The Dispute Resolution Review: USA

Introduction to the dispute resolution framework

The United States court system comprises a federal system and 50 state systems. Within each of these systems, the courts are generally divided into three levels: trial courts, intermediate appellate courts and courts of last resort.

i The federal court system

Article III of the US Constitution allows only certain kinds of cases to be heard by the federal courts. In general, these courts are limited to cases that involve issues of US constitutional law, certain disputes or suits between citizens of different states,2 disputes or suits between US citizens and non-US citizens, and issues that involve federal law.

The trial court level comprises 94 district courts. There is at least one federal district court in each state. Some less populous states, such as Alaska, have only one district court. More populous states, such as California and New York, have multiple district courts within the state.3 Within each district court there are multiple district court judges.4 Bankruptcy courts are separate units of the district courts. There are also two special trial courts that have nationwide jurisdiction over certain types of cases: the Court of International Trade, which hears cases involving international trade and customs issues; and the Court of Federal Claims, which hears cases involving claims for money damages against the United States, disputes over federal contracts, unlawful 'takings' of private property by the federal government and a variety of other claims against the United States.

Decisions of the federal district courts are appealed to federal circuit courts of appeals. There are 13 circuit courts of appeals. Each federal circuit court of appeals hears appeals from multiple district courts.5 For the most part, courts of appeals comprise districts that are geographically close to one another.6 The exception is the Court of Appeals for the Federal Circuit, whose jurisdiction is based wholly on subject matter rather than geographical location. The Court of Appeals for the Federal Circuit hears all appeals from any of the federal district courts in which the action has included a complaint arising under the patent laws. The Court of Appeals for the Federal Circuit also hears all appeals from the Court of International Trade and the Court of Federal Claims.

The US Supreme Court, which consists of nine justices, is the court of last resort in the federal system. The Supreme Court is primarily an appellate court but has original jurisdiction over a very limited number of cases.7 In most cases, there is no automatic right of appeal to the Supreme Court. However, a party may file a petition for a writ of certiorari requesting that the Supreme Court review rulings of the circuit courts of appeals, and the Supreme Court may, at its discretion, grant the petition and review the ruling from the court below. The Supreme Court typically grants less than 1 per cent of certiorari petitions filed each year, most of which involve important questions about the Constitution or federal law.8

District court judges, courts of appeals judges and Supreme Court justices are nominated by the President of the United States and, after hearings by the Senate Judiciary Committee, confirmed by the United States Senate.

ii State courts

Each state has its own court systems, which are governed by its state constitution and its own set of procedural rules. As a result, it is very important, in practice, to check each state's rules and procedures, as they may vary from state to state in significant respects.

As in the federal system, cases in state court generally begin at the trial court level. Many states have specialised trial courts that hear cases related to a very specific area of the law. These courts can include probate courts, family law courts, juvenile courts and small claims courts.

In many states, the next level in the court system is an intermediate court of appeals, which hears appeals from the trial courts. Some states have a supreme court that provides the final review of the decisions of the trial court.9

Unlike federal judges who are appointed, many state court judges are elected for a set term by the voters of the district in which the court resides. Thus, those state court judges, in an election year, must campaign for re-election and win the election to retain their judgeship.10

The state of Delaware is notable in the area of corporate law. Delaware is the favoured state of incorporation for many US businesses, with over half of the Fortune 500 companies claiming Delaware as their legal 'home'. Delaware has a special court, the Court of Chancery, devoted to hearing cases involving corporate law disputes. These cases are heard by judges (called chancellors or vice chancellors) who specialise in corporate law. As a result, the Delaware courts are viewed as having particular expertise in the area of corporate law, and the decisions of the Delaware courts are closely watched, both in the United States and overseas.

iii Alternative dispute resolution procedures

Alternative dispute resolution (ADR) mechanisms include arbitration and mediation. ADR mechanisms are used by mutual agreement of the parties.11 They are discussed in more detail in Section VI.

The year in review

Notable decisions of 2021 include the following cases.

i Ford Motor Company v. Montana Eighth Judicial District Court12

In Ford Motor Company, the US Supreme Court considered whether a state court may exercise personal jurisdiction over a non-resident defendant where none of the defendant's contacts with that state directly gave rise to the plaintiffs' claims.13 The Court held that '[w]hen a company like Ford serves a market for a product in a State and that product causes injury in the State to one of its residents, the State's courts may entertain the resulting suit'.14

The Ford Motor Company case arose out of two separate car accidents in Montana and Minnesota involving Ford vehicles. The two sets of plaintiffs sued Ford in their respective state courts, alleging, inter alia, product liability and negligence claims. Ford moved to dismiss each case for lack of personal jurisdiction, arguing that Ford lacked sufficient contacts with the forum for the state courts to exercise specific personal jurisdiction, because Ford did not design, manufacture or even sell the particular vehicles involved in the accidents in either state.15 Both the Montana and Minnesota Supreme Courts rejected Ford's argument. The courts emphasised how Ford had 'purposefully' sought to serve the market in their respective states, and had advertised to influence state residents to purchase and drive Ford vehicles.16 For the Montana and Minnesota Supreme Courts, those activities provided the necessary connection to plaintiffs' injuries to support the exercise of specific jurisdiction over Ford.

The US Supreme Court agreed. In its opinion, the Court emphasised how Ford had purposefully availed of the forum '[b]y every means imaginable', including advertising, selling and servicing Ford cars within both states.17 The Court held that this served a 'strong relationship among the defendant, the forum, and the litigation', which was the 'essential foundation' required for a court to exercise specific jurisdiction.18 The Court explained that Ford's argument in favour of an 'exclusively causal test of connection' would be 'inconsistent with [the Court's] caselaw'.19 As a result, Montana and Minnesota state courts could exercise personal jurisdiction over Ford even though the specific vehicles involved in the crash had not been purchased within the forum states.20 The Court found that this conclusion, and allowing jurisdiction in these cases, 'treats Ford fairly'.21

ii Republic of Hungary v. Simon22

In Republic of Hungary, the US Supreme Court considered whether federal courts can abstain from exercising jurisdiction under the Foreign Sovereign Immunities Act claims on the grounds of international comity. In a per curiam decision, the Court vacated the judgment of the US Court of Appeals for the DC Circuit, and remanded the case for further proceedings consistent with the Court's decision in Republic of Germany v. Philipp.23

The plaintiffs in Republic of Hungary, 14 Jewish survivors of the Holocaust in Hungary, filed a federal class action lawsuit in the United States against the Republic of Hungary and Hungarian state railways seeking compensation for the property taken from them during World War II.24 After the district court dismissed the claims brought against Hungary for lack of subject-matter jurisdiction, the US Court of Appeals for the DC Circuit reversed and remanded the case back to the district court to determine whether the Court should abstain from exercising jurisdiction until the plaintiffs had exhausted local Hungarian remedies.25 The District Court then held that the doctrine of international comity required the plaintiffs first to file suit in Hungary and exhaust Hungarian remedies before proceeding in the United States.26

Rather than decide the issue, the US Supreme Court vacated the judgment of the US Court of Appeals for the DC Circuit and remanded the case for reconsideration in light of its decision in Republic of Germany v. Philipp,27 where the Court unanimously held that the Foreign Sovereign Immunities Act incorporates the 'domestic takings rule', which assumes that a sovereign's taking of property from its own nationals within its own borders is not subject to international law.28

iii Nestlé USA, Inc v. Doe29

In Nestlé USA, Inc v. Doe, the US Supreme Court considered the issue of corporate liability for alleged human rights violations under the Alien Tort Statute (ATS) and, secondarily, whether federal courts have the authority under the ATS to impose corporate liability on domestic corporations. The ATS was originally enacted as part of the Judiciary Act of 1789, and provides jurisdiction to hear claims brought 'by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States'.30

The petitioners in this case, Nestlé USA and Cargill, are US-based companies that purchase, process and sell cocoa. They purchased cocoa from farms located in Ivory Coast, and provided technical and financial resources to farms there.31 The respondents, six individuals from Mali who alleged they were formerly enslaved to work on cocoa farms in Ivory Coast, sued Nestlé and Cargill (and other entities), alleging that they aided and abetted child slavery. Under US Supreme Court precedent, a 'two-step framework [exists] for analysing extraterritoriality issues'.32 First, the Court presumes a statute applies only domestically and inquires whether the statute gives a 'clear, affirmative indication that rebuts this presumption'.33 Second, in situations where the statute does not apply extraterritorially, a plaintiff must establish that 'the conduct relevant to the statute's focus occurred in the United States'.34

In this case, the Supreme Court determined that the respondents impermissibly sought extraterritorial application of the ATS, and that all of the conduct respondents said aided and abetted the forced labour occurred in Ivory Coast.35 The Court stated that 'allegations of general corporate activity – like decision making – cannot alone establish domestic application of the ATS'.36 The Court emphasised that to 'plead facts sufficient to support a domestic application of the ATS, plaintiffs must allege more domestic conduct than general corporate activity'.37 On the second issue, the Court further held that the federal judiciary cannot create a cause of action that would allow the respondents in this case to sue the petitioners, because '[t]hat job belongs to Congress'.38

iv TransUnion LLC v. Ramirez39

In TransUnion v. Ramirez, the US Supreme Court considered whether either Article III of the Constitution or the Federal Rules of Civil Procedure (FRCP) 23 permits a damages class action when the majority of the class did not suffer an injury comparable to the injury suffered by the class representative.40 The Court held that Article III only permits a damages class action for plaintiffs who have suffered a concrete harm, not just a violation of a statutory right.

In this case, a class of 8,185 individuals sued TransUnion, a credit reporting agency, in federal court under the Fair Credit Reporting Act, claiming that TransUnion failed to use reasonable procedures to ensure the accuracy of their credit files that TransUnion maintained internally.41 For 1,853 of those class members, TransUnion provided misleading credit reports to third-party businesses; in two other claims, all 8,185 class members alleged formatting defects in certain mailings sent to them by TransUnion.42 The named plaintiff in this case, Sergio Ramirez, discovered in a credit report prepared by TransUnion that his name was on a list maintained by the US Treasury Department's Office of Foreign Assets Control, of people with whom US companies cannot do business.43 Ramirez sued TransUnion, and sought to certify a class of all people in the United States to whom TransUnion sent similar mailings.44

The Supreme Court held that the 1,853 class members to whom TransUnion provided misleading credit reports to third-party businesses 'demonstrated concrete reputational harm and thus have Article III standing to sue on the reasonable-procedures claim'.45 However, the Court further held that because TransUnion did not provide the internal credit files of the other 6,332 class members to third-party businesses, those 'class members have not demonstrated concrete harm and thus lack Article III standing to sue on the reasonable-procedures claim.'46 The Court also held that only the named plaintiff, Ramirez, had standing to bring claims regarding the alleged formatting defects.47

The Court explained that a plaintiff's injury in fact must be concrete, and that certain harms, such as tangible harms like physical or monetary harms, 'readily qualify as concrete injuries under Article III'.48 The Court further explained that a plaintiff does not automatically satisfy the injury-in-fact requirement when a statute grants a person a statutory right in fact: 'Congress's creation of a statutory prohibition or obligation and a cause of action does not relieve courts of their responsibility to independently decide whether a plaintiff has suffered a concrete harm under Article III.'49 In this case, because TransUnion did not send misleading credit information to third-party businesses for the remaining 6,332 class members (even though their internal files did contain misleading or incorrect information), these class members did not suffer a concrete harm. The Court explained that '[t]he mere presence of an inaccuracy in an internal credit file, if it is not disclosed to a third party, causes no concrete harm'.50

Court procedure

This section focuses on the procedures applicable in federal courts.51

i Overview of court procedure

The procedures used in civil cases in the federal district courts are set forth in the FRCP.52 The Federal Rules of Appellate Procedure govern the procedures used in the federal courts of appeals,53 and the Rules of the Supreme Court govern US Supreme Court procedure.

ii Procedures and time frames

A lawsuit is commenced by the filing of a complaint with the court,54 a copy of which must be served, along with a summons, on the defendant.55 The defendant responds to the complaint by serving a responsive pleading, called an answer, which may include defences and counterclaims.56 Alternatively, the defendant may, rather than directly responding to the allegations in the complaint, move to dismiss the action on a variety of grounds, including lack of jurisdiction, improper venue or insufficient service of process.57

Following this initial pleading phase, the parties usually engage in discovery (including document production and depositions). The FRCP provide for depositions,58 production of documents, including electronically stored information,59 and written discovery.60 The discovery phase can be an extremely time-consuming and expensive process, depending upon the complexity of the issues, the amount of potentially responsive documents and the number of potential witnesses.61

There is a special procedure for multidistrict litigation (MDL) cases (i.e., cases involving common issues of law and fact but pending in multiple federal districts). Under 28 USC Section 1407, cases pending in multiple judicial districts are consolidated in one court for pretrial proceedings only, and then remanded to the originating court for trial. There is a judicial panel on MDL, which decides whether cases should be consolidated under the MDL procedure and, if so, where they should be transferred.62

Following the completion of discovery, including discovery related to expert witnesses, if any, a case proceeds to trial. Depending upon the type of claims involved, the trial may be conducted before a judge or jury. The right to a jury in civil cases is provided by the Seventh Amendment to the Constitution, which preserves the right to a jury for 'suits at common law'. Generally speaking, suits at common law involve claims for monetary damages, as opposed to claims for equitable, non-monetary relief, such as injunctions.

The length of any given lawsuit from time of filing to start of trial varies widely depending on a number of factors, including the type of action (civil or criminal), the complexity of the issues in the action and the judge to whom the action is assigned. In federal court, the median time from filing to disposition of a civil case was 8.6 months in 2020–2021.63 For civil cases that will proceed to trial, however, the median time from filing to trial was 26.1 months in 2020–2021.64

Prior to a trial, the FRCP provide for forms of interim relief upon a proper showing by the moving party. Under FRCP 65, a court may issue a preliminary injunction, prior to a full trial on the merits, where a plaintiff shows that it will sustain irreparable harm (i.e., harm that cannot be remedied by monetary compensation) if an injunction does not issue.65

iii Class actions

Class actions are permitted in the United States and are expressly authorised under FRCP 23 and various state law analogues. Class actions may be permitted 'only if':

  1. the case involves plaintiffs so numerous that it would be impractical to bring them all before the court;
  2. there are questions of law or fact common to the class;
  3. the claims or defences of the representative parties are typical of the claims or defences of the class; and
  4. the representative parties will fairly and adequately protect the interests of the class.66

In addition, even assuming that the foregoing prerequisites to maintaining a class action are satisfied, FRCP 23(b) imposes additional requirements regarding the permissible types of class actions.

iv Representation in proceedings

The right of self-representation is a long-standing right in the United States.67 The US Judiciary Act, the Code of Conduct for United States Judges, the FRCP, the Federal Rules of Criminal Procedure, the Federal Rules of Evidence and the Federal Rules of Appellate Procedure address the rights of the self-represented litigant in several places. In some situations, however, self-represented appearances are not allowed. For example, although an owner may represent a solely owned business or partnership, only a licensed attorney may represent a corporation.

v Service out of the jurisdiction

FRCP 4 governs the service of a complaint upon a defendant, including service upon defendants located outside the United States. FRCP 4(f) sets forth that, unless federal law provides otherwise, an individual – other than a minor, an incompetent person or a person whose waiver has been filed, may be served at a place not within any judicial district of the United States:

  1. by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorised by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents;
  2. if there is no internationally agreed means, or if an international agreement allows but does not specify other means, by a method that is reasonably calculated to give notice;
  3. as prescribed by the foreign country's law for service in that country in an action in its courts of general jurisdiction;
  4. as the foreign authority directs in response to a letter rogatory or letter of request, or, unless prohibited by the foreign country's law, by:
    • delivering a copy of the summons and of the complaint to the individual personally;
    • using any form of mail that the clerk addresses and sends to the individual and that requires a signed receipt; or
    • by other means not prohibited by international agreement, as the court orders.

Rule 4 of the FRCP applies to natural persons as well as corporations.

The Hague Service Convention typically provides the exclusive means for service of US process in other countries that are party to the Convention.68 Article 1 of the Convention states that it 'shall apply in all cases, in civil or commercial matters, where there is occasion to transmit a judicial or extrajudicial document for service abroad'.69 In 2017, the US Supreme Court held that the Hague Service Convention permits service by mail if the receiving state has not objected to service by mail and service by mail is authorised under otherwise-applicable law.70

vi Enforcement of foreign judgments

The United States is not a signatory to any treaty that requires the recognition or enforcement of foreign judgments.71 Nor is there any federal constitutional provision or federal statute requiring a foreign court judgment to be given full faith and credit by US federal courts. Instead, state law generally governs the recognition and enforcement of foreign judgments.

Generally, however, US courts follow the principle of international comity. Under that principle, courts should recognise and enforce foreign court judgments where:

[T]here has been opportunity for a full and fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular proceedings, after due citation or voluntary appearance of the defendant, and under a system of jurisprudence likely to secure an impartial administration of justice between the citizens of its own country and those of other countries, and there is nothing to show either prejudice in the court, or in the system of laws under which it was sitting, or fraud in procuring the judgment, or any other special reason why the comity of this nation should not allow its full effect.72

To invoke that principle, the holder of a foreign judgment or decree may file suit before a competent US court.

vii Assistance to foreign courts

Litigants in foreign countries that are parties to the Hague Evidence Convention may obtain evidence in the United States pursuant to the procedures contained in the Convention.73 Federal courts provide assistance to foreign courts pursuant to 28 USC Section 1782, under which parties or other interested persons involved in international proceedings can make a request to a federal district court for an order compelling discovery from a person or entity that resides or is found in the district in which the court sits. District courts have broad discretion in determining whether to grant discovery requests under Section 1782.74

viii Access to court files

There is a presumption of, and right to, public access to court records.75 This presumption is broad and enforcement of the right does not require a proprietary interest in the document or a showing of need for it (e.g., a need to use it as evidence in a lawsuit). The philosophy underlying the presumption of public access to court records (as well as public access to court proceedings generally) is that transparency promotes accountability and public confidence in the judicial system.76 Issues have arisen over whether this presumption extends to documents and other material produced in discovery. The US Supreme Court has held that, because non-filed discovery documents are not a traditionally public source of information, and may only tangentially relate to the underlying case, such documents are not subject to access rights.77 In contrast, access to filed discovery material is generally held to be subject to the right, but limitations apply. Most notably, judges have broad discretion under the FRCP, as well as analogous state procedural rules, to issue orders that protect case-related information from unauthorised disclosure.78 Protective orders are commonly used in litigation to protect commercially sensitive or other sensitive information from public disclosure. Many courts have procedures for filing court papers under seal under certain circumstances.79

ix Litigation funding

Centuries ago, litigation funding by third parties was forbidden. Champerty (providing a party to litigation money in exchange for a share of the proceeds) and maintenance (providing a party money to continue the litigation) were offences at common law. Today, rules governing third-party funding of litigation are more flexible.80 Although still not common, third-party litigation financing – the practice of providing money to a party to pursue a potential or filed lawsuit in return for a share of any damages award or settlement – is becoming more prevalent in the United States. Under these arrangements, litigation-financing companies may provide financing for a variety of litigation costs, including attorneys' fees, court fees and expert witness fees. The rules governing these financial arrangements vary from state to state, with some states still strictly prohibiting such arrangements.

Legal practice

i Conflicts of interest and ethical walls

No single code of professional conduct or other set of rules applies to the conduct of attorneys in the United States. Rather, the ethical rules applicable to practising attorneys are determined by the individual states in which lawyers practise. However, the American Bar Association's Model Rules of Professional Conduct (MRPC) provides the model on which most states base their ethical rules. The MRPC covers a broad range of conduct, including attorney competence,81 diligence,82 duty of confidentiality83 and conflicts of interest.84

Generally, a conflict of interest is present if '(1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer'.85 Notwithstanding the foregoing, MRPC 1.7(b) does allow an attorney to represent a client despite the existence of a conflict of interest if certain conditions are met. Both clients must consent to the conflict after full disclosure.86 Under what is sometimes called the 'firm unit rule', all lawyers of a firm are typically disqualified because of a current client conflict if any lawyer is disqualified.87 In some jurisdictions, 'ethical walls' allow firms to avoid disqualification if the conflict is a result of work done by a laterally hired lawyer before he or she joined his or her present firm.

ii Money laundering, proceeds of crime and funds related to terrorism

Title III of the USA Patriot Act, International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, is intended to facilitate the prevention, detection and prosecution of international money laundering and the financing of terrorism. It amends portions of the Money Laundering Control Act of 1986 and the Bank Secrecy Act of 1970 (BSA).88 The BSA and the USA Patriot Act cover financial institutions and require such entities to have anti-money laundering programmes and customer identification programmes.

Lawyers are not expressly covered by the USA Patriot Act or the BSA. However, criminal laws prohibiting the laundering of money apply to all individuals, including lawyers. A lawyer or law firm (like any other business) may be required to report large payments of cash or currency (i.e., payments in excess of US$10,000) made by clients.89

Documents and the protection of privilege

i Privilege

Certain communications between a lawyer and client are protected by the attorney–client privilege: 'The attorney–client privilege is the oldest of the privileges for confidential communications known to common law.'90 The policy underlying this privilege is encouragement of open and honest communication between lawyers and their clients, 'thereby promot[ing] broader public interests in the observance of law and administration of justice'.91 The privilege applies to (1) a communication, (2) made between a lawyer and a client, (3) in confidence, (4) for the purpose of seeking, obtaining or providing legal assistance to the client.92 The privilege extends only to communications, not to the underlying facts.93 When the client is a corporation, the privilege is commonly viewed as a matter of corporate control.94 In other words, corporate management, or the 'control group', including the officers and directors, decide whether to assert or waive the privilege. However, the attorney–client privilege does extend to mid-level and lower-level employees of a company.95

There are some exceptions to the application of the attorney–client privilege. For example, communications in furtherance of a crime or fraud, or the post-commission concealment of the crime or fraud, are not privileged. A corporation's right to assert the attorney–client privilege is not absolute; an exception to the privilege applies when the corporation's shareholders wish to pierce the corporation's attorney–client privilege. In addition, if two parties are represented by the same attorney in a single legal matter, neither client may assert the attorney–client privilege against the other in subsequent litigation if the subsequent litigation pertains to the subject matter of the previous joint representation. This latter exception is known as the common interest exception. Another important consideration is that of waiver: privileged communications that are disclosed to third parties are often deemed to have waived privilege and are no longer protected from disclosure to others.

In addition, certain other communications between an attorney and a client may not fall within the privilege because they do not pertain specifically to legal advice. For example, the general nature of the services performed by the lawyer, including the length of the retention, are generally not immune from disclosure.

Complications may arise with respect to communications with in-house counsel. A communication relating to corporate legal matters between a corporation's in-house counsel and outside counsel is normally protected by the attorney–client privilege.96 However, when the communication is between a representative of the corporation and the in-house lawyer, the privilege extends only to any legal advice sought or rendered; it does not protect communications that are strictly business-related.

The work product doctrine, which is separate and distinct from the attorney–client privilege, provides that materials prepared by an attorney in anticipation of litigation or trial may be immune from discovery. The work product doctrine protects materials prepared by an attorney in anticipation of litigation or trial, regardless of whether those materials or their contents are provided or communicated to the client (or whether the litigation or trial actually occurs). The doctrine also covers materials prepared in anticipation of litigation or trial by agents (e.g., accountants or other third-party advisers) acting under the direction of an attorney. The rationale underlying the work product doctrine, as articulated by the US Supreme Court, is the need for 'a lawyer [to] work with a certain degree of privacy, free from unnecessary intrusion by opposing parties and their counsel'.97 The Supreme Court further observed: 'Proper preparation of a client's case demands that he assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference.'98

Disclosure of work product materials to a third party (other than the client) may not waive the protection afforded under this doctrine, as long as the receiving party shares a common interest with the disclosing party (e.g., both parties are defendants in pending litigation). However, materials protected from disclosure by the work product doctrine may be subject to disclosure under certain circumstances. Under Rule 26(b)(3)(a) of the FRCP, materials protected by the work product doctrine may be discoverable if the opposing party shows a 'substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means'.

ii Production of documents

FRCP 26(b)(1) permits discovery of 'any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit'. The FRCP provide a full range of pretrial discovery devices, including discovery of expert opinions, depositions, interrogatories, production of documents, inspections and requests for admissions.99 Parallel state codes of civil procedure provide for similar discovery devices, generally on liberal grounds of relevance.

A party must produce all documents responsive to a document request that are in the party's 'possession, custody, or control'.100 The fact that such documents may be located in a foreign country does not bar their discovery if the test of possession, custody or control is otherwise satisfied. If a domestic parent corporation, for example, is deemed to control its foreign subsidiary (because, for example, the parent controls the board of directors of its subsidiary), then the domestic parent may be compelled to produce documents located at its foreign subsidiary's offices.

FRCP 34 expressly applies to electronically stored information.101 Limits on discovery (and e-discovery in particular) generally turn on whether 'the information is not reasonably accessible because of undue burden or cost'.102 In the context of e-discovery, courts have articulated various formulations of this standard.103

Litigants in the United States are subject to an affirmative obligation to preserve relevant evidence, including electronically stored information, once a lawsuit is commenced or the prospect of litigation becomes reasonably imminent. In the civil litigation context, once litigation is commenced, or reasonably contemplated, a corporation must suspend its routine document retention and destruction policies and put in place a 'litigation hold' to ensure the preservation of relevant documents.104 One recent case identified certain acts that may support a finding of gross negligence in the context of e-discovery obligations, including a 'failure to adopt good preservation practices'.105

Failure of a party to produce relevant documents, or failure to preserve relevant evidence once a lawsuit is commenced or litigation becomes reasonably imminent, may result in severe sanctions for the party and the party's counsel.106 Recent court decisions have imposed harsh penalties on parties, as well as their lawyers, for failing to preserve and produce relevant documents.

Complications sometimes arise where the documents sought are located in a country whose laws protect the documents from disclosure. US courts generally balance the following factors in deciding whether a requesting party is entitled to information sought in discovery where that information is subject to the conflicting laws in a foreign jurisdiction:

  1. the significance of the discovery and disclosure to issues in the case;
  2. the degree of specificity of the request;
  3. whether the information originated in the jurisdiction from which it is being requested;
  4. the availability of alternative means of securing the information sought in the discovery request; and
  5. the extent to which non-compliance would undermine the foreign sovereign's interest in the information requested.107

Alternatives to litigation

i Overview

Given the time, disruption and expense associated with litigation, some parties opt to settle their disputes out of court through ADR procedures. Arbitration and mediation are the most common alternatives.

ii Arbitration

Arbitration is the submission of a dispute to one or more impartial persons for a final and binding decision. Through contractual provisions or other agreement, the parties may control the range of issues to be resolved, the scope of relief to be awarded and many procedural aspects of the process, including the location of the arbitration, the language in which the hearing will be conducted and the length of the hearing. In the United States, agreements to arbitrate are enforced (in the absence of special circumstances, such as showing of fraud) under the Federal Arbitration Act. Parties may elect to arbitrate their claims with the assistance of recognised arbitral instructions, such as those of the International Chamber of Commerce or the American Arbitration Association, or the parties may devise their own set of rules for how the arbitration will be conducted.

The arbitration process may be a cost-effective option for parties, owing to its speed relative to a traditional lawsuit. In a contractual arbitration provision, parties may predetermine the qualifications and experience of an arbitrator. Many arbitration provisions specify that the parties shall agree upon a mutually acceptable arbitrator. Unlike judges, who are randomly assigned cases without regard to background or expertise, arbitrators are often designated or chosen precisely because they have particular expertise in the matters to be arbitrated. In addition, unlike court proceedings, arbitration proceedings are confidential, with no right of public access.

Arbitration proceedings may be completed in a matter of months, resulting in lower attorneys' fees and other expenses, through a reduced emphasis on evidentiary processes. In particular, arbitration procedures typically provide less opportunity for discovery, including a more limited exchange of documents, fewer (if any) depositions and little or no written discovery (such as interrogatories and requests for admission).

Arbitration awards are binding and are vacated only under limited circumstances, as outlined in state and federal arbitration laws. Once an award is entered by an arbitrator or arbitration panel, it must be confirmed in a court of law. Once confirmed, the award is then reduced to an enforceable judgment, which may be enforced by the winning party in court like any other judgment. In the international context, enforcement of foreign arbitral awards is governed by the provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention. US courts will not enforce foreign arbitral awards under the Convention where the award is made in a state that is not a party to the Convention or does not reciprocally enforce US awards.108 Generally speaking, however, arbitration awards are more easily enforced than judgments of foreign courts.

There are some drawbacks to arbitration. Most notably, generally there is no right of appeal of an arbitrator's award. In addition, the truncated discovery mechanism that is often used in arbitration may limit a party's ability to discover evidence in the possession of an adversary that would be important in litigating the case.

iii Mediation

Mediation is a voluntary process in which parties to a dispute work together with a neutral facilitator – the mediator – who helps them reach a settlement.109 Unlike litigation or arbitration, mediation is not an adversarial process. The mediator does not decide the case. The results of mediation are binding if and when parties enter into a settlement contract.

A mediation process can be scheduled at any time during arbitration or litigation. Parties generally save money through reduced legal costs and staff time. Like arbitrators, mediators are often selected on the basis of their specialised expertise in the issues subject to mediation. Generally, information disclosed at a mediation may not be divulged as evidence in any subsequent arbitral, judicial or other proceeding.

Outlook and conclusions

The Supreme Court has several interesting cases on its docket for the upcoming year. For example, in Badgerow v. Walters, the Court will decide whether federal courts have subject matter jurisdiction to confirm or vacate an arbitration award when the only basis for jurisdiction is that the underlying dispute involved a federal question. In Pivotal Software Inc v. Tran, the Court will determine whether a discovery-stay provision under the Private Securities Litigation Reform Act applies to a private action under the Securities Act of 1933 in state or federal court, or solely to a private action in federal court. In addition, in Hughes v. Northwestern University, the Court will consider whether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under the Employee Retirement Income Security Act of 1974.

Footnotes

1 Timothy G Cameron is a partner at Cravath, Swaine & Moore LLP.

2 A corporation, whether domestic or foreign, is deemed a citizen of both its state of incorporation and the state in which its principal place of business is located. See 28 USC Section 1332(c)(1).

3 For example, New York has four districts: the Southern, Northern, Eastern and Western Districts.

4 In the US District Court for the Southern District of New York, which is one of the four federal district courts in the state of New York, there are currently 44 district court judges and 15 magistrate judges. Magistrate judges are judges appointed to assist district court judges in the performance of their duties.

5 For example, the Court of Appeals for the Second Circuit hears appeals from the federal district courts in the Southern, Northern, Eastern and Western Districts of New York, as well as the District of Connecticut and the District of Vermont.

6 For example, the Court of Appeals for the Ninth Circuit generally encompasses districts in the western portion of the United States.

7 For example, the Supreme Court has original jurisdiction over disputes between two or more states.

8 During the 2019 term, for example, the Supreme Court heard arguments in 73 cases. See https://www.supremecourt.gov/publicinfo/year-end/2020year-endreport.pdf.

9 Even the nomenclature varies from state to state. New York, for example, has a three-tier court system. However, the lowest level, the trial court level, is called the supreme court, the intermediate appellate level is called the appellate division and the court of last resort is the New York Court of Appeals.

10 In 2009, the Supreme Court held, in Caperton v. Massey, 129 S Ct 2252 (2009), that the due process clause of the Constitution may require a judge to recuse himself or herself under certain circumstances, including in the context of an election campaign. The Court found 'that there is a serious risk of actual bias – based on objective and reasonable perceptions – when a person with a personal stake in a particular case had a significant and disproportionate influence in placing the judge on the case by raising funds or directing the judge's election campaign when the case was pending or imminent'. id. at 2263 and 2264.

11 Many commercial contracts, for example, contain express provisions to submit any claims arising from the contract to arbitration, rather than court litigation.

12 141 S.Ct. 1017 (2021).

13 id. at 1026.

14 id. at 1022.

15 id. at 1026.

16 id. at 1023.

17 id. at 1028.

18 id. at 1030.

19 id. at 1029.

20 id.

21 id.

22 141 S.Ct. 691 (2021).

23 id.

24 Simon v. Republic of Hungary, 812 F.3d 127, 134 (D.C. Cir. 2016).

25 id. at 149.

26 Simon v. Republic of Hungary, 277 F. Supp. 3d 42, 55 (D.D.C. 2017).

27 Federal Republic of Germany v. Philipp, 141 S.Ct. 143 (2021).

28 id. at 4.

29 Nestlé USA, Inc v. Doe, 141 S.Ct. 1931 (2021).

30 id. at 1937.

31 id. at 1935.

32 id. at 1936.

33 id. (internal quotations omitted).

34 id.

35 id. at 1936-37.

36 id. at 1937.

37 id.

38 id.

39 141 S.Ct. 2190 (2021).

40 id. at 2202-03.

41 id. at 2200.

42 id.

43 id. at 2201-02.

44 id. at 2202.

45 id. at 2200.

46 id.

47 id.

48 id. at 2204.

49 id. at 2205.

50 id. at 2210.

51 State court procedures are similar in many respects, but each of the 50 states has its own set of procedural rules.

52 In addition, each individual federal district may promulgate rules to supplement, and in some instances modify, the FRCP, and each individual judge within each district may promulgate rules governing proceedings in his or her courtroom.

53 Each circuit court of appeals may promulgate its own rules to supplement the Federal Rules of Appellate Procedure.

54 See FRCP 3.

55 See FRCP 4.

56 See FRCP 12. The time within which to serve the answer is provided in Rule 12(a) and varies from 21 days to 90 days (in the case of a defendant who was served outside the United States) (FRCP 12(a)). In practice, extensions of these periods are often obtained.

57 See FRCP 12(b).

58 Depositions typically involve live testimony given under oath. See FRCP 30. Under limited circumstances, depositions may be conducted by submitting questions to the deponent in writing in advance of the deposition. See FRCP 31.

59 See FRCP 34.

60 See FRCP 33 (providing that a party may serve written interrogatories (i.e., written questions) on any party, and requiring the party upon whom the interrogatories are served to answer them); FRCP 36 (providing that a party may, in writing, request the other party to admit, among other things, 'facts, the application of law to fact, or opinions about either').

61 Recently adopted amendments to the FRCP attempt to reduce the burden of discovery by, among other things, scaling back the scope of permissible discovery by adopting the proportionality rule, pursuant to which the scope of discovery sought must be proportional to the needs of the case considering the amount in controversy, the importance of the issues at stake in the action, the parties' resources and the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. The amendments also limit the use of depositions (FRCP 30) to reflect the proportionality rule of FRCP 26.

62 28 USC Section 1407(c).

64 id.

65 See FRCP 65.

66 See FRCP 23.

67 See Faretta v. California, 422 US 806, 812 (1975) ('In the federal courts, the right of self-representation has been protected by statute since the beginnings of our Nation.').

68 See Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, 15 November 1965 (Hague Service Convention), [1969] 20 U.S.T. 361, T.I.A.S. No. 6638.

69 Under the Supremacy Clause of the US Constitution, 'the Convention pre-empts inconsistent methods of service prescribed by state law in all cases to which it applies'. See Volkswagenwerk Aktiengesellschaft v. Schlunck, 486 US 694, 699 (1988).

70 See Water Splash, Inc v. Menon, 137 S. Ct. 1504, 1513 (2017).

71 However, many of the individual 50 states in the United States have adopted the Uniform Foreign Money-Judgments Recognition Act.

72 Hilton v. Guyot, 159 US 113, 202 (1895).

73 Societe Nationale Industrielle Aerospatiale v. US Dist Ct for S Dist of Iowa, 482 U.S. 522, 533 (1987) ('[B]oth the discovery rules set forth in the Federal Rules of Civil Procedure and the Hague Convention are the law of the United States').

74 See Intel Corp v. Advanced Micro Devices Inc, 542 US 241 (2004). In March 2021, the US Supreme Court granted certiorari in the case Servotronics Inc v. Rolls-Royce PLC to determine whether 28 USC Section 1782(a) authorises a district court to render assistance in discovery for use in a foreign or international tribunal. See 141 S. Ct. 1684 (2021). However, in September 2021, the US Supreme Court dismissed the case following a request by both parties involved in the case.

75 Nixon v. Warner Communications Inc, 435 US 589, 597–99 (1978). Some states have 'sunshine laws' that recognise, and in some instances expand, this right.

76 See US v. Amodeo, 71 F3d 1044, 1048 (2d Cir 1995).

77 See Seattle Times Co v. Rhinehart, 467 US 20 (1984). ('A litigant has no First Amendment right of access to information made available only for purposes of trying his suit'); see also Zemel v. Rusk, 381 U.S. 1, 17 (1965) ('The right to speak and publish does not carry with it the unrestrained right to gather information').

78 See FRCP 26(c) (protective orders).

79 Many courts that permit filing to be made under seal require that a public version of the document be filed with the court. These public versions redact information that is protected from disclosure, such as financially or commercially sensitive information.

80 The issue of litigation funding was addressed by the US Supreme Court in 2008 in Sprint Communications Co v. APCC Services Inc, 128 S Ct 2531 (2008). There, the Court held that an assignee of a legal claim for money had standing to pursue that claim in federal court, even when the assignee had promised to remit the proceeds of the litigation to the assignor. id. Noting that, prior to the 17th century, a suit like the one before the Court would not have been allowed, id. at 2536, the Court went on to trace the history of assignment of legal claims and concluded that 'history and precedents . . . make clear that courts have long found ways to allow assignees to bring suit', id. at 2541. The Court held that 'lawsuits by assignees, including assignees for collection only' are 'cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process'. id. at 2542.

81 MRPC 1.1.

82 MRPC 1.3.

83 MRPC 1.6.

84 MRPC 1.7–1.11.

85 MRPC 1.7.

86 MRPC 1.7(b)(4).

87 MRPC 1.8, which addresses specific rules related to conflicts of interest, provides that 'While lawyers are associated in a firm, a prohibition in the foregoing paragraphs (a) through (i) that applies to any one of them shall apply to all of them.'

88 31 USC Section 5311 et seq.

89 26 USC Section 6050I.

90 Upjohn Co v. US, 449 US 383, 389 (1981).

91 id.

92 See McCormick on Evidence Section 87, n.19 (7th ed, June 2016).

93 id. at Section 89. Thus, a party cannot conceal a fact from disclosure merely by communicating it to his or her lawyer. 'A fact is one thing and a communication concerning that fact is an entirely different thing.' Upjohn Co, 449 US at 395, 396.

94 See McCormick on Evidence Section 87.1 (7th ed., June 2016).

95 id.

96 See Upjohn Co v. US, 449 US 383 (1981).

97 Hickman v. Taylor, 329 US 495, 510 (1947).

98 id. at 511 ('This work is reflected, of course, in interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs and countless other tangible and intangible ways.').

99 See FRCP 26–36.

100 FRCP 34.

101 FRCP 34(a)(1)(A).

102 FRCP 26(b)(2)(B).

103 See, for example, Zubulake v. UBS Warburg LLC, 217 FRD 309, 318 (SDNY 2003) ('undue burden' should turn on whether the information sought is kept in accessible form); see generally The Sedona Principles: Best Practices Recommendations & Principles For Addressing Electronic Document Production (June 2007), Principle 2 ('cost, burden, and need' for electronic data must be balanced); Principle 8 (the primary source of electronic data should be active data; resort to disaster recovery backup tapes should be required only upon a showing of need and relevance that outweigh the cost and burdens of retrieval).

104 See Zubulake v. UBS Warburg LLC, 220 FRD 212 (SDNY 2003); see also The Sedona Guidelines: Best Practice Guidelines & Commentary For Managing Information & Records in the Electronic Age (November 2007), Guideline 5 ('An organization's policies and procedures must mandate the suspension of ordinary destruction practices and procedures as necessary to comply with preservation obligations related to actual or reasonably anticipated litigation, government investigation or audit.').

105 See Chin v. Port Auth of New York, 685 F3d 135, 162 (2d Cir 2012).

106 See FRCP 37.

107 See Restatement (Third) of Foreign Relations Law Section 442(1)(c) (1987).

108 See Convention on the Recognition and Enforcement of Foreign Arbitral Awards art XIV, 10 June 1958, 21 UST 2517, 330 UNTS 38.

109 There are numerous private organisations that offer mediation services.

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