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Case of the Day: Munoz v. Boyard

Christopher Columbus Lands in America
Letters Blogatory wishes its readers a happy Columbus Day!
The case of the day is Munoz v. Boyard (Bankr. E.D.N.Y. 2015). Regis Munoz was a French inventor. He had developed a new battery charger, and he needed capital. So he entered into a partnership agreement with Crisor A. Boyard, under which Boyard would produce and market the invention. Munoz transferred his rights in the invention to the partnership, Avendale Investments, LLP, in return for a 20% stake in the partnership, at 10% interest in a French company, Innov-Nature, and royalties on sales. For his part, Boyard agreed to contribute $250,000 to the partnership.

In 2010, the partnership ceased doing business. Boyard started a new business, Avendale Technology, LLC, to develop the battery charger. Boyard owned 50% of the business and Munoz owned 49%. The operating agreement included an agreement to mediate disputes, and if mediation failed, to arbitrate.
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Case of the Day: S&S Machinery Corp. v. Wuhan Heavy Duty Machine Tool Group

The case of the day is S&S Machinery Corp. v. Wuhan Heavy Duty Machine Tool Group Co. (E.D.N.Y. 2012). S&S was a machine tools merchant in New York. Under a 1999 agreement, it was the exclusive agent in North and South America for Wuhan, one of China’s largest machine tool manufacturers. The agreement gave S&S the right to “select the first machine to be displayed in the next National Machine Tool Show in Chicago.”

In 2000, S&S entered into a contract with Wuhan to purchase a vertical boring mill for about $200,000. The purchase agreement contained an agreement to arbitrate disputes in China under the CIETAC rules. S&S paid a 20% deposit on the mill, as the 1999 agency agreement required, and Wuhan sent the machine in time for the 2000 National Machine Tool Show, with two employees to set it up. But the Wuhan employees were unable to get the machine to work. For four years, S&S tried to get technical assistance from Wuhan, which did not respond. Nor could a third party S&S hired get the machine to work.

S&S sued Wuhan in New York in 2007. While the case was pending, Wuhan commenced a CIETAC arbitration to recover the unpaid balance of the purchase price.

In March 2009, S&S sought entry of Wuhan’s default in the New York case, as Wuhan had failed to answer. The clerk entered the default, as six months had passed since transmission of the documents to the Chinese central authority and no certificate of any kind had been received (a default judgment is permissible in such circumstances under Article 15 of the Convention). Let’s pause for a moment to consider the steps S&S says it took to try to obtain a response from the Chinese authorities, as Article 15 requires. According to a declaration S&S lawyer filed, the lawyer wrote that he hired an experienced process server and “deferred to [his] advice and guidance in assuring that … there are no further steps that can be taken to assure that the Chinese Ministry of Justice did, in fact, effect service upon the defendant.” The process server sent a request for a status update to the Ministry but received no response and did nothing further. It may be that in practice no additional steps would have yielded any better results. But should the plaintiffs have hired a Chinese lawyer to make inquiries or consult about possible alternative courses of action? Should the plaintiffs have made inquiries through the Chinese consulate in New York or the American embassy in Beijing? More pointedly, what value did the process server add in this case? I don’t doubt that in some Hague Convention cases a private process server can be useful. But if all the process server does is to forward the documents to the foreign central authority and then make a pro forma inquiry of the central authority, what is the value to the plaintiff? And should the plaintiff’s lawyer be comfortable simply delegating all service of process issues to the process server?

Wuhan wrote a letter to the New York court (signed only with its corporate name, and not in any case signed by a lawyer) objecting to the court’s exercise of jurisdiction on the grounds that the parties had agreed to arbitration. The judge advised Wuhan to appear in the action and to move to vacate the default, but Wuhan failed to appear. Instead, Wuhan again wrote a letter to the judge objecting to the New York proceedings.

Although S&S asserted the dispute arose under the 1999 agreement rather than the 2000 purchase contract and was therefore not arbitrable, the tribunal ruled otherwise and in December 2009 awarded Wuhan almost $120,000 in damages.

In 2011, S&S moved for entry of default judgment, and the magistrate judge recommended entry of judgment against Wuhan. The magistrate judge rejected S&S’s argument that Wuhan had waived arbitration and award as an affirmative defense by failing to appear, but he reasoned that since the claim in the New York case was for breach of the 1999 agency agreement, and that contract, unlike the purchase agreement, had no arbitration clause, the CIETAC award had no preclusive effect.

Wuhan then sent another letter to the court, signed by Luan Jinqing, but without entering an appearance or identifying Luan’s relationship to the company. It seemed clear that Luan was not admitted to practice in the court and he may not have been a lawyer. The district judge refused to treat this letter as an objection, and instead reviewed the report and recommendation for clear error. Finding none, the judge adopted the report and ordered judgment for S&S.

Case of the Day: In re Air Cargo Shipping Services Antitrust Litigation

Concorde taking off
The Concorde
The case of the day is In re Air Cargo Shipping Services Antitrust Litigation (E.D.N.Y. 2012). The decision does not give details of the underlying dispute, though the title of the case (a multi-district litigation consolidated in the Eastern District of New York) pretty much says it all. The issue was whether the defendant, Société Air France, should be required to produce documents that it had withheld on the grounds that production was forbidden by the French blocking statute. Air France claimed the plaintiffs should have to proceed under the Hague Evidence Convention rather than via the Federal Rules of Civil Procedure. The judge undertook a very standard Aérospatiale analysis and concluded, unsurprisingly, that Air France had to produce the documents. The factors were mixed: the documents sought were clearly relevant, and the request was precise and specific. On the other hand, Air France was acting in good faith and had not, for instance, invoked the blocking statute strategically in some instances and not in others. Several of the factors were difficult to weigh. The Hague Evidence Convention was, according to the judge, of questionable effectiveness as an alternative, and Air France’s claim of hardship relied solely on the Christopher X case, which the judge discounted because “the legislative history of the statute gives strong indications that it was never expected or intended to be enforce against French subjects but was intended rather to provide them with tactical weapons and bargaining chips in foreign courts.” Take that, ABA!

On the main issue—the balance of national interests—the judge found that the US had strong interests in enforcement of our antitrust laws, and that France’s interests were weak insofar as France had already consented to disclosure of the information in connection with criminal antitrust proceedings the United States had brought against Air France.

Photo credit: Alexander Jonsson