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International Disputes:  Avoid Getting Locked Up Abroad in Litigation

International Disputes: Avoid Getting Locked Up Abroad in Litigation


ACC Charlotte's Quarterly Newsletter
(June 8, 2016)

In today's global economy, U.S. companies are doing business with foreign companies more and more frequently.  As a natural result of this, U.S. companies are also involved in commercial litigation in foreign countries more and more frequently. In many commercial disputes, the fight over the proper forum is the first major battleground in the litigation, with the winner obtaining at least a perceived home-court advantage.  In commercial disputes with foreign companies, this fight is even more important, as the foreign country's legal system likely will not have the same protections as the U.S., and may even be hostile to U.S. companies.  Of course, prudent in-house counsel can attempt to avoid litigating a forum dispute by drafting and negotiating an enforceable forum selection or arbitration clause in a contract.  This precautionary measure, however, may not stop a foreign company from racing to its own courthouse to secure a home-field advantage, and it may not stop a foreign court from exercising jurisdiction.  In such a situation, what can a U.S. company do to avoid getting locked up in litigation abroad when it would rather litigate in the U.S.?

In a recent case, we sought and obtained an "anti-suit injunction" against an Italian company prohibiting it from proceeding in a lawsuit it filed against our client in Italy.  At first blush, this may seem like a drastic remedy -- how can a U.S. court tell a foreign court not to hear a case?  Note, though, that this is not what an anti-suit injunction does.  An anti-suit injunction does not prohibit a foreign court from hearing a dispute, as that would be a violation of principles of international comity.  Rather, an anti-suit injunction prohibits aforeign company, one that has elected to do business in the U.S., from prosecuting the foreign lawsuit.  If the foreign company refuses to do so, then the company is subject to the contempt powers of the U.S. court.  For an international company that relies on the U.S. market for business, this can be a significant "stick" and a great source of leverage in the litigation.  Moreover, although this is an extraordinary remedy with major implications in international disputes, U.S. courts are in widespread accord that they possess ample authority to enter such an injunction. 

The federal courts are split regarding the specific circumstances under which an injunction is appropriate.  In short, courts have adopted two approaches:  (1) the "conservative" approach and (2) the "liberal" approach.  Under both approaches, courts first require that the parties and issues are the same (i.e., the lawsuits are duplicative).  The "conservative" approach is more demanding, as it then requires the existence of other circumstances such as the fact that the foreign action threatens the jurisdiction or strong public policies of the U.S. court.  To the contrary, the "liberal" approach only requires the consideration of less-demanding equitable circumstances, such as the fact that the foreign litigation is vexatious and oppressive (i.e., would result in an "inequitable hardship" or "frustrate and delay speedy and efficient administration of justice").  While almost every circuit has adopted one of these approaches, the Fourth Circuit has not yet weighed in on the issue.  Nonetheless, federal courts in the Fourth Circuit have entered anti-suit injunctions under both approaches.

Generally, U.S. courts will refrain from issuing foreign ant-suit injunctions solely in order to save a party from significant inconvenience or expense.  Rather, U.S. courts will look carefully for direct threats to their own jurisdiction or a threat to an important public policy.  Thus, identifying and articulating the "important public policy" that is threatened by the foreign lawsuit is critical, and is the place where outside counsel must be creative.  For example, whenever there is a dueling race to judgment and the foreign judgment could be used as res judicata to terminate a U.S. case, then an injunction may be appropriate, based either on the "first-filed" principle (if the U.S. lawsuit was filed first) or the public policy against forum-shopping (if the U.S. lawsuit was filed second).  Similarly, if the foreign litigation is in contravention of the parties' forum selection clause, an anti-suit injunction may be appropriate based on the public policy favoring forum selection clauses, even if the foreign country does not enforce such clauses.

Given the increasing frequency of international disputes with foreign companies, the U.S. circuit-based standards are likely to undergo further evolution, and the U.S. Supreme Court may eventually decide to enter the fray.  In the meantime, in-house counsel of companies that deal with foreign companies should be aware of the unique and powerful remedy of an anti-suit injunction if they find themselves embroiled in litigation outside the U.S..

Copyright ACC Charlotte's Quarterly Newsletter – June 7, 2016. Reprint permission granted.

Authors
C. Bailey King
T (704) 384-2616
F (704) 384-2919
Timothy P. Lendino
T (704) 384-2671
F (704) 384-2931
Associated Attorneys
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