International Businesses & California Law: What You Should Know

Aug 11, 2022 | Tips on Contracts

Doing business in California from outside the country can be challenging. There is a nine-hour time difference between the Pacific time zone and Central European Time (and eight hours in Western European Time) as well as the obvious language difference.

In business, this may require you to hold late afternoon or evening meetings at a time that you may prefer to be having dinner or winding up your day. For those working with U.S. companies, that may also require you to closely examine a contract: (1) written in English; (2) written by lawyers; and (3) governed by California (U.S.A.) law, and not European law.

In the unfortunate circumstances that you and a current or former California company become embroiled in litigation or conflict, you may be surprised to learn that, generally, attorney’s fees are not automatically available in the United States unless both parties agree to make them available to the prevailing party within the body of a negotiated written agreement. Fortunately, we have developed ways to avoid relationship-ending ultimatums or costly litigation — such as mediation and other forms of “alternative dispute resolution”. For more information, see our article https://www.tomgallagherlaw.com/whats-a-mediation-hearing/.

Before we get sidetracked into litigation and conflict resolution, however, let’s consider ways in which your company may avoid such unpleasantry by hiring our firm at the inception of your contract negotiations. 

International businesses & California contract law

How does a foreign firm typically negotiate a business contract governed by California law? Your options are essentially as follows:

  • Option 1: you read the contract yourself, assuming that your negotiations were fair and made in good faith, sign the contract and hope for the best
  • Option 2: you consult with your local European/Oceanic/Asia/African lawyer who then assists you with negotiating the contract
  • Option 3: your firm hires a California lawyer to explain and/or negotiate the contract and taking a collaborative approach involving your local advocate, solicitor or counselor

In option 1 you would be heavily relying upon the good faith of the other party. In most American contracts you will find a “merger” clause, which states that the contract is the final expression of the agreement of the parties and supersedes (replaces) all prior oral and written understandings between them. So if you exchanged several term sheets but certain terms did not make it into the final contract or were changed at the last minute, you will be bound by only the final agreement signed. Most California lawyers have come across many unsuspecting clients who were shocked to learn that something that they had earlier “agreed” upon in their term sheet(s), memorandum of understanding, or letter of intent had been omitted from the final contract.

After all, such preliminary negotiation drafts are just an agreement to agree but not the final agreement itself.

In option 2 the lawyer may be an expert on EU or your local jurisdiction and a shrewd negotiator. Still, they may be unaware of the effect of certain terms or whether others are even enforceable. For example, forcing employees or contractors into a non-compete agreement with your firm is not only unenforceable in California, but can also expose a company to liability for unfair business practices or anti-trust problems. 

Disputes may be handled differently in your country than they would typically be handled in the United States District Courts (and California).

In other countries based on civil law (most of central Europe and any country that did not evolve from United Kingdom commonwealth countries), you may benefit from an inquisitorial system with a judge or tribunal investigating the relative merits of each party’s case. In the U.S., we have an adversarial system, with the judge acting more as a referee during the dispute and each side relying upon its own ability to gather evidence and present its case at trial.

In many cases a foreign company engaging in litigation in the U.S. may have certain rights, such as to have their case removed from state courts to federal courts. The federal courts have far less cases, and therefore more resources to hear the dispute in a timely fashion. But certain steps must be taken in the first thirty (30) days, so it will be important to consult with a California lawyer as soon as possible to ensure you have enough time for your attorney to properly evaluate the merits of the case, potentially secure an extension of time to file a response and file initial paperwork such as a demurrer, motion to dismiss, motion to quash or a motion to transfer the case to a more convenient forum – possibly your home country – in certain circumstances. 

You may also find that your agreement contains an arbitration clause. Arbitration is essentially first-class litigation. Arbitration has certain benefits (faster resolution, legal efficiency) and drawbacks (higher initial costs, “arbitrary” decisions with no right to appeal) that local counsel can better explain in a private consultation in the recommend scenario (option 3). 

Consult the international business lawyers at Gallagher Krich, APC

If your firm and advocates consult with the experienced international business lawyers and mediators at Gallagher Krich APC, we may help you design a tailored approach to suit your needs – ideally when you are first negotiating the contract with a California-based business.

It is important that you review the final form and understand all terms before moving forward. Such a precautionary step may end up saving your business hundreds of thousands of dollars in legal expenses. 

We are willing to have a brief introductory call at no cost to you at more convenient times (we have lawyers available coast-to-coast) so that we can better understand your business and the nature of your transaction. Should you choose to engage Gallagher Krich, APC, as your California legal counsel, it will empower your firm to negotiate from a position of strength after better understanding the complexity of an international and cross-cultural negotiation.

Call us today at +1 (858) 926-5797 or email info [at[ tomgallagherlaw.com. Or please feel free our Business Transactions page for more information.

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