SC Lawyer, Nov. 2004, #7. Contemplating your next move when resolving cross-border business disputes.

• Author: By James L. Rogers

South Carolina Lawyer

2004.

SC Lawyer, Nov. 2004, #7.

Contemplating your next move when resolving cross-border business disputes

South Carolina LawyerNovember 2004Contemplating your next move when resolving cross-border business disputesBy James L. RogersIn 1905, Theodore Roosevelt sent the U.S. Navy to Santo Domingo to help certain European banks collect debts owed to them by the Dominican Republic. He justified his actions under a policy he termed the Roosevelt Corollary to the Monroe Doctrine. Nowadays, commercial disputes in the international arena are usually resolved more quietly, and calling on the U.S. Navy for help in collecting debts abroad is seldom an option.

In the absence of a military option, resolving international commercial disputes for South Carolina businesses will in the future increasingly depend on the members of the South Carolina Bar, and the amount of work in this arena is likely to grow. A couple of statistics illustrate why. First, upstate South Carolina now has, on a per capita basis, more Foreign Direct Investment (FDI) than any other area of the United States. Second, the Port of Charleston now handles more commercial cargo from overseas than all but one port (Long Beach, CA) in the United States. As South Carolinians increasingly do business beyond America's borders, South Carolina attorneys will necessarily become more involved in the resolution of commercial disputes between South Carolina businesses and their foreign trading partners.

This three-part series of articles is designed to give the average litigator a pragmatic overview of the issues that typically arise in pursuing a commercial claim against a defendant who resides outside the territory of the United States. Hopefully, it will give plaintiff's counsel in pursuit of defendants abroad some notion where certain "bear traps" may lie and how to avoid them.

Initial considerations: filing at home

Initiating legal action to resolve an international commercial dispute forces the practitioner to consider, first and foremost, where the defendant's assets are and which court has actual, physical (as opposed to merely legal or theoretical) jurisdiction over those assets. In other words, the plaintiff's counsel must consider the end-game before beginning. The end-game will dictate the opening moves. (The words plaintiff and defendant will be used in this article although, in some contexts, the discussion may focus on arbitration, where the parties might be more properly labeled claimant and respondent.)

For example, if the foreign national defendant has assets in the United States, and the defendant has a sufficient nexus with South Carolina for our courts to establish personal jurisdiction over him, the initial analysis performed by plaintiff's counsel will not differ greatly from that done before filing a purely domestic lawsuit. The plaintiff may bring suit in South Carolina and execute any judgment against the defendant's U.S.-based assets.

If, however, as is more often the case, the overseas defendant has no U.S. assets, the South Carolina-based plaintiff faces a dilemma. She may, assuming that a basis for personal jurisdiction over the defendant exists, sue the defendant in a South Carolina court, where plaintiff's counsel no doubt feels more comfortable. If plaintiff obtains a South Carolina judgment, however, she must still execute it in the defendant's home jurisdiction or wherever the defendant's assets can be located abroad.

There is no international convention governing the enforcement abroad of American court judgments. The plaintiff must therefore rely on foreign jurisdictions' respect for the principles of comity if she hopes to execute her South Carolina judgment in foreign territory. This may be problematic, even in "friendly" countries.

Personal jurisdiction and service of process

Despite the above concerns about satisfying a judgment against a foreign defendant, sometimes the best option is filing suit in the U.S. courts. In that case, as already suggested, the first issue confronting the South Carolina attorney is whether a domestic tribunal can assert personal jurisdiction over the foreign defendant. In many respects, this analysis is the same as that employed by South Carolina counsel when considering whether to sue an out-of-state defendant. Does the local court have jurisdiction under the South Carolina Long Arm Statute and, if so, does exercise of that jurisdiction offend the due process requirements of the South Carolina and U.S. Constitutions?

Assuming that personal jurisdiction over the foreign national may be asserted, divergence from the domestic litigation analysis arises primarily in deciding how to serve the foreign defendant with the summons and complaint. The starting point in answering this question is the U.S. Supreme Court decision in Volkswagwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694 (1988). In Schlunk, the Court held that the defendant, although a German corporation, had enough of an agency relationship with its U.S.-based subsidiary that the subsidiary could be considered an agent of the foreign entity for service of process. Accordingly, service on the foreign corporation could be accomplished by service on the domestic subsidiary without the need for physical service in Germany. Accordingly, if a South Carolina plaintiff is lucky enough to locate a U.S.-based agent of the foreign defendant, she may be able to effectuate service on the foreign entity via that agent.

In the absence of a domestic agent for service of process, however, service will typically have to be physically accomplished in the foreign defendant's home jurisdiction. In that event, service will usually be effectuated under The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, adopted in 1965 (the Hague Service Convention or HSC). The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361. Like all treaties, this international agreement, upon ratification, became part of U.S. federal law and thus part of the "supreme law of the land." U.S. Const. Art. VI. All of the G8 countries (the eight largest western economies) and most of the significant trading partners of the United States (with the exception of India and Brazil) are signatories to the Hague Service Convention. Service under this

Convention, however, can easily take eight months or more. It is important to note, however, that while the HSC will usually govern service if the defendant's jurisdiction is a party to it, the Convention does not preempt other methods of service (e.g. those provided in Fed. R. Civ. P. 4) as long as those methods do not violate the internal laws of the defendant's country.

The most common method of service under the HSC is through a "central authority" in the target jurisdiction. To effectively serve process using this method, a "competent authority," which includes U.S. attorneys, sheriffs, marshals and judicial officers, must first request service by filling out certain HSC-promulgated forms (and attaching the documents to be served). The competent authority must then determine the translation requirements of the defendant's jurisdiction. Under Article 7, the HSC forms may be drafted in English, French or the official language of the target jurisdiction; however, Article 20 allows a signatory nation to dispense with this requirement. Article 5 allows an HSC signatory to require that the documents to be served be translated into its official language. See Teknekron Mgmt., Inc. v. Quante Fernmeldetechnik GmbH, 115 F.R.D. 175. (D. Nev. 1987).

After the documents and forms are drafted in their correct languages, the attorney or other competent authority forwards them to the designated "central authority" of the foreign signatory. (A list of central authorities for each country can be found at http://travel.state.gov/ hague_service.html.) At this point, the central authority becomes the sole party responsible for arranging for service of the documents.

If the target jurisdiction is a country in North or South America, another service option may be provided by the Inter-American Convention on Letters Rogatory, adopted in 1975. Inter-American Convention on Letters Rogatory, Jan. 30, 1975, 14 I.L.M. 339 (reprinted following 28 U.S.C.S. § 17811). This Convention is useful primarily for service of process in Brazil and the handful of other countries in Latin America that are not signatories to the Hague Service Convention.

Methods of service outside the conventions

If the target jurisdiction is not a signatory to the Hague Service Convention or the Inter-American Convention, South Carolina counsel has several options underFed. R. Civ. P. 44. The first is to serve the defendant in the manner prescribed by the law of the target jurisdiction. Although service in this manner is likely to lead to effective service abroad, it has drawbacks. The amount of time and money expended in determining correct service procedures abroad and obtaining foreign counsel to advise on such issues may be significant. In addition, service abroad in accordance with foreign law may not guarantee effective service according to U.S. courts. Some methods of service abroad clearly do not pass muster under American due process standards.

Another option is to serve process as directed by the foreign authorities in response to a Letter Rogatory or Letter of Request. In fact, in countries that view service of process as a sovereign act that may only be carried out by local officials, this route may be the only reliable alternative.

Other service alternatives include personal delivery or delivery by signed receipt mail. Although these methods are widely used in the United States, many foreign jurisdictions are vehemently opposed to such procedures.

The final alternative described inRule 44 is to serve process in a manner proscribed by the court so long as it is not prohibited by an international convention. This method will undoubtedly result in a finding of effective service of process in South Carolina courts, but is not guaranteed to result in effective service abroad. As a result, if the need to enforce any possible judgment abroad exists, this method should be one of last resort.

Filing suit abroad

Because of the above-described obstacles to suing a foreign defendant in South Carolina's courts, counsel may opt to file on the defendant's home turf, or in the foreign jurisdiction with physical power over the defendant's assets. If this route is taken, South Carolina counsel's role is typically somewhat limited once appropriate foreign counsel has been chosen.

In this regard, the considerations that drive selection of local counsel in domestic litigation may be quite different from those that drive the selection process overseas. For example, a South Carolina lawyer advising his client on the selection of California counsel to pursue a medical malpractice claim in California may look primarily for local counsel with technical expertise and experience in the medical malpractice arena, along with the financial and staffing resources to see the lawsuit through to its conclusion. Choosing local counsel in many foreign jurisdictions, however, frequently involves less emphasis on factors such as technical expertise and the resources of the firm and more emphasis on local counsel's ability to "get things done."

The extent to which these two factors, technical expertise versus political influence (in the broadest sense), are weighed against one another is in part a function of the importance placed on private property rights (and, more generally, the rule of law) in the jurisdiction. In countries that, generally speaking, place a high value on the rule of law, the technical expertise of local counsel may be given more weight. In jurisdictions that place less emphasis on the rule of law, politically well-connected local counsel may be more valuable. For help in evaluating these factors, South Carolina attorneys may consult the 2004 Index of Economic Freedom, published by The Wall Street Journal and The Heritage Foundation, especially the section on private property rights, which can be found at www.heritage.org/research.

Once foreign local counsel has been chosen, South Carolina counsel's role will sometimes be limited to that of a legal and cultural interpreter who acts as liaison between his client and overseas counsel.

Arbitration

Given the complexities, delays and expense associated with international litigation, many cross-border disputes are resolved via arbitration. Courts may compel parties to arbitrate a dispute if (1) an agreement to arbitrate has been signed by both parties and (2) both parties' countries are signatories to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which governs the enforcement of agreements to arbitrate and arbitral awards. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Dec. 29, 1970, 21 U.S.T. 2517, 330 U.N.T.S. 38. If South Carolina counsel is considering inserting an arbitration provision into a commercial agreement with a foreign national, the International Chamber of Commerce publishes sample language that may be used for this purpose. In the absence of a contractual obligation to arbitrate, parties may still (as in the domestic context) voluntarily agree to arbitrate a dispute after it arises.

The most significant advantage of arbitration over litigation derives from the existence of the above-referenced New York Convention and the Inter-American Convention on International Commercial Arbitration (the Panama Convention). Today more than 120 countries adhere to the New York Convention, and 17 countries in the Western Hemisphere adhere to the Panama Convention.

These conventions can facilitate enforcement of arbitral awards in the jurisdiction with power over the defendant's assets, which may prove crucial. Enforcement of the arbitral award does not depend upon foreign courts' capricious notions of comity, as is the case when executing a judgment overseas. As will be seen in the third article in this series, dealing with enforcement of judgments and arbitral awards abroad, victory in the courtroom or before the arbitration panel is only half the battle. Satisfying the judgment or arbitration award when the defendant's assets are tucked away in Rio de Janeiro is the other half.

Conclusion

This article presents an overview of issues confronted by the South Carolina practitioner contemplating suit against an overseas defendant. Future installments in this series will address discovery in the international context and enforcement of an arbitral award or court judgment in a foreign jurisdiction. As South Carolina's role in the global economy expands, practitioners will hopefully use this information to help South Carolina businesses resolve disputes with their overseas trading partners since Teddy Roosevelt can no longer be called upon as your client's debt collection agent.

James L. (Jay) Rogers practices in the area of International Litigation and International Corporate/Tax with the law firm of Leatherwood Walker Todd & Mann, P.C. in Greenville, South Carolina. He is Chairman of the firm's International Practice Group.

Mr. Rogers' acknowledges the research and drafting contributions of Matthew J. Ledwith, a 2004 summer associate with the Leatherwood firm and currently a third year law student at the University of Tennessee College of Law.

Copyright (c) 2004 by the South Carolina Bar. All rights reserved. No part of this publication may be reproduced without written permission.