'Foreign Law' Apparently Not a Problem When It Comes to Corporations

So-called "foreign law bans" are supposed to protect American law from overseas influences. So why exactly are corporations lobbying so hard for exemptions?

Damir Sagolj/Reuters

The Brennan Center for Justice,* along with the Center for American Progress, published a timely report earlier this month on "foreign law bans," which you probably remember from recent Tea Party history as "anti-sharia" laws. The study tells us that these dogged efforts at precluding foreign influences on American courts haven't gone away since their height in 2011. Rather, they have been creatively tweaked by conservative forces to make them appear less obviously bigoted -- and thus more palatable to the federal judiciary.

There is a one component of the report I find particularly insightful. In several offending states, foreign-law bans have been carefully drafted to exempt corporations that rely upon foreign legal principles to resolve cross-border transactions. In other words, these measures are written to purposely disrupt the lives of individuals who rely on foreign law principles if they marry, adopt, or divorce abroad, but not to disrupt the profits of corporations who rely on such foreign law principles to conduct business. From the report (footnotes omitted):

The potential problems that foreign law bans create for American business -- no mat­ter how limited in scope -- are reflected in the concerted efforts by the business com­munity to oppose them in state legislatures. These efforts are no doubt responsible for the corporate exemptions included in several of the bans. The five states that have passed foreign law bans so far have added exceptions for companies to allevi­ate the restrictions that the laws would place on international business transactions. Oklahoma, Kansas, Arizona, Tennessee, and Louisiana exempt "juridical persons" such as corporations, partnerships, and other business associations from the provi­sions of the law. Five of the eight states that introduced anti-foreign law bills in 2013 are also seeking to exempt corporations from these measures.

These exemptions do not fully resolve the potential problems that foreign law bans pose for corporations. To begin with, exempting corporations from the scope of the laws does not account for the three-quarters of American businesses that are unincorporated and employ half of the nation's private workforce. The pervasive use of the Internet, in particular, has greatly increased the ability of even small, unincorporated businesses to operate across borders and engage in transnational transactions that implicate foreign law. It is also unclear how such exemptions would work in cases involving a corporation and an individual, such as a dispute concerning an employment contract.

Uncertainties about the applicability of the corporate exemption increase the costs and risks of conducting international business operations, making states with foreign law bans an unattractive venue for foreign commerce. Equally important, foreign law bans create the perception that the states that pass them are hostile to international trade. It's one thing for state courts to, as a matter of course, evaluate contractual provisions for consistency with American pub­lic policy. It is quite another to pass a law suggesting that a state's citizens need protection from foreign laws, positioning the state as unreceptive to international commerce. These laws could discourage overseas firms from entering into rela­tionships with local companies or establishing lucrative projects that require both local and overseas personnel.

So the corporate lobby is powerful enough to ward off the worst excesses of these measures. The people most likely to rely upon foreign legal principles in their private lives are not. And the lawmakers who enact these laws are signalling, with their embrace of these exemptions, precisely how malleable is their concern about foreign influences upon American law. The result is another two-tiered system of justice where the least powerful are prejudiced. Read the report. And remember its conclusions the next time your local lawmaker wrings his hands and spews fear about the rise of foreign law principles on the American scene.

*of which I am a fellow