United States: Resolving Civil Disputes In The United States

Last Updated: February 11 2019
Article by Stacey H. Wang

Stacey Hsiang Chun Wang is a Partner in Holland & Knight's Los Angeles

Foreign suppliers who sign contracts provided by their U.S. business partners specifying dispute resolution procedures in the U.S. often do not appreciate the implications of that agreement until a dispute arises. Dispute resolution clauses commonly include provisions that require disputes to be litigated exclusively in certain venues, such as in the state or federal court of a specific county, or require arbitration of disputes pursuant to certain rules of a particular institution, such as the American Arbitration Association (AAA) or JAMS, or a process involving a combination of mediation, arbitration and/or litigation. This article provides, at a high level, the basic strategy considerations in resolving disputes in the context of such forum selection clauses.

Forum Selection Clauses

A forum selection clause is a provision in the parties' agreement that specifies where and how the parties will resolve disputes arising under the contract. It is typically accompanied by a statement of consent to jurisdiction by the parties to that forum and a selection of the governing law. The typical forum selection clause will identify a venue (such as an arbitral institution or the courts of a particular county).

There are certain perceived advantages and disadvantages to having claims heard in a particular forum. For example, a company located in California may have in its supplier contracts the requirement that claims against it must exclusively be brought in the county in which the company is located. The company prefers to have claims against it heard in its "hometown," where potential jurors and judges are more likely to know and care about the company. It also makes litigating disputes more predictable, in that the company likely already has counsel handling matters for it in that county who are familiar with the practices of the judges likely to preside over the cases. Another example is where the parties to a complex agreement, such as in a large real estate development project, agree to arbitration using industry experts as arbitrators, to avoid the risk and uncertainty of having non-expert lay jurors making decisions about the parties' dispute. In addition, discovery obligations may differ depending on the forum, which affects the expense of the proceeding. These issues are discussed below.

Civil Litigation in State and Federal Courts

Among the many differences between civil litigation in state and federal courts, the following considerations are helpful to understanding how cases proceed in each forum. These differences may lead one party in a dispute to "forum shop" by filing a case in its preferred forum first, before the other party can file suit in a different forum. Forum selection clauses, generally enforceable in business disputes, aim to prevent this by having the parties agree beforehand on where the dispute will be heard.

One limitation to forum selection clauses is that parties may not agree exclusively to a federal court unless the dispute satisfies the subject matter jurisdiction requirements of federal court, because federal courts are courts of limited jurisdiction. State courts, in contrast, are courts of general jurisdiction and can hear cases unless the case involves a subject over which federal courts have exclusive jurisdiction. If a party files in state court a case that could have originally been filed in federal court, a defendant may "remove" the case to federal court.

The judges governing the case: U.S. Supreme Court justices, the court of appeal judges, and district court judges are nominated by the U.S. President and confirmed by the U.S. Senate. They enjoy lifetime appointments and may be removed only through impeachment. This system encourages an independent judiciary that, in theory, is not subject to the political process.

In contrast, states implement their own respective systems for appointing and removing state judges. For example, in California, state court judges are typically appointed by the state governor and then confirmed in the next general election, called a "retention vote." Some judicial seats are filled directly through the statewide general election. These state judges may be challenged at a general election or, more rarely, be recalled in a special recall election.

The American civil jury: The federal and state systems differ with respect to the jury systems as well. In the federal system, the Seventh Amendment to the U.S. Constitution provides for a right to jury trial in civil cases. Rule 48 of the Federal Rules of Civil Procedure, which implements this right, requires that a jury trial begin with 6 to 12 jurors, and unless the parties agree otherwise, the verdict must be returned by a unanimous jury of at least 6 jurors. States have their own jury systems, which may call for less jurors or less-than-unanimous verdicts. State courts also draw jurors from a more limited geographic area than federal courts located in the same county because of the difference in geographic reach of each court. When given a choice, a defendant may invoke procedures to remove a case filed initially in state court to federal court due in part to the federal requirement that a jury verdict must be unanimous and to have a more geographically diverse jury pool.

Jury trials take longer to try and are more expensive. Not only must separate fees be posted for jury trials, but jury trials require additional elements not needed in a bench trial, e.g., jury selection, reading of jury instructions, more extensive evidentiary hearings and conferences with the judge outside the presence of the jury. These elements require extensive pretrial filings. Preparation for a jury trial in a complex or high-value matter might include making presentations to a mock jury to test trial themes and key evidence, more extensive use of visual graphics and engaging a jury trial consultant. Thus, preparing a case for a jury trial is strategically different from preparing a case for a bench trial.

Despite this investment, due to the rules governing jury trials, if the number of jurors falls below the required number, if a jury fails to return a verdict or for some other irregularity during trial, the court may declare a mistrial. If a mistrial is declared, then the trial is not completed. The case may ultimately be dismissed, settled or retried to a new jury.

Bench trials: With all of the expense and risk associated with jury trials, parties sometimes agree ahead of time to waive the right to a jury trial. Even if that agreement does not occur ahead of time, parties can agree at the time the case is litigated or simply waive the right to a jury. In a typical federal civil case, a plaintiff must assert the jury demand at the time it files the complaint. States may vary in the procedures to demand and waive a jury trial. In California, there are a number of ways a party may waive the right to a jury trial, including failing to appear at trial, by written or oral consent to waive a jury, by failing to demand a jury at the time the case is first set for trial and by failing to pay the jury fee. However, even if a party has waived its right to a jury, the court may still reinstate a jury trial at its discretion.

There may be a tactical decision to waive the right to a jury. If the plaintiff believes that the case is particularly complex or may stir emotions in jurors to the plaintiff's detriment, it may wish to have its claim tried before the judge on the theory that a judge is better able to understand complex issues and to set aside the emotions involved in a case. However, the contrary view is that having a jury deliberate the evidence actually protects against the biases and emotions of a single judge. The selection of a jury is more art than science, however, and cases often settle after the parties see the final panel of jurors who will decide their fate. In fact, the risks and expense of a jury trial lead the vast majority of cases to settle before a verdict is rendered.

In addition, even within a case to be tried before a jury, there are certain issues that may be decided by a judge. While the right to a jury for a particular claim or defense may be subject to some analysis, factual legal questions on the basic issue of whether a contract was breached by a party's actions is triable by a jury. In addition, through summary judgment procedures, a party may have a claim disposed of if there are no conflicting facts for a jury to decide or a reasonable jury could not differ on the outcome.

Discovery obligations: Discovery obligations in the U.S. are extensive compared to the discovery obligations, if any, in other countries. These obligations also differ depending on the forum. The federal rules in recent years adopted the "proportionality" analysis, which requires that the discovery obligations be proportional to the needs of the case, as a limit to the parties' general right to obtain any non-privileged matter that is relevant to a claim or defense. Federal rules impose general limits on the number of depositions and written discovery requests that a party may serve without further permission from the court.

Like everything else discussed above, state courts have their own rules for the scope of discovery and discovery procedures. Some follow the federal rules, others do not. In California, discovery of matters relevant to the subject matter of the action or any pending motion made in the action is allowed, if the information is admissible or appears "reasonably calculated to lead to the discovery of admissible evidence." The quoted portion of this standard used to be in the federal rules but was replaced in 2015 by the "proportionality" standard, yet it remains the rule in California.

Under either system, a "document" subject to production to the other side broadly includes electronic data such as emails and text messages, and can also include metadata, i.e., information about the data itself, such as when the data was created, modified or moved, and by whom. Because of the broad scope of discovery, experienced counsel can save costs by discussing discovery ahead of time and forming a discovery plan. The Federal Rules of Civil Procedure require counsel to meet at the beginning of the case to discuss this and other case management issues. Some state courts and some individual judges may also require this of counsel as well.

Alternative dispute resolution in the court system: Even in matters litigated in court, litigants may be encouraged or required to mediate their disputes. For example, in the U.S. District Court for the Central District of California, as is common in federal courts, litigants typically select one of the following: private mediation, panel mediation (i.e., selecting from a panel of mediators who have agreed to provide a specified number of hours for free) or a settlement conference with a judge.

Private Arbitration in the U.S.

Seeking to bypass the expense and complications of litigating in court, parties may agree to use arbitration as the means to resolve their disputes. Institutions such as AAA, JAMS and ADR Services provide general mediation and arbitration services, and some have specialized rules for particular industries, such as the Construction Industry Arbitration Rules offered by AAA. Other specialized institutions such as the Financial Industry Regulatory Authority (FINRA) provide dispute resolution for the securities industry.

Arbitration bypasses the court system and can save substantial time and money. Avoiding the expense of a jury proceeding and the often backlogged calendars of the court to have motions heard, the parties simply pay for an arbitrator or an arbitral panel to resolve their dispute. The parties may agree (in advance or otherwise) on limited discovery or agree to follow the arbitral institution's rules governing discovery. Enforcement of arbitral awards may also be more streamlined than a court judgment.

Keep in mind, however, that in the absence of a clear forum selection clause, parties may end up litigating in court the issue of whether the clause applies to the dispute at all. In addition, a party may seek interim relief (i.e., temporary restraining orders and preliminary injunctions) from a court rather than from an arbitrator due to the time it takes to select an arbitrator and initiate an arbitration. Finally, even where the parties have agreed to arbitration, the failure of a party to timely file a motion seeking to compel arbitration when the other party has sued in court may result in a waiver of arbitration. Therefore, even though there is an arbitration provision, that does not necessarily mean that the parties can completely avoid the courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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