Perhaps no other country in the world has developed such a complex, expensive, all pervasive and remarkably effective and influential system of Courts as the United States. It is in the court room rather than the legislature that the United States creates and enforces the bulk of the laws and procedures which most directly effect the business climate and practices within the United States.
Whether in the Federal Courts, which are subject to the federal law created by the United States federal government in Washington DC, or in the individual State Courts, operated within the particular systems of law passed by each State, every individual and corporation, whether domestic or foreign, has the right to file legal action against any individual or entity accused of breaching a contract, violating a duty, or breaking some law, including against the government, itself. Unlike much of the world, the United States has vested tremendous power in the Courts, often power sufficient to countermand the wishes of the Congress or of the President. Judges are often appointed for life precisely to give them independence from the influence of the other branches of the government. Each law passed by Congress or the various State legislatures must pass the test of being in conformity with the Constitution of the United States and that test is applied solely by the Courts.
For business transactions, Americans often use the Courts to enforce their rights. The United States uses contracts and the courts to protect the parties in a transaction and that system, while initially intimidating to those from other nations, actually works remarkably well IF one plans ahead and learns how to use contracts and the courts...and how NOT to use them when appropriate. The Courts and the legal system cannot be ignored. Any business operating in the United States will sue or be sued sooner or later. Knowing the legal system in the United States is as necessary a skill for a business person as knowing local markets or what currency to use. In any transaction, the selection of the law to be applied and the forum to utilize in the event of a dispute is as important as determining price of the product. As one experienced Asian business man once stated, "In the United States, the Judge is a silent party in every transaction."
1. FEDERAL AND STATE COURTS
Disputes between entities or individuals who are from different states or different countries normally are heard in the United States Federal Courts. Each state of the United States has within it numerous Federal Courts to hear such matters and the Federal Courts within the particular States are normally subject to Federal law, not the law of the State in which they are located. The Federal Courts also hear matters pertaining to alleged violations of Federal Law or the United States Constitution.
The individual States , such as California or New York, use their own court systems to hear all matters pertaining to their own citizens or violations of State law, including contractual and business matters involving businesses if both businesses are regularly operated within the same State. (In this regard, a business which carries on continuous business within a particular state or which has a branch in a particular state is often held to be a "citizen" of that State for purposes of determining if disputes involving that business should be heard in Federal or State Court.) Further, if a wrongful act such as fraud occurs in a State, often the State will have jurisdiction of the matter.
Depending on the locale within a State, having a case heard in most Federal Courts result in final judgment faster. In Federal Court, the judges are usually more sophisticated and the system more efficient than the average State court. Further, Federal judges are usually more aggressive in controlling the costs of pretrial discovery (discussed below) and supervise the activities of the parties in the litigation in a much more proactive manner.
The greatest benefit, however, to Federal Courts is their system of assigning judges. In most Federal Courts, a single judge is assigned to the entire case, thus he or she gets to know the case and the parties and is better able to give an appropriate decision. Most State courts assign different judges to different aspects of the case, thus the judge hearing the actual trial only encounters the case the day the trial begins. On the other hand, State Court may have law that is particularly beneficial to one party or the other and at times a party will seek to file in the state court to obtain the advantage of that special knowledge. Further, since most lawyers try most cases in State rather than Federal court, your lawyer is more likely to know the judge better in a state court.
Both Federal and State Courts grant either party the right to a trial by jury composed of citizens who will hear the evidence and decide the matter. Only if both parties waive the right to a jury trial with a judge hear the case instead of a jury.
2. FILING THE COMPLAINT AND ANSWER: COMMENCING LITIGATION
One commences legal action in the United States by drafting and filing with the Court a "Complaint" which is a legal document normally created by legal counsel which alleges the various wrongs committed and specifies the relief desired, usually a monetary reward. The Complaint is subject to rigorous requirements as to correct wording and pleading far too complex to describe in this Article, but if not properly drafted it may be objected to by the responding party ("Motion to Strike," "Motion to Dismiss," or "Demurrer") and the Court may dismiss the action or require the pleading to be amended. The Party bringing the action is called the Plaintiff. The Party defending is the Defendant.
Should the Defendant seek its own relief against the Plaintiff, then the Defendant may file in the same action its own Complaint which is called a "Cross Complaint. " Once filed, the Complaint is normally personally delivered to the Defendant ("served") and the Defendant then normally has 20-30 days to either respond denying liability (file an "Answer") or object to the Complaint as being illegal or improper (Motion to Strike, etc.) The Defendant may file its own Cross Complaint at the same time it files its Answers if there are counter claims and this will, in turn, give the Plaintiff (and Cross Defendant) 20-30 days to answer the Cross complaint.
If the Defendant fails to file an Answer or Motion within 20-30 days after service, default may be taken against the Defendant and judgment entered for Plaintiff with Defendant having no other opportunity to respond or deny the accusations. It is therefore critically necessary for any person served with a Complaint to file an Answer or objection in the Court within the time limit or the case may be over and judgment entered against Defendant for all time. While it is sometimes possible for a Defendant to set aside a default entered, it is difficult and, unless good cause for failing to answer is demonstrated, the judgment will stand. Ignorance is not good cause and will not excuse failure to answer in a timely manner.
Once the Complaint, Answer, Cross Complaint and Cross Answer are filed ("pleadings filed") then the case progresses to the next stage of litigation, the Discovery stage of American litigation.
It is in the process of "Discovery" that the United States system, both Federal and State, differs most markedly from any other in the world and is the cause of most of the expense and the source of much of the evidence that will decide a case or force a settlement. Discovery usually consists of serving Requests for Production of Documents (to obtain papers and other forms of written or magnetic evidence); serving written lists of questions that must be answered under oath (Interrogatories); and examining witnesses under oath, before a notary public (depositions.)
It is the lawyers who perform the discovery, NOT the court, and they have the right to engage in reasonable discovery as they deem appropriate. While the court will settle disputes between the lawyers involving discovery and while the court will stop remarkably unreasonable discovery, most courts allow tremendous latitude to counsel in conducting discovery and the process normally takes months, and quite often takes years. It is not unusual for depositions to last for days or even weeks and the average deposition costs about two thousand dollars a day. Since the answers given by the party or witness may be used at trial to convince a judge or jury, and since alteration of testimony at trial from that of the deposition can result in total destruction of the witnesses' credibility, discovery effectively determines the winner or loser in the bulk of civil cases in the United States.
Well over ninety percent of all cases settle before trial in the United States but few settle before discovery is completed. Quite often, attorneys, reviewing the answers in Discovery, can accurately predict the likely result of a trial and advise their clients how to intelligently compromise a weakened claim. A well known litigator once quipped that there are few veteran trial attorneys in America-only veteran attorneys who know how to take depositions since so few cases actually go to trial.
4. THE TRIAL
At the end of discovery, usually lasting a year or so, the Court orders a settlement conference to determine if voluntary settlement is possible and, if that is not achieved, trial occurs about a month later. Often the parties must await the actual availability of a court room (especially in the State systems) and if no court room is available the day of trial, the parties must return to the court a month or two later, ready to try the case again. This of course, is not only very expensive but makes scheduling quite difficult.
Trial in the United States Courts is a formal matter, with each side usually having the right to have a trial by jury which is made up of six to twelve lay persons selected from the voter roles of the locale. If both sides wish, they can waive the jury and have the Judge alone try the case, to save money. Usually, the side with the more "emotional" case seeks to have a jury hear the case.
Trials can last from a day or two to a year or more. Most commercial trials last between a week to three weeks. Each side has an opening statement, then the Plaintiff presents its case followed by the Defendant presenting its case. The parties use witnesses and documents to prove their case and each witness, after testifying, may be cross examined by the counsel for the other side. One can force a witness to appear and can call the other side to the stand to be cross examined. After the parties have presented their respective cases, each side gives a closing argument to the judge or jury and a decision is rendered.
Unlike most of the world , the Judge takes a relatively passive role. It is up to the Parties and their lawyers to prove their case and conduct the trial, the judge sitting usually quiet and acting as a "referee" and to make sure the procedure and laws are obeyed. For this reason, in the United States the attorney is a critical part of proving your case. The judge will not conduct an investigation of the facts. It is up to your lawyer, using documents, witnesses, and cross examination, to prove the case to the satisfaction of the Court or the Jury. Even if the judge sees a party making an error or failing to prove a case, the Judge will normally not help. Courts often say, "It's your case, counsel, so you must decide how to prove it."
5. THE VERDICT
Once rendered, the judgment, if not paid, may be used to obtain Writs of Attachment to seize assets of the other party. If the defense wins the case, the Plaintiff may not bring the same action again. Absent contract providing for fees or special statute, attorneys fees are NOT awarded to the winning party, though such costs as filing fees may be. This is a critical matter to keep in mind: often winning a case results in little net gain if the attorney fees are so large as to make the eventual judgment relatively small. The way to avoid that danger is in the contractual documents to provide that the prevailing party receives reasonable attorney fees as discussed in other Articles of this website.
A judgment may be appealed, but an error of law must be proven to have a successful appeal and most appeals do not succeed. Appellate courts are loath to overturn lower courts. Unless a bond is posted, the party winning can normally enforce a judgment even during an appeal and since appeals often take years, the party appealing often posts a bond to save itself from enforcement of judgment during the period of waiting for a final decision from the appellate court.
Most judgments are for monetary damages. Only in unusual situations will a court order a party to do more than pay damages, but such orders ("injunctive relief" or "specific performance") may be obtained if the plaintiff proves that monetary damages will not really compensate the plaintiff for the damages caused.
"Punitive Damages" must be pled in the Complaint and are a request by the injured party to have the Judge or Jury "punish" the other party for wrongdoing by rendering a monetary judgment NOT based on damages caused, but to also penalize the wrongdoer so that it will not occur again. Punitive Damages are unique to the United States courts and are normally not provided for in contracts disputes. Wrong doing such as bad faith or fraud must be proven before punitive damages may be awarded. Put simply, either intentional wrong doing or reckless negligence is normally required to obtain punitive damages and they are not often awarded. But when such damages are awarded they can be staggering in their level depending on the mood of the judge or jury and the wealth of the wrong doer since it is the wealth of the wrongdoer, not the harm caused, that is the criteria for determining appropriate damages. Punitive damages in the hundreds of millions of dollars have been awarded in cases and our office has obtained a twenty million dollar punitive damage award in conjunction with monetary damages that were less than five million dollars. When pled in the Complaint, such damages must be taken seriously.
Some careful consideration of the above summary makes it abundantly clear that the system is expensive, prolonged, but fair. The courts are remarkably honest and the system is filled with safeguards to protect the parties from unethical or capricious action by the court. The system is used so often and the public so interested in following its workings that our courts have become a common topic of television and movies. They are America's version of morality plays and the right to try one's case is jealously guarded by Americans.
The world often partakes in the viewing of the most famous trials, as with the trial of O.J. Simpson or the United States Senate's trial of President Clinton. For businesses, interested in inexpensive, rapid and fair resolution of disputes, the Courts are often too ponderous and costly and many businesses and parties have elected to contractually bind themselves to arbitrate their disputes in a private court in a process called "contractual arbitration." That alternative, which is recommended often by our firm, can only be achieved if the Parties mutually agree to forgo the courts, either before or after a dispute arises. See the section on Arbitration in these Articles.