Understanding Litigation in The United States

By Steven R. Schoenfeld, Michael A. Penny and John A. Terry

Published in North American Corporate Lawyer, vol. 7, no. 4, 2003

Introduction

With the growth of cross-border commerce and investment, Canadian businesses are increasingly likely to find themselves dealing with the possibility of litigation in the United States. They may be sued or need to sue in the United States; or they may seek a tactical or strategic advantage by suing there instead of in Canada. Knowing the key differences between commercial litigation in the two countries may enable a litigant to avoid unpleasant surprises that can occur when a Canadian company or its U.S. affiliate litigates in the United States. Moreover, such knowledge may enable a litigant to respond more effectively to lawsuits in the United States; improve the quality of communication with U.S. and Canadian counsel; and pursue better litigation strategies, particularly when the litigant has the option of - and may be better off - pursuing a lawsuit in the United States instead of in Canada.

This article discusses key differences between litigating in the United States and Canada, and their strategic implications. In particular, it focuses on differences in court structures and judicial selection processes; pre-trial discovery procedures; jury systems; the availability and size of punitive and compensatory damages; the ability to recover legal fees; the permissibility of contingency arrangements; and class action requirements and procedures (including the implications of certain U.S. pleading standards under the Private Securities Litigation Reform Act that are intended to discourage strike suits in securities class action litigation). This article also examines issues relating to the enforcement of foreign judgments that a Canadian company with no assets in the United States should consider when deciding whether to defend an action filed against it in the United States.

Courts and Judicial Selection

The United States has federal and state courts, just as Canada has federal and provincial ones. There are, however, significant differences between the U.S. and Canadian systems in the way they divide jurisdiction and select judges.

Canadian superior courts of a province and U.S. state courts both have inherent jurisdiction over most civil and criminal proceedings, including commercial matters such as corporate law, breach of contract and product liability. Unlike the Federal Court of Canada, which has limited jurisdiction, U.S. federal courts have jurisdiction over any case that involves any federal matter, such as cases arising under the U.S. Constitution, treaties and, more commonly, federal statutes. U.S. federal courts also have "diversity" jurisdiction over any state law claim that exceeds US$75,000 and is between the citizens of two different states or between a foreigner and a citizen of a state. This diversity must be "complete" (in that no plaintiff can be a citizen of any state that a defendant is a citizen of, and no two foreigners can be adverse parties unless there is also diversity between at least two domestic parties). Diversity need not exist at the time the cause of action arose; and it is not defeated if, after commencement of the action, a party later becomes a citizen of the same state as an adverse party. For an individual, citizenship is determined on the basis of the location of the permanent home to which he or she intends to return. A corporation is a citizen of every state (or country) of its incorporation, and also of its principal place of business. In determining the principal place of business of a corporation, the modern approach is for a court to evaluate where the bulk of corporate activity takes place.

Because federal courts in the United States are available to hear cases involving federal subject matter or diverse parties, it is not uncommon for commercial litigation to commence in U.S. federal court, whereas the vast majority of Canadian commercial litigation commences in the superior courts of the provinces. Federal judges in both the United States and Canada are appointed. In many U.S. jurisdictions, however, state court judges are elected locally for set terms (which vary from state to state) rather than appointed, and their salaries are set and paid by the state or locality. In contrast, the Canadian federal government appoints judges to the provincial superior and appellate courts, and also sets and pays these judges' salaries.

As a result of the election system for state court judges in the United States, state courts are commonly perceived to be more susceptible to political and local concerns than are appointed judges in Canada. Depending on the nature of the suit, the judicial selection system for state court judges in the United States may be a significant factor in a litigant's choice between a federally appointed judge in a Canadian court and a local judge and jury in a state court in the United States.

There are limits to a plaintiff's ability to choose a favourable forum. Under the U.S. common law doctrine of forum non conveniens, a court may decline to exercise its jurisdiction - even though the court has jurisdiction and the venue is proper - when the convenience of the parties and the court, as well as the interests of justice, indicate that the action should be tried in a foreign forum.

The U.S. doctrine of forum non conveniens is a flexible doctrine, similar to that in Canada, with the court weighing various factors relating to fairness and convenience according to the particular facts of the case. Courts will usually give deference to a plaintiff's choice to file suit in the United States. Accordingly, a party moving for forum non conveniens dismissal must demonstrate that an alternative forum exists and is adequate and that the chosen forum is inconvenient (oppressive and vexatious) by showing that the balance of relevant private and public factors favour dismissal.1

Pre-trial Discovery

Pre-trial discovery is generally more expansive in the United States than in...