Doing Business Internationally? Litigation Just Became More Difficult!

June 15, 2018

By Matthew E. Feinberg

Over the last twenty years, the expanding world market has made it easier for domestic companies to conduct business overseas and with foreign corporations. Large and small businesses alike are going global, receiving and providing products, services, and intellectual property internationally. But, along with new international opportunities comes an increase in the complexity of business-to-business transactions. And, when business deals between domestic and foreign businesses go south, the legal implications become more difficult to navigate.

Each nation and each state within the United States has specific rules about how one party can drag another into court to resolve an ongoing dispute. Generally, one of the first steps in the process is for a plaintiff to serve process, i.e., formally deliver the lawsuit and a summons to a defendant. Although the process may vary from jurisdiction to jurisdiction, one universal truth is that the defendant must have notice of and an opportunity to respond to the lawsuit. In the United States, service is often accomplished by in-hand delivery or certified mail, although some jurisdictions permit alternative service methods. When domestic and most foreign entities are involved in litigation, the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, often referred to as the Hague Service Convention, applies so long as the countries involved are members of the Convention.

The Hague Service Convention is a complicated International treaty, involving over 70 countries, designed to guarantee notice and an opportunity to respond to parties sued by foreign entities. The Convention generally authorizes service through a central authority in each country, through diplomatic channels, or by any means permitted under the laws of the country in which service is attempted. For U.S.-based companies, meeting the requirements of the Convention can be a complicated and expensive process, with no guarantee of success. This is particularly true when service is attempted in countries such as China, where service can be difficult, if not impossible at times, to perfect.

To avoid the pitfalls of the Convention, for many years, domestic companies and their attorneys have drafted a workaround into international contracts, specifically establishing the ways in which the parties to the transaction agree to accept service of process. For instance, the parties may agree that service by first-class or standard international mail, or even e-mail, to a specific corporate representative will suffice to bring the parties into court. Other contracts may specifically state that the parties waive the application of the Hague Service Convention altogether. These clauses have been a way for companies to limit their litigation costs and avoid the delays inherent in completing the Convention process. And, until this month, it was fairly well-accepted that these contract clauses were enforceable.

A recent California case just muddied the waters. On June 1, 2018, the Court of Appeals for the State of California issued its opinion in Rockefeller Technology Investments (Asia) VII v. Changzhou Sinotype Technology Co., Ltd., holding that the parties to an international contract do not have the authority to waive or modify the requirements of the Convention. Rather, that authority lies only with the contracting states, i.e., the parties to the Convention. The court specifically rejected prior decisions from New York state court and California federal court to state that “parties may not agree by contract to accept service of process in a manner not permitted by the receiving country.” Therefore, under the court’s holding, because China does not permit service of process by regular mail, the parties’ agreement to permit it was invalid.

The Rockefeller ruling appears to be the first of its kind—therefore it is presently unclear how broad an impact the decision will have in the long run. Indeed, further appeals may be forthcoming in the case that could modify or reject the decision. However, until other courts have an opportunity to weigh in, companies should proceed with caution when drafting contracts related to international business. The attorneys at PilieroMazza can assist you in navigating these complicated issues.

About the Author: Matt Feinberg is an associate with PilieroMazza who practices in the areas of litigation, labor and employment, and business and corporate law. He may be reached at mfeinberg@pilieromazza.com.
Please fill following information to download presentation