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Case of the Day: Wuxi Taihu Tractor Co. v. The York Group, Inc.

The case of the day is Wuxi Taihu Tractor Co. v. The York Group, Inc. (Tex. App. 2014). York, a Delaware firm that manufactured and sold coffins sued Wuxi, a Chinese firm, for unfair competition and other torts. York served process on Wuxi by service on the Texas Secretary of State, who then mailed the summons and complaint directly to Wuxi in China. Wuxi entered a pro se appearance and filed, but did not serve, an answer that asserted, among other things, that Wuxi had not properly been served with process. There was some procedural wrangling. The judge ordered Wuxi to retain a lawyer, but Wuxi didn’t. Eventually the case was called for trial and Wuxi did not appear, so the judge entered a default judgment. Wuxi sought review.
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Case of the Day: Harper v. W.W. Grainger, Inc.

The case of the day is Harper v. W.W. Grainger, Inc. (W.D. Ky. 2013). Larry Harper sued Dayton Electric Manufacturing Co. in the Jefferson Circuit Court in Kentucky, alleging that he was severely injured when using a hand truck that Dayton manufactured or sold. Dayton removed the case to the District Court for the Western District of Kentucky. The parties then stipulated that W.W. Grainger, Inc., Dayton’s parent company, was substituted as a defendant for Dayton. Harper then amended his complaint to allege that Li & Fung (Trading) Ltd., a Hong Kong company, was liable for negligent design or manufacture of the hand truck.

Harper hired APS International, Ltd. to handle the service of process. APS transmitted the documents by Fedex to the Hong Kong central authority. There was no response from the central authority for more than six months, despite two follow-up letters from APS. (I recommend follow-up letters as a way of establishing that you acted with the appropriate diligence when it comes time to seek a default judgment under Article 15).

Harper moved for a default judgment, but Li & Fung, which said it had learned of the lawsuit from W.W. Grainger, submitted an affidavit stating that it had never been served with the documents by the central authority. The judge therefore properly denied entry of a default judgment. The lesson here is that while it’s permissible to enter a default judgment in the event a central authority fails to respond after six months, it’s not mandatory, particularly where, as here, the defendant submits an affidavit denying service.

But of course, by submitting the affidavit, Li & Fung created some pretty easy opportunities for Harper to effect service, and in fact Harper correctly moved for leave to serve process on Li & Fung’s US counsel under FRCP 4(f)(3). The judge granted the motion, as courts generally do in such cases.

There was no great strategy here for Li & Fung. If it refused to appear, it ran the risk of a default judgment under Article 15. If it appeared to deny receipt of service, it ran the risk that the court would authorize service on its attorneys. Parties in Li & Fung’s position might ask themselves whether it’s worth the time and money to fight service of process in such situations.

Case of the Day: Zhang v. Baidu.com

The case of the day is Zhang v. Baidu.com, Inc. (S.D.N.Y. 2013). The plaintiffs were Jian Zhang, Guang Yang, Wa Xue, Tian Cheng Wang, Liqun Chen, Shenqi Fu, Shuyuan Song, and Yuhong Zhang, who described themselves as “promoters of democracy in China through their writings, publications and reporting of pro-democracy events.” They sued Baidu.com, the Chinese search engine, and the People’s Republic of China, for conspiring to prevent their “pro-democracy political speech” from showing up in Baidu search results. The complaint asserted claims for violations of federal civil rights statutes, 42 U.S.C. §§ 1981, 1983, and 1985, and under New York law.

The plaintiffs sent requests for service of process on both defendants to the Chinese Ministry of Justice, China’s central authority under the Hague Service Convention. 1 The Ministry refused to execute the request for service on the grounds, permitted by Article 13 of the Convention, that the “execution of the request would infringe the sovereignty or security of the People’s Republic of China.”

Baidu moved to dismiss for insufficient service of process, and the plaintiffs cross-moved for entry of default judgment against both Baidu and China. China had not appeared in the case.

The judge denied the motion for entry of default judgment. He properly refused to consider the propriety of China’s invocation of Article 13: “[T]he Court lacks jurisdiction to address whether China properly invoked Article 13. Indeed, the Convention is clear that difficulties which may arise in connection with the transmission of judicial documents for service shall be settled through diplomatic channels.” 2 The judge cited Davoyan v. Republic of Turkey, the case of the day from May 18, 2011, for this proposition. Fortunately, he did not follow the erroneous decision in Gurung v. Malhotra, where the judge incorrectly did consider whether the foreign state’s invocation of Article 13 was proper.

The judge also rejected the plaintiffs’ contention that noncompliance with the Convention was excused because the defendants had actual notice of the action. Easy.

Last, the judge rejected the argument that under Article 15 of the Convention a default judgment was proper. Article 15 deals with cases in which the plaintiff receives no response from the foreign central authority for six months, despite its best efforts. Here, the plaintiffs received a response, but not a response they liked.

The plaintiff requested leave to serve Baidu by alternate means under FRCP 4(f)(3), namely by service on its US counsel. This leads to the only sour note in the decision. The judge gave the plaintiffs an opportunity to be heard on that question, but citing the much-maligned (by me) Gurung, he wrote: “It is not clear whether a court may authorize an alternative means of service pursuant to Rule 4(f)(3) where, as in this case, the receiving nation has declined to effect service pursuant to Article 13 of the Hague Convention.” This seems clearly wrong. The Convention governs only service of process abroad. A foreign state cannot immunize its nationals from suit in the United States by refusing to serve them with process. If the plaintiff can effect service of process without transmitting a document to the foreign state, then the Convention is simply inapplicable. To take a hypothetical, suppose the president of Baidu traveled to the United States. Surely the plaintiffs could serve process on the company by delivering the summons and complaint to him. Service on Baidu’s counsel is no different.

The judge also ordered the plaintiffs to show cause why the claims against China should not be dismissed. Presumably the plaintiffs will respond that, having tried service under 28 U.S.C. § 1608(a)(2), they are now going to attempt service under the remaining options available under the FSIA.

I would like to editorialize for a moment to make two points. First: SDNY judges, stop citing and following Gurung! It’s a bad decision. Confident as I am that the judges of the SDNY have better thing to do than reading Letters Blogatory, I am working on an article about Gurung for publication in a law review, which I hope may catch their eyes. But if you’re a law clerk and you’re reading this, raise the issue with your judge!

Second, I think that leaving aside the service of process issues, this litigation is regrettable. Censorship of the internet and of search results is a big problem, not just for the authors whose work is censored but for China itself and for its development. That’s my view, anyway. But the plaintiffs’ lawyer in this case isn’t doing anyone any favors by bringing federal civil rights claims that seem to me at least to be plainly untenable. And we haven’t even begun to discuss the jurisdictional issues that both defendants are likely to raise, and that China in particular is likely to raise under the FSIA. Surely this is not the best way to promote a more open internet in China.

Notes:

  1. As an aside: this was a proper method of seeking to serve the Chinese state under the FSIA, since in the absence of a “special arrangement for service,” the first method a plaintiff must attempt is service “in accordance with an applicable international convention on service of judicial documents.” See 28 U.S.C. § 1608(a)(2).
  2. This is a reference to Article 14.