Canadian Underwriter
Feature

“You Can’t Sue Me, I’m Canadian!”


January 1, 2002   by Mark Scheer, managing partner of Seattle-based Scheer & Sotirhos


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Canada and the U.S. share some of the strongest economic, social and cultural ties of any two nations in the world. The long history of peaceful relations between the two countries, plus the 8,893 kilometer common borderline, have fostered a climate in which high volumes of cross-border travel and business activity naturally occur. Frequent contact, however, brings with it frequent disputes — and all too often, these disputes end up involving Canadian citizens in litigation before American courts.

While defending a cross-border lawsuit may appear to be a daunting task at first glance, Canadian defendants faced with such a scenario are hardly without recourse. By virtue of their foreign residency, Canadian citizens possess a host of specific strategies and defenses uniquely suited to the challenges posed by claims and litigation before American courts. While the scope and availability of such strategies may vary from state to state, a general understanding of three common defenses is essential to the Canadian insurer seeking to provide effective, cost-conscious defense of claims or lawsuits arising “south of the border”.

Personal jurisdiction

“Personal jurisdiction” refers to the authority of a court to issue binding orders and judgments against a defendant brought before that particular tribunal. To ensure that a court’s authority is exercised in accordance with due process of law, the court must first identify sufficient contacts between the defendant and the forum state, such that jurisdiction over the defendant is justified. The nature of a Canadian defendant’s contacts with the American forum will thus determine the existence and extent of personal jurisdiction over that defendant’s activities before the U.S. courts.

Two primary types of personal jurisdiction are recognized by American courts. “General jurisdiction” allows a defendant to be sued on any cause of action before the forum’s courts, irrespective of whether the conduct giving rise to the lawsuit occurred within the forum state. General jurisdiction may be found to exist over a nonresident defendant who transacts substantial and continuous business activity with the forum state, such that the maintenance of suit in that forum does not offend “traditional notions of fair play and substantial justice”.

For example, a Canadian business that actively markets its products and makes a substantial number of sales in the U.S. may be subject to general jurisdiction based on the scope and extent of its business contacts. General jurisdiction may also be obtained by personally serving process upon a defendant within the boundaries of the forum state. Often referred to as “tag jurisdiction”, personal service within the forum state is generally sufficient to establish general jurisdiction over a nonresident defendant.

In contrast to general jurisdiction, “specific jurisdiction” permits a suit against a nonresident defendant only if a nexus exists between the lawsuit and the defendant’s contacts with the forum state. The scope of specific jurisdiction is usually governed by a state’s “long-arm statute”, which identifies specific acts (such as transacting business, owning property, driving a car, and the like) that subject a defendant to a specific jurisdiction.

As nonresidents are more likely to have transitory rather than continuous contacts with an American forum, Canadian citizens sued in the U.S. are most often sued using specific jurisdiction. If a court is unable to exercise some form of personal jurisdiction over a defendant, the action must be dismissed. Further, the advantages of a personal jurisdiction defense for a nonresident defendant may extend beyond dismissal of the action.

State statutes occasionally permit a nonresident defendant sued under a long-arm statute to recover his attorney’s fees if forced to defend a suit in which personal jurisdiction is later found wanting. Offering the possibility of both an outright dismissal and an award of attorney’s fees, the personal jurisdiction defense should be the first strategy considered by a Canadian defendant haled before a court in the U.S.

Forum non conveniens

Closely related to a court’s jurisdictional authority, the doctrine of “forum non conveniens” vests a trial court with the discretionary power to decline jurisdiction when the convenience of the parties and the ends of justice would be better served if trial occurred in a different forum. For example, consider the following scenario: two residents of Ontario, driving in separate automobiles, are involved in a collision while traveling in New York state. The parties appear to suffer only minor injuries at the time of the accident, and receive minimal treatment from emergency personnel in the U.S. Upon returning to Ontario, one of the drivers concludes that the collision has aggravated a pre-existing injury, causing significant discomfort and requiring substantial medical treatment. If the injured driver files suit in New York, the defendant driver may attempt to use forum non conveniens to convince the court that the more appropriate forum for adjudication of the dispute is Ontario — where the vast majority of the plaintiff’s medical evidence and treating physicians are located.

To obtain a forum non conveniens dismissal, a defendant must first show that an adequate alternative forum exists where the lawsuit can be heard. As long as a forum provides some remedy to the plaintiff, differences between the forums as to the size and scope of potential damage awards do not by themselves render a forum “inadequate”. Canadian courts have been consistently upheld as adequate alternative forums for the purpose of forum non conveniens dismissal.

If an adequate alternative forum exists, the court must then balance the public and private interest factors at stake in the litigation, based on criteria established by the U.S. Supreme Court. Only if the balance of these interests strongly favors the alternate forum should the plaintiff’s choice of forum be disturbed, and a forum non conveniens dismissal granted. However, many U.S. federal and state courts have adopted a “lesser deference” standard to the forum choices of foreign plaintiffs — especially when circumstances suggest that the majority of relevant evidence and witnesses lie outside the U.S. Canadian insurers should therefore fully explore the possibility of a forum non conveniens dismissal of U.S. actions to an appropriate Canadian court whenever the parties involved are located in a forum different from where suit is brought, and the location of a majority of relevant witnesses and evidence suggests that trial could be more conveniently conducted in Canada.

Choice of Law

The evolving jurisprudence of “choice of law” in the U.S. offers one more possible strategy for a Canadian defendant faced with a lawsuit before the American courts. In contrast with Canadian courts, many U.S. jurisdictions have begun to depart from the traditional common law rule of “lex loci delecti” — that the substantive law of the forum where a tort occurred governs the outcome of the litigation. Instead, jurisdictions in the U.S. are almost equally split between three competing choice of law philosophies. Currently, 15 states follow the traditional lex loci delecti rule, while 21 states follow the “most significant relationship” test codified in the Restatement of Conflicts of Laws. This requires a balancing test between the contacts of each jurisdiction implicated in the litigation on an issue by issue basis to determine which forum’s law applies. In this regard, 14 states follow the “governmental interest approach”, which requires the court to balance the competing governmental interests between relevant forums to determine the law applicable to an issue in tort. As both the “most significant relationship” and “governmental interest” tests are inherently fact-specific and are governed by rules which vary from state to state, it is impossible to predict whether and to what extent a state’s choice of law rules might assist a Canadian defendant appearing before a U.S. cou
rt. Informed awareness of the choice of law approach adopted by the relevant U.S. forum will, however, ensure that a Canadian defendant takes advantage of the most favorable law applicable to an issue in tort — even if that law differs markedly from the law of the state where trial is conducted.

While personal jurisdiction, forum non conveniens, and choice of law issues are far from the only strategies worthy of consideration by a Canadian defendant faced with litigation in the U.S., they represent three of the most common issues a Canadian insurer should explore to guarantee that their insured’s interests are fully protected before an American court. A working knowledge of these three strategies, combined with retention of competent defense counsel well-versed in their application, can significantly reduce your risk exposure to American lawsuits and redound to the benefit of insurer and insured alike.