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The Evolving Forum Shopping System

By Cornell Law Review

?As a moth is drawn to the light, so is a litigant drawn to the United States.?¹  Notwithstanding Lord Denning?s widely cited aphorism, this editorial and the article on which it is based suggest that the draw may no longer be as strong as it once was.  Using a combination of doctrinal and empirical analysis, the article shows that the U.S. legal system has evolved in a direction that makes it less likely to attract plaintiffs than it supposedly once did; and the article shows that contrary to the widely held belief that transnational forum shopping into U.S. courts has been increasing, it may in fact have been on a decline over the last two decades.

These findings pose an interesting puzzle for legal theory: Why, in our era of globalization, would transnational litigation in U.S. courts be decreasing?  The findings also have implications for the ongoing debate about the proper doctrinal responses to forum shopping.  If, contrary to the conventional wisdom, the United States is not experiencing a transnational litigation explosion, new anti-forum-shopping measures might not be as urgent or necessary as their advocates claim.

Part I of this editorial summarizes the theoretical foundations for understanding forum shopping behavior and defines the concept of a ?forum shopping system.?  Part II describes the current understanding of the American forum shopping system.  Part III presents an updated understanding of the American forum shopping system, and argues that the system no longer encourages plaintiffs to pursue transnational claims in U.S. courts to the extent it supposedly once did.  Part IV uses statistical analysis to take a closer look at the operation of one of the doctrinal cornerstones of the forum shopping system: the forum non conveniens doctrine.  Finally, Part V discusses the broader implications of the article?s findings.

I. A Theory of Forum Shopping

Forum shopping is a plaintiff?s decision to file a lawsuit in one court rather than another potentially available court.  This definition does not discriminate between domestic and foreign plaintiffs: a plaintiff?s decision to file a transnational suit in a U.S. court is forum shopping even if the plaintiff is a U.S. citizen, insofar as that decision represents a choice between the U.S. court and a potentially available court in another country.

From a simple rational choice perspective, a plaintiff will choose the court in which the expected value of her claim (less the costs of litigation) is the highest, based on the substantive and procedural rules that the court applies.  But forum shopping entails more than simply analyzing substantive and procedural law to estimate the comparative expected values of claims in different legal systems.  It also depends on plaintiffs? expectations about two types of court decisions: court access decisions and choice-of-law decisions.

A court access decision is a decision by a court to allow or not to allow a plaintiff?s claim to proceed in that court.  For example, court access decisions in the United States include subject matter jurisdiction, personal jurisdiction, and forum non conveniens decisions.  A plaintiff is unlikely to incur the costs of filing a lawsuit in a particular court unless she believes that some chance of a favorable court access decision exists.  Stated more generally, other things being equal, the higher a plaintiff?s expectation that a particular court will make a favorable court access decision, the more likely she is to file a lawsuit in that court.

In a choice-of-law decision, a court decides whether to apply its own legal system?s substantive law or a foreign system?s substantive law.  Like court access decisions, choice-of-law decisions can have important implications for forum shopping?particularly transnational forum shopping.  For example, if a plaintiff files a transnational suit in a U.S. court because she prefers U.S. substantive law, the plaintiff will not obtain the sought-after benefits of that law if the court instead decides to apply the substantive law of another country that also has connections to the dispute.  In this sense, one can understand choice-of-law decisions as ?law access? decisions.  Insofar as a plaintiff?s preference for a court in a particular legal system is based on a preference for that system?s substantive law, then, other things being equal, the higher the plaintiff?s expectation that the court will apply its domestic law, the higher the likelihood that the plaintiff will select that court.

In these ways, forum shopping is strategic behavior?that is, behavior by one actor that depends not only on that actor?s preferences, but also on her expectations about the behavior of other actors.  Specifically, forum shopping behavior is based not only on a plaintiff?s preference for a particular legal system?s substantive and procedural law, but also on the expected court access and choice-of-law decisions of courts.  After all, those decisions will determine whether a plaintiff will be able to obtain the substantive and procedural benefits of her preferred legal system.

A forum shopping system consists of those features of a legal system that influence levels of forum shopping by shaping plaintiffs? expectations of favorable court access and choice-of-law decisions. ²  According to strategic choice theory, an actor?s expectations about the behavior of another actor rely largely on inferences about the other actor?s future behavior drawn from that other actor?s past behavior.  For this reason, strategic behavior is largely a function of available information about the past behavior of other relevant actors.  In forum shopping, this information includes published court access and choice-of-law decisions.  By publishing such decisions?either in official reporters or in widely available electronic databases such as Lexis or Westlaw?a court signals how it is likely to make similar decisions in future cases, thus influencing plaintiffs? expectations of favorable court access and choice-of-law decisions.  Thus, the key features of a forum shopping system may include not only prominent published opinions, but also more general patterns of court access and choice-of-law decisionmaking in published decisions.  A forum shopping system can affect transnational litigation levels because, other things being equal, the higher plaintiffs? expectations of favorable court access and choice-of-law decisions by the courts in a particular legal system, the more lawsuits plaintiffs are likely to file there.

II. The Current Understanding of the American Forum Shopping System

It is widely believed that American law is more favorable to plaintiffs than the law of most other countries.  Substantively, U.S. law is ?more likely than foreign law to allow recovery and allow it for more elements of harm.? ³  For example, the United States offers not only theories of strict liability, but also punitive damages.  Procedurally, the United States offers advantages including liberal pre-trial discovery, trial by jury, contingency fee arrangements, and the so-called ?American rule,? according to which a losing plaintiff ordinarily is not liable for the defendant?s attorney fees.  Together, these substantive and procedural advantages for plaintiffs supposedly make the United States a ?magnet forum,? a forum that ?attract[s] the aggrieved and injured of the world.? ⁴

However, as the theory of forum shopping developed above posits, forum shopping behavior depends not only on plaintiffs? substantive and procedural law preferences, but also on their expectations about court access decisions and choice-of-law decisions?expectations that the forum shopping system shapes.  The current understanding is that two features of the American forum shopping system encourage transnational forum shopping into U.S. courts by raising plaintiffs? expectations that U.S. courts will grant them court access and give them the benefits of favorable American law.

The first feature is a permissive approach to personal jurisdiction.  One can best understand this feature by comparing it to an earlier approach to personal jurisdiction, which was based on the Supreme Court?s 1878 decision in Pennoyer v. Neff. ⁵  In Pennoyer, the Supreme Court adopted a strict territorial approach to personal jurisdiction.  Under this approach, a plaintiff ordinarily could pursue litigation against a non-consenting defendant only in U.S. states in which the defendant either had property or could be served.  Pennoyer thus severely limited a plaintiff?s choice of forum.

The current U.S. approach to personal jurisdiction?which is based on the Supreme Court?s 1945 decision in International Shoe Co. v. Washington⁶?is considerably more permissive than the Pennoyer approach.  After International Shoe, physical presence of the defendant?s property or person in the forum state?s territory is no longer necessary.  This makes it easier for a plaintiff to establish personal jurisdiction over a defendant?even when the defendant is outside the United States, or even when the activity giving rise to the dispute occurred outside the United States.  This permissive approach to personal jurisdiction increases plaintiffs? expectations of favorable court access decisions, thereby encouraging them to file transnational lawsuits in U.S. courts.

The second feature of the American forum shopping system as currently understood is a strong pro-domestic-law bias in choice-of-law decisionmaking by U.S. courts.  Until the 1950s, territoriality dominated choice of law just as it had dominated personal jurisdiction.  Reflecting this territorial approach, the First Restatement?s general choice-of-law rule for tort cases was that a court should apply ?the law of the place of wrong.?  For contract cases, the rule was that the law of the place of contracting should apply.  Scholars widely understand the First Restatement?s territorial choice-of-law rules to have limited the substantive law incentive for plaintiffs to forum shop into U.S. courts.⁷  After all, ?[i]t would do the plaintiff no good to sue in a forum with favorable domestic law if a court there would apply the law of some other jurisdiction.?⁸

However, beginning in the 1950s, U.S. courts increasingly discarded the classic territorial approaches to choice of law and began replacing them with various flexible multi-factor choice-of-law methods, the most prominent of which are ?interest analysis? and the ?most significant relationship? method set forth in the Second Restatement of Conflict of Laws.  According to choice-of-law scholars, this ?choice-of-law revolution? gave rise to a strong bias in favor of applying domestic law.  This pro-domestic-law bias is said to encourage transnational forum shopping into U.S. courts by raising plaintiffs? expectations that judges will apply plaintiff-favoring U.S. substantive law in transnational litigation.

The conventional wisdom is that the American forum shopping system has combined with the process of globalization to increase levels of transnational litigation in U.S. courts.  The logic behind this understanding is highly plausible.  Globalization entails increasingly numerous transnational interactions.  More transnational interactions give rise to more transnational disputes, and plaintiffs bring a disproportionately large number of these disputes to U.S. courts because the American forum shopping system promises them access to favorable U.S. substantive and procedural laws.  In terms of the theory of forum shopping, the permissive approach to personal jurisdiction creates high expectations of favorable court access decisions, and pro-domestic-law bias creates high expectations of favorable choice-of-law decisions, encouraging plaintiffs to file transnational claims in U.S. courts.  Thus, transnational litigation in U.S. courts is said to be widespread and increasing.  Indeed, some claim that the United States is experiencing a ?transnational litigation explosion.?⁹

In summary, our current understanding of transnational litigation in U.S. courts is based on two premises: first, that the United States has a forum shopping system characterized by a permissive approach to personal jurisdiction and an approach to choice of law that favors application of plaintiff-favoring American over foreign law; and second, that this forum shopping system has contributed to an increase in transnational forum shopping into U.S. courts.

III. A New Understanding of the Forum Shopping System

The article on which this editorial is based presents empirical evidence suggesting that these premises may no longer be sound.  The American forum shopping system appears to have evolved.  First, by aggressively using the forum non conveniens doctrine to dismiss transnational litigation, the U.S. district courts significantly offset the incentives that permissive personal jurisdiction creates.  Traditionally, courts infrequently used the forum non conveniens doctrine in transnational litigation.  When used, courts applied it cautiously to dismiss cases only when necessary to avoid an abuse of process.  The permissive approach to personal jurisdiction that emerged in the wake of International Shoe was thus left largely unchecked.  But according to my analysis, the U.S. district courts now dismiss transnational claims on forum non conveniens grounds at an estimated rate of almost 50 percent in their published decisions.  This aggressive application of the forum non conveniens doctrine fosters lower expectations of favorable court access decisions.

The choice-of-law component of the American forum shopping system has also evolved.  According to the conventional understanding, strong pro-domestic-law bias in choice-of-law decisionmaking emerged in the wake of the American choice-of-law revolution.  This bias supposedly encourages transnational forum shopping into U.S. courts by plaintiffs seeking favorable U.S. substantive law.  But my analysis suggests that in the current forum shopping system, the courts are sending a different signal.  U.S. district court judges apply foreign law in almost half of their choice-of-law decisions in published transnational tort cases.  Plaintiffs? expectations of favorable choice-of-law decisions in U.S. courts are, therefore, likely to be lower than they were under the prior system.

Thus, the American forum shopping system has evolved in a direction that makes it less likely to encourage transnational forum shopping into U.S. courts than it supposedly once did.  After International Shoe, the system?s permissive approach to personal jurisdiction may have fostered high expectations of favorable court access decisions; but in the current system, aggressive use of the forum non conveniens doctrine to dismiss transnational suits offsets those expectations.  After the choice-of-law revolution, the system?s pro-domestic-law bias may have fostered high expectations of favorable choice-of-law decisions; but there no longer appears to be such a bias.

Moreover, an analysis of data collected by the Administrative Office of the U.S. Courts (AO) indicates that transnational litigation in U.S. courts may actually be decreasing, not increasing.  The AO collects data on every civil action filed in the U.S. district courts.  For diversity cases, this data includes a variable indicating whether the parties are domestic or foreign.  Thus, it is possible to identify alienage suits?suits over which jurisdiction exists because the dispute is ?between . . . citizens of a [U.S.] State and citizens or subjects of a foreign state.?¹⁰  Alienage litigation presumably represents the bulk of transnational tort and contract litigation in the U.S. district courts, as tort and contract claims ordinarily arise under U.S. state law, not U.S. federal law.

My analysis of the AO data indicates that alienage filings have been declining.  The estimated number of alienage filings declined dramatically in the late 1980s (from 9,276 in 1987 to 4,806 in 1989).  The decline continued at a more modest rate through the 1990s (from 3,618 in 1990 to 2,610 in 1999).  After a one-year uptick to an estimated 3,131 alienage filings in 2000, the decline continued into the 2000s (from 2,342 in 2001 to 1,637 in 2005).  Both U.S. plaintiff and foreign plaintiff alienage filings have exhibited this same general downward trend.  Meanwhile, the general trend in both total filings and federal question filings is upward, and domestic diversity filing rates have held roughly steady.  Compared to other types of litigation, the decline in alienage litigation is unusual.  These findings regarding alienage filings are consistent with an earlier study by Kevin Clermont and Theodore Eisenberg in which they found a ?plummeting? number of alienage cases terminating?by settlement, judgment, or otherwise?in the U.S. district courts each year.¹¹

My analysis also indicates that alienage litigation constitutes a very small portion of the total suits filed in the U.S. district courts.  In the decade ending 2005, alienage filings represented an estimated 0.97% of total civil actions filed in the U.S. district courts.  This percentage has declined, from an estimated 1.26% in 1996 to 0.71% in 2005.  Alienage suits by foreign plaintiffs against U.S. defendants constitute only about one-half of one percent of all civil actions filed in the U.S. district courts.

What about other types of transnational litigation in U.S. courts?  Unfortunately, the AO data does not separately identify transnational litigation over which the U.S. district courts have subject matter jurisdiction on grounds other than alienage.  For example, the AO data does not identify transnational suits over which there is federal question, admiralty, or bankruptcy jurisdiction, or jurisdiction based on the Alien Tort Statute or the Foreign Sovereign Immunities Act.  Moreover, because the AO data includes only filings in the U.S. federal courts, it cannot capture transnational litigation in U.S. state courts.  The AO data therefore leaves open the possibility that the decline in alienage filings extends to other types of transnational litigation in U.S. courts; but it also leaves open the possibility that one or more of these other types of transnational litigation may be increasing even as alienage litigation is decreasing.  Without more comprehensive data, inferences about broader trends in transnational litigation in U.S. courts must remain uncertain.  Nevertheless, these findings challenge the widely held assumption that transnational forum shopping into U.S. courts is on the rise.

IV. Forum Non Conveniens in Action

As Part III argued, the forum non conveniens doctrine plays a central role in the current forum shopping system.  However, we know very little about how judges actually make forum non conveniens decisions.  Part IV of the article upon which this editorial is based addresses this gap in our understanding of the American forum shopping system by presenting a systematic empirical analysis of an original dataset of forum non conveniens decisions in the U.S. district courts.  The results suggest that judges? forum non conveniens decisions do a better job distinguishing between appropriate and inappropriate forum shopping, are more predictable, and are less influenced by caseload and ideology, than the doctrine?s critics indicate.  However, the results also reveal evidence of significant discrimination against foreign plaintiffs?at least in decisions made by judges who were nominated by Republican presidents.  This finding may raise questions about United States compliance with equal access provisions in bilateral friendship, commerce and navigation treaties.

V. Implications

The article on which this editorial is based offers an updated, empirically grounded understanding of the American forum shopping system and its impact on transnational litigation in U.S. courts.  This new understanding has potentially important implications for legal theory and policy.

Theoretically, the article?s findings pose a puzzle: Why, in an age of globalization in which one would expect an increase in disputes between U.S. citizens and foreign citizens?and why, given the well-documented attractions that the U.S. legal system offers to plaintiffs?would the number of alienage filings be decreasing?  There are several intriguing possibilities for scholars to explore.  For example, perhaps the evolution of the forum shopping system has itself contributed to the decline in alienage filings by reducing plaintiffs? expectations of favorable court access and choice-of-law decisions.  However, even if this is one piece of the alienage litigation puzzle, other factors are almost surely at play as well.  Perhaps individuals who would once have filed transnational disputes in the U.S. federal courts are increasingly filing in U.S. state courts or submitting to transnational arbitration.  Perhaps ?tort reform? in the United States has reduced the attractiveness of the U.S. legal system for plaintiffs relative to other legal systems; or perhaps changes to foreign legal systems have increased their attractiveness compared to the United States.  Another possibility is that foreigners attempt to avoid litigating in U.S. courts because they fear anti-foreigner bias.  By moving toward an answer to the alienage litigation puzzle, legal scholars will develop a better understanding of transnational forum shopping behavior and the factors that influence it.

An improved understanding is important for legal policy, because there are legitimate concerns about the potentially adverse economic and political consequences of transnational forum shopping into U.S. courts.  Based on these concerns, some legal scholars and policy advocates have called for legal reforms aimed at curtailing transnational litigation, including enhanced use of the forum non conveniens doctrine and modified choice-of-law methods that would guard against pro-domestic-law bias.  Concern about forum shopping was an explicit factor in the Supreme Court?s 1981 adoption of a more robust forum non conveniens doctrine in Piper v. Reyno.¹²  And in Goodyear Luxembourg Tires, S.A., v. Brown, now pending before the Court, the petitioners and their amici curiae supporters are similarly using concerns about forum shopping to argue for a more restrictive approach to general jurisdiction in transnational product liability actions.¹³

However, according to the updated understanding of the American forum shopping system presented in this editorial and the article on which it is based, new anti-forum-shopping measures might not be as urgent or necessary as their advocates claim.  Judges are already using the forum non conveniens doctrine aggressively to dismiss transnational suits, and they do not appear to display pro-domestic-law bias in international choice-of-law decisionmaking.  More fundamentally, the empirical evidence raises doubts about the need for such reforms in the first place: alienage litigation?one of the principal forms of transnational litigation?appears to be decreasing and constitutes only a small fraction of the total caseload of the U.S. district courts.

The risk is that exaggerated perceptions of transnational litigation in the United States will lead to exaggerated policy responses.  One must take this risk seriously, because anti-forum-shopping measures aimed at curtailing transnational litigation in U.S. courts may entail significant costs in terms of access to justice, foreign relations, and regulation of transnational activity.  The extent of these costs and whether they outweigh the benefits of additional anti-forum-shopping measures are questions that one cannot easily answer.  But the answers should be informed by empirical evidence.

Acknowledgements

Christopher A. Whytock is an Acting Professor of Law and Political Science, University of California, Irvine, School of Law.

Copyright © 2011 Cornell Law Review.

Full post as published by The Legal Workshop on February 16, 2011 (boomark / email).