Lawsuits under statutes such as the US False Claims Act, and state-level consumer protection legislation, are increasingly being initiated on behalf of government bodies by plaintiffs' lawyers acting in partnerships with the state and federal government. In these cases, the plaintiffs' lawyers become "co-counsel" with government lawyers such as the state attorney general, and are sometimes deputised as "special assistants" to the attorney general's office. These quasi-governmental tie-ups may indicate a wider trend that companies doing business in the US should be aware of and prepare for.

Recent examples of these quasi-governmental partnerships include the "Average Wholesale Price" drug cases, many of which ultimately settled in 2008, and some of which are ongoing. These were individual lawsuits brought by state attorneys general and the federal government, with plaintiffs' lawyers appearing as co-counsel against a number of pharmaceutical companies. The government and private plaintiffs claimed that the defendant companies were fraudulently over-pricing the average wholesale prices of their drugs, which in turn resulted in Medicare and Medicaid programmes overpaying for them. The plaintiffs' lawyers and the government lawyers worked together, and often used evidence that was obtained through government investigations which pre-dated the lawsuits. Some follow-on class action lawsuits, which tracked the state attorney generals' cases and used the same evidence, were also brought by some of these lawyers.

Earlier high profile examples of partnerships between the government and private plaintiffs include the state litigation cases brought against a number of major US tobacco companies, which resulted in a global settlement agreement with cigarette manufacturers in 1998. State attorneys general worked with plaintiffs' lawyers on law suits brought directly by the government, which ran parallel to private law suits handled by the same plaintiffs' lawyers. Discovery and strategy were shared and co-ordinated across the cases.

In view of such developments, international companies doing business in the US should consider taking the following preventative measures:

Where lawsuits have already been filed, companies should be ready to aggressively defend their positions. The US attorney general's office and state attorneys general are likely to collaborate with each other, and if a company fails to fight a lawsuit in one jurisdiction, it is highly probable that another lawsuit will arise in a different jurisdiction.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (known as the Dodd-Frank Act) came into force. Dodd-Frank adds a new section, Section 21F, to the Exchange Act 1934, and provides such strong whistleblowing incentives and protections to employees within the financial sector that international companies working in that sector in the US must be prepared for the impact this provision will have on their businesses.

The Dodd-Frank Act allows the US financial services regulator, the Securities and Exchange Commission (SEC) to implement a new whistleblower protection programme, which will enable employees of companies in the financial sector to submit tips and insider information on companies thought to be breaching securities laws, in exchange for monetary rewards. The monetary rewards are likely to be large: where the information results in over US$1 million being recovered, the whistleblower will be entitled to a mandatory reward. The reward will be a minimum of 10%, or a maximum of 30%, of the money collected by the SEC and from all other federal, criminal and regulatory claims against the company.

There are also provisions that protect whistleblowing employees from being identified until necessary, as well as protecting them from discrimination or any other mistreatment by their employers once they have been identified.

The interplay between the Dodd-Frank Act and the US Foreign Corrupt Practices Act (FCPA) could also be significant for foreign companies doing business in the US. If a company in the financial sector, that is a US issuer, is carrying out acts that breach the FCPA, there is a risk that whistleblowers could report them under both the Dodd-Frank Act and the FCPA, and be able to claim an even bigger monetary reward. This is because they may be entitled to a reward from other federal claims against the company, as mentioned above.

To combat the dangers of being reported under the Dodd-Frank Act, international companies should:

The US Supreme Court's 2010 decision in Morrison v National Australia Bank, 130 S Ct 2869 (2010) has heralded a major change to three decades' worth of US securities law precedent. The court’s finding limited the application of US securities laws in extra-territorial cases involving foreign companies trading foreign securities listed on foreign stock exchanges. International companies that have US investors, or that have securities listed on foreign exchanges that involve US stockholders, need to be aware of how this change in the law will affect them.

Morrison established that section 10(b) of the Securities and Exchange Act 1934 (SEA), which is an anti-fraud provision, is not applicable to foreign investors suing foreign companies that have allegedly committed fraudulent acts in relation to securities traded on foreign stock exchanges. Previous decisions on section 10(b) had allowed such claims where they had a substantial effect on US investors. Morrison now limits that scope and enables private investors' claims under section 10(b) only if the securities have been traded on a US stock exchange.

Although foreign companies' exposure to being sued under US securities law appears to have narrowed, questions remain for US investors affected by fraud committed on foreign exchanges by foreign companies. Issues also remain about the interplay between the Morrison decision and the Dodd-Frank Act. Section 929P(b) of the Dodd-Frank Act enables the SEC to bring actions against companies that carry out securities fraud that:

As a result, although companies that are not listed on US stock exchanges are protected against private lawsuits under US anti-fraud securities laws, they are not protected against the SEC bringing a claim against them instead.

Companies should note that a number of other lower courts in the US are starting to use the Morrison decision to determine whether other laws, unrelated to securities laws, have extra-territorial effect.

It is therefore vital for international companies with US investors to track subsequent cases and developments in this area following the Morrison decision.

US lawyers report a dramatic increase in the number of corruption investigations and reviews undertaken for client companies doing business in Latin America. The reasons for this increase include:

The UK's forthcoming Bribery Act, which will be enforced by the Serious Fraud Office (SFO), is also focusing international companies’ attention on the issue of corruption in regions such as Latin America.

To avoid any potential difficulties with corruption, international companies doing business in Latin America should ensure:

More Latin American governments are increasingly sharing information and co-operating with UK and US governments in international anti-corruption investigations and enforcements. Therefore companies should:

An increasing number of arbitration agreements between Latin American companies and their international commercial partners fail to anticipate the situation where one of the parties becomes bankrupt. When a party enters bankruptcy, it can be difficult for the other party to enforce arbitration agreement provisions, particularly if the position of the bankrupt company becomes subject to the jurisdiction of a bankruptcy court in an unfamiliar jurisdiction. The issue of enforcement also arises in any litigation against a bankrupt Latin American company.

International companies in the process of entering into commercial arrangements with companies in Latin America should ensure that any arbitration agreement they enter into is clear on how protected they will be under the agreement if the other party becomes bankrupt.

Arbitration agreements are also failing to specify the language in which any arbitration will be conducted. This can be an important issue in regions such as Latin America, where the default language for the conduct of arbitrations may not be English and there have been a number of recent cases on this issue. Article 16 of the International Chamber of Commerce (ICC) Arbitration Rules 1998 states that, in the absence of an agreement by the parties, the arbitral tribunal will decide the language of the arbitration by taking into account all the relevant circumstances, including the language of the relevant contract. This means that there is no default language of arbitration, and the language of the contract is only one of the factors taken into consideration.

To avoid a dispute about the language of any arbitration proceedings, companies should consider the issue in advance, and include their agreed choice of language in the arbitration agreement.

An increasing number of international companies who are involved in litigation across different countries in Latin America, are failing to consider how the rules of privilege differ in each country.

Each country within Latin America has different rules on privilege, and companies carrying out transactions in a number of Latin American countries need to be aware of this. Companies should be clear, from the outset of any transaction or litigation, about whether discussions between in-house counsel and external counsel are treated in the same way in different jurisdictions.

For example, in Brazil, documents and discussions between companies and their internal and external lawyers are considered privileged. In Mexico, discussions between lawyers and their clients, or between in-house counsel and their companies, can be protected because they are subject to professional confidentiality.

In Argentina, discussions between lawyers and clients are privileged, but an in-house counsel’s discussions with the management of his employer company will only be considered privileged as long as:

In Argentina, the service of court proceedings on foreign companies has traditionally been lengthy and complex, but a recent ruling by the country’s Commercial Court of Appeal has enabled simplified service when a representative of the foreign company is based in Argentina.

The Argentinean Code of Civil Procedure states that a defendant must be served at his actual domicile, or in the case of a company, at the place of the legal entity's incorporation.

The traditional procedure for service on a foreign defendant involves:

The deadline for a response is a maximum of 15 working days from the date of service.

However, in a recent ruling in July 2010 (in the case of Consumidores Financieros Asociacion Civil para su Defensa v. Credit Suisse), Argentina's Commercial Court of Appeals stated that (because of modern methods of communication) local representatives can now inform foreign companies about legal claims much more quickly and efficiently than through the traditional method. This was a broad interpretation of Argentinean law, and was contrary to all previous case law and legal academic opinion on the subject.

The Argentinean National Congress also passed the Judicial Electronic Communications Act in June 2010, which will allow electronic documents and e-mails to be used in federal court proceedings, after specific regulations are issued to enable this.

International companies potentially facing litigation in Argentina should:

Argentina's National Congress is currently debating the procedural law to enable class action lawsuits to be brought in Argentina. There are five bills pending in Congress following a landmark ruling in February 2009 by the Federal Supreme Court in the Halabi v Federal Executive Branch case, which held that class actions should be permitted in Argentina's courts.

Lawyers in Argentina report that the courts are allowing a growing number of consumer groups to initiate collective actions against companies under Argentina's Consumer Protection Act 1994, despite the lack of procedural rules. A 2008 amendment to the act enabled collective actions to be brought by consumer associations and also permitted the courts to award punitive damages of up to US$1.6 million to claimants. There are currently no guidelines on how punitive damages can be awarded, so this has been left to judicial discretion.

Despite these developments, Argentinean lawyers report that many companies in Argentina do not yet take the threat of collective or class actions seriously. However, companies need to be aware of the risks involved in relation to class actions and should make sure that their commercial practices in Argentina do not breach consumers’ rights and the Consumer Protection Act 1994.

Brazilian courts have displayed an increasing willingness to support arbitration clauses in commercial contracts, and enforce arbitration awards in Brazilian arbitration proceedings. Lawyers note that arbitration is often the preferred method for dispute resolution in Brazil, because it can be undertaken more quickly and in a more cost-efficient way than lengthy and expensive court proceedings.

Companies about to undertake business in Brazil with a local Brazilian partner should be careful about the wording of the dispute resolution clause in their commercial contract, and should consider choosing Brazilian arbitration as the first option for dealing with disputes. This is because arbitration is quicker and cheaper than court proceedings and, now that Brazilian courts are supportive of it, arbitration represents a realistic option.

It is also important to note, however, that the enforcement of foreign arbitral decisions and awards in Brazil can be time-consuming. The Superior Court of Justice must ratify and enforce the foreign arbitral decision, which can take up to a year and a half, during which time companies may need to obtain interim injunctions to guarantee enforcement.

Mexico has amended its constitution to provide for a new adversarial criminal justice system which features oral trials. New rules of procedure to prosecute crimes are being rolled out across Mexico.

The procedural rules for white collar criminal cases have been amended to enable companies whose employees have allegedly committed corporate fraud, or other white collar crimes, to have direct standing and the ability to present their cases in criminal proceedings in a more efficient way than the traditional formalistic procedure allows. The Mexican constitution allows each Mexican state to implement these changes over an eight-year period starting in 2008, so each state can implement the new rules in different ways, and will have discretion to decide what the more informal procedure should encompass.

International companies operating in Mexico should be aware of these changes to procedure, which local lawyers expect will eventually filter through to civil and commercial litigation.

In an attempt to modernise and simplify the way evidence is presented, the tax and administrative courts in Mexico are testing the use of electronic documents and online evidence in litigation.

Despite laws to legally recognise electronic data in the same way as physical data, courts and judges in Mexico give insufficient weight to electronic evidence such as e-mails. Traditionally, judges do not consider e-mails or their print-outs to be authentic documents. As a result, the individual who sent the e-mail is usually summonsed to court to confirm the contents. Alternatively, an expert is usually required to testify that he has reviewed the relevant computer and to confirm that the e-mail was sent from that computer and can be attributed to a certain individual. This can be time-consuming and expensive.

The tax and administrative courts have been allowing electronically created data to be used as evidence, with full weight being given to all pieces of evidence presented unless they are challenged by the other party. If successful, this could be rolled out into other areas, including the civil and commercial courts.

To prepare for this development, companies doing business in Mexico should ensure that all electronic documentation and information relating to commercial matters is properly filed and accessible, as it may prove invaluable in future litigation.

The PLC Dispute Resolution multi-jurisdictional update is based on interviews with dispute resolution experts from firms in the US and Latin America. PLC would like to thank the following experts for participating in interviews for this update:

US:

Phillip Robben, Kelley Drye & Warren, New York

Nathan Muyskens, Shook Hardy & Bacon, Washington DC

Yvette Ostolaza and Yolanda Cornejo Garcia, Weil Gotshal & Manges, Dallas

Argentina:

Leandro M. Castelli and Alberto Molinario, Marval O'Farrell, Buenos Aires

Brazil:

Fernando Eduardo Serec, TozziniFreire, Sao Paulo

Mexico:

Juan Ignacio and Javier Navarro-Velasco, Baker & McKenzie, Mexico City