Case of the Day: Gucci America v. Li

Today’s case of the day, Gucci America, Inc. v. Li (S.D.N.Y. 2011), reprises the issues confronted in Tiffany (NJ) LLC v. Qi, 276 F.R.D. 143 (S.D.N.Y. 2011),the case of the day from August 17, 2011. Gucci and its affiliates sued Weixing Li, Lijun Xu, Ting Xu, and Kuelala.com, alleging that they were the owners and operators of a Chinese website that sold imitation handbags that infringed Gucci’s trademarks. Gucci settled with Lijun Xu, but none of the other defendants appeared. The court issued a preliminary injunction freezing the funds in the defendants’ accounts at the Chinese headquarters of the Bank of China. The injunction enjoined the bank (not just the defendants) from transferring money from the accounts, but the bank asserted (correctly in my view—I reviewed this issue in the post on Tiffany) that it was not bound by the injunction.

Gucci then served a subpoena on the bank seeking documents relating to the defendants’ accounts, which, Gucci claimed, were critical to its investigation of the defendants’ counterfeiting operation. The Bank objected to the subpoena to the extent it called for the production of documents located at its offices in China, on the grounds that China’s bank secrecy laws forbade it to comply.

The judge rejected the Bank’s challenge to the injunction, on the grounds that the court had equitable power to freeze the defendant’s assets, even if the assets are located abroad. I think this is right insofar as the defendants can be enjoined not to dissipate their assets anywhere in the world, but if the judge was making a broader point and suggesting that the injunction binds the bank itself, I think the decision would be problematic. The opinion seems to make it clear that the Bank of China was not a defendant in the action. So even if, as a general matter, an asset-freeze injunction is permissible, I don’t see how an injunction that binds the bank directly could comply with Fed. R. Civ. P. 65, which provides that an injunction can bind only the parties, their officers, agents, servants, employees, and attorneys, and “other persons who are in active concert or participation” with them.

The judge went on to consider whether the Bank could be required to produce documents in China. It weighed the factors in the Restatement (Third) of the Foreign Relations Law of the United States § 442(1)(c), namely: (1) the importance of the information requested to the litigation; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) the availability of alternate means to obtain the information; and (5) the extent to which non-compliance with the subpoena would undermine important interests of the US, or to which compliance would undermine important interests of China. But on more or less the same fact pattern, the judge came to the opposite conclusion from the judge in the Tiffany case, refusing to defer to China’s interest in the enforcement of its banking secrecy laws and suggesting that the Hague Evidence Convention did not provide a good enough alternative.

The subpoena question is a close call, and given that two New York judges have reached opposite conclusions, perhaps the Second Circuit will weigh in. I’d particularly like the Second Circuit to weigh in on a point raised in both cases: the State Department has changed its guidance on judicial assistance in China and removed language suggesting that China was not receptive to Hague Evidence Convention requests. What should courts do with such guidance, and does the guidance reflect the reality of judicial assistance in China?

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2d ed. 2016), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

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