US lawsuit points dagger at foreign firms

Washington: Foreign companies that conduct business in the US or do deals with American companies could find themselves sued for billions of dollars as the result of a landmark case before the Supreme Court.

Boyden Gray, the US ambassador to the European Union, told The Sunday Telegraph that the case, described as the most important business law battle in America for 20 years, could severely damage transatlantic trade.

Abusive litigation

Critics say that if the Supreme Court rules in favour of the plaintiffs in the case of Stoneridge versus Scientific-Atlanta, it will open the door to "abusive litigation" and that potential payouts are so huge that companies would be forced to settle out of court, creating a huge burden on business.

Former White House officials and business leaders say that the increased risk of legal action could also prove a huge boost to the London Stock Exchange, by pushing companies to list there rather than in New York.

Gray, a former White House counsel to George Bush when he was president, said: "If there's a choice between doing business with a company that is listed in New York or one that is not, you would go with the one that was not. It's just not healthy for the transatlantic investment climate. There could be benefits to London over New York but that's short-sighted: all investors would lose. The liabilities involved would be so great that you can't afford to lose a case like this."

Scientific-Atlanta is being sued for providing cable television boxes to Stoneridge, a company that allegedly filed false financial statements. Stoneridge's shareholders sued not only their company bosses and accountants but also the suppliers of the cable boxes, claiming that they took part in securities fraud.

Not good news

Peter Wallison, who was Ronald Reagan's White House counsel, said: "The Stoneridge case is a prime example of frivolous litigation. What it would do is open up an entirely new class of company as pros-pective defendants. It's a horrifyingly broad-based theory.

"For the New York Stock Exchange, this is like going bullfighting with your cape behind your back. It will drive up the cost of doing business here."

John Engler, the president of the National Association of Manufacturers, said a victory for the plaintiffs would give "unscrupulous lawyers a hunting licence to stalk any company that did any business with any publicly traded firm".

The case is politically sensitive too because the outcome could help determine whether a $40 billion lawsuit brought by victims of the huge Enron fraud against investment banks can proceed.

A study published this year by Michael Bloom-berg, New York's mayor, and Charles Schumer, a state senator, found that excessive litigation risk was the main reason foreign companies gave for declining to join the city's stock exchange.