Case of the Day: Hyundai Securities v. Lee
Posted on January 21, 2015
The case of the day is Hyundai Securities Co. v. Lee (Cal. Ct. App. 2015). Lee was the CEO of Hyundai Securities from 1996 to 2000. Several Hyundai shareholders brought a shareholder derivative action against Lee in the Seoul Southern District Court, claiming that Lee was guilty of securities fraud. Lee appeared and defended. The Korean court entered judgment in favor of Hyundai for approximately $24 million plus interest at 20%. A portion of the damages were for a criminal fine Hyundai paid in Korea on account of Lee’s acts. Lee appealed to the Seoul Court of Appeals and then to the Korean Supreme Court. Both appellate courts dismissed the appeals. The dismissals were based on the merits. Hyundai then sought recognition of the judgment in the Los Angeles Superior Court. The court entered judgment in favor of Hyundai in a summary proceeding, but the Court of Appeal reversed on the grounds that Hyundai could not proceed by way of a petition but had to seek summary judgment. I covered this aspect of the case in April 2013. On remand, Hyundai moved for summary judgment. Lee argued that the court could not recognize the portion of the judgment attributable to the criminal fine, or the 20% interest rate. The court entered judgment in favor of Hyundai, and Lee appealed.
Under California’s enactment of the UFCMJRA, a judgment for a “fine or other penalty” is not within the scope of the statute. Lee argued this provision applied, but the court reasoned, correctly in my view, that the judgment was not for a fine, but rather for compensatory damages in order to indemnify Hyundai, which had had to pay a fine on account of Lee’s actions. The court cited the Restatement (Third) for the proposition that the key questions are whether the judgment is in favor of a foreign state and whether it is compensatory or penal in nature. Here, Hyundai prevailed on both points.
The harder issue was the high rate of interest. Lee’s argument was that a rate of 20% was repugnant to California public policy. But the bar for refusing recognition on public policy grounds is extremely high: the judgment has to be not just contrary to public policy, but so offensive as to be “prejudicial to recognized standards of morality and to the general interest of the citizens.” Java Oil Ltd. v. Sullivan, 86 Cal. Rptr. 3d 177 (Ct. App. 2008). In light of this standard, the court held that the 20% rate of interest was not sufficiently outrageous to warrant non-recognition, even if it was usurious under California law, as the public policy against usury is not ironclad and has various exceptions.
The court did, however, distinguish prejudgment and postjudgment interest. Korean law plainly governed prejudgment interest, which is part of the damages suffered through the time of judgment. But the court held that CAlifornia law should govern the postjudgment interest on the California judgment, and thus the postjudgment rate should be the statutory rate of 10%. The court noted, again correctly, that the issue of postjudgment interest on the California judgment did not really have to do with issues of recognition and enforcement at all but was a plain matter of California law.