Hopeless for Swedish Companies in US Courts

Billions in legal costs. The costs for Swedish companies that are forced to handle disputes in American courts are now on a level which has long passed the borders of reason. Swedish companies that plan to do business there ought to therefore carefully consider if it is worth the cost and the risk, writes Morten Thorsud, Nordic Head of If Insurance.

In the Western world, we believe that we can trust in courts and the justice system, unlike in dictatorships and other nations with widespread corruption, where the judiciary is often swayed by local rulers or by bribes. The general picture is then that companies are exposed to fewer risks in a developed democracy than in a country where the judiciary does not function.

It is therefore a strange fact that the nation in which Swedish companies should be the most cautious in a judicial context is the U.S.

Lately, we have seen several examples of how the American judicial system has put Swedish companies into a hopeless situation. The costs have become sky-high and court rulings, to the extent that cases even get to court, have given results that verge on the absurd.

The reason is, in essence, a judiciary which differs from its Swedish and European counterparts. The American system’s disparate principles and rules mean that the sums Swedish companies need to handle disputes are now on a level which long ago passed the borders of reason.

To protect themselves from legal disputes, companies pay an insurance premium. The cost of this depends on the risk the company has of ending up in a lawsuit, paying damages and the like. Today, premiums for these insurances are over 10 times more expensive in the U.S. than in Europe.

Concretely, it is an issue of a number of phenomena in the American legal system. Here are several that directly influence Swedish companies:

– It is easy to start a lawsuit in the U.S. An American court agrees to accept most cases, as long as there is even the tiniest connection with the country. Courts then usually apply American laws, despite the case originally concerning entirely different countries. Thirty years ago, a Swedish company exported an elevator to Korea. The elevator was later sold to the U.S. The Swedish company is now an object to summons according to American law. There are multiple examples of international principles concerning which land should handle a dispute, so-called choice of law and jurisdiction, which are not followed. Summonses are raised in the U.S. despite the case having nothing to do with America.

– Attorney’s fees are unavoidable. The greatest risk for companies is often not damages, even if they can be extremely high, but the enormous attorneys’ fees. These fees are impossible to avoid. In Sweden, it is a basic principle that the party that loses pays the opponent’s attorney fees, which prevents frivolous litigation. Not so in the U.S. In conjunction with a lawyer getting paid a percentage of what he or she succeeds in procuring (as a rule, the attorney takes approximately 30 percent of a damages payout or settlement), it becomes purely process-driven. The complainant and their lawyer have nothing to lose by launching a dispute. Alleged consumer injury thus becomes a very profitable business for lawyers in the U.S. Many companies choose, in these cases, to settle rather than end up in protracted litigation, even in cases where the accuser probably would not be judged as having a right to compensation.

– Jury members lack knowledge. The American jury system is hedged in by rules and procedures that unfortunately are exploited by both parties. Those who sit on the jury are the American public. As well as the lack of jurisprudential competence, which they have as a starting point, the accuser can always deselect jury candidates. The result is that critical jurors are removed and those who remain are the impressionable and easily led. Those who sit on the jury can even think that it is fairly entertaining to decide that a foreign company should pay millions of dollars to an “ordinary, decent” American, something of which we have seen examples. Nationalism has no natural embargo in the jury system; the penalties imposed are extremely high.

American justice has developed into a serious problem for companies. Since 2007, Nordic companies insured by If paid nearly 800 million Swedish crowns in legal costs in the U.S. In the industry as a whole, it is a matter of billions that companies are forced to pay out. The U.S. is a large and lucrative market, but it is undermined by a justice system which has gotten out of control. Swedish companies that plan to do business there ought to therefore carefully consider whether it is worth the costs and risks. On a political level, the government needs to raise the issue with its American colleagues. International legal principles must have an impact, even in America. Commerce and business in an international environment demand that everyone follow the same rules. It is essential for our businesses as well as theirs.