A Primer on State Law in Transnational Litigation
June 21, 2022
[Editors: This post is one in a series of Primers on topics in transnational litigation. Primers on each of the topics listed in the Topics menu are planned, and some already appear on the relevant topic pages.]
The procedural and substantive rules that U.S. courts apply in transnational litigation come from many sources, including the U.S. Constitution, international treaties, customary international law, federal statutes, federal rules, and federal common law (both preemptive and non-preemptive)—but also, state statutes, state rules, and state common law. This primer focuses on the underappreciated role of state law in transnational litigation, while also noting the relatively few areas, such as foreign official immunity and the act of state doctrine, where federal law binds state courts.
State law obviously plays a greater role in state court than in federal court. But even in federal court, many issues of transnational litigation are governed by state law. Under Erie, federal courts are required to apply the choice-of-law rules of the state in which they sit. Depending on that analysis, state law may provide the substantive rules for non-federal claims such as contract and tort claims. The recognition and enforcement of foreign judgments is also governed by state law in federal, as well as state, court. In addition, the Federal Rules of Civil Procedure incorporate state rule on personal jurisdiction, service of process, attachment, and the execution of judgments.
By examining the role of state law in various doctrinal areas—from questions of personal jurisdiction at the start of a lawsuit to the enforcement of judgments at the end—one can see the importance of state law in transnational litigation.
States have their own rules on personal jurisdiction. The outer limits of the jurisdiction that states can exercise are established by the Supreme Court through interpretation of the Due Process Clause of the Fourteenth Amendment. Many states (like California) have statutes authorizing their courts to exercise personal jurisdiction to the full extent permitted by due process. But other states (like New York) have statutes enumerating specific bases for personal jurisdiction that must be met in addition to the constitutional requirements.
State rules on personal jurisdiction are relevant not only in state court but also in federal court. Federal Rule of Civil Procedure 4(k)(1)(A) incorporates these state rules by providing that a federal court may exercise personal jurisdiction over a defendant “who is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located.” Rule 4(k) provides additional bases for a federal court to exercise jurisdiction when authorized by a federal statute, or when there is a federal law claim and the defendant is not subject to personal jurisdiction in any state. In these instances, the Fifth Amendment’s Due Process Clause applies. In most transnational cases, however, personal jurisdiction is based on Rule 4(k)(1)(A), which means that state law sets the rules of personal jurisdiction in federal courts.
Service of Process
States also have their own rules for service of process. These too are subject to the Due Process Clause of the Fourteenth Amendment, which requires reasonable notice to the defendant.
With respect to service in other countries, states are also bound by the Hague Service Convention, a treaty that 79 countries including the United States have joined, which applies when “there is occasion to transmit a judicial or extrajudicial document for service abroad.” Even here, however, state law plays a critical role. The Supreme Court has held that the question of when service must be made abroad may turn on state law. In particular, if state law authorizes substituted service on local representatives, there is no need to transmit service abroad, and the Convention thus does not apply.
In federal court, the Fifth Amendment’s Due Process Clause applies, and service abroad is governed by Federal Rules 4(f) and 4(h)(2), which incorporate the Service Convention. But state law may be used to serve a foreign defendant within the United States under Federal Rule 4(e)(1). This means that using state law on substituted service to avoid the Service Convention is an option in federal court as well as in state court. Just as Rule 4(k)(1)(A) makes state rules on personal jurisdiction relevant to transnational litigation in federal court, so too Rule 4(e)(1) makes state rules on service relevant.
Forum Non Conveniens
In transnational litigation, defendants often move to dismiss suits filed in the United States on grounds of forum non conveniens, arguing that these suits would be better heard in a foreign court. The U.S. Supreme Court has developed a doctrine of forum non conveniens for federal courts that requires the availability of an adequate alternative forum, considers whether the plaintiff is a U.S. resident or not, and weighs private and public interests to decide whether a case should be dismissed. Although federal forum non conveniens is a doctrine of federal common law, it is non-preemptive federal common law and so it does not bind state courts.
In state courts, state doctrines of forum non conveniens apply. Some of these doctrines mirror the federal doctrine, but others diverge from the federal doctrine by not requiring an alternative forum, by applying the same deference to foreign and U.S. plaintiffs, by weighing different factors, by applying a heightened standard when the U.S. action was filed first, or by prohibiting dismissal when the plaintiff is a state resident or the cause of action arises with the state. One state (Idaho) has not adopted a doctrine of forum non conveniens at all.
The authority of a court to issue an antisuit injunction prohibiting a party from pursuing parallel litigation in another forum is similarly governed by federal law in federal court and by state law in state court.
Choice of Court Clauses
Transnational disputes often involve choice of court clauses. Such clauses consent to jurisdiction in the chosen court and, if exclusive, also prevent other courts from hearing disputes that fall within the scope of the clause. State law may be relevant to the validity, the interpretation, and the enforceability of such clauses.
The United States does not have a federal common law of contracts (except for a small class of contracts such as those with the federal government). So, the validity and interpretation of choice of court clauses—including the critical question of whether the clause is exclusive—are properly governed either by state contract law or by foreign law. To determine whether state or foreign law applies, a court will look to the contract’s choice of law clause if there is one or will perform a choice of law analysis if these is not. The choice of law analysis, as discussed below, is also governed by state law.
The enforceability of a choice of court clause may also depend on state law. Here, one must distinguish two questions: (1) whether a clause properly consents to jurisdiction in the chosen forum, and (2) whether an exclusive clause prevents other courts from hearing the case. The first question—consent to jurisdiction—is a question of state law in both state and federal court. State law controls this issue in federal court through the operation of Federal Rule 4(k)(1)(A), discussed above, which incorporates state rules on personal jurisdiction. The second question—whether an exclusive clause prevents other courts from hearing the case—is governed by state law in state court and by federal law in federal court. When this issue arises in state court, the court will apply state statutes and state common law to determine whether the clause is enforceable. When this issue arises in federal court, the court will apply federal law to resolve this same question.
Immunity is one area where federal rules control state courts. The Foreign Sovereign Immunities Act (FSIA) applies equally to federal and state courts, making foreign states and their agencies and instrumentalities immune from suit unless an exception to immunity applies. The immunity of diplomatic and consular officials is governed by two self-executing treaties that apply to state as well as federal courts. And the immunity of other foreign officials is governed by preemptive federal common law (based on customary international law) that binds state courts.
But state law can nonetheless play an important role in suits against foreign states and foreign officials. The FSIA provides that when a foreign state is not immune from suit, it shall be liable in the same manner as a private individual. The Supreme Court has held that state choice of law rules determine the applicable law in suits against foreign states, and of course the applicable law might be state law. The same is true for suits against foreign officials. And state procedural rules apply to suits against foreign states and officials when those suits are brought in state court except on a few issues (like service of process) where they are preempted with respect to foreign states by the FSIA.
Whereas federal rules on the discovery of evidence apply in federal courts, state rules apply in state courts. The Hague Evidence Convention, which 64 countries have joined including the United States, applies to both federal and state courts. But the Supreme Court has held that use of the Evidence Convention is not mandatory. So, state courts are free to order the production of evidence abroad according to their own rules.
Choice of Law and Extraterritoriality
State law rules on choice of law generally determine the substantive law applicable in transnational litigation in both state and federal court. This is because of the Erie doctrine. The Supreme Court held shortly after Erie that federal courts exercising diversity jurisdiction are bound to apply the choice of law rules of the state in which they are located and to give effect to any state statutes relating to choice of law. The Court later expressly extended this holding to cases in which foreign law might be applicable. As mentioned above, the Supreme Court has held that federal courts are bound to follow state choice of law rules even in suits under the FSIA.
State choice-of-law rules do not apply to federal statutes: the geographic scope of federal statutes is determined by federal rules of statutory interpretation, principally the federal presumption against extraterritoriality. If a federal statute is applicable, no choice of law rule—state or federal—will give priority to the law of another jurisdiction.
The federal presumption against extraterritoriality does not apply, however, to state statutes: their geographic scope is determined under state rules of statutory interpretation. Some states have adopted their own presumptions against extraterritoriality, whereas other states have rejected such presumptions. Federal courts interpreting state statutes are bound to apply state rules of interpretation. State statutes are also subject to state choice of law rules. Applying such rules, state and federal courts will sometimes give priority to the law of another jurisdiction.
Act of State Doctrine
The act of state doctrine is a departure from the rule that state choice of law rules must be used to determine the law applicable to transnational litigation. The act of state doctrine provides that U.S. courts may not question the validity of a foreign act of state fully performed within its own territory. The Supreme Court has held that the act of state doctrine is a rule of preemptive federal common law that binds state courts.
The recognition and enforcement of foreign country judgments is generally governed by state law in both state and federal court. As with choice of law, this is because of the Erie doctrine. A majority of states have adopted either the 2005 Uniform Foreign Country Money Judgments Recognition Act or its predecessor the 1962 Uniform Foreign Money Judgments Recognition Act. Congress has only passed one statute to regulate the recognition and enforcement of foreign judgments: the SPEECH Act, which prohibits the recognition and enforcement of foreign defamation judgments that do not meet the First Amendment’s standards for free speech.
When it comes to satisfying U.S. judgments with assets located abroad, state law is also relevant. A number of states (like New York) allow courts to order a party over whom they have jurisdiction to turn over assets located outside the United States. In federal court, the Federal Rules of Civil Procedure incorporate state law with respect to pre-judgment attachment and post-judgment execution. Federal Rule 69(a)(2) also allows a federal court to obtain discovery with respect to assets located abroad using either the federal rules or state law.
State law is pervasive in transnational litigation. In state court, state law governs nearly every issue, with a few notable exceptions: State courts must comply with the Hague Service Convention when it applies (although state law can sometimes be used to avoid the Convention). Federal statutes, treaties, and common law govern the immunity of foreign states and foreign officials from suit. The federal act of state doctrine forbids state courts from questioning the validity of foreign acts of state. And the SPEECH Act forbids state courts from recognizing foreign defamation judgments unless certain criteria are met.
Even in federal court, state law is relevant to a wide range of issues. The Federal Rules of Civil Procedure incorporate state law on personal jurisdiction and service of process within the United States, as well as turn-over, attachment, and the execution of judgments. For choice of court clauses, state (or sometimes foreign) law governs the validity and interpretation of such clauses, as well as one aspect of enforceability (whether a court should assume jurisdiction based on the clause). And under the Erie doctrine, choice of law and the enforcement of foreign judgments are generally governed by state law.
The role of state law in transnational litigation deserves more study than it has received to date.
Photo by Hans Isaacson on Unsplash