Case of the Day: Phoenix Process Equipment v. Capital Equipment & Trading
Posted on February 7, 2017
The case of the day is Phoenix Process Equipment Co. v. Capital Equipment & Trading Corp. (W.D. Ky. 2017). Phoenix was a Kentucky company that designs and manufactures water recycling equipment used to wash coal. Capital Equipment & Technology Corp., a Delaware corporation that used the trade name CETCO, was its distributor in Russia and Ukraine. The distribution contract was signed by its CEO, Alexander Chudnovets. Capital Equipment & Technology Corp. was dissolved in 2011, unbeknownst to Phoenix. Phoenix continued to do business with two other companies that used the CETCO name: Capital Equipment & Trading Corp., a Texas corporation, and Coralina Engineering, LLC, a Russian limited liability company. Chudnovets was the sole member of Coralina and the the CEO of Capital Equipment & Trading.
A dispute arose when Phoenix learned that Coralina was selling products very similar to its own within the distribution territory. Phoenix sued in the Jefferson Circuit Court, and the defendants removed the case to the District Cout. The claims for for breach of contract, unfair competition, violations of the Uniform Trade Secrets Act, civil conspiracy, and fraud. Coralina and Chudnovets moved to dismiss for insufficient service of process.
Phoenix served process on Chudnovets by certified mail to an address in Houston, which was the address on file with the Texas Secretary of State as the address of Chudnovets as the CEO of Capital Equipment & Trading Corp. The mail was forwarded to another address in Houston, “a high rise condominium building that Chudnovets has never been to.” It was delivered to the doorman.
Chudnovets argued that the service failed to comply with the Hague Service Convention. The judge rejected this argument on the grounds that under Texas law, service by mail to a place where “the defendant can probably be found” is sufficient. I’m surprised that this is the law in Texas. But assuming that it is the law, and assuming there was no real argument that it was not “probable” that Chudnovets would be at the Texas address to which the papers were mailed, and leaving aside any due process concerns, then the decision may be correct, because the Convention only applies when the law of the forum requires the summons to be transmitted abroad. But those are some pretty big assumptions! I would have thought the problem with the service was not the Convention, but rather, simple due process: it’s not at all clear that the service was reasonably calculated to reach Chudnovets. But if Chudnovets is in Russia, where there are no good options for service of process due to Russia’s unilateral refusal to honor requests for service under the Service Convention, then this kind of odd, difficult decision is understandable if not ideal.
Coralina made the same argument. Phoenix had served process on it by mail to the Kentucky Secretary of State pursuant to statute; the Secretary then mailed the documents to Russia. The court correctly held that this service did not comply with the Convention, since Russia has objected to service by mail.