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Suing Chinese Companies In US Courts. The Pros And The Cons.

Posted in Legal News

Yesterday, we did a post on how to effect Hague service of process on a Chinese company so as to bring that company into a United States lawsuit.  I concluded that post with the following:

Tomorrow, I will discuss why it oftentimes makes no sense to sue Chinese companies in U.S. courts, but also set forth some situations where it makes all the sense in the world.

Tomorrow is now today (actually, because I just landed in the U.S. from Korea, yesterday is today) and so I am going to talk about when to sue Chinese companies in U.S. courts and when not to. 

U.S. judgments have virtually no value in China. Neither a treaty nor a reciprocal arrangement exists between China and the United States regarding the recognition or enforcement of judgments in civil matters. Chinese courts simply disregard U.S. judgments. I have written extensively about this in the following posts:

We have written on this so frequently because we are constantly getting contacted by American lawyers who want to retain us to enforce their judgment in China against a Chinese company. We tell them that Chinese courts do not enforce U.S. court judgments and they invariably do not take it well, mostly because they now need to explain to their clients why they spent so much time and money securing a judgment that likely will have no value whatsoever. So if your only reason for suing a Chinese company in a U.S. court is so that you can take that judgment to China and collect, do not even bother. 

But this does not mean that suing a Chinese company in a U.S. court never makes sense, because there are many instances where it does, including the following:

  1. The Chinese company has assets in the United States;
  2. The Chinese company has assets in a country that enforces United States judgments (Canada, South Korea and England spring to mind);
  3. The Chinese company does business with United States companies that do not pay the entire amount upfront for the Chinese companies goods or services. In these circumstances it may be possible to use the U.S. court judgment to seize funds owed by the United States companies to the Chinese company;
  4. The Chinese company has plans to come to the United States and your judgment against it will put a real crimp in that; or
  5. You are the defendant in a case and there are legal benefits (like sharing the liability) or even psychological benefits to being able to tell the court or the jury that you served the Chinese company but it has chosen not to show up. This last reason should not be underestimated as my firm has handled Hague service of process on Chinese companies a number of times in these sort of situations. 

What do you think?

  • Wang Chung

    I think all this is really flakey advice given largely to persuade US clients there may be the possibility of gaining a settlement but on very flimsy grounds but I’ll give my comments:
    1) 99% of the time this will be a US subsidiary of a Chinese company, so you’re really suing a US company not a Chinese one.
    2) You want to rack up really large legal bills in other jurisdictions? Its possible, but a highly expensive solution involving using legal counsel in other countries.
    3) Theoretically possible, but youd face strong legal challenges from the other US companies involved as well as make yourself very unpopular.
    4) No explanation as to why you’d be privy to that knowledge or how that could be used, and you’d face legal challenges if you tried.
    5) I suspect this situation applies in only a small minority of cases and has a very limited chance of gaining any financial ground over the Chinese company.
    Its largely all pointless. Apart from (1) if you want to sue a Chinese company go get a lawyer in China to do it not any of this ill thought out nonsense messing about in the US witht it.

  •  David

    How about a WFOE in China sueing another WFOE in China? Are there any particular things to note in a case like this?

  • Chris

    @ Wang Chung
    Dan has many, many times written on why you shouldn’t sue a Chinese firm in a US court. In this post, he simply outlines the circumstances under which you might consider it and the criteria for evaluating the purpose and usefulness of the exercise. That’s all…

  • Wang Chung

    @Chris
    You make a good point. I have gone back and read some of those posts and now that I see everything in context, I take back what I said about this post. Though most of the time it will not make sense to sue a Chinese company in a U.S. court, there are times where it makes sense to do so. I probably should not have ventured into this discussion in the first place as I am not a lawyer. Thanks for setting the record straight.

  • http://www.cateslaw.com Cates

    interesting article

  • Wayne Parker

    I would especially agree with Dan’s point about using a US action to go after US companies owing the Chinese company you really want to go after to get your desired damages. The tool we’ve used here in NYC is an action to recognize and enforce the US judgment against the Chinese judgment debtor combined with a petition for post-judgment attachment of the Chinese company’s property in the hands of those US companies or garnishment of property or funds owed to the Chinese company by US companies. A recent decision issued by the NY Court of Appeals holds that if the court has personal jurisdiction over the US garnishee, then it can order the US garnishee to not only turn over the property of the judgment debtor within the jurisdiction but also property outside the jurisdiction. The case has created a powerful tool for parties to go after judgment debtors who otherwise are not amenable to a NY court’s personal jurisdiction. My firm has successfully done this several times against Chinese multinational companies that initially thought they were judgment proof in the United States. Other firms have been equally successful. As a result, we have seen a substantial rise in the number of such judgment enforcement actions filed with NY state and federal courts.

  • KAS

    We have a pretty blatant patent infringement where the Chinese manufacturing company (with whom we have a contract) has sold the product to Australia. Our goal is to shut down the sales in countries outside of China, e.g. Australia. Under these circumcstances, would it make any sense to sue? We are just starting down this path and I do not want to waste my client’s money. Thank you for your informative posts.

  • http://www.chinalawblog.com Dan

    @KAS,
    I just responded to your comment here: http://www.chinalawblog.com/2011/08/china_patent_infringement.html.