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Why Suing Chinese Companies In The US Is Usually A Waste Of Time.

Posted in Legal News

Ft.com has a fascinating and extremely sad story, entitled, “An accident shows how China treats consumers.” (h/t This is China!) It’s a great article, but the title is all wrong, at least if you are a lawyer. The title should be “An accident illustrates why it is (almost always) a complete waste of time to sue Chinese companies in United States Courts.”

I am sure that most of you will read this article and get all angry and ask, how can this be? I read this article and nod my head and think, “been there, done that.” That is because just about every month, I get a call from some lawyer, somewhere in the United States, calling me and expecting me to be really interested in the great case he or she is offering me. The case usually goes something like this:

  • I have a $16.5 million judgment against this Chinese company for securities fraud. We got the judgment from such and such US court and “all we have to do now” (I swear they nearly always say this as though they just did 99.9% of the work and I am some 8 footer who merely needs to dunk the perfectly passed ball into the hoop) is get the judgment enforced in China. Do you want to help us on this (again, always asked as though I am going to jump at this alley-oop pass). Slightly irritated, I always like to come right back at them, by answering, in my most blaze voice possible, “almost certainly not.” But to keep them on pins and needles a bit longer, I do not explain why, I just ask them whether this company still does any business in the United States, knowing full well that if it did, this lawyer almost certainly would not have called me. Then when they say “no,” I ask whether it does business in Canada, England or South Korea (my three favorite countries for enforcing U.S. judgments). They invariably say they do not know. I then tell them that I know of absolutely no way to get their judgment enforced in China and that the best way to seize the Chinese company assets is to go after whatever assets it might have in the US, Canada, England or South Korea. I also say that if there is any way we can contend the case is based on a maritime claim, we could also try seizing any of the Chinese company’s US dollars that pass through New York banks as part of a Rule B maritime attachment. The call always concludes with their saying they will look into the Canada/England/South Korea angle and then their never getting back to me.
  • I have a $2.4 million judgment against a Chinese company for breach of contract….These calls then go exactly as per #1 above. I then lecture them on how the next time they do business with an overseas company, they should have an arbitration provision in their contract.
  • I have an $11.2 million tort judgment that includes $8.7 million in punitive damages…..These calls then go exactly as per #1 above, except this time, I have to tell them that even England, Canada, and South Korea will not enforce punitive damage awards and they also tend to be very wary of US tort judgments.

For more on the difficulties in suing Chinese companies/enforcing US judgments in China, check out the following:

I am going to be speaking on this topic in New Orleans on November 11 at the “Chinese Drywall Litigation & Insurance Coverage Update.

  • ceh

    It’s amazing how little due diligence these lawyers do before taking the cases. If they’re on contingency fee, they’re idiots. If they’re paid hourly, they’re thieves.
    P.S. From the perspective of a non-US company doing business internationally, Rule B attachments may be one of the most frequently abused tricks in the book. As a result, many of my clients have already resorted to settling their accounts in Euros. SDNY Judges just LOVE maritime attachment cases, now that they constitute >10% of their docket.

  • http://twofish.wordpress.com/ Twofish

    The amount of legal incompetence in both the author and the lawyers is stunning.
    This is not an article about China. This is an article about the United States. How the legal system is broken, and how Americans have no idea how things work globally.
    There is simply no way that the lawyer could have gotten the award enforced in any other country in the world. If you have a multi-million dollar damage claim from the US, good luck trying to get it enforced in Germany or Italy or even Canada. It’s not going to happen.
    China is not the nation that is unusual here. Chinese laws when it comes to consumer product liability are rather standard. It’s the US which is very, very unusual. Chinese law does not recognized punitive damages. Neither down German or Italian law or the law of some US states. Canadian and English law does allow for punitive damages, but there are extremely restrictive conditions which this case does not meet, and there is no way that any Canadian or English court would have awarded over $1 million for damages, nor would have they have recognized a US award.
    Also less is sometimes more. The reason that Tuhsu was eager to settle was had they been sued in a Chinese court for product liability, they may have gotten about $150,000 to cover medical costs or lost wages, which is about as much as they would have gotten from any German or Italian court.
    Once you have a US judgment then a Chinese court is not going to take the case, because a judgment has already been entered, nor are they going to enforce the judgment because of public policy.
    The other thing is that “we didn’t make the fireworks” that exploded seems to me to be a perfectly valid defense. Also there is this cultural nonsense about SOE behavior. What probably happened was that the court summons got buried in a stack of papers, and no one noticed it until years afterwards.
    Also this is a classic example of “take one random incident” and make sweeping cultural and legal generalizations about the world (which happen to be totally wrong).

  • http://twofish.wordpress.com/ Twofish

    Also, Chinese courts may enforce US judgments if they think that they are reasonable. The problem is that in order to convince a Chinese court that the judgment is reasonable you basically have to re-litigate the lawsuit all over again, and you could have done that by going straight to a Chinese court.

  • Prometheus

    Hi Dan
    Love the blog and hear you loud and clear about cross-border enrorcement. For us “China involved waiguoren lushi”, can you maybe post an article on how these US companies might instead take action against a Chinese company in a Chinese court and focus particularly on the enforcement aspect – eg, ought one seek to freeze assets in advance of a judgement?

  • http://twofish.wordpress.com/ Twofish

    The article states: Had Tuhsu been an American company, or even a private foreign company, it would have been precluded from these arguments, because under US law it would have run out of time both in which to challenge the court’s jurisdiction and to mount its “mistaken identity” defence.
    This isn’t true at all. What happened is that once you have a judgment against a defendant, you have a number of years before the judgment expires, and you have to reapply to revive the judgment, and which point you have to serve the defendant notice. What likely happened was that in 2000, Tuhsu had absolutely no idea that they were being sued at all. The court issued a default judgment. In 2005, when the plantiffs issued a revival of judgment, then they had to reserve the summons, at which point it’s likely that this is the first time that Tuhsu realized it was being sued.
    It’s also rather absurd how the article makes it seem like it’s a good thing to *sue the wrong company*. Someone gets damaged because of an exploding airplane, well then the logical thing to do is to sue a car company.
    One other point of US law is that FSIA provides immunity from companies that are directly owned by the state. It doesn’t apply to companies that are indirectly owned, which Tuhsu is not but it wasn’t in 1995. Also FSIA is US law, under Chinese law both Tuhsu and Guangdong Native Produce are listed corporations and do not have any sort of special immunity from consumer liability suits.