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Transatlantic business brief march 2014


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Legal Guide for European companies doing business in the USA. Topics: Contracts, Immigration and more.

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Transatlantic business brief march 2014

  1. 1. 1 | European Companies Starting-Up Operations In The Us Should Review Terms And Conditions Of Their Sales Contracts. Most foreign companies that establish operations in the US have usually been operating in their home countries for an extended period and have established terms and conditions on which they sell their products and services to customers. When those companies commence operations in the US (or start selling into the US market through a distributor or agent), they should review those terms and conditions to insure that they are suitable for the US. In particular, a number of amendments are usually recommended to make sure that the company enjoys all of the rights and protections it may need under US law. LIMITING LIABILITY: First, most suppliers of goods and services will want to limit the warranties that they are making with respect to those products. While express warranties cannot be limited, there are provisions that are generally inserted into terms and conditions of sale that can limit the operation of certain implied warranties. Perhaps more importantly, most suppliers will want to limit the remedies available to customers or end users in the event that the products are defective or simply don’t perform as expected. In addition to limiting the remedies available to customers, certain producers may wish to establish an overall cap on their potential liability to customers. Besides establishing an overall cap on liability, producers will also want to insure that they exclude the possible application of certain types of damages, such as consequential, indirect or punitive damages. Each of the above limitations or exclusions must be expressed in the terms and conditions of sale in prescribed ways in order to be effective and enforceable. As a related matter, the supplier will need to determine whether it has the personnel and capabilities to perform any remedy that is offered. This is critical since the failure to provide a remedy may entitle the customer or end user to exercise other remedies that may be more expensive. Another issue that most producers wish to address is to make sure that the terms and conditions of the manufacturer are the exclusive terms as between the supplier and the customer or end user. In particular, this means making Transatlantic Business Law Brief • March 2014 WILLIAMS MULLEN INTERNATIONAL PRACTICE UPCOMING EVENTS: Foreign Direct Investment Into the USA: Speakers: Eliot Norman and Robert C. Dewar Munich, Germany – April 7 A Soft Landing for Aerospace Companies: contact Silke.Schmidt @STMWI.BAYERN.DE. Toulouse, France – April 10 Les Développements Récents Concernant Les Visas à l’entrée du Territoire Américain; Le Droit Social Américain Applicable Aux Expatriés Travaillant Aux Etats-Unis: contact Bordeaux, France – June 17, 18, 19 U.S. Market Access: Sponsored by CCI- Aquitaine: contact international
  2. 2. 2 | sure that there are no alternative, different or additional terms that are incorporated into that contract. As with the limitations and exceptions described above, there are certain prescribed methods of incorporating language to insure that such terms from the customer do not unexpectedly become part of the contract. Where a manufacturer is selling into the US through a distributor, the manufacturer should insure that under the distribution agreement the distributor is only going to pass the manufacturer’s terms and conditions on to end users and that the distributor will not include any additional terms of the distributor. DISPUTE RESOLUTION. Suppliers of goods will also want to control the location of any litigation that may arise with respect to the products and will usually want to include a provision specifying an exclusive jurisdiction where claims may be brought. Usually that will be the state in which the manufacturer or its U.S. based subsidiary has its principal place of business so that the manufacturer is litigating in its “home” court. Many times, we see the U.S. subsidiary of a foreign supplier that fails to change the terms and conditions from those used by the parent company in their home country, which usually specify the courts of that home country as the location for any litigation. In many circumstances, such a provision will be unenforceable because neither the seller of the goods (the US subsidiary or a US distributor) nor the customer has any nexus with that foreign jurisdiction. In those circumstances, the foreign supplier may be forced to litigate in any jurisdiction reasonably connected with the customer. Finally, we have found that federal courts are an excellent choice for resolving disputes. The federal courts often require mediation of the dispute (at no cost to the parties) and set quick trial dates, which encourages settlements. LIQUIDATED DAMAGES. Liquidated damages (for example, a fixed sum per day for damages for delay), are another area of concern for European suppliers. Liquidated damages (“LD” ) do have several advantages. For sellers, a LD provision reduces uncertainty by capping the seller’s liability, even if the cap turns out to be greater than actual damages to the buyer. For the buyer, a LD paragraph reduces uncertainty by fixing at least an acceptable level of compensation in the event of a breach. If there is a dispute, an LD provision eliminates the need for the non-breaching party to prove its actual damages, and streamlines and reduces the costs of dispute resolution because the buyer need only prove the amount of delay. However, you should negotiate these clauses carefully. U.S. courts usually will not intervene under what is known as the “blue pencil rule” to modify a “liquidated damages” paragraph so that the buyer can only enforce a lesser amount than that called for in the liquidated damages provision of the contract. The judge will usually either declare the “liquidated damages” provision to be enforceable or strike the paragraph as excessive and an unenforceable “penalty.” Further, recent cases have upheld liquidated damages against the sellers even where the amount exceeds the original value of the contract. One other point. Some buyers introduce uncertainty in the contracts by not making LD the exclusive remedy for damages for delay, reserving the right to sue for actual damages if they exceed the the LD amount. This creates problems for the buyer and the seller. Some courts will view the LD clause to be unenforceable and a “penalty”, increasing the litigation costs and risks for both parties. It is far better to make LD the “exclusive” remedy for the breach of contract, negotiate the amount, and make sure that other provisions in the contract do not open the door to expensive litigation. RETENTION OF TITLE. Finally, many terms and conditions from European based companies include a retention of title clause. Such a clause enables the seller to retain title to the goods until the purchase price is fully paid and to trace the proceeds of sale. Such clauses only have limited applicability in the US. Generally speaking, such clauses are best supplemented by a security interest in the goods that should be perfected in accordance with law. This means an extra step: usually filing a UCC-1 Form with the State where the buyer does business. If that happens, the supplier of the goods will be able to establish priority over competing creditors of its customer. TRANSATLANTIC BUSINESS LAW BRIEF CONT.
  3. 3. 3 | U.S. Department of Justice and Homeland Security Send Strong Message about Visa Abuse The US Departments of Justice and Homeland Security recently settled an action against Infosys, a large Indian outsourcer, for improper use of business travel documents for $35 million. The settlement was reached after a two year investigation of Infosys’ practice of sending employees into the US on B-1 visas for assignments that involved taking long term employment in the US. The settlement sends a strong message to international businesses that visa fraud is clearly on the radar for these government agencies and that foreign businesses will not be entitled to take short cuts in obtaining proper travel documents, no matter how big they are. The main temptation to avoid is using the Visa Waiver (ESTA) for 90 day visits that end up requiring local productive work by the “visitor”. For more information on narrow exceptions that do allow productive work while on ESTA or a B-1 visa, please contact enorman@ Virginia ranked Best State in America for Business Virginia was just recognized by Forbes as the Best State for Business in its 2013 review. Forbes study examined each state in six categories: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. Virginia ranked in the top five states in four of those areas. Other rounding out the Top 10: North Dakota, North Carolina, Utah, Colorado, Nebraska, Texas, Minnesota, Washington State and Georgia. See states-for-business Please note: This newsletter contains general, condensed summaries fo actual legal mattes, statutes and opinions for information purposes. It is not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel. TRANSATLANTIC BUSINESS LAW BRIEF CONT. Eliot Norman Partner-International P: 001.804.420.6482 Robert C. Dewar Partner P: 001.804.420.6935 For more information, please visit our website or contact us: