Your U.S. Subsidiary Has Been Sued: What European Companies Should Expect

By Christina Lehm, ESQ

For many European companies, receiving a U.S. lawsuit is a deeply unsettling moment. The complaint may contain aggressive allegations, demand substantial damages, and impose a short deadline to respond. Senior executives at the European parent company may immediately want to understand how serious the case is, how much it will cost, and whether the dispute can be resolved quickly.

Those are reasonable questions. But U.S. litigation rarely provides immediate or simple answers.

A lawsuit involving a U.S. subsidiary can affect far more than the local legal entity. It can consume management time, disrupt business operations, expose internal communications, create insurance issues, and draw the European parent company into difficult questions concerning governance, control, and responsibility.

Understanding the process before a dispute arises can help European companies respond more effectively when litigation begins.

The Complaint Is Only the Beginning

A complaint presents the plaintiff’s version of events. While it is not a judgment, and the allegations have not yet been proven, the complaint must nevertheless be taken seriously. 

The time to respond may be relatively short, and the company will need to immediately retain outside litigation counsel, preserve relevant documents, evaluate insurance coverage, identify key witnesses, and begin assessing the factual and legal issues.

One of the first questions that litigation counsel will consider is whether the case has been filed in the appropriate court. Depending on the circumstances, the subsidiary may be able to seek dismissal, challenge jurisdiction, move the case from state court to federal court, enforce an arbitration clause, or contest the venue selected by the plaintiff.

These threshold issues can significantly affect the direction, cost, and leverage of the litigation.

Discovery Can Be Broad and Expensive

One of the greatest differences between U.S. and European litigation is the scope of discovery.

In U.S. litigation, each side may be required to produce large volumes of documents and electronically stored information. Parties may also take depositions of employees, executives, experts, and third parties. This process can be expensive and disruptive, even when the amount in dispute appears manageable.

A European parent company may be surprised to learn that internal communications located in Europe could become relevant if they concern the U.S. subsidiary, the underlying transaction, or the decisions at issue. Data privacy and cross-border transfer restrictions may also need to be addressed.

The Parent Company May Not Remain on the Sidelines

European companies often assume that forming a U.S. subsidiary fully insulates the parent from litigation. A properly maintained subsidiary can provide important legal separation, but the existence of a separate entity does not prevent a plaintiff from attempting to involve the parent company.

The plaintiff may argue that the parent directed the subsidiary’s conduct, negotiated the relevant contract, controlled employees, approved the disputed decision, or made representations directly to the plaintiff.

Courts generally respect legitimate corporate separateness. However, problems arise when the roles of the parent and subsidiary are blurred. Examples include contracts signed by the wrong entity, overlapping communications, parent-company personnel giving direct instructions to U.S. employees, shared branding without clear entity identification, or inconsistent corporate records.

For that reason, governance practices established before litigation can become highly important once a dispute begins.

Insurance Must Be Addressed Immediately

The company should promptly review all potentially relevant insurance policies. Depending on the claims, coverage may exist under commercial general liability, directors and officers, employment practices, cyber, professional liability, or other specialized policies.

Many policies impose strict notice requirements. Delayed notice can create a coverage dispute or allow the insurer to argue that its rights were prejudiced.

The company should determine:

• Which policies may apply to the allegations.
• Whether the insurer must be notified immediately.
• Whether the insurer has the right to select or approve defense counsel.
• Whether defense costs reduce the available policy limits.

Insurance should not be treated as a secondary issue. It can influence counsel selection, litigation strategy, settlement authority, and the company’s overall financial exposure.

Management Time Is a Real Litigation Cost

Legal fees are only one part of the cost of U.S. litigation.

Executives and employees may spend substantial time collecting documents, meeting with counsel, preparing for depositions, responding to discovery requests, and supporting expert analysis. Sales teams may be distracted. Customer relationships may be affected. Strategic decisions may be delayed.

The European parent company should establish a clear internal reporting structure for the case. One person should coordinate communications among U.S. counsel, the subsidiary, the parent company, insurers, and other advisers.

At the same time, internal discussions should be managed carefully. Emails speculating about fault, damages, or settlement may later become discoverable. Communications involving counsel are not automatically protected merely because a lawyer is copied.

Settlement Is Part of the Strategy

Most U.S. civil cases are resolved before trial. That does not mean every case should be settled immediately.

An early settlement may be sensible when the business disruption and defense costs exceed the value of continuing the dispute. In other cases, the company may need to develop the factual record, obtain critical discovery, or pursue a pretrial motion before meaningful negotiations can occur.

The decision should reflect legal exposure, litigation cost, insurance, reputational risk, business relationships, and the company’s long-term objectives. The strongest settlement position usually comes from preparation rather than urgency.

Key Takeaways for European Executives

• Treat the complaint as the beginning of an investigation, not a final determination.
• Preserve documents and notify insurers immediately.
• Expect discovery to extend beyond the U.S. subsidiary when parent-company personnel were involved.
• Maintain clear governance and corporate separation before a dispute arises.
• Include management time, operational disruption, and reputational risk in the litigation budget.
• Evaluate settlement strategically rather than reacting to the plaintiff’s opening demands.

Companies that respond quickly, preserve information, clarify responsibilities, coordinate with insurers, and develop a disciplined strategy are better positioned to control both the litigation and its impact on the broader business.

Disclaimer: These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel first.

Christina Lehm is a partner with Nelson Mullins Riley & Scarborough LLP in Miami/Ft. Lauderdale, Florida. She is born and raised in Denmark and helps European businesses with the legal aspects of entering and scaling the U.S. market, and with all stages of litigation.

She regularly writes and posts on the topics addressed in this article, and if you would like to know more, then please connect with her on LinkedIn and subscribe to her LinkedIn newsletter Crossing the Atlantic, where business meets law.