United states

In general

The United States has a bifurcated system of courts: state courts and federal courts. Both systems of courts hear criminal and civil cases, and both are important venues for commercial cases. In general, both systems also have three levels of judicial review: the trial court, the appellate court, and the highest court or “court of last resort.”

The most important difference between state and federal courts is that state courts can hear a wider variety of cases — hence why state courts are commonly referred to as courts of “general jurisdiction.” Federal courts, on the other hand, are courts of “limited jurisdiction” and certain prerequisites must be met for a case to be brought in them.

As explained further below, commercial disputes can often be brought in either state court or federal court, and various strategic reasons may make one system preferable to the other.

Cases that begin in one court system can move to the other court system under certain circumstances. This most commonly occurs when a plaintiff files a lawsuit in a state court and the defendant “removes” the case to federal court. A defendant may want to remove a case for a variety of strategic reasons such as moving the case to a more convenient location, having a more favorable judge hear the case, or because a party or their attorney has more experience with federal court.

State courts

Each of the 50 states (as well as the five territories and the District of Columbia) have their own system of independent courts. When considering a lawsuit in a state court, it is important to familiarize yourself with that state’s specific court system.

While state courts generally have the same three levels as federal courts (trial court, appellate court, and highest court), some states may have more or fewer levels, as well as specialized courts which only hear certain kinds of cases (i.e., family court, traffic court, small-claims court, municipal court). State courts will also often have different, and sometimes confusing, names. For example, the highest court in the federal system is the “Supreme Court,” but in the New York state court system, the “supreme courts” are the trial-level court.

For commercial claims, certain states may also have specialized courts within which a party must file. For example, in 2010, the State of Delaware created a new court division called the Complex Commercial Litigation Division, which only hears commercial cases with more than USD 1 million in dispute. Texas also has a specialized court, called the Texas Business Court, which only hears complex commercial cases.

Regarding jurisdiction in state court, the general rule is that any case a federal court can hear, a state court can also hear. Jurisdiction is usually less of an issue in state court, however, as explained in further detail below, a state must still have personal jurisdiction over a defendant to hear a case involving them. Every state has what is called a “long-arm statute” which will determine whether a defendant can be sued in the state.

Federal courts

The three levels of courts in the federal system are the district court (trial court), the Court of Appeals (intermediate appellate court), and the Supreme Court (the highest court). The federal court system consists of 11 judicial “circuits,” and each circuit covers a specific geographic area — usually several states or territories. For example, the Second Circuit covers the states of Connecticut, New York, and Vermont. There are also two special circuits: the D.C. Circuit, and the Federal Circuit. The D.C. Circuit only covers Washington, D.C. (the capital of the United States), while the Federal Circuit only hears special cases, including patent law and government contract disputes.

Within each circuit, there are several district courts which act as the trial courts. These courts are named for the state in which they sit and, in more populous states, may be further delineated based on the region of the state in which they sit. For example, New York has four district courts named: Southern District of New York, Northern District of New York, Eastern District of New York, and Western District of New York. It is in these courts that a case is first filed.

After a case has progressed through the district court and a final judgment is rendered (and in limited circumstances, before a final judgment) the case can be appealed to the Court of Appeals for whatever circuit the district court sits in. For example, a judgment from the Southern District of New York would be appealed to the Court of Appeals for the Second Circuit. A party is guaranteed to have their case reviewed by the Court of Appeals if they properly request an appeal.

The Supreme Court of the United States is the highest court, and unlike the Court of Appeals, the Supreme Court has discretion in whether to hear a case. The Supreme Court receives around 7,000 petitions for review per year but only hears 70–80 cases. Because of this, the Supreme Court only hears cases that are particularly important to federal and constitutional law. Because most commercial disputes do not involve either of those issues, they are rarely heard by the Supreme Court.

Turning now to jurisdiction, a federal court requires two kinds of jurisdiction to hear a case: personal jurisdiction and subject-matter jurisdiction.

Personal jurisdiction is almost always based solely on the defendant and concerns whether that defendant has sufficient “minimum contacts” with the state in which the federal court sits. For example, a lawsuit brought in the Southern District of New York requires that the defendant have sufficient minimum contacts with the state of New York. Personal jurisdiction can be a fact-intensive inquiry that looks at the defendant’s conduct. For companies, however, a state in which that company is incorporated or in which it has its “principal place of business” automatically has personal jurisdiction over the company.

Subject-matter jurisdiction can be split into two different types: federal question jurisdiction and diversity jurisdiction. At least one type of jurisdiction must be satisfied.

Federal question jurisdiction requires that a claim arise under federal law. For the same reason that commercial claims do not often reach the Supreme Court, commercial claims often do not satisfy federal question jurisdiction.

Diversity jurisdiction, however, is very commonly applicable in commercial disputes. Diversity jurisdiction requires that:

• all plaintiffs have different citizenship than all defendants (i.e., citizens of different U.S. states or non-U.S. citizens); and
• the amount in controversy must be more than USD 75,000.

Commercial litigation is a type of civil suit (as opposed to criminal). In federal court, civil cases are governed by the Federal Rules of Civil Procedure (FRCP). In state court, each state has adopted their own set of procedural rules, but many of the rules mimic the federal rules.

Focusing on the federal rules, the most important procedural rules in commercial litigation are:

• FRCP 8 — General Rules of Pleading. This rule governs the allegations and defenses that parties must include in initial court documents: the complaint (by the plaintiff) and the answer (by the defendant).
• FRCP 12 — Motions to Dismiss/Motion for Judgment on the Pleadings. This rule governs motions to dismiss and for judgment on the pleadings which are procedural tools that parties can use to narrow the scope of issues in the case or potentially resolve the case altogether. Both tools are extremely useful for speeding up cases. Motions to dismiss are decided without considering any “evidence” outside of what is included in the initial complaint, while motions for judgment on the pleadings are decided solely on the complaint and the answer.
• FRCP 26 — Duty to Disclose and General Provisions Governing Discovery. Discovery is the process by which the parties to a lawsuit turn over documents to each other with which both parties will use to advance their position. Discovery is the single most time-consuming and expensive part of a lawsuit.
• FRCP 56 — Summary Judgment. A motion for summary judgment is another procedural tool that can be used to narrow issues or resolve cases prior to a full trial. Motions for summary judgment are not as limited as motions to dismiss or for judgment on the pleadings and can be based on evidence that the parties have exchanged in discovery.

While every case is different and so considerations will vary, a party looking to file suit in the United States should always consider where to file, and what claims to bring.

Choosing a place to file can be one of the most important decisions of the entire litigation. As explained in Question 1, above, there will likely be limitations on where a party can file. When choosing a place to file, parties’ considerations should include convenience of the location, favorability of judges and jury members, the speed at which the court progresses cases, and whether the application of certain procedural rules might be advantageous.

The claims that a party chooses to pursue can be equally important. Different claims will require different allegations to be included in the complaint. Furthermore, the law in the United States often provides multiple types of claims to recover for the same action. Therefore, depending on the facts of a particular case, there may be multiple claims which a party chooses to assert to give them the best possible chance of recovery.

Certain states permit pre-action discovery, which can be a powerful tool to develop facts in advance of the action.

The main ADR methods in the United States are mediation and arbitration.

Mediation can take several forms, but it is most often a structured negotiation where a neutral mediator assists the parties in reaching a settlement. Mediation can be a part of the parties’ original contract, be done by agreement after a dispute has arisen, or be ordered by a court. Because of this, mediation is a good tool throughout a dispute, even if a lawsuit has already been filed. Parties will often engage in mediations at different stages of a dispute, or whenever bargaining power shifts between the parties.

Arbitration is a process more akin to litigation in a court, where a neutral arbitrator (or arbitrators) decides the outcome of a dispute. Arbitration can only take place if the parties agree to it, which they often do within their original contracts. The biggest benefit of arbitration is that an arbitration proceeding can be fully customized by the parties’ agreement, allowing parties to choose a location, applicable rules, and even limit each other’s disclosure obligations. Arbitrations are often conducted by an arbitration service provider because these providers have set rules and other structural benefits; however parties can agree to hold an arbitration without the involvement of these providers as well. The two most common arbitration service providers for domestic arbitrations in the United States are the American Arbitration Association (AAA) and the Judicial Arbitration and Mediation Services (JAMS). For international disputes with U.S.-based companies, the International Chamber of Commerce (ICC) is commonly used, and for investor-state disputes, arbitrations are heard before the International Centre for Settlement of Investment Disputes (ICSID).

There is no set amount of time for a case to reach trial, and the amount of time differs substantially based on several factors. The place in which a case is filed can be a substantial factor; for example, some courts have a reputation for having “rocket dockets,” whereby cases are moved along as quickly as possible, while other courts have huge caseloads and take much longer. The deciding factor in most cases is the complexity of the case and the amount of time needed for discovery. Simple cases with minimal discovery might reach trial within one to two years. Complex cases with substantial discovery, motions, and expert testimony may take several years, sometimes stretching out over a decade.

Disclosure (and discovery) is governed in federal court by the FRCP and in state court by that state’s analogous rules. Courts generally favor liberal discovery, and both parties are obligated to turn over any documents related to the claims and defenses that underlie the case if those documents are requested by the other party. This means that, yes, a party is required to disclose documents that might hurt their case.

However, requests for documents are limited in that they must be relevant, and they cannot be “unduly burdensome.” Parties often object to each other’s requests to limit the extent of disclosure.

Furthermore, parties to a lawsuit can request that the court issue a protective order which can be tailored to keep confidential documents out of the hands of the public or people that might use the documents to gain a competitive business advantage.

Yes, in both state and federal court, a witness within the jurisdiction of the court is required to attend trial and face cross-examination and failure to do so is punishable by fines and other sanctions. State courts are limited to within the territory of that state and some states impose geographical limitations on its subpoena power. Federal courts limit their subpoena power to 100 miles from the courthouse. Depositions (pre-trial interviews that are similar to an examination at trial) are also a requirement of witnesses; however in some circumstances, a deposition transcript may be used in lieu of attendance at trial.

In general, in the United States, parties bear their own costs. Absent a contract between the parties that determines the availability of costs or attorney’s fees, courts have substantial discretion in awarding costs (such as filing fees, transcript expenses, and witness fees), and costs are usually awarded to the winning party. Under the United States system, however, attorney’s fees are not available unless a law or the contract says otherwise. In some cases, courts may award attorney’s fees as a penalty for bad-faith conduct.

The two main interim remedies available are injunctive relief, including temporary restraining orders (TROs) and preliminary injunctions (PIs), and rules providing for pre-judgment attachment/seizure of assets. A TRO or PI are often used to maintain the status quo pending the litigation. A TRO can only last for 14 days, at which point a hearing must be held on whether the TRO should be converted into a PI. Pre-judgment remedies permitting the seizing of assets include attachment, garnishment, replevin (recovering specific property) and sequestration (taking custody of property). These remedies are available at law and only when specific grounds are met. They are often aimed at specific assets but can be a powerful tool at the outset of an action to secure an ultimate judgment. The United States does not have general freezing injunctions.

Arbitration is strongly favored by United States courts and arbitration clauses in contracts are afforded broad enforceability. The Federal Arbitration Act (FAA) is the primary source of law governing arbitrations; covering everything from the interpretation of arbitration clauses to the grounds upon which a party can overturn an arbitral award. If a party brings a lawsuit, and the opposing party can show that the dispute was contractually obligated to be arbitrated, the court will stay or dismiss the case and require that it be arbitrated.

While the UNCITRAL Model Law has not been adopted for arbitrations within the United States, individual arbitral organizations (like AAA) have rules that closely reflect international standards.

Yes, but it depends on the rules that have been adopted for the arbitration and on the parties’ underlying agreement. Arbitrators are generally granted whatever powers the parties confer upon them.

Arbitration awards are difficult to overturn. The FAA generally limits the grounds of reversal to instances where an arbitrator failed to disclose conflicts of interest or was patently impartial, where a party to the arbitration committed fraud, or where the arbitrator exceeded the scope of their powers under the agreement. An arbitrator making mistakes of law or fact is almost never enough to overturn an award on their own. For international proceedings, the United States follows the grounds to set-aside or refuse to recognize the award provided in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention").

The United States is party to the New York Convention, which makes it easier to enforce arbitration awards from other countries. The United States is also party to the Washington Convention, which enforces and recognizes International Centre for Settlement of Investment Disputes (ICSID) awards. When it comes to foreign court judgments, though, enforcement usually follows state law and common-law rules, rather than a single federal treaty.

The United States courts generally enforce final money judgments. They can also enforce injunctions and declaratory judgments. However, temporary or interim foreign rulings, as well as judgments for taxes or penalties, often face restrictions. Whether a foreign judgment is recognized and enforced depends on state-law principles like comity, due process, and public policy.

Foreign arbitration awards are enforced under the FAA and the New York Convention through a confirmation process in federal court. For foreign money judgments, the United States is not party to any bilateral or multilateral enforcement treaty. Therefore, enforcement occurs through a court proceeding in state or federal court, where the creditor seeks recognition of the judgment and then seeks enforcement in the United States. Several of the states apply the Uniform Foreign-Country Money Judgments Recognition Act, which sets the standards for recognizing a foreign court judgment as a judgment of a U.S. court.

Common ways to enforce a judgment include using writs of execution to seize property, garnishing bank accounts or debts owed to the debtor, placing charging orders on partnership or LLC interests, and appointing a receiver. Creditors can also use post-judgment discovery to find assets. In federal courts, enforcement remedies are governed by state law. Creditors can also seek assets in the hands of third parties by bringing claims against alter egos and/or seeking to recover assets that were fraudulently conveyed without adequate consideration or intentionally done so to delay, hinder, or defraud creditors.

Before judgment, assets can be attached, garnished, or sequestered if specific grounds are met. The United States does not recognize general freezing orders on assets. A receiver can also be appointed to preserve assets.

Proceeding on the assumptions outlined in the Model Answer, would a court in this jurisdiction recognise and enforce the arbitral award under the New York Convention?

In particular:

• Does the award fall within the scope of Article V(1) of the Convention, or would any of the grounds in Article V(1) justify refusal on the assumed facts?
• Is the subject matter of the dispute capable of settlement by arbitration under domestic law for the purposes of Article V(2)(a)?
• Would recognition or enforcement of the award be contrary to public policy within the meaning of Article V(2)(b)?

Response

Article V(1)

U.S. courts, in general, will only refuse to enforce a foreign arbitral award if one of the enumerated defenses under Article V of the New York Convention are satisfied. Here, the most likely defenses to an award of this kind are:

• V(1)(c), that the award deals with “a difference not contemplated by … the terms of the submission to arbitration;” and
• V(1)(e), that “the award has not yet become binding on the parties” as a result of the arbitrator’s narrow mandate.

However, neither is likely to be satisfied and the award is likely to be enforced.

For the first defense, U.S. courts, both under the FAA and New York Convention, only ask whether the arbitrator did exactly what the parties authorized them to do. Here, it is clear that the clause within the parties’ agreement permits this issue to be arbitrated. Therefore, the resulting award will be enforced.

As for the second defense, notwithstanding the limited mandate of the arbitrator, a U.S. court is unlikely to find the award unenforceable. Here, it is assumed that the award is final and binding — therefore, this would not be sufficient ground for unenforceability. Furthermore, the “not yet become binding” language of the New York Convention is interpreted narrowly and an award is usually only non-binding if it is still subject to modification or appeal by the arbitrator. It is worth noting that, regarding the arbitrator’s ability to order security for the award, the order must be characterized in the award as part of the final dispositive relief of the award, and not as a provisional or interim measure, so as to avoid running afoul of the binding requirement in Article V(1)(e).

Article V(2)(a)

In arbitrations, U.S. courts do not appear to place much importance on whether the issue presented is a sufficient “difference” to be capable of settlement by arbitration. While this question does not appear to have been answered in the context of the New York Convention, several states, under their equivalent arbitration laws, have determined that whether a matter qualifies as a “dispute,” “disagreement,” or “justiciable controversy” is immaterial if the matter is subject to arbitration by the clear terms of the contract. This is supported by the basic U.S. policy favoring freedom of contract.

Regardless, non-payment of a monetary obligation, even when liability and quantum are not contested, is a justiciable issue in both federal and state U.S. courts.

Article V(2)(b)

The public policy exception to enforcement is narrowly construed in the U.S. and is only invoked when an award is contrary to an explicit public policy or manifestly disregards the law. Here, enforcement of an award for non-payment of a monetary judgement does not offend public policy and is itself an actionable claim in the U.S. Additionally, enforcement of the award furthers the strong U.S. policy of freedom of contract.

Manifest disregard of the law is unlikely to arise on these facts, however, a scenario might arise whereby the award was decided upon a misapplication of the law of the foreign jurisdiction, for example, if the arbitrator misreads the foreign judgement. In this scenario, the manifest disregard defense to enforcement of the award may apply. At present, there is a circuit split in the U.S. over whether the manifest disregard defense exists and if it does, what is required to establish it. Most circuits still recognize the defense in some capacity, with the Fifth and Eleventh Circuits rejecting the defense in its entirety. The Supreme Court recently decided not to hear a case which might have resolved the split.

Conclusion

A U.S. court would likely uphold the terms of the agreement and a resulting foreign arbitral award under the facts stated herein and under the New York Convention.