Indian and USA businesses would prefer that disputes never arise or get settled easily. But disputes are inevitable and increasing as Indian-USA business grows substantially. What should an Indian business know about how disputes are resolved in the USA and what can be done to minimize cost and risks?

Alternative Dispute Resolution

Court litigation is expensive, public, and time-consuming in both India and the USA. USA businesses embrace arbitration to resolve disputes – to minimize publicity, lower cost, and manage risk. Most USA parties include arbitration clauses in their commercial and other business agreements, and especially in cross-border matters. Drafted properly, an alternative dispute resolution clause will achieve its purpose of keeping commercial disputes out of the courts.

Choice of Forum and the Seat of Arbitration

Indian arbitration has been viewed by USA businesses as unpredictable and slow. Few USA businesses have agreed to arbitration conducted in India by an Indian arbitration forum. The 2015 Arbitration and Conciliation (Amendment) Act aimed to address concerns of the international business community about arbitration in India. It expressly limits the duration of on-shore arbitration to twelve months, with a possible six-month extension. After the prescribed period, the panel’s mandate automatically expires unless the parties appeal to the courts for a further extension. While theoretically sound, these time limits are yet to be tested in practice. It will take time for USA businesses to come to view Indian arbitration as a fair or preferred choice.

India’s arbitration infrastructure continues to mature despite setbacks such as the closure of the London Court of International Arbitration’s (LCIA) India office in 2016. A prime example is the Mumbai Center for International Arbitration (MCIA) formed in 2016. Other Indian forums such as the Nani Palkhivala Arbitration Centre (NPAC) in Chennai, the Indian Council of Arbitration (ICA), the Indian Merchant Chamber (IMC) in Mumbai, and the Delhi International Arbitration Centre (DAC), as well as the beginnings of a more robust domestic arbitration bar all make India a less daunting seat of arbitration than it was before 2015.

Despite India’s progress in the ADR space over the past two years, American companies will continue to prefer USA-based or neutral locations to meet their dispute resolution needs until Indian forums earn the reputation that other non-USA forums have achieved, such as the ICC, LCIA, and Singapore International Arbitration Centre (SIAC). A 2013 PricewaterhouseCoopers (PWC) study found Singapore and London were the most popular seats to arbitrate disputes involving Indian cross border deals. Both Singapore and London have large Indian expat populations, highly professional arbitration bars, well-developed and sophisticated commercial legal regimes, and established and respected arbitral institutions. However, there have been problems associated with this option.

Prior to the 2012 Indian Supreme Court’s BALCO decision,¹ unless the language of an arbitration clause stated otherwise, foreign arbitral proceedings were potentially subject to Indian judicial oversight. The BALCO Court held that Indian courts had no supervisory jurisdiction over foreign arbitration. But the Court also determined that interim injunctive relief from Indian courts was not available to parties engaged in off-shore arbitration. Although the primary holding in BALCO was well received, foreign companies were unwilling to give up the ability to seek interim relief when engaged in off-shore arbitration. The 2015 amendments to the Arbitration Act addressed this issue, and parties are now able to access Indian courts for interim relief even if the seat of arbitration is outside of India, making arbitration an increasingly more accessible option for both Indian and American companies.

The dominant USA-based arbitration forum to resolve international disputes is the International Centre for Dispute Resolution (ICDR), an arm of the American Arbitration Association (AAA). It has a robust and distinguished global list of potential arbitrators and rules reflecting international norms for fairness and ultimate enforceability of awards. If an Indian business agrees to a USA forum, it should be ICDR instead of AAA, with specification of ICDR’s rules for commercial or other disputes (such as a special panel available for resolving energy disputes).

Enforcing International Arbitration Awards versus Indian Court Awards

The basic difference between an arbitration award and a court judgment is that it is highly likely a proper arbitral award will be enforced both in India and the USA, whereas a court judgment in one country may or may not be enforced in the other country without the need to relitigate the dispute. As signatories to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention), both India and the United States are committed to enforcing arbitral awards if the parties agreed to resolve disputes in a specified manner and an award was issued after basic due process was present. Nonetheless, there are significant differences in how each country applies these principles, particularly in their approaches to the public policy exception.

In the United States, the New York Convention is enabled by the Federal Arbitration Act (FAA), as well as by similar state laws that aim to streamline the enforcement of fairly issued arbitral awards. Parties can seek enforcement of an award in either state or federal court based on a determination of which law and procedure is more favorable.

There are limited exceptions to when a USA court will refuse to enforce an arbitral award, including due process matters (e.g., no notice to a party of a proceeding). Courts will dismiss actions to enforce foreign arbitral awards if personal jurisdiction is lacking. Numerous courts have required personal or quasi in rem jurisdiction in enforcing a foreign arbitral award under the New York Convention.² While the decision of where to file may be difficult, once a determination has been made, the actual process itself is very simple. A party applies for an order confirming the award within three years after it is rendered, and absent proof of one of the narrow exceptions to enforcement, the award promptly becomes a court judgment. The period for enforcing an award begins to run when the award is issued, not when any appeals or other procedures are exhausted. To apply for enforcement, a party submits a petition to a court with jurisdiction over the matter with an authenticated copy of the arbitration agreement and award. In several USA jurisdictions enforcement does not require a hearing, though parties may request one. Most frequently judges review the submitted motions and supporting documents and enter a judgment without any proceedings, all of which can occur within a month.

The New York Convention contains grounds on which a losing party can challenge the validity of an arbitration award, although awards are presumed valid. The most important is the public policy exception. American courts take a conservative approach to interfering with international awards for public policy purposes. In Scherk v. Alberto-Culver Co,

³ the Court held:

The invalidation of such an agreement in the case before [it] would reflect a parochial concept that all disputes must be resolved under [American] laws and in [American] courts. [America] cannot have trade and commerce in world markets and international waters exclusively on [its] terms, governed by [its] laws, and resolved in [its] courts.⁴

In Parsons & Whittemore Overseas Co., Inc. v. Société Générale de l’Industrie du papier (RAKTA),⁵ the court expressed a pro-enforcement bias and unequivocally held that a court may only refuse to enforce a foreign arbitral award under the public policy defense “where enforcement would violate the forum state’s most basic notions of morality and justice.”⁶ In the USA the goals of fostering international arbitration and cross-border business relations consistently outweigh public policy concerns in enforcing arbitration awards.

By contrast, there is no federal statute that requires the enforcement of foreign court judgments. This is left to state law, and there is no single law of all USA states concerning enforcement of foreign court judgments. Most but not all states have adopted either of two model acts: The Uniform Foreign-Country Money Judgments Recognition Act (2005 Act) or the Uniform Foreign Money-Judgments Recognition Act (1962 Act). To be recognized under either Act, a foreign award must be for a money judgment, so court awards that require injunctive relief are not generally enforced. There are several grounds permitting a USA court not to enforce a foreign court’s judgment, including 1) fraud in obtaining the judgment; 2) public policy infringement; 3) conflict with another judgment; 4) inconsistency with the arbitration agreement; and 5) for cases based solely on personal service, if the court was a seriously inconvenient forum. The 2005 Act adds two more: 1) circumstances raise substantial doubt over the foreign court’s integrity; and 2) the foreign court failed to follow due process. Overall, it is uncertain if an Indian court judgment will be enforced in the USA, though if the losing party participated in the Indian litigation and due process was observed, in most states it is likely that the court judgment would be enforced without need of trying the case again.

In states that require reciprocity, this will be a problem. Indian courts generally will not recognize and enforce USA court judgments. In many cases, however, Indian entities have been able to enforce Indian court judgments in the USA, despite the lack of reciprocity.

What’s the basic process for litigating in the USA?

Business disputes are handled in civil litigation, so we’ll ignore how crimes are litigated in the USA. USA courts are mostly state courts, but for cross-border disputes involving more than US$75,000 or cases involving federal statutes, a federal court will usually have jurisdiction over a business dispute.

A case starts by filing a complaint. Aside from attorney fees, the cost is minimal and no bond or large deposit of fees is required to do this, as the USA has an “open courts” philosophy. The defendant is served with the complaint and has a month or so to respond with a motion or answer and any counterclaims. A scheduling order is promptly issued, with deadlines for discovery and an ultimate trial date. Mandatory mediation is often present, requiring the parties to try to resolve their dispute before it goes to trial. More than 95% of civil disputes are settled after a complaint is filed.

The burden of proof is a “preponderance of the evidence” (more likely than not in most cases). The party bringing the case is called the Plaintiff. Discovery is thorough and generally requires each party to disclose every document that has potential relevance to the dispute. This openness to disclosure of facts makes USA litigation expensive and time-consuming. Both parties must preserve documents in digital or hard copy form. The parties hold an initial discovery conference to craft a discovery plan, and within 14 days they also share initial disclosures, including names and addresses of individuals with discoverable information, copies or descriptions of electronically stored information, relevant insurance agreements and damages computations and details. Either party may insist on trial by jury or may consent to trial only by the assigned single judge.

While complicated disputes take longer than simple matters and many matters can be resolved by summary judgment (when there is no dispute about the material facts and only a question of law is involved), a case requiring a trial will take on average nationally about 19 months to resolve through the trial court. Once a judgment is entered, an appeal may be taken as of right, and that can add 8 months to a year before a judgment becomes final.

Litigation Costs?

The median cost of a USA civil case includes US$60,000 in attorney fees and US$7,000 in other costs. But with global disputes, the costs can vary widely. Patent infringement cases through trial often range over US$1 million in cost to each side, given the stakes. The more focused and simpler the issue, the less costly the matter will be. This obviously increases the attractiveness of alternative dispute resolution for business.

The USA’s Federal Judicial Center found plaintiff attorneys charged US$1,600-US$280,000 per case, and defense attorneys charged US$5,000-US$300,000. Average attorney fee expense varies by dispute type: US$53,000 for premises liability cases, US$65,000 for real property quarrels, US$86,000 for employment disputes, US$90,000 for contractual battles. The USA allows plaintiff attorneys to take cases on a contingent basis, often rewarding the attorney one third of what is recovered (and one third of 0 means the attorney gets nothing if the case is lost). Class action cases are common when a business affects large numbers of individuals from a single incident or issue (e.g., a defective product that allegedly injures many people).

Can insurance cover business risks?

Because the USA is a litigious society, with a keen sense of justice when an individual or business is injured by another person or entity, insurance is a thriving and comprehensive solution for virtually all business risks. Beyond basic comprehensive insurance policies that any business with a presence in the USA will acquire, insurance can be purchased to protect directors and officers, to cover data breach, flood, product liability, and a wide range of other risks. An Indian company should hold a thorough discussion of risk management with a leading insurance provider before selling its goods or services in the USA. Foreign businesses are often surprised at the relatively inexpensive cost of obtaining this protection and will find that often the most important benefit of purchasing a broad range of insurance is that the insurer will pay the cost of defending claims at bargained legal rates. Global businesses may explore sophisticated measures such as captive insurance.

What else can Indian companies do to protect against USA litigation risk?

Of course, avoiding litigation is best done by good business practices, fair dealing, an active compliance program and full awareness of what is required to conform to any country’s laws, regulations and business and consumer expectations. A thorough discussion with counsel about risk management will help build a protective foundation for an Indian business that wants to expand into and grow within the world’s largest single country market – that of the USA.

NOTES

1 Bharat Aluminum Co v Kaiser Aluminium Technical Service, Inc. (2012) 9 SCC 552.

2 See, e.g., Telcordia Tech Inc. v. Telkom SA Ltd., 458 F.3d 172, 178-79 (3d Cir. 2006); Glencore Grain Rotterdam B.V. v. Shivnath Rai Hanrahan Co., 284 F.3d 1114, 1120-22 (9th Cir. 2002); Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory,” 283 F.3d 208, 212-13 (4th Cir. 2002).

3 417 US 506 (1974).

4 Id. at 519.

5 508 F.2d 969, 975 (2d Cir. 1974).

6 Id.

ABOUT THE AUTHORS

Joseph J. Dehner, Member

Joe is International Services Group Leader and India Desk Chair. He helps US businesses enter and grow in India and Indian companies succeed in the US.

Sunrita Sen, Associate

Sunrita’s practice focuses on advising multinational companies. Her cross-border experience includes work in India, the UK and Myanmar.

Simon Svirnovskiy, Associate

Simon’s practice focuses on litigation and international commercial arbitration actions.

Charles Maddox, International Trade Policy Consultant

Charles is a licensed attorney and Visiting Fellow at the Center for Trade and Investment Law in New Delhi.

www.frostbrowntodd.com