Navigating the U.S. Legal System – Pointers for European Companies
European companies that do business in the U.S. will quickly discover that the U.S. is a litigious society. American employees, consumers and businesses are more likely to resolve disputes by going to court than their European counterparts.
The U.S. Court System
The U.S. court system differs from most European legal systems in a number of important ways:
- Business disputes may be decided by a jury.
- Lawyers may work on a contingency fee (“no cure, no pay”) basis.
- Both parties will be required to exchange relevant information through the discovery process.
Negotiating a Contract
Here are some pointers for negotiating a contract with an American company:
- Draft Carefully. The U.S. legal system places great importance on the literal text of the contract.
- Limited Role of Good Faith. The role of good faith (and the related concept of “reasonableness and fairness”) is much more limited. S. courts are less likely to interpret contractual provisions in a manner that is favorable to the weaker party or to disregard contractual provisions altogether.
- Avoid Reliance on Oral Promises. Oral promises made during negotiations are generally not enforceable, even if you are able to provide witness testimony or the emails confirming the promises. As a general rule, only the final written contract is binding.
- You should expect the other party to hold you to the exact wording of the contract, so make sure that the contract accurately reflects the business deal. Everything is negotiable, even general terms and conditions.
- Hire an American Lawyer. It is crucial to involve an experienced American lawyer in negotiations. Your American counterparty will do the same.
- Include a Force Majeure Clause. In the U.S., you are liable if you breach your contractual obligations, even if you are unable to perform your obligations because of a force majeure. Therefore, include a force majeure clause in your contract.
- Limit Your Liability. Exclude certain types of damages, such as indirect, consequential and punitive damages. Also, exclude implied warranties under the Uniform Commercial Code when selling goods.
- Don’t Include Penalty Clauses. Penalty clauses are generally not enforceable in the U.S. “Liquidated damages” clauses are permitted but only if damages resulting from a breach are difficult to determine and an amount can be reasonably estimated.
- Don’t Use a European Contract. European contracts are tailored to the laws of a particular European country and often need to be completely rewritten for use in the U.S. It may be better to start with a U.S. model.
- Don’t Choose Your Home Country Law. Most European companies prefer the laws of their own country to govern their contracts, but American companies usually do not accept this. Instead, opt for a state with a well-developed body of contract law, such as New York.
- Don’t Choose Your Home Country Courts. American companies generally prefer U.S. courts, hoping for a home court advantage. European companies often prefer their own national courts for the same reason, but this could back-fire as there is no treaty providing for the enforcement of European judgments in the U.S. Instead, consider arbitration or the New York courts, which have extensive experience in handling international disputes.
Setting Up a U.S. Subsidiary
- Don’t Delay. Many European companies delay setting up a U.S. subsidiary, leading to tax and other issues.
- Use a Delaware Corporation. Generally, a Delaware corporation is the best choice due to its well-developed corporate law, specialized judges and strong liability protection.
Product Liability
U.S. product liability is often a major concern for European companies. Here are the most important steps to limit your liability:
- Safe Product. Make sure your product is well designed and safe.
- Quality Control. Make sure you have adequate quality control programs.
- Complaint System. Establish a good system to handle complaints.
- Obtain adequate insurance coverage.
For more detailed information and assistance, contact our business partner:
Jan J.H. Joosten
Pierson Ferdinand LLP
1270 Avenue of the Americas, 7th Floor, Suite 1050 26
New York, NY 10020 26
Phone: +1.917.446.1306 26
Email: jan.joosten@pierferd.com
Website: www.pierferd.com