An interesting case popped up on my newsfeed this afternoon (hat tip to Hwan Kim, writing for Sheppard Mullins’ Construction and Infrastructure Law Blog): Rockefeller Technology Investments (Asia) VII v. Changzhou SinoType Technology Co., Ltd., handed down by the Second District, California Court of Appeals. The parties, one an American company, the other Chinese, had agreed in their contract that in the event of a dispute they would accept service by FedEx.
You already know how this is going to go. A dispute arises, the Yanks use FedEx to send process to the Chinese defendant, the Chinese don’t answer, the Yanks get a default, hilarity ensues.
Except there’s nothing funny about it. Right now, the Chinese Central Authority is taking well over a year to serve defendants pursuant to a Hague Service Convention request. But you can’t just use FedEx because it’s quick & expedient and the package
absolutely, positively needs to get there overnight needs to get there in fewer than three weeks. The California Court of Appeals got it right; using FedEx was manifestly wrong given China’s objection to Article 10(a). And if you dig even deeper, that’s because a Chinese party lacks the capacity to accept process that isn’t served by a Chinese court official.
What the drafting attorneys didn’t realize is that you simply can’t do it by mail– the Hague Service Convention controls, and the “postal channels” option is only allowable where the destination country doesn’t object. More likely, the Chinese company’s lawyers knew exactly what was going on, and the U.S. party’s attorneys were unfamiliar with the Chinese government’s declarations to the Convention (they object!).
To be blunt…
Two thoughts come to mind— two easy methods which I’ve addressed before, multiple times, and which would have prevented this fiasco and saved everybody a whole lot of heartache– except the Chinese defendant:
1. Designate an agent for service.
Addressed initially in Five Essential Things… and later, elaborated on in the aptly titled Five Essential Things– Elaborated, Part 1: Service Agent.
Had the contract directed service to the Chinese party’s counsel or other appointed representative in the United States, there’s no occasion to transmit the documents abroad for service, so the Convention would not apply. Those are the magic words straight out of Article 1.* It’s perfectly legal; in fact, it’s the whole bleepin’ point to registered agents. And it’s easy, too. Look no further than Dover, Delaware, where you can’t throw a rock without hitting a registered agent of one sort or another.
Sure, this may be a challenge, depending on the foreign party (a challenge getting them to agree, that is). But it would avoid the jurisprudential problems that the Rockefeller Tech agreement ran into.
2. Contractually agree to waive service.
There really is a massive difference between the two ideas– and in federal court, defendants are required to waive, even if they’re overseas.** Again, if the offshore defendant waives, then there’s no occasion to transmit the documents abroad for service; magic words again, Hague inapplicable.
Sure, you’ll probably have to duke it out over the refusal to waive, and thus will probably have to serve anyway, but at least it’s better than flying blind.
In short, don’t throw that “we agree to accept service by FedEx” clause into a contract when you can’t reasonably predict that it’ll be enforced.
* As the Rockefeller Technology court points out,”(the present Convention shall apply in) all cases, in civil or commercial matters, where there is occasion to transmit a judicial or extrajudicial document for service abroad.” Pretty straightforward, and the heart of the seminal case in Hague Service Convention doctrine, Volkswagenwerk Aktiengesellschaft v. Schlunk.
** Rule 4(d)(1): “An individual, corporation, or association that is subject to service under Rule 4(e), (f), or (h) has a duty to avoid unnecessary expenses of serving the summons.” Lest ye rely on 4(d)(2) to refute that idea, recognize that 4(d)(2) is about mandatory fee shifting, which only applies to domestics. The tricky detail of 4(d)(1) is that it specifically mentions 4(f), which only applies to service abroad.
Update, October, 2019: Special thanks to Professor John Coyle of the UNC School of Law in Chapel Hill, as well as colleagues Robin Effron and Maggie Gardner of Brooklyn Law and Cornell Law, respectively, for their article published last week in the UC Davis Law Review Online. Contracting Around the Hague Service Convention delves deeper into the of the issue, rightly pointing out the risks of waiver. To say that my ego has been tickled by a couple of footnotes in the article is gross understatement.
Update, April, 2020: And special thanks to Ted Folkman at Letters Blogatory, for posting about the California Supreme Court’s reversal of the appellate decision discussed supra. Ted posts the Court’s opinion here. In short, the opinion conflates the ideas of waiving service on one hand, and accepting service on the other. I’ve argued before— and still do argue– that they’re not the same thing. From page 20 of the opinion…
With respect to notice, paragraph 6 of the MOU stated the parties “shall provide notice in the English language to each other at the addresses set forth in the Agreement via Federal Express or similar courier,” while paragraph 7 clarified the parties “consent to service of process in accord with the notice provisions above.” Construed in tandem, these provisions leave little doubt the parties intended to supplant any statutory service procedures with their own agreement for notification via Federal Express. Section 1290.4, subdivision (a) gives effect to such an agreement by requiring that documents “be served in the manner provided in the arbitration agreement for the service of such petition and notice.”
(Emphasis added.) Okay, fine. The parties waived service in paragraph 6. But they turned around and conflated the waiver with acceptance in paragraph 7.
The opinion goes on…
The MOU’s language confirms the parties’ intent to replace “service of process” with the alternate notification method specified in the agreement. This circumstance distinguishes Abers v. Rohrs (2013) 217 Cal.App.4th 1199, which construed section 1290.4, subdivision (a). Abers involved leases with arbitration clauses that included a provision stating notices could be sent by mail. The homeowners in that case filed a petition to vacate an arbitration award and mailed it to the opposing party. Abers rejected the homeowners’ claim that the mailing satisfied section 1290.4, subdivision (a): “Their argument fails because it conflates the concept of providing notice with the concept of serving process.” (Abers, at p. 1206.)
That is exactly what happened here.