been entertained that any international conflict-of-laws problems would arise. In this case, by contrast, in the absence of the arbitration provision considerable uncertainty existed at the time of the agreement, and still exists, concerning the law applicable to there solutions of disputes arising out of the contract.

Such uncertainty will almost inevitably exist with respect to any contract touching two or more countries, each with its own substantive laws and conflict-of-laws rules. A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction. Furthermore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem involved.

A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes, but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages. In the present case, for example, it is not inconceivable that if Scherk had anticipated that Alberto-Culver would be able in this country to enjoin resort to arbitration he might have sought an order in France or some other country enjoining Alberto-Culver from proceeding with its litigation in the United States. Whatever recognition the courts of this country might ultimately have granted to the order of the foreign court, the dicey atmosphere of such a legal no-man’s-land would surely damage the fabric of international commerce and trade, and imperil the willingness and ability of businessmen to enter into international commercial agreements….

For all these reasons we hold that the agreement of the parties in this case to arbitrate any dispute arising out of their international commercial transaction is to be respected and enforced by the federal courts in accord with the explicit provisions of the Arbitration Act.

Decision. Reversed and remanded.

Comment. The Court understood that an arbitration agreement was the ultimate type of forum selection clause. The Court made reference to national legislation that indicated an acceptance of arbitration (the Arbitration Act, 9 U.S.C 1 et. seq.). Other countries have similar national legislation or are signatories to the New York Convention and/or the European Convention on International Arbitration.

Case Questions

1. What were the Court’s reasons for upholding the arbitration provision?

2. What needs of international businesses were served by the Court’s holding? How were these needs addressed?

3. What factors would Alberto-Culver need to have shown in order to have overturned the arbitration provision?

More than 140 nations have signed the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention, further strengthening the ability to enforce awards in those countries. The New York Convention requires that an arbitral award made in one country be honored and enforced by the courts of another country, where both countries are parties to the convention. The award will be enforced unless one of the defenses listed above exists, or if the original award has been set aside or suspended by a court in the country in which it was made.

LITIGATION

Litigation in a court of law is the final alternative for resolving a dispute. It is used more frequently in the United States than in virtually any other country. Many countries have different procedural rules for litigating cases. First, many concepts familiar to American and English students, such as trial by jury and other traditions, may not be used in the civil law countries. While we take jury trials in criminal and civil cases almost for granted in the United States, the same is not true throughout the world. The role of the judge may be very different; in some countries, the judge is an impartial arbiter of fairness and procedure, while in other countries, he or she may examine witnesses and take an active role in the search for the truth. The discovery process, by which the parties attempt to uncover evidence in advance of trial, can also be different. For instance, oral depositions taken under oath outside of court may be routinely done in the United States, while in China and some other countries, their use is prohibited. There are different rules for compensating lawyers; in the United States, for instance, contingent fees are widely used in tort cases, while in other countries, they are barred. The entire issue of damages is frequently handled differently. Finally, appeals are handled differently in many countries, with some, like the United States, limiting appeals to reconsidering issues of law applied by the trial courts. In other countries, appellate courts will consider new or additional evidence.

There can also be many differences in substantive law (“the law of the case”), although this topic is too broad for this chapter. Suffice it to say that almost every body of law—contracts, torts, crimes, property, business regulation, intellectual property, and so forth—can vary from legal system to legal system and country to country. This will have a tremendous impact on the outcome of litigation. Certainly, parties to a contract can have some control over the choice of substantive law and procedural rules by incorporating a choice of law clause in the contracts. They may also be able to have control over where the litigation takes place by utilizing a forum selection clause in the contract. These are critical issues that must be kept in mind as you read on.

Jurisdiction

Jurisdiction, one of the key concepts of jurisprudence, is the power of a court to hear and decide a case. A court that has jurisdiction is said to be a “competent” court. The term has different meanings depending on how it is used. For example, territorial jurisdiction refers to the power of criminal courts to hear cases involving crimes committed within their territory. In rem jurisdiction refers to a court’s power over property within its geographical boundaries. Subject matter jurisdiction refers to the court’s authority to hear a certain type of legal matter, such as tort cases or breach of contract. In the United States, for example, federal courts have subject matter jurisdiction over cases involving federal statutes and federal government agencies, constitutional issues, and cases arising between citizens of different states or between citizens of the United States and citizens of foreign countries (where the amount in controversy exceeds $75,000). The latter is known as diversity of citizenship jurisdiction. Thus, we see that the term “jurisdiction” can be used in many different ways. But one thing is certain—without it, courts are powerless to act.

In Personam Jurisdiction.

In personam jurisdiction or “jurisdiction over the person” refers to the court’s power over a certain individual or corporation. No party can be made to appear before a court unless that court has personal jurisdiction. If there is no personal jurisdiction, the case will be dismissed upon the defendant’s motion. Typically, jurisdiction is obtained by having a summons served on an individual or on the legal agent of a corporation. In certain types of cases, service over those not present in the territory can be done by registered mail or even through publication in the “legal notices” section of approved newspapers. In the United States, the requirement of obtaining service of process on a defendant in a case, and of having jurisdiction over them, is required by the Due Process Clause of the 5th and 14th Amendments to the U.S. Constitution. The method used must be authorized by statute and be fundamentally fair.

The basic concept is that one should not be “hauled into court” in some distant state or country unless that person has some connection to that place. Every national legal system has its jurisdictional requirements. For example, the French Civil Code states that “a foreigner, even if not residing in France, may be cited before French courts for the execution of obligations by him contracted in France with a citizen of France.” In Germany, the presence of property owned by the defendant, whether the property is insignificant or even if it is not related to the case, can still be the basis of jurisdiction. Similarly, in the United States, there are many federal and state statutes that define when a court is competent to hear and decide a case.

Requirement for In Personam Jurisdiction: Minimum Contacts.

At one time in U.S. legal history, the U.S. Supreme Court had interpreted the Due Process Clause to limit personal jurisdiction to people physically present in the court’s territory. As the nation grew and as interstate commerce expanded, the concept was broadened to allow jurisdiction over persons who were not present within the court’s geographical territory, but who, for reasons of justice and fairness, should be held to answer a complaint there. A modern example is a state “implied consent” statute, by which one operating a motor vehicle on the highways of a state “impliedly consents” to submitting to the jurisdiction of the courts of that state for all suits arising out of the operation of the vehicle there.

The due process requirements for in personam jurisdiction over persons absent from a state or territory have been carefully considered by the courts. In the now famous language of U.S. Supreme Court decisions dealing with both interstate and international commerce, “due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” International Shoe Co. v. Washington, 326 U.S. 310 (1945). Just how much of a connection to a foreign state or country does it take for the courts to require one to defend a case there? The courts have answered the question on a case-by-case basis, looking to see whether it would be fair to ask a nonresident to come to their jurisdiction to defend a case. The courts have looked at many factors, including the extent of the defendant’s presence in the state, what business he or she may have conducted there, the burden on the defendant, fairness to the plaintiff, and the interest of the state in having the case resolved there. Did the defendant have an office, branch location, or salespeople in the territory of the forum? Did any of its employees or agents travel there on business? Did it advertise or otherwise solicit business there? Did it ship goods there? Did it enter into a contract there, or was the contract to be performed there? In Worldwide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980), the U.S. Supreme Court stated that a New York automobile distributor was not required to appear in Oklahoma to defend a products liability suit based on the sale of a vehicle that took place in New York and was later involved in a serious accident in Oklahoma.

Petitioners carry on no activity whatsoever in Oklahoma. They close no sales and perform no services there. They avail themselves of none of the privileges and benefits of Oklahoma law. They solicit no business there either through salespersons or through advertising reasonably calculated to reach the State. Nor does the record show that they regularly sell cars at wholesale or retail to Oklahoma customers or residents or that they indirectly, through others, serve or seek to serve the Oklahoma market. In short, respondents seek to base jurisdiction on one, isolated occurrence and whatever inferences can be drawn therefrom: the fortuitous circumstance that a single Audi automobile, sold in New York to New York residents, happened to suffer an accident while passing through Oklahoma.

A similar concept exists in the international context. The following case, Asahi Metal Ind. v. Superior Ct. of California, 480 U.S. 102 (1987), questions whether a Japanese manufacturing company should be forced to defend a lawsuit in California for an accident that occurred there. As you read, keep in mind that these cases are resolved on a case-by-case basis after a consideration of all of the facts. A decision on jurisdiction may depend on one or more different factors not present in other cases. In other words, it is very difficult for lawyers to counsel whether your actions will or will not subject you to a foreign court’s jurisdiction some time in the future. In reading this case, think about what factors, if they had been present, might have forced Asahi to appear in court in California.

Asahi Metal Industry, Co. v. Superior Court of California, Solano County

480 U.S. 102 (1987) United States Supreme Court

BACKGROUND AND FACTS

Asahi Metal Industry, a Japanese corporation, manufactured valve assemblies in Japan and sold them to tire manufacturers including Cheng Shin (a Taiwanese corporation) from 1978 to 1982. Cheng Shin sold tires all over the world, including in California. On September 23, 1978, in Solano County, California, Gary Zurcher was injured riding his motorcycle. His wife was killed. He filed a products liability action against Cheng Shin, the manufacturer of his motorcycle’s tires, alleging that the tires were defective. Cheng Shin filed a cross-complaint seeking indemnification from Asahi. Cheng Shin settled with Zurcher. However, Cheng Shin pressed its action against Asahi. The California Supreme Court held that California state courts possessed personal jurisdiction over Asahi, and Asahi sought review by the U.S. Supreme Court. The case presented the question of whether a dispute between a Taiwanese company and a Japanese company with the above-described relationship to California should be heard by the California courts. In other words, did the California courts have personal jurisdiction over Asahi?

JUSTICE O’CONNOR

The placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum State. Additional conduct of the defendant may indicate an intent or purpose to serve the market in the forum State, for example, designing the product for the market in the forum State, advertising in the forum State, establishing channels for providing regular advice to customers in the forum State, or marketing the product through a distributor who has agreed to serve as the sales agent in the forum State. But a defendant’s awareness that the stream of commerce may or will sweep the product into the forum State does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum State.

Assuming, arguendo, that respondents have established Asahi’s awareness that some of the valves sold to Cheng Shin would be incorporated into tire tubes sold in California, respondents have not demonstrated any action by Asahi to purposefully avail itself of the California market. It has no office, agents, employees, or property in California. It does not advertise or otherwise solicit business in California. It did not create, control, or employ the distribution system that brought its valves to California. There is no evidence that Asahi designed its product in anticipation of sales in California. On the basis of these facts, the exertion of personal jurisdiction over Asahi by the Superior Court of California exceeds the limits of due process.

The strictures of the Due Process Clause forbid a state court from exercising personal jurisdiction over Asahi under circumstances that would offend “traditional notions of fair play and substantial justice.” International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945), quoting Milliken v. Meyer, 311 457, 463 (1940).

We have previously explained that the determination of the reasonableness of the exercise of jurisdiction in each case will depend on an evaluation of several factors….

Certainly the burden on the defendant in this case is severe. Asahi has been commanded by the Supreme Court of California not only to traverse the distance between Asahi’s headquarters in Japan and the Superior Court of California in and for the County of Solano, but also to submit its dispute with Cheng Shin to a foreign nation’s judicial system. The unique burdens placed upon one who must defend oneself in a foreign legal system should have significant weight in assessing the reasonableness of stretching the long arm of personal jurisdiction over national borders.

When minimum contacts have been established, often the interests of the plaintiff and the forum in the exercise of jurisdiction will justify even the serious burdens placed on the alien defendant. In the present case, however, the interests of the plaintiff and the forum in California’s assertion of jurisdiction over Asahi are slight. All that remains is a claim for indemnification asserted by Cheng Shin, a Taiwanese corporation, against Asahi. The transaction on which the indemnification claim is based took place in Taiwan; Asahi’s components were shipped from Japan to Taiwan. Cheng Shin has not demonstrated that it is more convenient for it to litigate its indemnification claim against Asahi in California rather than in Taiwan or Japan.

Because the plaintiff is not a California resident, California’s legitimate interests in the dispute have considerably diminished. The Supreme Court of California argued that the State had an interest in “protecting its consumers by ensuring that foreign manufacturers comply with the state’s safety standards.” …The State Supreme Court’s definition of California’s interest, however, was overly broad. The dispute between Cheng Shin and Asahi is primarily about indemnification rather than safety. Moreover, it is not at all clear at this point that California law should govern the question whether a Japanese corporation should indemnify a Taiwanese corporation on the basis of a sale made in Taiwan and a shipment of goods from Japan to Taiwan.

Considering the international context, the heavy burden on the alien defendant, and the slight interests of the plaintiff and the forum State, the exercise of personal jurisdiction by a California court over Asahi in this instance would be unreasonable and unfair.

Because the facts of this case do not establish minimum contacts such that the exercise of personal jurisdiction is consistent with fair play and substantial justice, the judgment of Supreme Court of California is reversed, and the case is remanded for further proceedings not inconsistent with this opinion. It is so ordered.

Decision. The U.S. Supreme Court reversed the California Supreme Court and found that there was no jurisdiction. This Supreme Court case is significant because it lists several factors that will be taken into account in determining whether a court has personal jurisdiction.

Case Questions

1. Why did the Court refuse to hold that the California courts had personal jurisdiction over Asahi?

2. What activities would Asahi need to have engaged in order for the Court to determine that it had purposefully availed itself of California law? Are some of these activities more important than others? If so, which ones?

3. Did the Court give adequate weight to California’s interest in the safety of products distributed in the state? Why or why not?

Jurisdiction in the European Union.

Jurisdiction in civil and commercial cases between parties domiciled in two or more European Union (EU) countries is determined by EU Council Regulation No. 44/2001. This law became effective in 2002 and replaced the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters. The general rule is that jurisdiction is determined by the domicile of the defendant. The regulation states that “persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.” Corporations are domiciled in the Member State (i.e., member country of the EU) where they are incorporated, where they have their primary administrative offices, or where they have their principal place of business.

There are several exceptions to this general rule. The exceptions are: (1) Cases involving commercial contracts for the sale of goods within the EU will be heard in the country where the goods were or should have been delivered; (2) Cases involving a breach of contract for services (other than insurance or employment) within the EU will be heard where the services were or should have been provided; (3) Tort cases, such as an action arising out of an automobile accident, will be heard before the courts in the country where the wrong occurred; (4) In consumer contract cases, a consumer may bring an action against the other party to the contract either in the country in which that party is domiciled or in the country where the consumer is domiciled. Lawsuits against a consumer to enforce the contract can only be brought in the courts of the consumer’s home country; (5) An employer may sue its employee or former employee only in the employee’s place of domicile. However, an employee may bring a lawsuit against an employer either in the country where the employee is domiciled; where the employer is domiciled, or, if not domiciled in the EU, where a branch or agent is located; or in the country where the employee regularly or last worked; and (6) Where at least one of the parties is domiciled in the EU, by an agreement specifying the courts of a certain EU country, provided that the agreement is in written or electronic form, or in international cases, in a form that the parties should have known amounted to a forum selection.

Jurisdiction in the Internet Age.

As electronic commerce brings the world closer together, there will likely be more disputes between parties in distant countries. How will the courts fashion rules for deciding when a party must defend itself against litigation in foreign courts? Just as the meaning of “minimum contacts” adapted to the rise of interstate commerce in the United States over sixty years ago, it is now adapting to the rise of the Internet age. The following case, Graduate Management Admission Council v. Raju, involves a situation that many readers may appreciate. In this case, involving several different tort actions including trademark infringement and unfair competition, the Indian defendant must have simply decided not to show up in the United States to answer a complaint against him. Perhaps he thought that the U.S. courts would have no jurisdiction over him if he stayed away. He did not appear, and a default judgment was entered against him.

Graduate Management Admission Council v. Raju

241 F. Supp. 2d 589 (2003) United States District Court (E.D. Va.)

BACKGROUND AND FACTS

Plaintiff Graduate Management Admission Council (GMAC) is a nonprofit corporation located in Virginia. It develops and owns all rights to the Graduate Management Admission Test (GMAT), used for admittance to about 1,700 graduate business programs in the United States and elsewhere. The GMAT forms and questions are original, copyrighted materials. GMAC routinely registers its material with the Register of Copyrights and has registered “GMAT” as a trademark with the U.S. Patent and Trademark Office. Defendant Raju is a citizen of India. Raju registered the domain names “gmatplus.com” and “gmatplus.net” in 2000 and operated a Website under the former name. The Website sold, for as much as $199, seven books containing “100 percent actual questions” never before published. The books were sold to customers in India, China, Korea, Singapore, France, Australia, Japan, and Taiwan, and to at least two individuals in Virginia. The Website contained ordering information for customers in the United States. Orders placed on the site were paid for by a money transfer through Western Union or MoneyGram. GMAC filed a complaint against Raju for infringement, cyber piracy, unfair competition, and other torts. The defendant failed to appear, and the court entered a default judgment against him on the basis of having personal jurisdiction over him.

ELLIS, DISTRICT JUDGE

* * *

Under the well-established International Shoe formulation, the exercise of personal jurisdiction over a defendant requires that the defendant “have certain minimum contacts with [the forum] such that the maintenance of a suit does not offend ‘traditional notions of fair play and substantial justice.’” See International Shoe Co.v. Washington, 326 U.S. 310, 316 (1945).. Personal jurisdiction can be established under either general or specific jurisdiction. Where, as here, the defendant’s contacts with the forum are also the basis for the suit, specific jurisdiction is appropriate. In determining whether specific jurisdiction exists, courts must consider “(1) the extent to which the defendant ‘purposefully availed’ itself of the privilege of conducting activities in the State; (2) whether the plaintiff’s claims arise out of those activities directed at the State; and (3) whether the exercise of personal jurisdiction would be constitutionally ‘reasonable.’” Id.

[T]his due process analysis must take account of the modern reality of widespread Internet electronic communications. Accordingly, the Fourth Circuit recently adopted the [Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997)] “sliding-scale” approach for determining whether Internet activity can serve as a basis for personal jurisdiction.

Under the now-familiar Zippo test, the likelihood that personal jurisdiction can be constitutionally exercised is determined by focusing on “the nature and the quality of commercial activity that an entity conducts over the Internet.” Passive websites, that do “little more” than make information available to users in other jurisdictions, cannot support personal jurisdiction everywhere that information is accessed.

At the other end of the spectrum are situations where a defendant “clearly does business over the Internet,” for example through the “knowing and repeated transmission of files over the Internet,” which clearly do support personal jurisdiction. In between is the “middle ground” of “interactive Web sites” which are not passive, because they allow a user to exchange information with the host computer, but also do not constitute “clearly doing business over the Internet.” To determine whether an “interactive” website is grounds for personal jurisdiction, a court must consider the “level of interactivity and the commercial nature of the exchange of information that occurs on the Web site.” * * *

Rule 4(k)(2), Federal Rules of Civil Procedure… provides for personal jurisdiction through nationwide service of process over any defendant provided (i) exercise of jurisdiction is consistent with the Constitution and the laws of the United States, (ii) the claim arises under federal law, and (iii) the defendant is not subject to the jurisdiction of the courts of general jurisdiction of any state. Rule 4(k)(2) was added in 1993 to deal with a gap in federal personal jurisdiction law in situations where a defendant does not reside in the United States, and lacks contacts with a single state sufficient to justify personal jurisdiction, but has enough contacts with the United States as a whole to satisfy the due process requirements. Precisely this situation is presented here. The first element of the Rule 4(k)(2) analysis requires the same minimum contacts due process analysis as is conducted under Rule 4(k)(l)(A), with the significant difference that the relevant forum is the United States as a whole, not an individual State. * * *

In considering Raju’s contacts with the United States in this case, the…test for determining personal jurisdiction based on electronic activities must be adapted for the purpose of national contacts analysis. Substituting the United States as the relevant forum, the test requires a showing in this case (i) that Raju directed his electronic activity into the United States, (ii) that he did so with the manifest intent of engaging in business or other interactions within the United States, and (iii) that his activity creates a potential cause of action in a person within the United States that is cognizable in the United States’ courts.

Raju’s alleged activity plainly creates a potential cause of action in a person within the United States which is cognizable in federal courts….GMAC is a Virginia nonprofit corporation and thus a “person” within the United States. GMAC’s causes of action are based on federal law, and thus are clearly cognizable in federal courts. It is also clear that Raju’s intent is to “engage in business,” namely the business of selling his GMAT test preparation materials to buyers for a substantial fee…. All that remains is a showing that Raju “directed his electronic activity” into the United States, with the intent of engaging in business “within the United States.” * * *

The record clearly indicates that Raju directed his activity at the United States market and specifically targeted United States customers. The intended market for business conducted through a website can be determined by considering the apparent focus of the website as a whole. See Young v. New Haven Advocate, 315 F.3d 256 (4th Cir. 2002) (examining the “general thrust and content” of the newspapers’ websites, including the local focus of the stories, local advertisements and classifieds, local weather and traffic information, and links to local institutions, in determining that “the overall content of both websites is decidedly local”). The relevant question is whether the website is “designed to attract or serve a [United States] audience” Id. .

There is ample evidence that Raju targeted the United States market. First, and most significantly, the GMATplus site provides specific ordering information for United States customers. The ordering information page directs customers who “live in the United States or Canada” to contact Western Union or Money-Gram, and provides the toll free numbers for use by those customers….No other countries apart from the United States and Canada are mentioned by name on the ordering information page. Thus, ordering information for customers in the United States (and Canada) is provided first and with more specificity than for customers from other countries. Second, the ordering information page informs customers that materials will “reach most parts of the world (including the US) within 3-5 working days.” Third, the prices for the products are listed in dollars, presumably United States dollars. Fourth, three of the six testimonials are purportedly from United States citizens. Fifth, the promotional text on the site suggests that Raju’s materials will allow American citizens and others to catch up with test takers from “India, China, Korea, Japan, and Taiwan,” who purportedly score better on the test as a group than “their American or European counterparts… because most of them have access to 100 percent of unpublished previous questions in these countries.” Finally, Raju confirmed his apparent intent to serve United States customers by shipping his materials to the two Virginia residents mentioned in the record.

In sum, it is quite clear upon review of the GMATplus website and the record as a whole that while Raju may have aimed his website at the entire, worldwide market of GMAT test takers, he specifically directed his electronic activity at the United States market and did in fact ship materials in the United States. Thus, GMAC has shown…that Raju “directed his electronic activity into [the United States] with the manifested intent of engaging in business…within [the United States]”….It follows that the exercise of personal jurisdiction based on nationwide contacts under 4(k)(2) comports with constitutional due process requirements in this case. * * * To find otherwise would not only frustrate GMAC’s attempts in this case to vindicate its rights under United States law, by requiring GMAC to turn to foreign courts to vindicate those rights against a likely elusive defendant, it would also provide a blueprint whereby other individuals bent on violating United States trademark and copyright laws could do so without risking suit in a United States court.

Decision. Raju had sufficient minimum contacts with the United States to justify personal jurisdiction over him there under the federal rules. The magistrate judge was directed to take whatever steps deemed necessary to determine the appropriate relief to be awarded GMAC in this matter.

Case Questions

1. On what basis did the court hold that Raju had sufficient minimum contacts with the United States such as to support the exercise of personal jurisdiction?

2. Is the court’s distinction between interactive and passive Websites valid? What factors determine whether a Website is interactive or passive?

3. Is the Internet sufficiently different from non-electronically-based businesses to merit different treatment for purposes of jurisdiction? Why or why not?

Obtaining Jurisdiction by Service of Process.

As we have learned, a court must have personal jurisdiction over individuals or corporate entities before they can be made to appear and defend a civil case. Personal jurisdiction is obtained through lawful service of process. Without proper service, any judgment that might be taken will not be enforceable. This is especially problematic when attempting to enforce a judgment internationally. To illustrate, imagine that an American plaintiff files suit in a U.S. court against a resident of France on a contract that was performed in the United States. Assume that the plaintiff’s attorney is able to obtain service of process upon the defendant in France. The French citizen does not appear in the United States and a default judgment is entered. When the American attempts to enforce the U.S. judgment in the courts of France, the defendant will claim that the method of service of process upon him was unsatisfactory under French law. If the French courts agree, the plaintiff’s judgment may be worth nothing if the defendant’s only assets are in France. Thus, international lawyers trying to obtain jurisdiction over a foreign defendant are advised to consult an attorney in the defendant’s country and to follow the requirements of both U.S. and French law to the letter.

Service of process upon a foreign defendant is addressed in The Hague Convention on the Service Abroad of Judicial and Extra-judicial Documents in Civil and Commercial Matters, in force in sixty countries. Authorized methods of service are different even for countries that are members of the treaty. Some countries permit service through the use of registered or certified mail, with a return receipt signed by the defendant being served, although other countries (e.g., Germany, Norway, Egypt, China, and others) do not permit this method. Some countries permit personal service by an agent or attorney of the plaintiff located in the defendant’s country who signs an “affidavit of service” at a nearby U.S. embassy affirming that he or she has served the defendant with notice and a copy of the complaint. Most countries require the complaint to be in the local language as well as in English. Perhaps the safest method, but one that can cause very long delays (up to a year, according to the U.S. State Department), is a formal request for service made through a letter rogatory (a “letter of request” sent through diplomatic channels) that results in personal service on the defendant by the courts of the country in which he or she is found. Defendants located in countries not parties to this convention can also be served with process with a letter rogatory. Letters rogatory are discussed later in this chapter.

Venue

Jurisdiction is often confused with the concept of venue. Venue refers to the geographical location of a court of competent jurisdiction where a case can be heard. While the courts of several different states, or countries, may have proper jurisdiction, the concept of venue helps decide which one of these should actually hear the case. For instance, in some civil lawsuits between citizens of different states, we know that the federal courts may have jurisdiction. But in which federal district should it be tried? Imagine an automobile accident in which the passengers of one car are residents of Pennsylvania, while the driver of the other vehicle is a resident of North Carolina, and the accident occurs while they are both on vacation in California. We know that jurisdiction is proper in the federal courts (and it may also be proper in some state courts). But we certainly would not expect that the case could be tried in a federal court located in Montana. Federal rules generally permit the case to be heard either where all of the plaintiffs reside, where all of the defendants reside, or where the cause of action arose. (In complex transnational litigation, it is not unusual that courts in several countries might attempt to exercise jurisdiction over the matter.) While typically the plaintiff will initially choose where to file its suit, it is not unusual for a defendant to request a change of venue, asking that the case be removed to a location that is more convenient and that has a closer connection to the facts of the particular case.

Forum Non Conveniens

The legal doctrine of forum non conveniens (meaning “inconvenient forum”) refers to the discretionary power of a court to refuse to hear a case, even though jurisdiction and venue are otherwise proper, because a court in another jurisdiction or location would be more convenient and justice would be better served. According to this doctrine, whenever a case is properly heard in the courts of more than one jurisdiction, it should be heard in the jurisdiction that is more convenient and has the closer connection to the cause of action that led to the case. In deciding on where to hear a case, the courts will examine both “private factors” (factors affecting the convenience of the parties and their ability to pursue their claims) and “public factors” (factors related to the public interest). For example, it may be more convenient to hear a case where the action arose, where witnesses and evidence are located, where the parties reside, or in the state or country whose law applies to the case.

Imagine an airline disaster in the United States, with many plaintiffs and one airline. Jurisdiction may be proper in any number of locations, including the airline’s principal place of business. But would it not be more convenient to hold the trial where the crash occurred? After all, that is where the wreckage is located, and where the controllers and other witnesses live and work. Forum non conveniens is applied by courts in the United States, as well as in many other countries. In the United States, it is applied by the federal courts in determining where to hear lawsuits between citizens of different states. It is also used in determining whether an international case should be heard by U.S. courts or by the courts of some other country. It is not unusual for one of the parties to a case to ask a court to transfer the case to another judicial district or location for reasons of convenience. The factors generally considered were described by the U.S. Supreme Court in Gulf Oil v. Gilbert, 330 U.S. 501 (1947).

Important considerations are the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling [witnesses] and the cost of obtaining attendance of willing witnesses;…and all other practical problems that make trial of a case easy, expeditious and inexpensive. There may also be questions as to the enforceability of a judgment if one is obtained…. It is often said that the plaintiff may not, by choice of an inconvenient forum, “vex,” “harass,” or “oppress” the defendant by inflicting upon him expense or trouble not necessary to his own right to pursue his remedy. But unless the balance is strongly in favor of the defendant, the plaintiff’s choice of forum should rarely be disturbed…. There is a local interest in having localized controversies decided at home. There is an appropriateness, too, in having the trial of a diversity case in a forum that is at home with the state law that must govern the case, rather than having a court in some other forum untangle problems in conflict of laws, and in law foreign to itself.

Forum non Conveniens in Action: In re Union Carbide Gas Plant Disaster at Bhopal.

After a chemical leak at a plant in Bhopal, India, killed almost 2,000 people, Indian citizens filed suit in the United States against Union Carbide. At one point, almost 145 legal actions on behalf of some 200,000 plaintiffs had been consolidated for trial in federal court in New York. However, the case was subsequently dismissed on the basis of forum non conveniens in favor of the case being heard in India. The judge gave many reasons for the decision: the Indian legal system was better able to determine the cause of accident and assign liability; the overwhelming majority of witnesses and evidence were in India; the records of plant design, safety procedures, and training were located in India; most records were not in English and many witnesses did not speak English; the court would be unable to compel witnesses to appear and the cost to transport them to the United States would be prohibitive; visits to the plant might be necessary; there was the likelihood that the U.S. court would have to apply Indian law (the tort law of the jurisdiction where the accident occurred); and the undue burden of this immense litigation would unfairly tax an American tribunal. Also considered was India’s substantial interest in the accident and the outcome of the litigation: The Indian government and Indian citizens owned 49 percent of the plant, with Union Carbide owning the rest. As the judge expressed in the opinion:

To retain litigation in this forum would be another example of imperialism, another situation in which an established sovereign inflicted its rules, its standards and values on a developing nation. This Court declines to play such a role. The Union of India is a world power in 1986, and its courts have the proven capacity to mete out fair and equal justice. To deprive the Indian judiciary of this opportunity to stand tall before the world and to pass judgment on behalf of its own people would be to revive a history of subservience and subjugation from which India has emerged. India and its people can and must vindicate their claims before the independent and legitimate judiciary created there since the Independence of 1947. This Court defers to the adequacy and ability of the courts of India. Their interest in the sad events… in the City of Bhopal, State of Madhya Pradesh, Union of India, is not subject to question or challenge. In re Union Carbide Gas Plant Disaster at Bhopal, 634 F. Supp. 842, 867 (S.D.N.Y. 1986).

The case was settled in India prior to trial in 1989 when Union Carbide agreed to pay $470 million in compensation. In 2010, an Indian court convicted several former Union Carbide officers of crimes arising from the accident.

Forum Shopping.

It is not unusual that requests to transfer on the basis of forum non conveniens are in truth attempts by counsel to “shop around” for a better legal deal. They may be looking for a law that is more favorable to their case or for a jury that might be more sympathetic to their side. After all, in federal lawsuits between residents of different states, such as in tort cases, the federal courts apply the law of the state in which they sit.

Although there are procedural rules that discourage “forum shopping,” it still weighs on the minds of most trial lawyers. The same is true, perhaps even more so, in international cases. Forum shopping in international cases may involve several considerations. For example, there may be procedural reasons for forum shopping such as the availability of a jury trial, class action procedures and liberal discovery rules. The availability of property that may be readily attached may lead some litigants to select a specific forum. Forum shopping may occur in order to avoid resolution of a dispute in a country where the judicial system suffers from a perceived lack of integrity. Provisions affecting the compensation of attorneys, such as the availability of contingent fees and awards of attorney’s fees, may also encourage forum shopping.

A significant motivation for forum shopping is the perception that U.S. courts will be more likely to award larger amounts of damages to injured parties than courts in other countries. This perception is very strong in the area of punitive damages, which are designed to punish a defendant for particularly offensive behavior (such as intentional torts, fraud, and bad faith) and deter future misconduct. Punitive damages are recognized in other common law countries such as Australia, Canada, England, India, and New Zealand, although with different restrictions and in lesser amounts than may be awarded in the United States. The majority of the rest of the world’s legal systems reject punitive damages. For example, punitive damages are not awarded by Japanese courts as a matter of public policy, and Japanese law prohibits the recognition of foreign judgments containing punitive awards. Like most civil law countries, France and Germany have long adhered to the traditional rule that prohibits awards of punitive damages in civil actions. Under the French Civil Code, damages in civil actions are limited to placing the injured party in the position it would have occupied had the defendant’s conduct not occurred. German courts have traditionally considered the prohibition on punitive damages to be a matter of fundamental public policy.

However, there has been a gradual move away from wholesale rejection of punitive damages in states whose legal systems derive from traditions other than common law. For example, there have been efforts in France in the past few years to revise the Civil Code to explicitly authorize non-compensatory damages. Recent German court judgments have contained elements that are not purely compensatory in nature. Although Spanish courts do not award punitive damages in private actions, the Tribunal Supremo recently enforced a Texas judgment that included treble damages arising from misuse of a U.S. trademark by a Spanish company.

Other countries, including Argentina and Russia, have adopted punitive damages in limited circumstances through statutes. Perhaps most importantly is the enactment of the People’s Republic of China’s Tort Liability Law in December 2009. Effective in July 2010, the law unifies tort law in numerous fields including product liability, environmental pollution, medical malpractice, and motor vehicle accidents. Of particular importance is the section devoted to product liability. In response to several tainted product scandals in the country, the new law permits an award of punitive damages against a manufacturer or seller who knows that a product is defective but nevertheless continues to manufacture or sell the product if such product subsequently results in death or serious physical injury to consumers. The law represents the first time that the term “punitive damages” has officially appeared in Chinese law. However, the method by which such damages are to be calculated and any limits on their amounts are undefined.

In the following case, Iragorri v. United Technologies, the appellate court had to decide whether a case for wrongful death should be heard in Connecticut or in Cali, Colombia. The plaintiffs wanted the case heard in Connecticut because, as one would expect, the possibility of winning a large damage award was much greater than in Colombia.

Iragorri v. United Technologies Corp. & Otis Elevator Co.

274 F. 3d 65 (2001) United States Court of Appeals (2d Cir.)

BACKGROUND AND FACTS

Iragorri and his family had been residents of Florida since 1981, and naturalized citizens of the United States since 1989. In 1993, while visiting his mother in Cali, Colombia, Iragorri fell to his death through an open elevator shaft. Iragorri’s children had been attending school there as exchange students from their Florida high school. His surviving wife and children brought this action in U.S. District Court in Connecticut for damages against two American companies, Otis Elevator and its parent corporation, United Technologies. They alleged that employees of International Elevator had negligently wedged a door open with a screwdriver during repairs, leaving the shaft open. International Elevator was a Maine corporation doing business in South America. Both Otis and United had their principal place of business in Connecticut. The complaint alleged that Otis and United were liable because (1) International had acted as their agent in negligently repairing the elevator, and (2) Otis and United were liable under Connecticut’s products liability statute for the defective design and manufacture of the elevator that had been sold and installed by their affiliate, Otis of Brazil. Otis and United moved to dismiss the case on the basis of forum non conveniens, arguing that it should be heard in the Colombian courts. The U.S. District Court dismissed the case, and the plaintiffs brought this appeal.

OPINION BY PIERRE N. LEVAL AND JOSÉ A. CABRANES, CIRCUIT JUDGES FOR THE COURT SITTING EN BANC

We regard the Supreme Court’s instructions that (1) a plaintiff’s choice of her home forum should be given great deference, while (2) a foreign resident’s choice of a U.S. forum should receive less consideration, as representing consistent applications of a broader principle under which the degree of deference to be given to a plaintiff’s choice of forum moves on a sliding scale depending on several relevant considerations.

The Supreme Court explained in Piper Aircraft Co. v. Reyno, [citation omitted] that the reason we give deference to a plaintiff’s choice of her home forum is because it is presumed to be convenient. (“When the home forum has been chosen, it is reasonable to assume that this choice is convenient.”) In contrast, when a foreign plaintiff chooses a U.S. forum, it “is much less reasonable” to presume that the choice was made for convenience. In such circumstances, a plausible likelihood exists that the selection was made for forum-shopping reasons, such as the perception that United States courts award higher damages than are common in other countries. Even if the U.S. district was not chosen for such forum-shopping reasons, there is nonetheless little reason to assume that it is convenient for a foreign plaintiff.

Based on the Supreme Court’s guidance, our understanding of how courts should address the degree of deference to be given to a plaintiff’s choice of a U.S. forum is essentially as follows: The more it appears that a domestic or foreign plaintiff’s choice of forum has been dictated by reasons that the law recognizes as valid, the greater the deference that will be given to the plaintiff’s forum choice. Stated differently, the greater the plaintiff’s or the lawsuit’s bona fide connection to the United States and to the forum of choice and the more it appears that considerations of convenience favor the conduct of the lawsuit in the United States, the more difficult it will be for the defendant to gain dismissal for forum non conveniens. Thus, factors that argue against forum non conveniens dismissal include the convenience of the plaintiff’s residence in relation to the chosen forum, the availability of witnesses or evidence to the forum district, the defendant’s amenability to suit in the forum district, the availability of appropriate legal assistance, and other reasons relating to convenience or expense. On the other hand, the more it appears that the plaintiff’s choice of a U.S. forum was motivated by forum-shopping reasons—such as attempts to win a tactical advantage resulting from local laws that favor the plaintiff’s case, the habitual generosity of juries in the United States or in the forum district, the plaintiff’s popularity or the defendant’s unpopularity in the region, or the inconvenience and expense to the defendant resulting from litigation in that forum—the less deference the plaintiff’s choice commands and, consequently, the easier it becomes for the defendant to succeed on a forum non conveniens motion by showing that convenience would be better served by litigating in another country’s courts.

We believe that the District Court in the case before us, lacking the benefit of our most recent opinions concerning forum non conveniens, did not accord appropriate deference to the plaintiff’s chosen forum. Although the plaintiffs had resided temporarily in Bogota at the time of Mauricio Iragorri’s accident, it appears that they had returned to their permanent, long-time domicile in Florida by the time the suit was filed. The fact that the children and their mother had spent a few school terms in Colombia on a foreign exchange program seems to us to present little reason for discrediting the bona fides of their choice of the Connecticut forum. Heightened deference to the plaintiffs’ chosen forum usually applies even where a plaintiff has temporarily or intermittently resided in the foreign jurisdiction. So far as the record reveals, there is little indication that the plaintiffs chose the defendants’ principal place of business for forum-shopping reasons. Plaintiffs were apparently unable to obtain jurisdiction in Florida over the original third defendant, International, but could obtain jurisdiction over all three in Connecticut. It appears furthermore that witnesses and documentary evidence relevant to plaintiffs’ defective design theory are to be found at the defendants’ installations in Connecticut. As we have explained, “live testimony of key witnesses is necessary so that the trier of fact can assess the witnesses’ demeanor.” Alfadda v. Fenn, 159 F.3d 41, 48 (2d Cir. 1998). Also, in assessing where the greater convenience lies, the District Court must of course consider how great would be the inconvenience and difficulty imposed on the plaintiffs were they forced to litigate in Cali. Among other factors, plaintiffs claim that they fear for their safety in Cali and that various witnesses on both sides may be unwilling to travel to Cali; if these concerns are warranted, they appear highly relevant to the balancing inquiry that the District Court must conduct.

Decision. Remanded to the U.S. District Court for a determination in accordance with this opinion. In deciding whether to hear the case, the district court should consider the degree of deference to which plaintiffs’ choice is entitled, the hardships of litigating in Colombia versus the United States, and the public interest factors involved.

Case Questions

1. What were the court’s reasons for refusing to apply forum non conveniens to this case and requiring refiling of the litigation in Colombia?

2. Does the court’s opinion reward forum shopping to the extent the plaintiffs were likely to receive a larger damages award in the United States than in Colombia? Why or why not?

3. The court cited concern regarding the unstable political situation in Colombia as a reason for refusing to apply forum non conveniens. Given the changes that have occurred in the country in the past decade, would the court reach the same conclusion today?

Forum Selection Clauses

Businesspeople and lawyers negotiating international contracts can avoid much of the uncertainty over jurisdiction and venue by including a forum selection clause in their contracts. A forum selection clause is a provision in a contract that fixes in advance the jurisdiction in which any disputes will be arbitrated or litigated. It provides certainty because the parties know where and how a dispute will be resolved in the event of a breach. One of the major advantages of these clauses is that they eliminate the last-minute attempt by lawyers to go “forum shopping” by filing suits in jurisdictions that offer the best law for their case. The last chance for forum shopping may very well be during contract negotiations. This allows both parties to agree on a forum, perhaps the courts of a certain country, which they find acceptable. Of course, the reality is that these clauses are often not open for negotiation at all—the party to the contract with the greatest bargaining power will simply include a fine print provision calling for disputes to be resolved in the courts of the country where it is located.

Historically, any attempt by private parties to control jurisdiction was viewed with hostility by the courts as an effort to usurp their authority. However, the realities of the international marketplace and the need to reduce uncertainty in a dispute have persuaded many courts to accept forum selection clauses. Today, they are generally accepted as valid provided that the forum chosen has some reasonable connection to the transaction. In the following case, M/S Bremen v. Zapata, 407 U.S. 1 (1972), the U.S. Supreme Court upheld a clause calling for disputes to be resolved before the English courts, noting that U.S. courts can no longer remain geocentric in light of modern-day international trade.

CONFLICT OF LAWS

As a general rule, courts apply the law in force in their jurisdiction to the cases before them. In the United States, state courts usually apply their own state’s law. Federal courts hearing diversity of citizenship cases, such as breach of contract or tort actions between residents of different states, generally apply the law of the state in which they sit (unless a federal statute or treaty controls). But these are general rules only, and there are many cases where courts apply the law of another state, or even of a foreign country. The term conflict of laws refers to the rules by which courts determine which jurisdiction’s laws apply to a case and how differences between laws will be reconciled. In turn, the choice of law will ultimately determine whether a court has jurisdiction, the rights and liabilities of the parties, and how a judgment or monetary award will be enforced.

The Restatement (Second) of the Conflict of Laws

Conflict of laws rules are some of the most complex in procedural law, with different jurisdictions following different rules. However, the concepts found in the Restatement (Second) of the Conflict of Laws, drafted under the auspices of the American Law Institute in 1971, provide a clear and widely accepted explanation of these rules. As a general rule, courts will apply the law of the state, country, or jurisdiction that has the closest relationship to the action before them. The Restatement (Second) addresses different types of actions, including actions for breach of contract and for tort.

M/S Bremen v. Zapata Off-Shore Co.

407 U.S. 1(1972) United States Supreme Court

BACKGROUND AND FACTS

In 1967, Zapata, a Houston-based corporation, entered into a contract with Unterweser, a German corporation, to tow Zapata’s drilling rig from Louisiana to Ravenna, Italy. The contract the parties signed contained the clause “Any dispute arising must be heard before the London Court of Justice.” During a storm, the rig was damaged, and Zapata instructed Unterweser’s tug, the Bremen, to tow instead to Tampa, Florida, the nearest port. Immediately thereafter, Zapata filed suit infederal district court in Tampa, Florida, on the basis of admiralty jurisdiction, seeking $3,500,000 damages in personam against Unterweser and in rem against the Bremen. Unterweser moved to dismiss for lack of personal jurisdiction on the basis of the forum selection clause and forum non conveniens. Unterweser sought a stay of action pending resolution in the London Court of Justice.

The U.S. District Court and Court of Appeals denied the motion to stay, thus allowing the case to proceed in U.S. court despite the forum selection clause. Unterweser filed a petition of certiorari to the U.S. Supreme Court.

CHIEF JUSTICE BURGER

We hold, with the six dissenting members of the Court of Appeals, that far too little weight and effect were given to the forum clause in resolving this controversy. For at least two decades we have witnessed an expansion of overseas commercial activities by business enterprises based in the United States. The barrier of distance that once tended to confine a business concern to a modest territory no longer does so. Here we see an American company with special expertise contracting with a foreign company to tow a complex machine thousands of miles across seas and oceans. The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts. Absent a contract forum, the considerations relied on by the Court of Appeals would be persuasive reasons for holding an American forum convenient in the traditional sense, but in an era of expanding world trade and commerce, [prior cases that have decided otherwise] have little place and would be a heavy hand indeed on the future development of international commercial dealings by Americans. We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts.

Forum-selection clauses have historically not been favored by American courts. Many courts, federal and state, have declined to enforce such clauses on the ground that they were “contrary to public policy,” or that their effect was to “oust the jurisdiction” of the court. Although this view apparently still has considerable acceptance, other courts are tending to adopt a more hospitable attitude toward forum-selection clauses. This view, advanced in the well-reasoned dissenting opinion in the instant case, is that such clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be “unreasonable” under the circumstances. We believe this is the correct doctrine to be followed by federal district courts sitting in admiralty….

This approach is substantially what is followed in other common-law countries including England. It is the view advanced by noted scholars and that adopted by the Restatement of the Conflict of Laws. It accords with ancient concepts of freedom of contract and reflects an appreciation of the expanding horizons of American contractors who seek business in all parts of the world….The choice of that forum was made in an arm’s length negotiation by experienced and sophisticated businessmen, and absent some compelling and countervailing reason it should be honored by the parties and enforced by the courts.

The elimination of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce, and contracting. There is strong evidence that the forum clause was a vital part of the agreement, and it would be unrealistic to think that the parties did not conduct their negotiations, including fixing the monetary terms, with the consequences of the forum clause figuring prominently in their calculations.

Thus, in the light of present-day commercial realities and expanding international trade we conclude that the forum clause should control absent a strong showing that it should be set aside. Although their opinions are not altogether explicit, it seems reasonably clear that the District Court and the Court of Appeals placed the burden on Unterweser to show that London would be a more convenient forum than Tampa, although the contract expressly resolved that issue. The correct approach would have been to enforce the forum clause specifically unless Zapata could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching. Accordingly, the case must be remanded for reconsideration.

Decision. Vacated and remanded for proceedings consistent with the opinion.

Comment. The Supreme Court noted the possible reasons that a forum selection clause could be unenforceable: (1) if it contravenes strong public policy and (2) if the forum is seriously inconvenient. These reasons still hold true today. Other reasons forum selection clauses may be ignored by the courts are because parties are of unequal bargaining power; counselwas not consulted; the clause was written in a foreign language; the clause violates federal law; or circumstances have changed (where the forum is the site of a revolution hostile to one party’s country—for example, a forum selection clause choosing Iran after the Islamic Revolution). Many other countries also support the validity of forum selection clauses, including Austria, the United Kingdom, France, Germany, Italy, and many Latin American and Scandinavian countries.

CASE QUESTIONS

1. What was the Court’s holding with respect to the general enforceability of forum selection clauses?

2. How would you define “public policy reasons” or “serious inconvenience” for purposes of refusing to uphold a forum selection clause? What factors would you take into account in making this determination?

Contracts.

It has been said that deciding which law governs a contract is like finding its “center of gravity.” In other words, in the absence of an agreement by the parties, contracts should be governed by the law of the jurisdiction that has the most significant relationship to the transaction and the parties. The Restatement (Second) sets out five factors to be considered: (1) the place of contracting (i.e., where the acceptance took place); (2) the place where the contract was negotiated (particularly if the parties met and negotiated at length); (3) the place where the contract will be performed; (4) the location of the subject matter of the contract; and (5) the domicile, residence, nationality, place of incorporation, and place of business of the parties. If the contract was both negotiated and performed in the same jurisdiction, then the law of that jurisdiction will apply (except for contracts involving real estate or life insurance, which have special rules). Of these, the place of negotiation and performance is often the most important factor, especially if both parties are performing within the same jurisdiction. The place of contracting and the domicile of the parties, while not critical by themselves, are important when supporting other factors.

Torts.

Traditionally, the law in the United States and in most countries has been that tort actions, including personal injuries, product liability, wrongful death, fraud, and business torts, should be governed by the law of the place where the injury or damage occurred (known as lex loci delicti). In the United States, many courts are adopting the broader view taken by the Restatement (Second): that tort liability should be governed by the law of the jurisdiction that has the most significant relationship to the tort and to the parties. The Restatement (Second) lists the following factors to be considered: (1) the place where the injury occurred; (2) the place where the conduct causing the injury occurred; (3) the domicile, residence, nationality, place of incorporation, and place of business of the parties; and (4) the place where the relationship between the parties is centered.

Choice of Law Clauses

Choice of law clauses are contract provisions that stipulate the country or jurisdiction whose law will apply in interpreting the contract or enforcing its terms. Lawyers are quite aware that laws can be very different from state to state or country to country and will consider this in contract negotiations. Indeed, the choice of law may well become a bargaining point in international contract negotiations. As a general rule, the choice of law selection will be upheld as long as there is a reasonable relationship between the transaction and the jurisdiction chosen. As one court put it, parties today have several choices of law that could apply to their dealings, but they could not choose to have their disputes decided under the ancient Code of Hammurabi. For example, imagine a Japanese manufacturer who enters into a contract with a buyer in New York for the shipment of goods to New York. Both parties have offices in California and sign the contract there. A clause making California law applicable to the contract would be valid, because there is a sufficient nexus, or connection, between the contract and the state of California.

The Application of Foreign Law in American Courts

If an American court determines that it should apply foreign law to the case, how does it know what that law is? At one time, foreign law was required to be proven in court as fact. Today, in the federal courts, that has changed. Courts are free to determine as a matter of law what the foreign law is. The federal courts will follow the Federal Rules of Civil Procedure. Rule 44.1 states that

A party who intends to raise an issue about a foreign country’s law must give notice by a pleading or other writing. In determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court’s determination must be treated as a ruling on a question of law.

Accordingly, judges may conduct their own research on foreign law, they may request briefs provided by the parties’ lawyers, or they may rely on the testimony of foreign lawyers in or out of court. The following case, Finnish Fur Sales Co., Ltd. v. Juliette Shulof Furs, Inc., involves a U.S. court in New York that had to decide a case under the laws of Finland. It offers an explanation of how a choice of law clause works and shows how a U.S. court applies the law of a foreign country to resolve a contract dispute. Notice the interplay of federal and state law and the application of Rule 44.1.

Judicial Assistance: Discovery and the Collection of Evidence

Countries have their own rules governing pretrial discovery, obtaining access to documents and other evidence, and the admissibility of that evidence at trial. In the United States, this is governed by the Federal Rules of Civil Procedure. The United States has very liberal rules permitting the pretrial oral deposition of witnesses out of court and the submission of written interrogatories that the parties must answer under oath. The courts have broad subpoena powers over documents and other tangible evidence. When that evidence is located outside the jurisdiction of the court, such as in a foreign country, special problems arise. The 1970 Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters provides methods for collecting foreign evidence via formal requests made by the courts of one country to the courts of another country through diplomatic channels (such as a department or ministry of justice). Although only thirty-one countries are party to the convention, most countries cooperate in the collection of civil evidence, some to a greater or lesser degree than others.

Letters Rogatory.

When a court in one country wants to make a request of a court in another country for judicial assistance, it does so in writing through a formal request known as letters rogatory (letters of request). It can be used to request a deposition, a response to written interrogatories, or the production of documents. Most countries do not have liberal rules of discovery like the United States; for example, many countries do not permit oral depositions to be taken before trial.

Japan and China are notable examples. China has declared that it does not recognize the right of foreign attorneys to take depositions, even of willing witnesses. Any foreigner caught attempting to do so without prior authorization is subject to arrest, detention, or deportation. Moreover, only certain government officials may administer oaths, and anyone else caught doing so is committing a crime. Requests for obtaining evidence from U.S. courts must be addressed in the form of letters rogatory to the Chinese Ministry of Foreign Affairs. The last time a U.S. party was permitted to take a deposition in China was in 1989.

Japan has a slightly more liberal view. According to the U.S. State Department, Japanese law permits the taking of a deposition of a willing witness for use by a court in the United States, but only if the deposition is presided over by a U.S. consular officer pursuant to a court order and is conducted on U.S. consular premises. Videotaping of the deposition is permissible, but depositions conducted through teleconferencing or telephonically are prohibited. It is a violation of Japanese law for anyone to travel to Japan for the purpose of taking a deposition unless they have a special “deposition visa” from a Japanese consulate.

Finnish Fur Sales Co., Ltd. v. Juliette Shulof Furs, Inc.

770 F. Supp. 139 (1991) United States District Court (S.D.N.Y.)

BACKGROUND AND FACTS

Juliette Shulof Furs (JSF) is a New York corporation that has been in the fur-dealing business for fifteen years. George Shulof, an officer of JSF, attended two auctions conducted by Finnish Fur Sales (FFS) in Finland in 1987. He purchased more than $1.2 million worth of skins at the auctions. Shulof attended each auction and was the actual bidder. The conditions of sale were listed in the auction catalog in English. JSF paid for the majority of the skins purchased, leaving an unpaid balance of $202,416.85. FFS brought this action to recover the contract price of the skins from Shulof, claiming he was personally liable for payment under Finnish law. Shulof responded that he was acting only as the agent for JSF and that under New York law he was not personally responsible for the contracts of the corporation he represented at the auction.

LEISURE, DISTRICT JUDGE

Section 4 of the Conditions of Sale provides:

Any person bidding at the auction shall stand surety as for his own debt until full payment is made for purchased merchandise. If he has made the bid on behalf of another person, he is jointly and severally liable with the person for the purchase.

George Shulof denies any personal liability on the grounds that the provision is unenforceable under both New York and Finnish law.

Section 15 of the Conditions of Sale provides that “[t]hese conditions are governed by Finnish law.” Choice of law clauses are routinely enforced by the courts of this Circuit, “if there is a reasonable basis for the choice.” Morgan Guaranty Trust Co. v. Republic of Palau, 693 F. Supp. 1479, 1494 (S.D.N.Y. 1988). New York courts also generally defer to choice of law clauses if the state or country whose law is thus selected has sufficient contacts with the transaction. Under those circumstances, “New York law requires the court to honor the parties’ choice insofar as matters of substance are concerned, so long as fundamental policies of New York law are not thereby violated.” Woodling v. Garrett Corp., 813 F.2d 543, 551 (2d Cir. 1987). Finland’s contacts with the transactions at issue are substantial, rendering the choice of law clause enforceable unless a strong public policy of New York is impaired by the application of Finnish law. Plaintiff FFS is a Finnish resident, which held auctions of Finnish-bred furs in Finland. All bids were made in Finnish marks, with payment and delivery to take place in Finland. Mr. Shulof voluntarily traveled to Finland in order to partake in FFS’s auctions. Thus, virtually all of the significant events related to these transactions took place in Finland. Finland also has an obvious interest in applying its law to events taking place within its borders relating to an important local industry, and in applying uniform law to numerous transactions with bidders from foreign countries.

Mr. Shulof argues that the choice of Finnish law provision should be held invalid….According to Mr. Shulof, New York has the following interests in this action: it is the place of business and of incorporation of JSF; FFS has a representative with a New York office who communicated with Mr. Shulof about the fur auctions; and that New York is, allegedly, “the economic and design center for the world’s fur industry.” Mr. Shulof also argues that, under New York law, Section 4 of the Conditions of Sale would be invalid as contravening New York’s policy against imposing personal liability on corporate officers….

Under Federal Rule of Civil Procedure 44.1, a court, “in determining foreign law, may consider any relevant material or source, including testimony.” Both parties have submitted affidavits of Finnish attorneys on the issue of Mr. Shulof’s liability under Finnish law. FFS’s expert, Vesa Majamaa, a Doctor of Law and Professor of the Faculty of Law at the University of Helsinki, gives as his opinion that the provision of Section 4 of the Conditions of Sale imposing personal liability upon the bidder, regardless of whether he bids on behalf of another, is valid both as a term of the particular auctions at issue and as a general principle of Finnish and Scandinavian auction law. According to Majamaa, it is “commonly accepted in Scandinavia that a bidder, by making a bid, accepts those conditions which have been announced at the auction.” Further, he states: According to the Finnish judicial system, no one may use ignorance of the law as a defense….This same principle is also… applicable when the matter in question concerns… terms of trade….If the buyer is not familiar with the terms observed in an auction, he is obliged to familiarize himself with them. In this respect, failure to inquire will result in a loss for the buyer…. If a businessman who has been and is still active in the fields falls back on his ignorance in a case in which he has been offered an actual opportunity to find out about the terms of the auction, his conduct could be considered to be contrary to equitable business practices [and] the “Principle of Good Faith.”…

Majamaa also notes that under Danish law, which he maintains would be applied by a Finnish court in the absence of Finnish decisional or legislative law on point, “It is taken for granted that someone who has bid on merchandise on someone else’s account is responsible for the transaction, as he would be for his own obligation, together with his superior….Hence the auction buyer’s responsibility is not secondary, as is, for example, the responsibility of a guarantor.”…

Majamaa also opines that the terms of Section 4 are neither unexpected nor harsh because “the liability has been clearly presented in the terms of the auction,” and because the same rule of liability would apply under Finnish law in the absence of any provision.

…[T]he Court concludes that a Finnish court would enforce the provisions of Section 4 and impose personal responsibility upon George Shulof for his auction bids on behalf of JSF.

Moreover, even if a New York court would not enforce such a provision in a transaction to which New York law clearly applied, this Court does not find New York’s interest in protecting one of its residents against personal liability as a corporate officer to constitute so fundamental a policy that New York courts would refuse to enforce a contrary rule of foreign law. Indeed, the New York Court of Appeals has held that “foreign-based rights should be enforced unless the judicial enforcement of such a contract would be the approval of a transaction which is inherently vicious, wicked or immoral, and shocking to the prevailing moral sense.” Intercontinental Hotels Corp. v. Golden, 15 N.Y.2d. 9, 13, 254 N.Y.S.2d 527, 529, 203 N.E.2d 210 (1964). Given the lack of a clear conflict with either New York law or policy, this Court concludes that a New York court would apply Finnish law to the issue before the Court. The Court also notes that a similar result has often been reached under New York conflict rules even in the absence of a contractual choice of law clause. Thus, Mr. Shulof must be held jointly and severally liable with JSF for any damages owed to FFS for the furs purchased.

Decision. Under conflict of law rules, the U.S. court applied Finnish law to hold Shulof personally liable for the contract debt.

CASE QUESTIONS

1. What was the court’s holding with respect to the enforceability of the choice of law clause?

2. What factors did the court utilize in its decision to uphold the choice of law provision?

3. How would you define a “fundamental” public policy that would cause a court to refuse to enforce a choice of law provision?

Some countries, on the other hand, such as Canada, are very cooperative with foreign requests for judicial assistance. According to the U.S. State Department, there are no rules in Canada that prohibit taking evidence from a willing person in private civil matters. Parties in a private civil case in the United States may arrange to depose a willing witness in Canada without prior consultation or permission from the Canadian government. The party seeking to take the deposition must arrange for a court reporter or stenographer and facilities in which to take the deposition.

Antisuit Injunctions

U.S. courts have the power to enjoin a party over whom they have jurisdiction from bringing a lawsuit in a foreign country. This is known as an antisuit injunction. The purposes are to prevent a party already involved in U.S. litigation from circumventing the American court system and American law, preventing the other party in the dispute from being subjected to undue harassment and expense, and protecting the integrity of American courts. While this may seem to invite a confrontation between U.S. and foreign courts, the injunction is not directed at any foreign court but at the individual involved. A U.S. court may enjoin foreign litigation if it has jurisdiction over the party in a case currently pending before it, if the parties are the same in both cases, and if the issues are so similar that resolution of the domestic case will resolve the issues that could be brought in the foreign case. As of 2009, there was some disagreement between the U.S. Courts of Appeal on how to apply these rules. Some circuits issue antisuit injunctions sparingly, in only the rarest of cases involving important public policy considerations or in order to preserve the court’s jurisdiction. A more liberal view grants antisuit injunctions based on equitable considerations, such as whether a foreign action is oppressive or would lead to inconvenience, delay, expense, harassment, or inconsistent results. A case illustrating the more liberal view is Kaepa, Inc. v. Achilles Corp., 76 F.3d 624 (5th Cir. 1966). Achilles, a Japanese corporation, signed a contract with a provision calling for disputes to be settled in Texas and under Texas law. Achilles then filed suit in Japan. Kaepa requested an antisuit injunction. In permitting the injunction, the appellate court said, “The prosecution of the Japanese action would entail an absurd duplication of effort, and would result in unwarranted inconvenience, expense and vexation. Achilles’ belated ploy… smacks of cynicism, harassment and delay.” Finally, some circuits have taken a middle ground by adopting a presumption against the issuance of an antisuit injunction but allowing consideration of the previously listed equitable factors.

ENFORCEMENT OF FOREIGN JUDGMENTS

At the close of a judicial proceeding, a winning party might obtain a judgment for damages or some other award. Once a judgment is taken against a defendant, it must be enforced. If necessary, it can be done through a legal process, including the seizure of the losing party’s property. But what if a judgment is won in a state or country where that party has no money or property? This is where some good detective work comes in handy. In the United States, judgments taken against a party by a court of competent jurisdiction in one state will be enforced by all other states under the Full Faith and Credit Clause of the U.S. Constitution. This provision, however, does not apply to the recognition of judgments from foreign countries. Rather, the issue of whether to recognize a foreign judgment is governed by state law.

Many states have statutes specifically permitting the enforcement of foreign judgments. More than thirty states have adopted either the Uniform Foreign Money Judgments Recognition Act of 1962 or its successor the Uniform Foreign-Country Money Judgments Recognition Act of 2005. The remaining states rely on the requirements of comity in determining whether to recognize a foreign judgment. Regardless of the source of recognition, U.S. courts will usually recognize a final and conclusive foreign money judgment based on a full and fair trial on the merits of the case by an impartial tribunal. The foreign court must have had jurisdiction over the subject matter and over the parties or property involved, and the defendant must have been given notice of the action and an opportunity to appear. Judgments may not be enforced where they violate due process or public policy, where they were procured by fraud, where the original proceeding contravened a forum selection clause in the contract, where the foreign court was a seriously inconvenient forum, or where there is serious doubt about the integrity of the foreign court; an example of a U.S. court’s refusal to honor a foreign judgment is seen in Stiftung v. V.E.B. Carl Zeiss, 433 F.2d 686 (2d Cir. 1970). There, a U.S. court refused to enforce a judgment from (then) communist East Germany because, in the federal judge’s view, the procedures were not fair and because the (former) East German judiciary would “orient their judgments according to the wishes of the leaders of the socialist state.”

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