September 19, 2013

Taming Tort Tourism

In 1895, the U.S. Supreme Court ruled that judgments rendered by foreign courts could be recognized and enforced in the U.S., if the foreign court had abided by certain American standards of jurisprudence. However, this clear and effective precedent was short-lived. In time states began applying their own standards and laws affecting foreign-court rulings until, in 1938, the Supreme Court effectively abolished any federal standard. The result has been a patchwork of state statutes and common law principles that provide little guidance to U.S. citizens and businesses seeking recognition of foreign judgments and facing litigation abroad. Today, the Institute for Legal Reform is hosting a symposium on the issue of Transnational Forum Shopping at Pepperdine University School of Law in Malibu, CA. To help build support for federal legislation governing the recognition of judgments rendered in foreign countries, ILR also released a paper, “Taming Tort Tourism: The Case for Federal Law on Foreign Judgment Recognition.” 

Written by esteemed international law experts, John B. Bellinger III, and R. Reeves Anderson, the report argues that the present patchwork of state laws creates “a real risk of forum shopping among states and an inability to contest abusive foreign judgments before they are automatically recognized in the United States.” 

Furthermore, the authors write:

“This patchwork of state laws creates problems for the U.S. business community by jeopardizing the procedural rights of judgment debtors, encouraging forum shopping both here and abroad, and enabling plaintiffs to circumvent legal limitations that would otherwise preclude recovery under U.S. law.”

This exploitation of “cracks” in the U.S. system of foreign judgment recognition has led to the rise of “tort tourism.” As the authors note, this is the practice whereby plaintiffs secure high dollar judgments against U.S. companies in foreign jurisdictions with favorable laws and then attempt to enforce the foreign judgments in the U.S. It’s not uncommon for U.S. plaintiffs’ lawyers to write the very laws that they then use against U.S. companies. “In the most egregious cases of tort tourism,” they write, “transnational plaintiffs find a jurisdiction in which corruption or political dysfunction virtually guarantees a favorable verdict.” In other words, this is the standard abuse of forum shopping, but on a global scale. 

For example, the authors point to a case involving Chevron and Ecuadorian farmers. In February 2012, an Ecuadorian judge ordered Chevron to pay $18.6 in damages for environmental damage allegedly caused by Texaco’s oil operations almost 20 years earlier even though Texaco—which Chevron acquired in 2001—had ceased operations in Ecuador in 1992. “Chevron has no assets in Ecuador, so the plaintiffs’ lawyers devised a plan to collect the judgment wherever Chevron did business,” the report says. A New York court put an injunction on the proceedings, which was overturned by the Second Circuit. 

Although no U.S. court has recognized the Ecuadorian court’s ruling against Chevron, the plaintiffs’ lawyers’ actions suggest that it is just a matter of time before a U.S. court does accede to another foreign court’s ruling. When that happens, the flood gates of litigation will open, and no U.S. business with overseas operations will be safe from abuse. 

It’s time to put a stop to this “tort tourism” before plaintiffs’ lawyers are successful in their quest to create another cash cow. Bellinger and Anderson’s paper is designed to educate and inform policy makers on the ramifications of inaction and provide a way out of this legal mess.

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