Unfortunately, business transactions can sometimes result in disputes. Dispute resolution in the U.S. is occasionally viewed with particular trepidation, though this need not be the case. There are many proactive steps a business may take which can limit the extent of a potential dispute and also help shape the outcome. It is important that when entering into a contract in connection with your business’ U.S. expansion, you should consider detailing a dispute resolution process as well.
Dual Court Systems
The U.S. has two independent sets of courts. Each state has its own court system, as does the federal government. These two systems each have separate trial courts, courts of appeals, and supreme courts. Although state courts are courts of general jurisdiction (any type of claim can be brought in state court), federal courts are courts of limited jurisdiction. Generally speaking, to bring a claim in federal court, you must either bring a claim based on federal law or you must satisfy the requirements of diversity jurisdiction (citizens of different states with an amount in controversy exceeding $75,000).
Civil Trial by Jury
Unlike the U.K., civil disputes in the U.S. are often presented to a jury of individuals from the surrounding geographic area. Although the judge serves as the determiner of legal issues, the jury’s role is to determine the facts of a case and apply them to the law as provided by the judge. This right to a jury trial can sometimes be waived in advance by contract. The validity and extent of these waivers may vary on a state by state basis.
In addition to resolving disputes through litigation, parties can agree to submit their disputes to binding arbitration. This is generally done at the outset of a business relationship by including an arbitration term in the contract establishing the relationship. There are a number of professional arbitration services offered in the U.S. that provide for an alternative approach to resolving business disputes that may be more cost effective and streamlined than traditional litigation. Arbitration decisions generally cannot be appealed and will not be overturned absent truly extraordinary circumstances.
Attorneys’ Fees and Costs Incurred in a Dispute
While in the U.K., costs and expenses are generally awarded to the prevailing party as a matter of right, this is not the case in the U.S. With limited exceptions, all parties to a lawsuit in the U.S. must pay their own attorneys’ fees.
However, parties can agree by contract that if a dispute arises, the losing party must pay for the costs of the prevailing party. Courts will regularly enforce these types of fee-shifting provisions.
Choice of Law and Location of the Dispute
Parties to a contract can choose which state law applies in terms of interpreting the contract at issue in the dispute. This determination can have a tremendous impact on the litigation and should be decided with care at the outset of a new contractual relationship.
Additionally, the parties can agree to litigate any disputes in a particular state or city. Such determinations are generally honored by the court, barring some exceptional circumstances. Choosing at the outset where to settle potentials disputes can be a useful tool to lessen the costs of litigation.
Limitation of Liability Provisions/Liquidated Damages Provisions
Parties to a contract have the right to place certain reasonable limitations on damages suffered as a result of a breach of the contract. These limitations can sometimes include a bar on recovering consequential damages (damages not flowing directly or immediately from the breach itself). They can also include limiting the amount of damages to the total amount of payment under the contract. The validity of such limitations vary on a state by state basis, which again makes the choice of law provision in your contract that much more important.
Additionally, the parties to a contract can agree in advance to the precise, liquidated amount of damages a nonbreaching party should be awarded in the event of a specific breach. Liquidated damages are often used as a measure of damages for delayed performance. The parties have the ability to set the amount per day that the delaying party should pay to make the waiting party whole. Liquidated damages are generally enforceable unless they are punitive in nature. This is a fact-intensive determination that varies according to state law.