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Legal risks for non-U.S. corporates

15 July 2013

Every term, the U.S. Supreme Court hears a handful of cases which present distinct legal risks for non-U.S. corporates. This year is no exception. When it returns from summer recess in October 2013, the U.S. Supreme Court will hear several cases which have the potential to increase the legal exposure of non-U.S. corporates.

For example, in DaimlerChrysler AG v Bauman, a case involving claims under the Alien Tort Statute (ATS), the court will determine whether the due process clause of the Constitution permits U.S. courts to exercise general personal jurisdiction over a non-U.S. corporation for conduct outside of the U.S., based solely on the U.S. contacts of an indirect corporate subsidiary. That case is likely to resolve critical questions left open by the court’s recent Kiobel v Royal Dutch Petroleum decision regarding the minimum jurisdictional nexus with the U.S. that is required under the ATS to bring a suit against a non-U.S. corporation for alleged violations of international law. An affirmance of the lower court’s jurisdictional holding would make it easier to hail non-U.S. corporates into U.S. courts for ATS and other claims based on conduct occurring outside the U.S. The case Atlantic Marine Construction v U.S. District Court for the Western District of Texas raises a different set of concerns for commercial contracting entities – namely, the extent to which forum selection clauses are enforceable in U.S. courts. In that case, the lower courts declined to enforce a forum selection clause negotiated between two sophisticated contracting parties which provided for an alternative federal forum. An affirmance by the Supreme Court could significantly restrict the ability of commercial contracting parties to select a forum for resolving eventual disputes.

If DaimlerChrysler is affirmed, corporate groups with only limited U.S. operations nevertheless may be broadly subject to U.S. jurisdiction for conduct that occurs outside of the U.S. Similarly, if the court allows the decision in Atlantic Marine to stand, uncertainty over the ability of commercial parties to bargain for and select a forum for a lawsuit in advance of any controversy will need to be factored into contractual risk assessments. Non-U.S. corporates should carefully monitor these cases in connection with any assessment global legal risks arising from their multi-jurisdictional operations and activities.

Contributed by Charles E Borden and Schan Duff

Collectively, these cases may increase the legal risks to non-U.S. corporates, notwithstanding efforts to structure their operations and contractual arrangements to minimize their U.S. exposure.