COMMERCIAL LITIGATION

Transcription

1 Chapter 26 COMMERCIAL LITIGATION Randy Aliment 1 and Manish Borde INTRODUCTION It is not uncommon in the United States for parties to resolve commercial disputes through litigation. In many ways, litigation is merely another cost of doing business. The purpose of this chapter is to summarize briefly the process of civil litigation in Washington s courts. The United States features a dual court system with federal courts and state courts. The federal court system hears cases involving federal matters and select matters between citizens of different states and/or countries. The federal and state court systems are independent of one another, and have their own rules and regulations. This chapter will for the most part focus on basic concepts that are applicable to both state court and federal court litigation. The following concepts will be discussed: 1. Overview of Washington State Courts and Federal Courts 2. Filing, Serving and Answering a Lawsuit 3. Personal Jurisdiction & Venue 4. The Discovery Stage of a Lawsuit 5. The Summary Judgment Stage of a Lawsuit 6. The Pre-trial Stage of a Lawsuit 7. Trial 8. Appeals 1 Randy Aliment is a Member at the Seattle office of Williams Kastner. Mr. Aliment s practice emphasizes commercial law advice and, litigation international law and higher education law. 2 Manish Borde is an Associate at the Seattle office of Williams Kastner. Mr. Borde s practice emphasizes commercial litigation and products liability litigation. 230

2 DOING BUSINESS IN WASHINGTON 26.2 OVERVIEW OF WASHINGTON STATE COURTS AND FEDERAL COURTS Most commercial lawsuits brought in a Washington State court are brought in superior court. The superior courts in Washington State are the courts of general jurisdiction. These courts have exclusive jurisdiction for felony matters, real property rights, domestic relations, estate, mental illness, juvenile, and civil cases over $50,000. The superior courts also hear appeals from courts of limited jurisdiction. There are 29 superior court judicial districts in the 39 counties. Superior court judges are elected on a non-partisan basis for a four-year term. There are three appellate divisions in Washington State. As explained further below (Section 1.7), a party to a lawsuit in state court may appeal a trial court decision to the appropriate Court of Appeals if the party feels there was an error of law made by the judge prior to or during trial. The Washington State Supreme Court is where appeals from decisions made by a Court of Appeals may be taken. The U.S. federal court system hears cases involving litigants from two or more states, violations of federal laws, treaties, the U.S. Constitution, admiralty, bankruptcy, and related issues. The trial courts are U.S. district courts, followed by United States courts of appeals and then the Supreme Court of the United States. There are 89 U.S. district courts located throughout the 50 states, with at least one U.S. district court in each state. There are two U.S. district level courts in Washington. The U.S. District Court for the Western District of Washington serves the area west of the Cascade Mountains and from Oregon to the Canadian border. This district has courthouses in Seattle and Tacoma. The Eastern District of Washington comprises 20 counties, and generally is all of the area of Eastern Washington east of the Cascade Mountains. The Eastern District of Washington has courtrooms in Spokane, Yakima, and Richland. Appeals from the Eastern District and Western District are taken to the United States Court of Appeals for the Ninth Circuit FILING, SERVING AND ANSWERING A LAWSUIT A lawsuit is initiated when a party files a complaint. The party who alleges injury and damages is known as the plaintiff, and the party alleged to be responsible for the injury and resultant damages is known as the defendant. It is possible for there to be more than one plaintiff and more than one defendant. Although the level of detail required in a complaint may differ depending on the law governing the lawsuit, as well as whether the complaint is filed in federal court or state court, in general a complaint must have the following elements: a short and plain statement of the grounds upon which the court's jurisdiction depends; a short and plain statement of the claim showing that the plaintiff is entitled to relief; and a demand for judgment for the relief the plaintiff seeks. See Fed. R. Civ. P. 8(a); CR 8(a). The court in which a complaint is filed issues a document, called a summons, to the plaintiff. The plaintiff must deliver the summons, along with a copy of the complaint, to the defendant(s). The process of delivering a summons and complaint to a defendant is called service. Service of the summons and complaint must be done in compliance with the rules of the court in which the lawsuit is filed. In general, service may be accomplished by an individual who is at least 18 years old and who is not a party to the lawsuit. A summons and complaint may be personally delivered to the defendant; left at the defendant s home with someone of 231

3 COMMERCIAL LITIGATION suitable age and discretion who also resides at the defendant s home; or delivered to an agent authorized by appointment or by law to receive service. See Fed. R. Civ. P. 4; CR 4. In federal court, if a defendant is not served within 120 days after the complaint is filed, the court on the request of a defendant or on its own after notice to the plaintiff must dismiss the action without prejudice against that defendant or order that service be made within a specified time. See Fed. R. Civ. P. 4(m). Service on a domestic corporation can be accomplished by a number of methods, including by delivering a copy of the summons and complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service. See Fed. R. Civ. P. 4(h). When a corporation is registered in Washington but does not have an officer in Washington upon whom legal service of process can be made, a lawsuit against the corporation may be commenced in any county where the cause of action arose, or where the corporation has property. See RCW In this situation, service may be made upon the corporation by depositing a copy of the summons in the office of the secretary of state. Id. However, if one utilizes this method of service, a copy of the summons must be mailed to the secretary or other proper officer of the corporation, at the place where the main business of the corporation is transacted, when the place of business is known, and be published at least once a week for six weeks in a newspaper of general circulation. See RCW As a practical matter, one can often find a corporation s registered agent by visiting the Washington Secretary of State website at Service on a foreign corporation can also be accomplished by a number of methods. See Fed. R. Civ. P. 4(f); CR 4(i). For example, service can be accomplished in conformance with any internationally agreed means of service that is reasonably calculated to give notice (e.g., the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents); as prescribed by the foreign country's law for service in that country in an action in its courts of general jurisdiction; as the foreign authority directs in response to a letter rogatory or letter of request; or unless prohibited by the foreign country's law, by using any form of mail that the clerk addresses and sends to the individual and that requires a signed receipt. See Fed. R. Civ. P. 4(f). However, many U.S. courts have concluded that the Hague Service Convention must be used when it is applicable, and that other mechanisms authorized by Rule 4 are preempted by the Convention when service is to a party in a member state. See Fang Shen, Are you Prepared for This Legal Maze? How to Serve Legal Documents, Obtain Evidence, and Enforce Judgments in China, 72 UMKC L. Rev. 215, 224 (2003). Although the Chinese position on the issue of exclusivity of the Convention is not entirely clear, it appears China will not recognize non- Convention methods when the documents sought to be served originate from countries that have a contractual relationship with China through treaty or convention. Id. at 225. The Hague Service Convention establishes a service mechanism through the operation of the "Central Authorities" of each country party to the convention. By way of example, the designated "Central Authority" for China is the Ministry of Justice, Department of Judicial Assistance and Cooperation, Division of Judicial Assistance at 10, Chaoyangmen Nandajie, Chaoyang District, Beijing, P.C , People's Republic of China. The Central Authority is 232

4 DOING BUSINESS IN WASHINGTON responsible for receiving foreign requests for service, serving documents on local residents and returning proof of service to the requesting state. A request for service by the Central Authority can be made by an attorney by submitting the documents to be served under cover of form USM-94, in duplicate to the foreign central authority. "Duplicate" means a completed USM-94; one original English version of the documents to be served (summons must bear seal of the court); one translation of all documents to be served; plus a photocopy of all of the above which constitutes the second set of documents. The Convention forms themselves (USM-94) do not need to be translated. See (last visited on February 22, 2010). Although China did not make a specific reservation regarding translations at the time it deposited its instruments of accession to the Convention, the Chinese Central Authority has advised the U.S. Embassy in Beijing that documents to be served should be translated into Mandarin Chinese. Id. Effective June 10, 2003, all requests for service of process in civil and commercial matters must be accompanied by a service fee, payable via international money order. Id. American courts have held that formal objections to service by mail made by countries party to a multilateral treaty or convention on service of process at the time of accession or subsequently in accordance with the treaty are honored as a treaty obligation, and litigants should refrain from using such a method of service. See e.g., DeJames v. Magnificence Carriers, Inc., 654 F.2d 280 (3d Cir. 1981), cert. den., 454 U.S. 1085; Porsche v. Superior Court, 123 Cal. App. 3d 755, 177 Cal. Rptr. 155 (1981). Accordingly, service by registered mail should not be used in China since it notified the Hague Conference on Private International Law and the Government of the Netherlands (the depository) on accession, ratification or subsequently that it objects to service in accordance with Article 10, sub-paragraph (a) of the Convention, via postal channels. See (last visited on February 22, 2010). A response to the complaint is called an answer. A defendant s answer must respond to each of the plaintiff s allegations by admitting the allegation, denying it, or pleading a lack of sufficient information to admit or deny the allegation. See Fed. R. Civ. P. 8(b); CR 8(b). At the time a defendant files an answer, the defendant must also raise whatever "affirmative" defenses he may have. The following defenses are examples of affirmative defenses: accord and satisfaction; arbitration and award; assumption of risk; contributory negligence; discharge in bankruptcy; duress; estoppel; failure of consideration; fraud; illegality; injury by fellow servant; laches; license; payment; release; res judicata; statute of frauds; statute of limitations; and waiver. The defendant may assert claims against the plaintiff, or counterclaims. The defendant may also serve and file a "third party complaint" in which the defendant seeks to join another party in the action if the defendant believes the party may be liable for some or all of the plaintiff's damages. Finally, a defendant can assert a claim, known as a crossclaim, against another defendant already named in the case by plaintiff. Rather than responding to the complaint with an answer, the defendant can choose to dispute the validity of the complaint by filing one or more motions (i.e. requests) to dismiss the complaint. A motion to dismiss a complaint must be filed within the time period specified in the 233

5 COMMERCIAL LITIGATION summons for an answer. The defendant must file an answer if the court denies the defendant s motion to dismiss. A decision that must be made when either initiating a lawsuit or responding to one is whether to request a jury trial. The United States Constitution affords litigants the right to a jury trial. In the non-criminal context, a jury is a group of people convened to render an impartial verdict (a finding of fact on a question). When a jury is not demanded by a party, the judge handless all matters in what is called a bench trial. There is both good and bad in utilizing the jury system and whether the good outweighs the bad (or vice versa) will depend on the particular facts of a case JURISDICTION AND VENUE The first question that every foreign corporation should raise when brought into a lawsuit pending in a Washington court is whether the court has personal jurisdiction over the corporation. Personal jurisdiction concerns a court's power over a particular defendant or piece of property. A court without personal jurisdiction over a defendant cannot bind any obligations on the defendant. However, personal jurisdiction may be waived by a defendant. Requirements in the United States Constitution, commonly known as due process requirements, limit the exercise of personal jurisdiction over nonresidents. A court s exercise of personal jurisdiction over a non-resident defendant is consistent with the Due Process Clause if the defendant has sufficient minimum contacts with the forum such that requiring the defendant to defend its interests in the forum does not offend traditional notions of fair play and substantial justice. Int l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945) (quoting Miliken v. Meyer, 311 U.S. 457, 463 (1940)). A defendant may be deemed to have minimum contacts with the forum state if the defendant s contacts come about by an action of the defendant purposefully directed toward the forum state. Asahi Metal Indus. Co., Ltd. v. Superior Court of Cal., 480 U.S. 102, 111 (1987) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)). The power of a court to assert personal jurisdiction over a foreign corporation arises in one of two paradigms: (1) the court can assert general jurisdiction over the defendant corporation or (2) the court can assert specific jurisdiction over the defendant corporation. A court can assert general jurisdiction over a defendant corporation when the corporation is carrying on in the forum a continuous and systematic, but limited, part of its general business, even where the dispute is not related to the defendant corporation s activities in the forum state. Keeton v. Hustler, 465 U.S. 770, (1984) (quoting Perkins v. Benquet Mining Co., 342 U.S. 437, 438 (1984)). A court can assert specific jurisdiction over a foreign corporation where a controversy is related to or arises out of a defendant s contacts with the forum. Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414 (1984) (quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). Thus, a foreign corporation is not necessarily shielded from a Washington court s jurisdiction merely because the foreign corporation does not have systematic and continuous contacts in Washington. Venue and personal jurisdiction are closely related. Whereas jurisdiction concerns a court s authority to hear a case, venue concerns the geographical location of the court. A case 234

6 DOING BUSINESS IN WASHINGTON can only be brought in a certain venue. For instance, in federal cases based on diversity of citizenship, the venue can only be (1) the district where any defendant resides if all defendants reside in the same state, (2) the district in which a substantial part of the events giving rise to the claim occurred, or (3) the district in which any defendant is subject to personal jurisdiction if there is no district in which the action may otherwise be brought. 28 U.S.C. 1391(a). A district court can transfer a lawsuit to any other district where it could have been brought. 28 U.S.C. 1404(a). In some circumstances, a case can be removed from Washington state court to a federal court. Most notably for foreign defendants, a case may be dismissed on the basis of forum non conveniens. Foreign defendants can utilize the doctrine of forum non conveniens if the court chosen by the plaintiff is inconvenient for witnesses, poses an undue hardship on the defendants, and/or the events leading to the lawsuit took place in another country. If the court agrees that the only way to address these inconveniences/hardships is for the case to be adjudicated in a foreign country, the court will dismiss the case. Accordingly, a foreign defendant should almost always do a dual analysis of personal jurisdiction and venue issues THE DISCOVERY STAGE OF A LAWSUIT Discovery refers to the rules that facilitate the process by which a party to a lawsuit gathers information about the claims and/or defenses of other litigants. Documents and other evidence can be obtained through a variety of methods during the discovery phase of litigation. Common methods of discovery include: (1) interrogatories; (2) requests for production of documents; (3) requests for admissions; and (4) depositions. An interrogatory is a written question from one party to the lawsuit to another that must be answered under oath. From a practical standpoint, it is usually attorneys that draft responses to interrogatories and thus a party should keep this in mind when determining what to seek by way of interrogatory versus deposition. Requests for production of documents are written requests that require the responding party to produce for inspection documents (including electronic documents) requested by the party propounding the requests for production. Notably, just because a party does not have physical possession of a requested document does not by itself excuse a party from producing the document. A party is obligated to produce not only what is in its physical possession, but also what is under its control. A request for admission, or request to admit, is a statement sent from one party to another for the purpose of having the adversary admit or deny the statements or allegations. Requests for admission are often an efficient way for a party to have the opposing party authenticate a document for use at trial. Depositions are perhaps the most useful and important discovery tool. A deposition is a witness's out-of-court testimony that is reduced to writing for later use in court or for discovery purposes. Black s Law Dictionary 196 (2nd pkt. ed. 2001). Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. CR 26. It is not ground for objection that the information sought will be inadmissible at the trial 235

7 COMMERCIAL LITIGATION if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. Id. Even though parties have a wide range of latitude with respect to what information they can seek during discovery, certain information is protected from discovery under Washington law. The protected information (or privileged information) relates to communications that arise out of the following relationships: attorney-client; clergyman or priest; counselor; husbandwife; optometrist-patient; physician-patient; and psychologist-client. ER 501. Under the attorney-client privilege, an attorney or counselor shall not, without the consent of his or her client, be examined as to any communication made by the client to him or her. RCW (2)(a). Under the clergyman/priest privilege, a priest or member of the clergy shall not, without the consent of a person making the confession or sacred confidence, be examined as to any confession or sacred confidence made to him or her in his or her professional character, in the course of discipline enjoined by the church to which he or she belongs. RCW (3). Under the counselor privilege, a mental health counselor, independent clinical social worker, or marriage and family therapist may not disclose, or be compelled to testify about, any information acquired from persons consulting the counselor/therapist when the information was necessary to enable the counselor/therapist to render professional services to those persons. RCW (9). Under the husband-wife privilege, the baseline rule is that a spouse cannot be examined for or against his or her spouse, without the consent of the spouse; nor can either spouse during marriage or afterward, be without the consent of the other, examined as to any communication made by one to the other during the marriage. RCW (1). Under the optometrist-patient, physician-patient, and psychologist-client privileges, the baseline rule is that a physician or psychologist cannot, without the consent of his or her patient/client, be examined in a civil action as to any information acquired in attending such patient/client, when that information was necessary to enable the physician/psychologist to prescribe or act for the patient. RCW (4) THE SUMMARY JUDGMENT STAGE OF A LAWSUIT Discovery marks the end of the information exchange portion of a lawsuit. Oftentimes in the commercial context, resolution of a lawsuit may be available prior to trial, at the summary judgment stage. A summary judgment is a determination made by a court on the merits of an entire case, or of specific issues in that case. Summary judgment must be requested by a party, through a motion for summary judgment. A motion for summary judgment must be filed with supporting evidence. The party bringing the motion must have conducted discovery and/or submitted evidence to the court. Witness testimony or documents received from expert witnesses must be accompanied by an affidavit from the witness. Supporting (and opposing) affidavits must be made on personal knowledge, must set forth such facts as would be admissible in evidence, and must show affirmatively that the witness is competent to testify to the matters stated in the affidavit. See e.g., CR 56(e). Sworn or certified copies of all papers referred to in an affidavit must be attached or served with the affidavit. Id. The court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or additional affidavits. Id. When a motion for summary judgment is made and supported by admissible evidence, an opposing party may not 236

8 DOING BUSINESS IN WASHINGTON rest upon the mere allegations or denials of his pleading, but his response, by affidavit, must set forth specific facts showing that there is a genuine issue for trial. Id. Summary judgment is appropriate only if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits submitted in support of a motion for summary judgment, if any, show that there is no genuine issue as to any material fact and that the party requesting summary judgment is entitled to a judgment as a matter of law. Bainbridge Citizens United v. Washington State Dept. of Natural Resources, 147 Wn. App. 365 (2008). When determining whether an issue of material fact exists on summary judgment, a court must construe all facts and inferences in favor of the party not requesting summary judgment. Ranger Ins. Co. v. Pierce County, 164 Wn.2d 545, 192 P.3d 886 (2008). A genuine issue of material fact exists, for summary judgment purposes, where reasonable minds could differ on the facts controlling the outcome of the litigation. Id. Accordingly, when there is a legitimate dispute as to a factual issue, the resolution of which is necessary to decide a claim, summary judgment is not an option and the claim must be adjudicated at trial THE PRE-TRIAL STAGE OF A LAWSUIT Perhaps the most important work done in connection with a trial occurs after the summary judgment stage but prior to trial, during the pre-trial stage. The following concepts are germane to a discussion about pre-trial matters in both the state court and federal court setting. Motions in Limine; Motions to Consolidate or Separate Trials; Witness Lists; Exhibit Lists; Joint Statement of Evidence; and Trial Briefs. The purpose of motions in limine is to exclude evidence from trial in accordance with the applicable rules of evidence. A motion in limine can seek to: limit or exclude expert testimony at trial; limit or exclude lay witness testimony; exclude prejudicial evidence; exclude irrelevant testimony; exclude character evidence; exclude subsequent remedial measures; or exclude testimony not grounded in personal knowledge. The applicable rules in both state court and federal court allow for the consolidation or separation of trials. With respect to consolidation, when actions involve a common question of law or fact, the court may order a joint hearing or trial of any or all the matters at issue. With regard to separation, the court may order a separate trial of any claim, cross claim, counterclaim, or third party claim, or of any separate issue in furtherance of convenience or to avoid prejudice. An example of where separation may be a good idea is where the damages portion of a lawsuit 237

9 COMMERCIAL LITIGATION speaks to the emotions of a jury, and a strategic advantage may be gained from trying the liability portion of the case separately from and prior to the damages portion of the case. Witness lists provide the names of the individuals a party expects to call at trial. Exhibit lists provide a list of documents a party wishes to use at trial. The list usually contains the date of the document, bates stamp (a number placed on a document for purposes of identification), and a description of the document. A joint statement of evidence combines the witness lists and exhibit lists for all the parties. Plaintiffs traditionally take the laboring oar in assembling the joint statement of evidence. The joint statement of evidence also includes a party s objections to another party s exhibits. A trial brief states the facts, evidence, and legal arguments that a party plans to present at trial and typically includes citations to legal authority to support the party s position. The trial brief is like a road map that tells the judge before the trial what the party drafting the trial brief wants the court to find and what the disagreements are with the other party TRIAL Following the resolution of pre-trial matters and motions, jury selection will begin if one of the parties had demanded a jury trial at the beginning of the lawsuit. Jury selection begins with a group of randomly chosen citizens from the community. If the lawsuit is brought in state court in Seattle, King County, the potential jurors are all residents of King County. If the lawsuit is brought in Seattle, but in federal court (United States District Court, Western District of Washington), the potential jurors are residents of the area west of the Cascade Mountains and from Oregon to the Canadian border. Although judges have much latitude in terms of how the jury selection process proceeds, the next step in selecting a jury involves a practice known as voir dire. During voir dire, members of the jury pool are questioned about their backgrounds and possible biases. Obtaining information about a potential juror s background or biases is crucial to selecting an impartial jury. Once a jury is selected, the parties deliver their opening statements. The purpose of opening statements is for the plaintiff and defendant to tell the jurors something about the case they will be hearing. Although different judges grant different amounts of leeway to the parties attorneys, opening statements are technically supposed to be confined to the facts that will be proved by the evidence, and cannot be argumentative. After opening statements, the plaintiff presents its case-in-chief. The plaintiff usually bears the burden of proof, which means the plaintiff must, by a preponderance of the evidence, demonstrate the facts necessary to establish its claims. The defendant is given the opportunity to present its evidence following the completion of the plaintiff s case-in-chief. When the defendant is finished presenting its evidence, the plaintiff can present rebuttal witnesses or evidence to refute evidence presented by the defendant. However, rebuttal evidence relates only to evidence not presented in the plaintiff s case initially. After the defendant is done presenting its evidence, the parties are given an opportunity to present closing arguments. The closing arguments discuss the evidence and properly drawn 238

10 DOING BUSINESS IN WASHINGTON inferences. The attorneys cannot talk about issues outside the case or about evidence that was not presented. After the plaintiff has made its case, the defense then presents its closing arguments. After closing arguments come the jury instructions. The judge instructs the jury about the relevant laws that should guide the jury s deliberations. In Washington state court, the judge is required to read the instructions to the jury. In giving the instructions, the judge will state the issues in the case and define any terms or words that may not be familiar to the jurors. The judge also informs the jury that it is the sole judge of the facts. After getting the jury instructions from the judge, the jury retires to the jury room to begin deliberating. When the jury reaches a decision, the parties and their counsel return to court, and the decision is announced APPEALS The right to appeal is not an automatic one for the losing party. There usually must be a legal basis for the appeal. Furthermore, an appeal is not a retrial of the case. The appeals courts do not usually consider new evidence. Appeals are usually based on arguments that there were errors in the trial s procedure or errors in the judge's interpretation of the law. The party appealing is called the appellant, or petitioner. The other party is the appellee or respondent. The appeal begins when a party files a notice of appeal. The appellant must file a brief, which contains a written argument containing the appellant s view of the facts and the legal arguments upon which it is relying in seeking a reversal of the trial court. The appellee then has a specified time to file a brief in response to the appellant s brief, and the appellant may then file a rebuttal brief responding to the appellee's brief. The appellate court determines whether the trial court erred in applying the law. However, not every error of law mandates a reversal of the trial court s decision. Harmless errors that did not prejudice the rights of a party will likely not result in a reversal of a trial court s decision. If the appeals court affirms the trial court's ruling, the case ends, unless the losing party appeals to an even higher court. If the ruling is reversed, the appellate court will usually send the case back to the trial court and order the trial court to take further action. 239