Scott: Foreign suits reward plaintiffs that discriminate against U.S. firms

The following op-ed by HLS Professor Hal Scott “Commentary: Foreign Suits Reward Plaintiffs That Discriminate Against U.S. Firms” appeared in the Nov. 25, 2009 edition of Law.com. Scott is the Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School. His white paper on the topic, published in the Harvard International Law Journal, was commissioned by Dole Food Co.

Professor Hal Scott

Professor Hal Scott

This year’s outbreak of the H1N1 influenza has demonstrated that contagions know few boundaries and spread wherever they can find an available host. Likewise, because of their broad jurisdictional rules, U.S. courts can be easy targets for “forum shopping” by foreign plaintiffs seeking redress against American companies for torts they claim have taken place abroad.

Many of these plaintiffs are impoverished, and the promise of high-damage awards from U.S. juries leads many to go to great lengths to try their claims in American courts. They are encouraged by American trial lawyers working on contingency, an arrangement that lowers the costs of litigation for plaintiffs and creates tempting incentives for lawyers to win judgments at all costs.

To constrain the potential spread of litigation of foreign matters in U.S. federal courts, the Supreme Court some decades ago adopted the so-called doctrine of forum non conveniens (an “inconvenient forum”), which generally required the dismissal of these cases because it is usually easier to litigate cases abroad — where most of the evidence and witnesses are — and because it avoids a costly burden on U.S. courts. Other developed countries have even more strongly barred their courts from these lawsuits.

However, U.S. lawyers, foreign plaintiffs and governments, have adopted cunning strategies to force this type of litigation into the U.S. judicial system. For example, Nicaragua passed “Law 364,” which requires foreign defendants in actions in Nicaragua to post a $15 million bond and be subject to high levels of liability with little due process. This discriminatory foreign legislation renders the Nicaraguan forum so unfavorable that U.S. defendants are themselves forced to opt for a U.S. trial. Another strategy, used by Guatemala, precludes the use of local courts in tort cases brought against American companies that have been dismissed in U.S. courts on forum non conveniens grounds. This strategy forces U.S. courts to take these cases to ensure that the plaintiffs can bring their case in some legal forum.

But U.S. courts should resist the understandable impulse to provide a U.S. forum when the local forum is either unfair to the defendant or unavailable to the plaintiff. By taking jurisdiction, U.S. courts reverse the longstanding policy of having international disputes resolved under the laws and the judicial system of the societies in which they really arose. Moreover, U.S. courts succumb to efforts to manipulate their jurisdiction, clog judicial dockets that are already backlogged and expose themselves to lawsuits borne of corrupt judicial systems overseas.

A California judge recently dismissed two lawsuits by Nicaraguan plaintiffs against Dow Chemical Co., Dole Food Co. and Amvac due to rampant corruption stemming from the hope of large damage awards from a U.S. jury. Los Angeles County Superior Court Judge Victoria G. Chaney found that the plaintiffs and their American and Nicaraguan attorneys had engaged in a long-running conspiracy to defraud the court using fabricated evidence, false claims of injury and witness intimidation — but not before wasting months of court and jury time and forcing the defendants to expend millions of dollars in legal fees.

Yet even in tort cases without clear instances of fraud and corruption, the United States should not reward foreign plaintiffs with U.S. jurisdiction when a country passes laws that discriminate against American companies, and these foreign judgments should not be enforced in the United States. Unfortunately, some federal and several state courts — particularly those in California, Florida, Louisiana, and Texas — have succumbed to this strategy.

That is why Congress should enact a new federal statute to deal with this problem, establishing a uniform national policy for deciding questions of forum non conveniens. It would not require all such cases to be tried in federal courts — that would place an unnecessary burden on the federal courts — it would only require that state courts in which such cases have been brought refer the cases to federal courts for forum non conveniens determinations. If the federal court dismisses the case, that would be the end of the matter. If the federal court accepts the case, it would be sent back to the state court for trial.

This strong federal policy would lead to more equal treatment for foreign companies in courts abroad by encouraging local law reform efforts, and help insure that U.S. courts are not overburdened with cases that should be resolved elsewhere.

The result might well be that the plaintiff is left without any relief, since U.S. courts may refuse to enforce foreign judgments that do not afford U.S. defendants due process. But this is the fault of the foreign jurisdiction, not the United States. The problem can be remedied by the plaintiffs’ countries — by repealing discriminatory foreign legislation such as Law 364.