How to Manage Disputes with U.S. Parties: Essentials for Foreign Companies*
As a U.S. business lawyer (member of the State Bar of California) with over 20 years of experience residing in Sweden and advising European companies on structuring/negotiating international deals and resolving international disputes, I have represented many non-U.S. companies in settling disputes with U.S. counterparties of scale. Some notable settlements have been with Microsoft, Motorola, and Hulu.
The ambition of my clients and, indeed, most counterparties is to avoid costly and time-consuming disputes which divert resources and focus away from what is more vital—i.e., core business activities.
To promote a swift and favorable outcome in disputes with U.S. companies or individuals, the 6 steps below can prove very helpful:
1) Disregard the Paranoia — very few cases go to trial or arbitration:
All too often non-U.S. companies are overwhelmed at the prospect of litigation or arbitration in the United States or even outside of the United States with a U.S. company. This overwhelm can cause the non-U.S. company to capitulate and accept a settlement outcome that is far from optimal and, further, much worse than necessary. An important reality check is that the vast majority of disputes (over 95%) are settled without any trial or arbitration. Many Americans file a lawsuit or arbitration as a bluff and often recant (or adjust course) swiftly in the face of any substantive pushback such as a formal legal answer and/or counterclaims.
2) Be Prepared for a Culture Shock:
While non-U.S. companies may believe doing business (e.g., procuring or selling products/services) with U.S. companies has proven rather straight forward and conflict free, disputes are a completely different context and reality. All too often American companies (or their attorneys) assume an “it’s all your fault” stance asserting all the facts and law supporting the American position and that your position(s) are all completely (without exception) unfounded. It is critical not to get persuaded to do or refrain from doing anything based upon such initial American one-sided communications. Remember, at all times, the American party and its attorney are not your advisors and should not be relied upon in terms of assessing the caliber of your legal rights and/or liabilities. It is worth bearing in mind that any settlement agreement will undoubtedly include a provision stating that your company has had the time to (and indeed has) engaged independent legal counsel and is entering into such settlement agreement based on such attorney’s advisory services. As such, be sure to use a qualified attorney to represent your company’s interests.
Instead of reacting out of frustration or, worse yet, baseless fear—you will need to slow down a bit, gather the facts, have the law applied to such facts, and set your strategy accordingly (all explained below).
3) Temporarily Halt All Dispute-Related Communications with the Counterparty:
In a bona-fide effort to swiftly resolve a dispute (or to de-escalate a dispute) with a U.S. party, the foreign company may shoot off emails and letters to the U.S. party with a range of statements potentially damaging the non-U.S. party’s legal position and ability to achieve a decent settlement. Further, savvy American companies can send emails to different representatives at a foreign company in a calculated effort to elicit written replies (and even to show a failure to reply) which further advances the U.S. company’s legal position. Thus, it is critical to swiftly impose a company-wide moratorium (prohibition) on all communications with the non-U.S. party to the extent relating to the dispute.
As an aside, the rules of evidence in the American legal system are complex and not all communications (even if in writing) are admissible as evidence in a court proceeding (on the off chance a trial were to ensue). One exception is what is known as an “admission”—where a party makes a statement (generally in writing- such as an email) which is against such party’s own interest). Thus, it is imperative not to communicate anything adverse to your position once a dispute is threatened or a claim is actually made against your company.
4) Marshall the Facts:
It is not uncommon for American counterparties, in a dispute, to inject time pressure and take liberties (i.e., be inventive) or cherry pick (i.e., take the best and leave the rest of all information) when asserting a claim. Further, if a foreign company asserts a claim, a U.S. company may immediately reply with one or more counterclaim(s) (even if not based on facts) in an attempt to intimidate the non-U.S. company into submission.
In light of this, it is key for the non-U.S. company to gather facts (with an emphasis on what is in writing) whether or not such information would be admissible in court. Such facts can include, inter alia:
Copy of the written agreement(s) and all amendments/appendices thereto
Names, addresses, and legal domicile of each party
Signatories to the agreement(s)
Apparent governing law and venue for disputes
Whether the losing party is required to pay the winning party’s legal fees
Whether insurance covers your legal costs or potential damages arising from the dispute
The specific claim(s) being asserted
Information supporting the claim(s) (e.g. emails, letters, public info. etc.), and
Information contradicting the claim(s)
5) Obtain a Qualified Legal Opinion:
Once a reasonable proportion of the facts are gathered, it is time to apply the applicable law to such facts. Thus, all such facts should be organized and presented to suitable legal counsel.
This may be obvious but is perhaps worthy of emphasizing. Attorneys are generally niched within a particular field. Even attorneys working with litigation or dispute resolution will not often be aware of the underlying legal implications in a particular area of business. The U.S. system is complex with various bodies of federal and state statutes as well as a tremendous body of case law. In light of this, your position may be far better or (hopefully not) far worse than you realize, and a proper legal opinion can enable you to best assess your situation and swiftly start crafting a dispute resolution strategy. Thus, swiftly retain U.S. legal counsel when embroiled in a dispute with a U.S. party.
A legal opinion should address, inter alia:
The legal body before which a potential case would be heard (court or arbitral tribunal)—as this may be unclear
The governing law—as this may be unclear
Whether there is any legal basis for each of the claim(s) in question
Available defenses to such claim(s) and checking whether the statute of limitations has expired
Rights to terminate contracts
Any potential counterclaims
The timetables that must be complied with (e.g., notices under a contract, actions to take under a contract, claims that must be asserted (i.e., filed with a court) prior to the expiration of any statute of limitation), actions to take in order to mitigate potential damages, etc.
6) Develop the Dispute Resolution Strategy:
Once the facts are sufficiently on the table and the legal opinion has been provided, it’s time to develop your strategy for achieving your dispute resolution objectives. Thus, it may be best to start with your objectives (e.g., to terminate a contract; to secure certain intellectual property rights, to receive or make the final delivery of products or the provision of outstanding services; to get paid; to collect damages; to minimize the payment of any damages; to get a case dismissed from court, etc.).
Thereafter, it will be time to set the strategy which can include considerations of:
Whether to send a formal letter from an attorney (and what to include therein)
How much time you are prepared to iterate letters before escalating further
When and where to file the claim (note, again, Americans will often file claims with courts or arbitral tribunals even if desiring not to ultimately adjudicate the cases in such forums)—the reason being that a show of seriousness can be used to intimidate foreign companies or require foreign companies to assume increasing costs to challenge (as opposed to settle) the dispute.
Whether to send notices of breach of contract or contract termination to the U.S. party.
When to secure replacement products or services if the U.S. counterparty is not delivering or performing.
How to handle any contingent deals that may be impacted by this dispute.
When to file any claims or notices with the appropriate governmental agencies in the U.S. which could include, for instance, secretaries of state, the Securities and Exchange Commission, the Food and Drug Administration, etc.
Whether to mandate your legal counsel to take direct contact with and/or meet opposing U.S. legal counsel in person—in order to pursue a swift resolution. Very often, the best results can be achieved by removing the clients from the discussion (given the infected situation and lack of client comprehension of the legal implications of various communications and/or terms) and letting the attorneys negotiate a mutually-acceptable resolution subject to the respective clients’ written approval.
If you are involved in a dispute with a U.S. party, feel free to contact me for assistance, gary@b2world.com. B2World, inter alia, represents non-U.S. companies in pragmatically resolving disputes with U.S. parties.
Gary Guttenberg, Attorney-At-Law
gary@b2world.com
+46 70 752 16 80
*This article is for educational purposes only and should not be a substitute for legal advice regarding your specific situation.
