It’s been a while…my apologies! Waiting at an airport on a winter weather delay has me thinking of all the times I’ve been delayed because of summer weather like…lightning storms. It also gave me a chance to talk to a non-US company client about doing business here, and their structuring options; which also relates to my earlier post about when a company is deemed to be doing business here, for jurisdictional purposes.
The client in question has a fear of being a defendant in a U.S. court, so they want to use their ‘home country’ documents on the U.S. market and they do not want to form any kind of U.S. affiliate. That may be the right decision for them, and they have sound reasons for their concerns (although I do think that the fear of US courts is overstated). In most cases, a U.S. court will enforce choice of law and choice of venue clauses in a contract between companies. Some exceptions to that general statement include the “public policy” exception (where a court concluded that a public policy reason should trump the terms of a contract) and product liability claims. So, for disputes between the non-U.S. client and, for example, a U.S. distributor, the clients home country documents that specify application of their home country’s law would normally be enforced. Assuming that a U.S. distributor would agree to that language– in this case, the choice of law specifies an EU jurisdiction. But the contract and its clauses do nothing for claims made by third parties against the non-U.S. client, like product liability claims. Product liability concerns are treated (for good reason) like lightning. So, if a product liability claim would almost always be heard in a U.S. court, who should a non-U.S. company put forth as the proper defendant? If the product liability claim is lightning, a U.S. affiliate could be considered as a lightning rod, diverting risk away from the foreign parent, it’s officers and investors. The affiliate would have to be “real” and not just a paper entity. The affiliate would also have to enter into contracts with US distributors (using our example) and they would be the one introducing product into the U.S. market. They would be the entity developing and consistently using U.S. terms and conditions and other agreements. The right structure can effectively divert risk–lightning–away from the non-U.S. entity, its capital, investors, officers, etc. A very useful lightning rod.