CROSS BORDER ETHICS ISSUES

1. CROSS BORDER ETHICS ISSUES Written and Presented by: Steven M. Richman, Esq. Duane Morris 1940 Route 70 East, Suite 200 Cherry Hill, NJ 08003-2171 856.874.4213 smrichman@duanemorris.com DISCLAIMER: THE MATERIALS HEREIN ARE NOT LEGAL ADVICE BUT PRESENTED FOR GENERAL INFORMATIONAL PURPOSES, AND NO ATTORNEY-CLIENT RELATIONSHIP IS ESTABLISHED HEREIN. FOR SPECIFIC AND APPLICABLE LEGAL ADVICE, CONSULT AN APPROPRIATE LEGAL PROFESSIONAL LICENSED TO PRACTICE LAW IN YOUR JURISDICTION

2. Initial Comment: Anticipate • Anticipate eventualities: all the “what ifs” • Force Majeure: what excuses performance • Are your clauses susceptible of multiple meanings? • Whose language? • What are the ethics rules in the jurisdictions where the dispute is or where the contract will be performed? • What legal acts will you be performing?

3. Choice of Law issues • Rules on limitations on damages and other relief • Recovery of attorney's fees and costs • Privilege: substantive versus procedural? • Choice of forum issues

4. Overview • Minimize disputes and resolve expeditiously • Choice of law and forum • Arbitration versus litigation • Attorney-client privilege • Discovery and privacy • International parties involve different countries and different legal system, with different expectations • Civil law versus common law • Different translations of English and idioms

5. Discovery Issues • Two broad issues in foreign discovery: “blocking” statues and data protection/privacy laws. • Blocking statutes prevent transfer of certain types of documents or information for use in foreign litigation and can contain criminal sanctions. • One solution is to use Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters, which permits requests for documentary and deposition discovery, though various countries have opted out or limited what is available

6. Discovery Issues (cont’d) • Discovery of foreign companies in U.S. litigation may be obtained through federal rules of civil procedure. Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522 (1987). Court has discretion to compel discovery. • However, Aerospatiale emphasized that “American courts should therefore take care to demonstrate due respect for any special problem confronted by the foreign litigant on account of its nationality or the location of its operations, and for any sovereign interest expressed by a foreign state.” Considerations relevant to the comity analysis include: (1) the importance to the litigation of the information requested; (2) the specificity of the request; (3) whether the information originated in the United States; (4) whether alternative means exist to obtain the information; and (5) whether the interests of the United States outweigh the interests of the foreign jurisdictions in maintaining confidentiality.

7. Discovery and Privacy • For European Union Member States, data protection and privacy legislation must comply with Directive 95/46/EC, which member states and establishes a “floor” for privacy protection • Problem is competing requirements engendered by discovery demands to foreign litigants in U.S. courts, or those with non-U.S. data; when faced with a U.S. court order requiring production in litigation: “Do you prefer I go to jail here, or there?” • “Voluntary” compliance may also be problematic

8. Ethics Implications • ABA Model Rule 5.5 addresses safe harbors in U.S. for transient practice • Rules against aiding and abetting unauthorized practice of law

9. Alternate Dispute Resolution • Arbitration is binding, out of court resolution; contract must be clear as to what and who, and applicable rules • Mediation (non-binding facilitation) • Litigation is traditionally in-court resolution • A court will generally apply its own procedures and the chosen law • Arbitration awards generally enforceable by treaty; at present no treaty for enforcement of foreign judgments

10. Arbitration • Must be in writing; public policy in favor of • Awards enforceable by treaty, and federal and state statutes • Hall Street limits appeal to federal statutory grounds • Supposedly faster, private, confidential, cheaper, though not all agree • Scope of clause determines issues and authority • Rules of evidence do not apply unless specified • Dealing with vacancies, discovery, emergencies • Absence of traditional evidentiary expectations, as settlement discussions

11. Scope • Scope important to determine what is arbitrable and what is not • IBA Guidelines for Drafting International Arbitration Clauses • AAA Drafting Dispute Resolution Clauses • Address authority of tribunal, document production, confidentiality issues, allocation of costs and fees, qualifications of arbitrators, time limits, finality, cooling off periods, mandatory versus permissive, multiparty and multicontract issues, preliminary relief, all or none, reasoned opinion, language

12. IBA Rules on Taking of Evidence • Issued as a resource to parties and arbitrators • Adopt in arbitration clause in contract • Provide mechanisms for the presentation of documents, witnesses of fact and expert witnesses, inspections, as well as the conduct of hearing • Used together with the regime’s rules ‘[In addition to the institutional, ad hoc or other rules chosen by the parties,] [t]he parties agree that the arbitration shall be conducted according to the IBA Rules of Evidence as current on the date of [this agreement/the commencement of the arbitration].’

13. Ethics Implications • No rules of evidence, so settlement proposals • Federal rules of evidence prohibit admissibility of evidence of (1) consideration or a promise or offer thereof in an attempt to compromise a claim and (2) “conducts or statements” in settlement negotiations (except in a criminal case and in a regulatory context) when offered to prove “liability for, invalidity of, or amount of” a disputed claim or to impeach a prior inconsistent statement

14. ABA Model Rule 5.5 • Rule 5.5—unauthorized practice of law and multijurisdictional practice of law • Precludes practice unless authorized, and has safe harbors—such as temporary practice relating to taking discovery or participating in an arbitration. • Predicate for ABA rule was that it related to lawyers admitted in other US jurisdictions. Check local adoptions.

15. Ethics Implications (cont’d) • When the evidentiary strictures against evidence relating to settlement and compromise are introduced in an arbitration proceeding? • Unless one’s arbitration clause is clear as to specific exclusions or to what extent state law privileges will apply, or the arbitration regime’s rules expressly deal with the issue, the kinds of prohibitions usually seen in court will not necessarily preclude introduction of settlement offers or discussions into the arbitration process

16. National Bulk Carriers, Inc. v. Princess Management Company, Ltd. • Among other arguments, the losing party sought to vacate an award on the grounds that certain alleged ex parte comments had been made to the arbitration panel; the district court and court on appeal found the comments to be “offhand” but, even if they were deliberate, the arbitrator had stated it to be irrelevant. This was not enough for the court on appeal to find prejudice so as to vacate an award. 597 F. 2d 819 (2nd Cir. 1979).

17. Bowles Fin. Group v. Stifel, Nicolaus & Co. • Court decided the specific question of whether an award should be vacated when the winning attorney “deliberately, intentionally, affirmatively and repeatedly communicated to the arbitrators an offer of settlement” from the losing party to influence the result • During the arbitration, the attorney had introduced the settlement offer to prove liability of the other party. • Answer: No.

18. Columbia Medical Center of Lewisville, Subsidiary L.P. v. Heller • Arbitrators admitted three settlement proposals into evidence, even though they had ruled them not proper subjects of discovery, since all parties already possessed them. The arbitration had been conducted under AAA rules, which specifically address the lack of applicability of rules of evidence. • Court noted AAA Guide for Commercial Arbitrators addresses such evidence but to arbitrator’s discretion • Refused to vacate the award on this ground

19. Choice of Law • Establishes which law will govern the substantive issues relating to contract and related claims • US and foreign courts generally enforce, but subject to public policy and overriding EU law • Applies in arbitration as well as court • If absent, courts do their own analysis • Determine choice of law up front, not as a tag-on at end • can affect outcome • Establishes common understanding of the clauses • “Choice of law” or “conflict of law often used interchangeably

20. Choice of Law • US courts generally enforce; if not specified, various tests (substantial relationship, e.g.) • Exceptions: • --against public policy • --no reasonable relationship to forum • US courts also apply foreign law (F.R.C.P. 44.1) • Can affect ability to terminate contract or amount of damages, entitlement to interest, and others • Scope: tort and contract, “relating to and arising out of” versus “interpretation,” e.g.

21. Why Choice of Law is Important • If no contractual choice of law clause, court chooses • Creates uncertainty • Courts generally first look to see if a conflict; if not, don’t choose law • Tests: “traditional,” the “significant contacts,” the Restatement 2d,” “lex fori,” “better law” and “combined modern.”

22. Substance versus Procedure • Governs substantive, not procedural issues • Courts apply choice of law provision to the substantive law of the chosen state, but not to procedural or practice questions • Forum state governs procedural issues

23. Scope • Scope of the choice of law clause defined what types of claims would be governed by that choice of law. The issue is the same with regard to forum selection. The language of the forum selection clause determines its scope. Schering Corp. v. First Databank, Inc., 479 F. Supp. 2d 468, 470 (D.N.J. 2007).

24. Forum Court Uses Local Law To Determine: • form of claim (tort or contract) • necessary or indispensable parties • rules regarding service of process and notice • rules of pleading and pre-trial practice • whether a claim can or must proceed as counterclaim, defense or set-off • conduct of trial (e.g., entitlement to jury and role of judge) • means of securing obedience to court orders • enforcement of judgment • debtor exemptions for purposes of collection efforts • burden of proof, evidentiary burdens and presumptions • sufficiency of evidence (to extent these relate to conduct of trial as opposed to substantive law)

25. Practical Point • It is helpful to have broader language that applies to claims “relating to the relationship” between the parties, or words to that effect. In general, the broader the language in your choice of law clause, the better chance exists that a court will apply a contractual choice of law clause to tort claims as well. • "[this] Agreement shall be construed under the laws of the State of California” did not include tort claims. Caton v. Leach Corp., 896 F.2d 939, 942 (5th Cir. 1990).

26. Which Means: • Important to consider choice of law in conjunction with choice of forum • E.g., in N. Bergen Rex Transp. v. Trailer Leasing Co., 158 N.J. 561, 569 (1999), the issue was the reasonableness of attorney's fees in a lease dispute. • Though Illinois law was substantive, court held attorney's fees were procedural and examined the reasonableness of contractually permitted fees under New Jersey law, and not Illinois law.

27. Practical Pointer • Raise the issue early in the drafting process, not when it is done • Consider neutral jurisdictions if neither party concedes the other’s jurisdiction. • E.g., consider New York as reasonable and established commercial venue

28. No Reasonable Relation • Restatement looks to whether: “chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice” E.g. above of New York—suppose a Danish company and Louisiana distributor—might agree on New York as accepted commercial law If chose, say, Alaska, might not be deemed reasonable given these parties

29. Factors in Choosing the Forum • Costs of litigation—costs of traveling • Need for witnesses • Familiarity with decisions and practice • Procedural rules • Ability to recover certain fees and costs • Particular privilege rules may differ • Jury versus non-jury • Local Counsel • Many others

30. Why You Want a Forum Selection Clause • Generally enforceable • Eliminate uncertainty • No guaranty, but increases chances of chosen forum • Strong underlying policy: "in the light of present-day commercial realities and expanding international trade we conclude that the forum clause should control absent a strong showing that it could be set aside." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).

31. The Forum Should Have a Reasonable Basis • Economic considerations also underlie policy reasons for enforcing forum selection clauses, even where they have not necessarily free negotiated, but the bound party was nonetheless on notice prior to entering into the agreement; such will be enforced where the parties were on notice of it and enforcement is not fundamentally unfair. Carnival Cruise Lines v Shute, 499 U S 585 (1991).

32. Ethics Considerations • ABA Model Rule 1.1: Competence • Need to evaluate forum in terms of the ramifications

33. Forum Need Not Provide All Remedies • Even where enforcement of the forum selection clause may, in connection with a choice of law provision, deprive a party of certain remedies, that is not enough to deny enforcement, provided it is not unreasonable and the parties still have comparable remedies. Shell v. R.W. Sturge, Ltd., 55 F.3d 1227, 1231 (6th Cir. 1995)("

34. Privilege • Privilege is treated as a procedural issues, and federal courts will apply the privilege laws of the jurisdiction in which they sit. • A party has the burden of proving the applicability of a foreign privilege if it wants to assert it. In re Air Crash at Belle Harbor, 241 F.R.D. 202, 204 (S.D.N.Y. 2007). If a party does assert the viability of a foreign privilege, the court will undergo a traditional conflict of law analysis to determine if the foreign privilege applies. In re Rivastigmine Patent Litig. (MDL No. 1661), 237 F.R.D. 69, 74 (S.D.N.Y. 2006).

35. Foreign Privilege Issues • In United States, attorney-client privilege generally recognized for in-house counsel • Not extended in European Union to communications between in-house counsel and employees, mainly due to claim of lack of dependence • Varies from jurisdiction to jurisdiction; e.g., Germany recognizes a limited in house privilege under certain circumstances • Privilege generally won’t cover business advice

36. Foreign Privilege Issues--Arbitration • IBA Rules on Taking of Evidence in Arbitration Article 9 provides for exclusion by the tribunal of evidence or discovery due to “legal impediment or privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable…” • In so determining, tribunal to consider, inter alia, “the expectations of the Parties and their advisors at the time the legal impediment or privilege is said to have arisen” and any possible waiver, as well as “the need to maintain fairness and equality as between the Parties, particularly if they are subject to different legal or ethical rules.”

37. Domestic Privilege • The issue exists domestically as well. In Valencia v. Colo. Cas. Ins. Co., 2007 U.S. Dist. LEXIS 97721 (D.N.M. Dec. 6, 2007), the court note that federal law will govern work product issues, but attorney-client issues are a matter of state law. Attorney client privilege is a matter of state procedural law from the federal standpoint, but determining which state’s privilege applies is still the subject of a choice of law analysis; state courts will also undergo that analysis. Sterling Fin. Mgmt., L.P. v. UBS PaineWebber, Inc., 336 Ill. App. 3d 442 (Ill. App. Ct. 1st Dist. 2002).

38. Foreign Privilege: Some Comments • Can be criminal if violated in civil law countries • Issues in determining who is an “attorney” where different types of legal functionaries • May foster inefficient use of outside counsel for simple communications • May depend on context—in EU, the Akzo Nobel case was a competition investigation by EU. • Canada: cases split; may depend on expectation of privilege when foreign lawyer involved. • Circumstances and substance of advice matter

39. Injunctions and Fraud • Asset freezing orders: Mareva Injunctions • Anton Pillar orders (non-US common law jurisdictions) • Enforcement of non-final orders by comity

40. Aid of Foreign Litigation • Bankruptcy-ancillary proceedings • 28 U.S.C. Section 1782—allows parties in proceedings outside the United States to obtain discovery here.

41. ABA Model Rule 8.5 • (a) Disciplinary Authority. A lawyer admitted to practice in this jurisdiction is subject to the disciplinary authority of this jurisdiction, regardless of where the lawyer's conduct occurs. A lawyer not admitted in this jurisdiction is also subject to the disciplinary authority of this jurisdiction if the lawyer provides or offers to provide any legal services in this jurisdiction. A lawyer may be subject to the disciplinary authority of both this jurisdiction and another jurisdiction for the same conduct. • (b) Choice of Law. In any exercise of the disciplinary authority of this jurisdiction, the rules of professional conduct to be applied shall be as follows: • (1) for conduct in connection with a matter pending before a tribunal, the rules of the jurisdiction in which the tribunal sits, unless the rules of the tribunal provide otherwise; and • (2) for any other conduct, the rules of the jurisdiction in which the lawyer's conduct occurred, or, if the predominant effect of the conduct is in a different jurisdiction, the rules of that jurisdiction shall be applied to the conduct. A lawyer shall not be subject to discipline if the lawyer's conduct conforms to the rules of a jurisdiction in which the lawyer reasonably believes the predominant effect of the lawyer's conduct will occur.

42. ABA 2020 • R&R 107D: Amends rule 8.5 comment regarding designation of choice of law for purposes of applicable law governing discipline; rule always subjects lawyer to home jurisdiction’s discipline, but lawyer can also be subject to discipline in other jurisdiction. Rule provides that in cross-border situations where lawyer in arbitration/court, that place’s jurisdiction applies, and in other conduct, look to area of predominant effect and no discipline there if lawyer followed rules and had belief that he/she was complying with jurisdiction where predominant effect of the conduct would be. Comment added to state that factor in reasonable belief would be a choice of law provision in written agreement with client (e.g., engagement letter).

43. 8.5 Comments • The ABA did not change model rule, but added comment to allow as another factor, the authority to consider an agreement where lawyer and client agree what law should apply, and that is a factor in assessing the lawyer’s reasonable belief: • “With respect to conflicts of interest, in determining a lawyer's reasonable belief under paragraph (b)(2), a written agreement between the lawyer and client that reasonably specifies a particular jurisdiction as within the scope of that paragraph may be considered if the agreement was obtained with the client's informed consent confirmed in the agreement.”