CROSS BORDER ETHICS ISSUES

Written and Presented by:

Steven M. Richman, Esq.Duane Morris1940 Route 70 East, Suite 200Cherry Hill, NJ 08003-2171856.874.4213smrichman@duanemorris.com

DISCLAIMER: THE MATERIALS HEREIN ARE NOT LEGAL ADVICE BUT PRESENTED FOR GENERAL INFORMATIONAL PURPOSES, AND NO ATTORNEY-CLIENT RELATIONSHIP IS ESTABLISHED HEREIN. FOR SPECIFIC AND APPLICABLE LEGAL ADVICE, CONSULT AN APPROPRIATE LEGAL PROFESSIONAL LICENSED TO PRACTICE LAW IN YOUR JURISDICTION

Initial Comment: Anticipate

Anticipate eventualities: all the “what ifs”Force Majeure: what excuses performanceAre your clauses susceptible of multiple meanings?Whose language?What are the ethics rules in the jurisdictions where

the dispute is or where the contract will be performed?

What legal acts will you be performing?

Choice of Law issues

Rules on limitations on damages and other relief

Recovery of attorney's fees and costsPrivilege: substantive versus procedural?Choice of forum issues

Overview

Minimize disputes and resolve expeditiouslyChoice of law and forumArbitration versus litigationAttorney-client privilegeDiscovery and privacyInternational parties involve different

countries and different legal system, with different expectations

Civil law versus common lawDifferent translations of English and idioms

Discovery Issues

Two broad issues in foreign discovery: “blocking” statues and data protection/privacy laws.

Blocking statutes prevent transfer of certain types of documents or information for use in foreign litigation and can contain criminal sanctions.

One solution is to use Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters, which permits requests for documentary and deposition discovery, though various countries have opted out or limited what is available

Discovery Issues (cont’d)

Discovery of foreign companies in U.S. litigation may be obtained through federal rules of civil procedure. Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522 (1987). Court has discretion to compel discovery.

However, Aerospatiale emphasized that “American courts should therefore take care to demonstrate due respect for any special problem confronted by the foreign litigant on account of its nationality or the location of its operations, and for any sovereign interest expressed by a foreign state.” Considerations relevant to the comity analysis include: (1) the importance to the litigation of the information requested; (2) the specificity of the request; (3) whether the information originated in the United States; (4) whether alternative means exist to obtain the information; and (5) whether the interests of the United States outweigh the interests of the foreign jurisdictions in maintaining

confidentiality.

Discovery and Privacy

For European Union Member States, data protection and privacy legislation must comply with Directive 95/46/EC, which member states and establishes a “floor” for privacy protection

Problem is competing requirements engendered by discovery demands to foreign litigants in U.S. courts, or those with non-U.S. data; when faced with a U.S. court order requiring production in litigation: “Do you prefer I go to jail here, or there?”

“Voluntary” compliance may also be problematic

Ethics Implications

ABA Model Rule 5.5 addresses safe harbors in U.S. for transient practice

Rules against aiding and abetting unauthorized practice of law

Alternate Dispute Resolution

Arbitration is binding, out of court resolution; contract must be clear as to what and who, and applicable rules

Mediation (non-binding facilitation)Litigation is traditionally in-court resolutionA court will generally apply its own

procedures and the chosen lawArbitration awards generally enforceable by

treaty; at present no treaty for enforcement of foreign judgments

Arbitration

Must be in writing; public policy in favor ofAwards enforceable by treaty, and federal and state

statutesHall Street limits appeal to federal statutory groundsSupposedly faster, private, confidential, cheaper,

though not all agreeScope of clause determines issues and authorityRules of evidence do not apply unless specifiedDealing with vacancies, discovery, emergenciesAbsence of traditional evidentiary expectations, as

settlement discussions

Scope

Scope important to determine what is arbitrable and what is not

IBA Guidelines for Drafting International Arbitration Clauses

AAA Drafting Dispute Resolution ClausesAddress authority of tribunal, document

production, confidentiality issues, allocation of costs and fees, qualifications of arbitrators, time limits, finality, cooling off periods, mandatory versus permissive, multiparty and multicontract issues, preliminary relief, all or none, reasoned opinion, language

IBA Rules on Taking of Evidence

Issued as a resource to parties and arbitratorsAdopt in arbitration clause in contractProvide mechanisms for the presentation of

documents, witnesses of fact and expert witnesses, inspections, as well as the conduct of hearing

Used together with the regime’s rules‘[In addition to the institutional, ad hoc or other rules

chosen by the parties,] [t]he parties agree that the arbitration shall be conducted according to the IBA Rules of Evidence as current on the date of [this agreement/the commencement of the arbitration].’

Ethics Implications

No rules of evidence, so settlement proposalsFederal rules of evidence prohibit

admissibility of evidence of (1) consideration or a promise or offer thereof in an attempt to compromise a claim and (2) “conducts or statements” in settlement negotiations (except in a criminal case and in a regulatory context) when offered to prove “liability for, invalidity of, or amount of” a disputed claim or to impeach a prior inconsistent statement

ABA Model Rule 5.5

Rule 5.5—unauthorized practice of law and multijurisdictional practice of law

Precludes practice unless authorized, and has safe harbors—such as temporary practice relating to taking discovery or participating in an arbitration.

Predicate for ABA rule was that it related to lawyers admitted in other US jurisdictions. Check local adoptions.

Ethics Implications (cont’d)

When the evidentiary strictures against evidence relating to settlement and compromise are introduced in an arbitration proceeding?

Unless one’s arbitration clause is clear as to specific exclusions or to what extent state law privileges will apply, or the arbitration regime’s rules expressly deal with the issue, the kinds of prohibitions usually seen in court will not necessarily preclude introduction of settlement offers or discussions into the arbitration process

National Bulk Carriers, Inc. v. Princess Management Company, Ltd.

Among other arguments, the losing party sought to vacate an award on the grounds that certain alleged ex parte comments had been made to the arbitration panel; the district court and court on appeal found the comments to be “offhand” but, even if they were deliberate, the arbitrator had stated it to be irrelevant. This was not enough for the court on appeal to find prejudice so as to vacate an award. 597 F. 2d 819 (2nd Cir. 1979).

Bowles Fin. Group v. Stifel, Nicolaus & Co.

Court decided the specific question of whether an award should be vacated when the winning attorney “deliberately, intentionally, affirmatively and repeatedly communicated to the arbitrators an offer of settlement” from the losing party to influence the result

During the arbitration, the attorney had introduced the settlement offer to prove liability of the other party.

Answer: No.

Columbia Medical Center of Lewisville, Subsidiary L.P. v. Heller

Arbitrators admitted three settlement proposals into evidence, even though they had ruled them not proper subjects of discovery, since all parties already possessed them. The arbitration had been conducted under AAA rules, which specifically address the lack of applicability of rules of evidence.

Court noted AAA Guide for Commercial Arbitrators addresses such evidence but to arbitrator’s discretion

Refused to vacate the award on this ground

Choice of Law

Establishes which law will govern the substantive issues relating to contract and related claims

US and foreign courts generally enforce, but subject to public policy and overriding EU law

Applies in arbitration as well as courtIf absent, courts do their own analysisDetermine choice of law up front, not as a tag-on at

endcan affect outcomeEstablishes common understanding of the clauses“Choice of law” or “conflict of law often used

interchangeably

Choice of Law

US courts generally enforce; if not specified, various tests (substantial relationship, e.g.)

Exceptions: --against public policy --no reasonable relationship to forum

• US courts also apply foreign law (F.R.C.P. 44.1)• Can affect ability to terminate contract or

amount of damages, entitlement to interest, and others

• Scope: tort and contract, “relating to and arising out of” versus “interpretation,” e.g.

Why Choice of Law is Important

If no contractual choice of law clause, court chooses

Creates uncertaintyCourts generally first look to see if a conflict;

if not, don’t choose lawTests: “traditional,” the “significant

contacts,” the Restatement 2d,” “lex fori,” “better law” and “combined modern.”

Substance versus Procedure

Governs substantive, not procedural issuesCourts apply choice of law provision to the

substantive law of the chosen state, but not to procedural or practice questions

Forum state governs procedural issues

Scope

Scope of the choice of law clause defined what types of claims would be governed by that choice of law. The issue is the same with regard to forum selection. The language of the forum selection clause determines its scope. Schering Corp. v. First Databank, Inc., 479 F. Supp. 2d 468, 470 (D.N.J. 2007).

Forum Court Uses Local Law To Determine:

form of claim (tort or contract) necessary or indispensable parties rules regarding service of process and notice rules of pleading and pre-trial practice whether a claim can or must proceed as counterclaim,

defense or set-off conduct of trial (e.g., entitlement to jury and role of judge) means of securing obedience to court orders enforcement of judgment debtor exemptions for purposes of collection efforts burden of proof, evidentiary burdens and presumptions sufficiency of evidence (to extent these relate to conduct of

trial as opposed to substantive law)

Practical Point

It is helpful to have broader language that applies to claims “relating to the relationship” between the parties, or words to that effect. In general, the broader the language in your choice of law clause, the better chance exists that a court will apply a contractual choice of law clause to tort claims as well.

"[this] Agreement shall be construed under the laws of the State of California” did not include tort claims. Caton v. Leach Corp., 896 F.2d 939, 942 (5th Cir. 1990).

Which Means:

Important to consider choice of law in conjunction with choice of forum

E.g., in N. Bergen Rex Transp. v. Trailer Leasing Co., 158 N.J. 561, 569 (1999), the issue was the reasonableness of attorney's fees in a lease dispute.

Though Illinois law was substantive, court held attorney's fees were procedural and examined the reasonableness of contractually permitted fees under New Jersey law, and not Illinois law.

Practical Pointer

Raise the issue early in the drafting process, not when it is done

Consider neutral jurisdictions if neither party concedes the other’s jurisdiction.

E.g., consider New York as reasonable and established commercial venue

No Reasonable Relation

Restatement looks to whether:“chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice”E.g. above of New York—suppose a Danish company and Louisiana distributor—might agree on New York as accepted commercial lawIf chose, say, Alaska, might not be deemed reasonable given these parties

Factors in Choosing the Forum

Costs of litigation—costs of travelingNeed for witnessesFamiliarity with decisions and practiceProcedural rulesAbility to recover certain fees and costsParticular privilege rules may differJury versus non-juryLocal CounselMany others

Why You Want a Forum Selection Clause

Generally enforceableEliminate uncertaintyNo guaranty, but increases chances of chosen

forumStrong underlying policy: "in the light of

present-day commercial realities and expanding international trade we conclude that the forum clause should control absent a strong showing that it could be set aside." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).

The Forum Should Have a Reasonable Basis

Economic considerations also underlie policy reasons for enforcing forum selection clauses, even where they have not necessarily free negotiated, but the bound party was nonetheless on notice prior to entering into the agreement; such will be enforced where the parties were on notice of it and enforcement is not fundamentally unfair. Carnival Cruise Lines v Shute, 499 U S 585 (1991).

Ethics Considerations

ABA Model Rule 1.1: CompetenceNeed to evaluate forum in terms of the

ramifications

Forum Need Not Provide All Remedies

Even where enforcement of the forum selection clause may, in connection with a choice of law provision, deprive a party of certain remedies, that is not enough to deny enforcement, provided it is not unreasonable and the parties still have comparable remedies. Shell v. R.W. Sturge, Ltd., 55 F.3d 1227, 1231 (6th Cir. 1995)("

Privilege

Privilege is treated as a procedural issues, and federal courts will apply the privilege laws of the jurisdiction in which they sit.

A party has the burden of proving the applicability of a foreign privilege if it wants to assert it. In re Air Crash at Belle Harbor, 241 F.R.D. 202, 204 (S.D.N.Y. 2007). If a party does assert the viability of a foreign privilege, the court will undergo a traditional conflict of law analysis to determine if the foreign privilege applies. In re Rivastigmine Patent Litig. (MDL No. 1661), 237 F.R.D. 69, 74 (S.D.N.Y. 2006).

Foreign Privilege Issues

In United States, attorney-client privilege generally recognized for in-house counsel

Not extended in European Union to communications between in-house counsel and employees, mainly due to claim of lack of dependence

Varies from jurisdiction to jurisdiction; e.g., Germany recognizes a limited in house privilege under certain circumstances

Privilege generally won’t cover business advice

Foreign Privilege Issues--Arbitration

IBA Rules on Taking of Evidence in Arbitration Article 9 provides for exclusion by the tribunal of evidence or discovery due to “legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable…”

In so determining, tribunal to consider, inter alia, “the expectations of the Parties and their advisors at the time the legal impediment or privilege is said to have arisen” and any possible waiver, as well as “the need to maintain fairness and equality as between the Parties, particularly if they are subject to different legal or ethical rules.”

Domestic Privilege

The issue exists domestically as well. In Valencia v. Colo. Cas. Ins. Co., 2007 U.S. Dist. LEXIS 97721 (D.N.M. Dec. 6, 2007), the court note that federal law will govern work product issues, but attorney-client issues are a matter of state law. Attorney client privilege is a matter of state procedural law from the federal standpoint, but determining which state’s privilege applies is still the subject of a choice of law analysis; state courts will also undergo that analysis. Sterling Fin. Mgmt., L.P. v. UBS PaineWebber, Inc., 336 Ill. App. 3d 442 (Ill. App. Ct. 1st Dist. 2002).

Foreign Privilege: Some Comments

Can be criminal if violated in civil law countriesIssues in determining who is an “attorney”

where different types of legal functionariesMay foster inefficient use of outside counsel for

simple communications May depend on context—in EU, the Akzo Nobel

case was a competition investigation by EU.Canada: cases split; may depend on expectation

of privilege when foreign lawyer involved.Circumstances and substance of advice matter

Injunctions and Fraud

Asset freezing orders: Mareva InjunctionsAnton Pillar orders (non-US common law

jurisdictions)Enforcement of non-final orders by comity

Aid of Foreign Litigation

Bankruptcy-ancillary proceedings28 U.S.C. Section 1782—allows parties in

proceedings outside the United States to obtain discovery here.

ABA Model Rule 8.5

(a) Disciplinary Authority. A lawyer admitted to practice in this jurisdiction is subject to the disciplinary authority of this jurisdiction, regardless of where the lawyer's conduct occurs. A lawyer not admitted in this jurisdiction is also subject to the disciplinary authority of this jurisdiction if the lawyer provides or offers to provide any legal services in this jurisdiction. A lawyer may be subject to the disciplinary authority of both this jurisdiction and another jurisdiction for the same conduct.

  (b) Choice of Law. In any exercise of the disciplinary authority of this

jurisdiction, the rules of professional conduct to be applied shall be as follows:

(1) for conduct in connection with a matter pending before a tribunal, the rules of the jurisdiction in which the tribunal sits, unless the rules of the tribunal provide otherwise; and

(2) for any other conduct, the rules of the jurisdiction in which the lawyer's conduct occurred, or, if the predominant effect of the conduct is in a different jurisdiction, the rules of that jurisdiction shall be applied to the conduct. A lawyer shall not be subject to discipline if the lawyer's conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer's conduct will occur.

ABA 2020

R&R 107D: Amends rule 8.5 comment regarding designation of choice of law for purposes of applicable law governing discipline; rule always subjects lawyer to home jurisdiction’s discipline, but lawyer can also be subject to discipline in other jurisdiction. Rule provides that in cross-border situations where lawyer in arbitration/court, that place’s jurisdiction applies, and in other conduct, look to area of predominant effect and no discipline there if lawyer followed rules and had belief that he/she was complying with jurisdiction where predominant effect of the conduct would be. Comment added to state that factor in reasonable belief would be a choice of law provision in written agreement with client (e.g., engagement letter).

8.5 Comments

The ABA did not change model rule, but added comment to allow as another factor, the authority to consider an agreement where lawyer and client agree what law should apply, and that is a factor in assessing the lawyer’s reasonable belief:

  “With respect to conflicts of interest, in determining a

lawyer's reasonable belief under paragraph (b)(2), a written agreement between the lawyer and client that reasonably specifies a particular jurisdiction as within the scope of that paragraph may be considered if the agreement was obtained with the client's informed consent confirmed in the agreement.”