Bringing a claim - initial considerations

Key issues to consider

What key issues should a party consider before bringing a claim?

When deciding whether to file a lawsuit, a party should consider, among other things, the most appropriate jurisdiction and venue in which to bring the claim. A number of factors may influence this decision, including the party’s claims and applicable choice of law, the composition of the court and potential jury pool, the speed of the docket, and the possible existence of any contractual venue or choice-of-law provisions.

Establishing jurisdiction

How is jurisdiction established?

To adjudicate a lawsuit, a court must have subject matter jurisdiction over the claims at issue and personal jurisdiction over the defendant or defendants. Federal courts have subject matter jurisdiction over lawsuits in which one or more of the claims asserted arises under federal law, or in which the parties are citizens of different states and the amount in controversy exceeds US$75,000. In state courts, subject matter jurisdiction often depends on the amount in controversy. Some states also have specialty courts that exercise subject matter jurisdiction over particular types of claims.

Federal courts have personal jurisdiction over defendants that live, are incorporated or maintain their principal place of business in the state where the court is located. Courts can exercise jurisdiction over a non-resident defendant only when the defendant has minimum contacts with the forum state, which must be related to the litigation. Personal jurisdiction in state courts is generally governed by similar principles.

If a court lacks personal jurisdiction, the defendant must raise a challenge early in the proceeding - typically in conjunction with its first appearance in the case - or risk waiving the defence altogether. Once a plaintiff has filed suit, the defendant generally cannot file a competing lawsuit in a preferable jurisdiction. Under the first to file rule, when two suits are brought by the same parties, involving the same issues, the first court usually retains jurisdiction to the exclusion of the second.

Preclusion

Res judicata: is preclusion applicable, and if so how?

Res judicata is available and prevents a claim from being relitigated when the claim was decided, or could have been decided, in a prior proceeding. A party asserting res judicata must show that a court of competent jurisdiction has entered a final judgment on the merits on the same claim in a prior action between the same parties. The related concept of collateral estoppel provides that factual determinations in one lawsuit are binding on the parties in subsequent litigation. Collateral estoppel can also be applied under certain circumstances against litigants who were not involved in the prior lawsuit.

Applicability of foreign laws

In what circumstances will the courts apply foreign laws to determine issues being litigated before them?

US courts apply foreign law to claims litigated before them when that law is deemed applicable based on the choice of law rules applied by that court. Although the rules vary, a court generally looks to the law of the jurisdiction that is most closely tied to the facts and circumstances underlying the claims at issue. If a contract provides that it should be interpreted in accordance with foreign law, a court will likely honour that provision and apply the foreign law to claims arising from the contract. For tort-based claims, some courts apply the law of the jurisdiction with the most significant relationship to the lawsuit, while others apply the law of the place where the alleged injury occurred. In either instance, the court will apply foreign law where appropriate, unless the court concludes that the foreign law is contrary to public policy.

Initial steps

What initial steps should a claimant consider to ensure that any eventual judgment is satisfied? Can a defendant take steps to make themselves ‘judgment proof’?

A defendant can attempt to make itself judgment proof by transferring assets to others or placing them into an asset protection trust. A party is generally not permitted to seek discovery regarding a defendant’s assets or ability to pay prior to judgment; however, if there is reason to believe a defendant is intentionally dissipating its assets to avoid satisfying a future judgment, a plaintiff may ask the court to intervene and may seek to recover amounts fraudulently transferred to third parties.

Freezing assets

When is it appropriate for a claimant to consider obtaining an order freezing a defendant’s assets? What are the preconditions and other considerations?

In the US, private litigants seeking money damages are typically not able to obtain an asset freezing order unless it becomes apparent that a defendant is intentionally dissipating assets to avoid paying a future judgment. In that circumstance, a plaintiff may seek an injunction to restrain further asset transfers.

Pre-action conduct requirements

Are there requirements for pre-action conduct and what are the consequences of non-compliance?

Although US courts do not require any specific pre-action conduct, private contracts often impose pre-filing obligations on the parties. Many commercial contracts require the parties to provide notice of potential claims - or the opportunity to cure defaults - in a prescribed time period. Contracts also frequently require the parties to submit any disputes arising under the contract to ADR as a condition precedent to commencing litigation. Failure to comply with contractual requirements before filing suit may result in the stay or outright dismissal of a party’s claims.

Other interim relief

What other forms of interim relief can be sought?

A party can seek a preliminary injunction, restraining the opposing party from taking some action (or, less commonly, requiring the party to continue some action) until the case is decided on the merits. To obtain a preliminary injunction, a party must typically show:

  • a substantial likelihood that it will succeed on the merits;
  • a substantial, immediate threat of irreparable injury;
  • that the balance of harms weighs in favour of the party seeking the injunction; and
  • that the injunction would serve the public interest.

In federal courts, a preliminary injunction cannot be issued until after the opposing party is provided with notice and an opportunity to be heard.

In certain limited circumstances, a party can seek a temporary restraining order (TRO), which can be issued without notice to the opposing party. To obtain a TRO, a party must satisfy the four factors outlined above, and must also show that the threat of harm is so immediate as to require restraint without prior notice. TROs generally expire within a short period of time, during which the moving party must seek a more permanent injunction if further restraint is desired.

Alternative dispute resolution

Does the court require or expect parties to engage in ADR at the pre-action stage or later in the case? What are the consequences of failing to engage in ADR at these stages?

Many state and federal courts encourage or require litigants to participate in some form of ADR. In the federal system, courts will often order litigating parties to engage in formal mediation during the early stages of a proceeding, sometimes facilitated by a federal magistrate judge. Failure to participate in court-ordered mediation may result in significant negative consequences for litigants, including the imposition of monetary sanctions or other adverse rulings.

Claims against natural persons versus corporations

Are there different considerations for claims against natural persons as opposed to corporations?

One key consideration in asserting a claim against a natural person, as opposed to a corporation, is service of process. Most jurisdictions require service to be effectuated on an individual defendant in person or, if the person cannot be found, on a suitable individual found at the defendant’s residence. Service on corporations is generally easier, as they can be served via a registered agent designated for that purpose.

Class actions

Are any of the considerations different for class actions, multi-party or group litigations?

Class actions or multi-party litigations are typically brought when a group of similarly situated individuals faced the same type of alleged wrongful conduct by the defendant. A plaintiff in a class action must meet specific requirements to proceed in this fashion. Ordinarily, class action plaintiffs must meet the following requirements:

  • numerosity;
  • commonality;
  • typicality;
  • adequacy; and
  • in class actions seeking monetary relief, which is usually the case, plaintiffs must establish two additional requirements:
    • superiority; and
    • predominance of common issues.

Courts will give significant scrutiny to cases that seek to be maintained as class actions, raising the stakes and costs of litigation far more than what is seen in individual cases. Plaintiffs should have well-qualified class counsel before pursuing these matters. Defendants facing potential class action claims should likewise engage experienced counsel to defend them.

Third-party funding

What restrictions are there on third parties funding the costs of the litigation or agreeing to pay adverse costs?

Outside of the insurance context, third-party litigation funding is relatively limited in the US, although it has become more common in recent years. Some states have enacted laws regulating litigation funding activities, and professional ethics rules require attorneys to act in the best interests of their clients and maintain client confidentiality, even when paid by a third party.

Contingency fee arrangements

Can lawyers act on a contingency fee basis? What options are available? What issues should be considered before entering into an arrangement of this nature?

Plaintiff-side lawyers can act on a contingency fee basis, meaning that the lawyer agrees to be paid only if he or she successfully wins or settles the client’s case and makes a monetary recovery. In the US, such arrangements are most common in the personal injury context, with the lawyer agreeing to be paid a percentage (typically around one-third) of the total settlement or amount of damages awarded at trial. Pure contingency fee arrangements are less common in commercial litigation. Partial contingency fee structures (ie, the client pays a discounted hourly rate in exchange for the lawyer taking a percentage of any recovery, typically lower than the percentage used under a pure contingency structure) and other alternative fee arrangements are used with increasing frequency in commercial litigation. When considering whether to agree to a contingency fee, both client and counsel should make sure to understand the approximate level of associated risk and, among, other things, exactly what the agreed-upon contingency fee will cover (eg, will court costs, expert witness fees or other litigation costs be charged to the client separately from the contingency fee?).