Way back in March, 2017, I posted a blurb about the limitations on serving offshore parent companies via their U.S. subsidiaries. In short, I argue, you can’t simply serve a U.S. subsidiary and call it effective on the foreign parent. You have to have a compelling reason to pierce the corporate veil.
This is basic 1L Civ Pro stuff. It’s just too bad they never even mentioned service of process in either semester of Civ Pro in law school– jurisdiction and joinder were far too complex to allow for coverage of the basics, I guess.* Fortunately, it was touched on a bit in BusOrg class the following year, but even that 2L discussion wasn’t sufficient to fully flesh out the idea for practitioners. It’s really only as a 4L (that’s a practicing attorney, y’all) that anybody truly digs into this stuff.
So come now the good folks at Winston & Strawn who posted in July, “Court Finds Service of Process on Foreign Corporation’s U.S. Subsidiary Would Be Improper” on their firm’s blog. Seems the plaintiff in a patent infringement suit (UNM Rainforest Innovations v. D-Link Corporation, W.D. Tex.) wanted to serve a Taiwanese defendant company by delivering the summons and complaint to the registered agent for the defendant’s U.S. subsidiary. The court took issue with such an undertaking, and denied the motion (in part). Pretty logical, if you ask me, even though I don’t wear a robe and bang a little wooden hammer on my desk for a living. The court’s July 13 order:
The Court recognizes the additional expense and time required to serve D-Link under Taiwanese law and sees these as a valid justification to grant an alternative method of service. (…)
However, at this time, the Court finds that Plaintiff’s proposed means of alternative service fails to satisfy the due process requirements afforded by the United States Constitution. (…)
The Fifth Circuit held in Lisson that regarding foreign defendants, even if its foreign parent corporation does not explicitly authorize a domestic subsidiary as an agent for service, the subsidiary might still be capable of receiving such service. When applying a state long-arm statute, “as long as a foreign corporation exercises such control over the domestic subsidiary that the two entities are essentially one, process can be served on a foreign corporation by serving its domestic subsidiary — without sending documents abroad.” Thus, a foreign corporation receives proper service through its domestic subsidiary where the evidence shows that one is the agent or alter ego of the other.
Ultimately, the W.D. Tex. court ordered service to be effected pursuant to 4(f)(2)(C)(ii), which I contend has always been a bad idea in most cases, and is an even worse idea in the time of Covid-19. To be sure, leave of court isn’t necessary– serving by mail under 4(f)(2)(C)(ii) is a matter of right as long as it isn’t prohibited by treaty or foreign law– but despite its legal validity, it’s not very likely to work from a fact perspective. Truly, the better way would be electronic service under 4(f)(3)— which does require leave of court– or, if overseas enforcement might ultimately be required, a Letter Rogatory under 4(f)(2)(B), which would carry the judge’s signature.**
* I ranted about this once in a CLE lecture I gave, with both of my Civ Pro professors in the room. It really is a tongue-in-cheek criticism, given the hundreds of topics that simply cannot be covered in two semesters.
** Note, however, Lisson v. ING GROEP N.V., 262 Fed. App’x. 567, 570 (5th Cir. 2007), which lays out a nice analysis of when/how alter ego service is valid.