The Trouble With Banning Foreign Law: It’s Anti-Business

A Slate article on the right’s new jihad against shar’ia law points to a weird device: a proposed uniform act, titled the American Law For American Courts Act, which purports to eliminate any court or arbitration panel’s ability to rely on law “that would not grant the parties affected by the ruling or decision the same fundamental liberties, rights, and privileges granted under the U.S. and [State] Constitutions.”

The goal, I imagine, is to cure the underinclusiveness problem in shar’ia bans: any ban that targets only shar’ia law clearly fails for Establishment Clause reasons. But from the perspective of commercial litigators, this Uniform Act is actually more problematic.

Choice of law — “private international law,” when litigated — is a serious issue in transnational commerce, and as a result, in transnational litigation. Contracting parties invest substantial time and effort into bargaining over which jurisdiction’s law will govern the relationship and, by design, such bargains do not always result in a selection of American law. To pick one among any thousand of examples, the high-profile Bank of New York/Lehman litigation over the Dante CDO spotlighted important differences between American and British bankruptcy law, compelling one result in Britain (for Perpetual Trustee Co., against Lehman) and another in the States (for Lehman, against BNY Trust Co.). At the end of the day, with some frequency, state and federal courts are encouraged and expected to apply foreign law when the parties have so contracted. It’s not culture; it’s just business.

In yet another example of how tea partiers, paleoconservatives, and Republicans — increasingly overlapping groups — fail to understand the larger world implicated by their absurd feuds-of-the-day, this frenetic effort to ban the “creeping menace” of shar’ia would add dangerous uncertainty to this element of the financial world, already in desperate need of predictability. Private international law already invalidates otherwise-chosen law if its selection would “violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal,” Loucks v. Standard Oil Co., 224 NY 99, 111 (1918) (Cardozo, J.), but the exception is almost never used. Broadening it, just to serve some uninformed sense of moral outrage, would be anti-business, anti-competitive, and threaten the global standing of American courts and American law, critical determiners of our place in the international business community.

I’m sure conservatives don’t intend that result. This proposed Act isn’t about policy, it’s about whipping up an ignorant frenzy. Ah, the joys of drive-by legislating.

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