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Subrogating the Globe

How to bring overseas manufacturers to U.S. courts.

October 29, 2014 Photo

Thomas Friedman’s best-selling book The World Is Flat teaches that 21st century improvements in technology—particularly in shipping, manufacturing, and transportation—have leveled the playing field in commerce to the point that all competitors have an equal opportunity in the global marketplace. It is no surprise then that we have seen a substantial increase in the number of products imported into the U.S.—typically more than 40 percent today compared to 20 percent 15 years ago.

Further, the U.S. Consumer Product Safety Commission, which tracks and publicizes recalls for products sold in the U.S., notes that more than 80 percent of its recalls are for imported products. These statistics support what subrogation professionals are seeing—more and more suits involving products from overseas manufacturers. This article is intended to make you more comfortable with navigating around the obstacles that come with bringing claims against overseas manufacturers in U.S. courts.

Service of Process

One of the common misconceptions about claims against international defendants is that recovery is not viable or is unduly burdensome because you have to deal with service of process and The Hague. In reality, service of process is not a major hurdle to claims against international defendants. The first step is simply a matter of determining whether the defendant’s business is in one of the 68 countries that are signatories to the Hague Convention on Service of Process, a list that includes the U.S., Canada, China, India, Japan, Mexico, and most of the European Union.

If you are dealing with a defendant in a Hague Convention country, the process of serving the complaint and summons on the defendant is simple. Each country establishes a central authority for handling service. The name and address of a particular country’s central authority are available on The Hague’s web site (hcch.net). The comforting part about this process is that the designated central authority takes care of service for you. All you have to do is have the service documents (complaint and summons) sent to the central authority, and they will send back a completed certificate of service when it is complete.

There is a slightly higher cost involved because most countries require the service documents to be translated into the native language of the defendant’s country. Further, the time frame for completion of service can be frustrating—often six-to-eight weeks for the European Union and four-to-six months for China and India. But these are not the type of hurdles that should deter you from moving forward with a claim against an overseas defendant.

If your case involves a defendant in a non-Hague country, e.g., Taiwan, then your typical service method will be what is called “letters rogatory.” Since there is no treaty in place as in The Hague, you need to go through a diplomatic process to serve the complaint. The U.S. Department of State sends a letter rogatory signed by the judge in your U.S. case requesting the authority in the defendant’s country to assist with service.

Alternatively, as in Yamaha Motor Co. Ltd. v. Sup. Ct. 174 Cal. App. 4th 264, some courts will allow service on a foreign entity via their U.S. subsidiary if a sufficient connection exists between the two entities such that it is likely the U.S. subsidiary will notify the foreign parent corporation of service.

In all scenarios—The Hague, letters rogatory, or service on subsidiary—service of process is simply that: a process. It should not deter you from moving forward with your claim against an international defendant.            

Personal Jurisdiction

Simply because you have served a defendant with the complaint/summons does not mean that they must stand trial in your selected court. The rules of jurisdiction are complicated and bring back nightmares of civil procedure class for many attorneys. But an understanding of the basic principles of jurisdiction is critical to analyzing the viability of a claim against an overseas defendant.

Start with the general notion that there are two types of methods to obtain jurisdiction: specific and general. General jurisdiction is the notion that the defendant’s contacts with the forum state (i.e., the state where you are filing the lawsuit) are so “systematic and continuous” that it justifies hauling the defendant into the courts of that state regardless of where the loss occurred.

Conversely, specific jurisdiction is used when the loss arose out of the defendant’s contacts with the forum state (i.e., the incident took place in the forum state). Since the loss occurred in the forum state, a lower standard of contacts, commonly referred to as “minimum contacts,” is required for specific jurisdiction.

While there may be situations in which an argument for general jurisdiction in a U.S. state can be made against an overseas defendant (often when they have a subsidiary or substantial corporate presence in the U.S.), the majority of situations involve the specific-jurisdiction test, which requires a lesser level of contacts.

The U.S. Supreme Court weighed in on the level of contacts required to obtain specific jurisdiction over an overseas defendant in J. McIntyre Machinery Ltd. v. Nicastro. The result created a great deal of confusion for lower courts as to what standard to apply.

Prior to McIntyre, most courts ruled that a foreign manufacturer that used a U.S. distributor to market its products in the U.S. was subject to jurisdiction in any state where an injury occurred— often referred to as the stream of commerce doctrine. The rationale was that it would be fair to haul a defendant into court in the state where its product caused a loss when the defendant benefited from selling its product in the forum state and should have been aware that its distributor was selling the product to the forum state.

 But in McIntyre, the justices could no longer agree on what test would apply. The case involved a New Jersey worker injured while using a scrap metal shearing machine manufactured by the defendant in the United Kingdom. The defendant used a distributor in Ohio to sell the machines, but the defendant had virtually no contacts with New Jersey and had little-to-no reason to believe its product would end up in that state. The evidence indicated, at best, that only four of the defendant’s machines ended up in New Jersey.

While a majority of justices found in this particular case that there was no jurisdiction in New Jersey over the foreign defendant, a majority could not agree on what test should be used for these jurisdictional analyses. A four-justice plurality opined that there would need to be evidence that the foreign defendant targeted the forum state. But five justices disagreed with that analysis—two of whom continued to believe in the stream of commerce doctrine—finding that the mere four products of the defendant that reached the New Jersey market were not enough to haul the defendant fairly into a New Jersey court under the stream of commerce test.

Since there was not a majority of justices in agreement as to what test should be applied, a great deal of confusion was created as to what level of contact the defendant must have with the forum state.

Regardless of what level of contact the court in your case will ultimately require, the analysis remains the same. The following are the types of questions that should be asked in order to analyze whether the defense has sufficient minimum contact with the forum state.

Did the defendant:

  • Regularly ship products to the forum state, or was this just an isolated incident?
  • Advertise in the forum?
  • Have officers/employees or hold licenses to do business in the forum?
  • Have bank accounts/property or a subsidiary in the forum?
  • KShip the product to the forum or otherwise have awareness of the product reaching the forum, or was it taken there unilaterally by the supplier?
  • Enter into the contract/transaction in the forum?

Often, these questions can be answered by conducting online research about the defendant or utilizing various company and asset search databases. If prelitigation research does not provide a clear picture of the defendant’s contacts with the forum state, then most courts will allow you to conduct jurisdictional discovery after filing suit, permitting you to serve written discovery and take depositions of defense representatives in order to get additional information on the jurisdictional analysis. If the answer to any of the above questions is “yes,” then you will have an argument for personal jurisdiction over the defendant in your forum state.

Waivers and Future Legislation

While the above analysis often may result in a determination of jurisdiction over the foreign defendant, the debate may be avoided if the defendant appears in court or files an answer without first asserting personal jurisdiction as a defense. Personal jurisdiction is a defense that must be asserted immediately or it is waived. When jurisdiction is debatable, it would be wise to file suit in the event the defense answers and, as a result, waives the defense.

While the personal jurisdiction analysis can become complicated and add uncertainty to your case as to whether jurisdiction can be established, if enacted, the proposed bipartisan Foreign Manufacturer Legal Accountability Act (FMLAA) will put this issue to rest. Designed to establish jurisdiction over international defendants, the FMLAA is pending congressional approval and will be important for insurance claims and subrogation professionals to track. As currently worded, the bill requires that all foreign manufacturers of products/goods shipped to the U.S. establish an agent in one U.S. state to accept service of process on behalf of the foreign manufacturer. In addition, the bill requires that the foreign manufacturer consent to personal jurisdiction in the courts of the state in which their designated registered agent for service of process is located. If passed, the bill would eliminate the personal jurisdiction hurdle previously discussed and make it easier to bring claims against foreign manufacturers in U.S. courts.

Enforcement of Judgment   

If you decide that a U.S. court will have jurisdiction over the overseas defendant after analyzing the jurisdictional issues in your case, then you should analyze early on whether any judgment you obtain in a U.S. court will be enforceable overseas.

Every country has its own rules in dealing with enforcement of overseas judgments on its citizens and companies, but there are some commonalities.

First, most want to ensure that the judgment was obtained on the merits, as opposed to a default judgment. Second, some countries have public policies against punitive damages and will not enforce judgments with punitive damages attached. Third, some countries will ask whether there is reciprocity—if the U.S. recognizes judgments entered in the foreign country, then the foreign country is likely to recognize U.S. judgments.

Even if your particular U.S. judgment was not ultimately enforceable overseas, it likely would be admissible as evidence in an overseas lawsuit. Further, most companies fear the notion of having a U.S. judgment entered against them, viewing it as bad for business. Because of that, they will make efforts to pressure their carriers to resolve the case or try to resolve it themselves. As a result, even when ultimately unenforceable, there can be great value in moving forward with trying to obtain a judgment against an overseas defendant.   

About The Authors
David Brisco

David Brisco is a partner in CLM Member Firm Cozen O’Connor’s subrogation and recovery practice in the litigation department. He can be reached at (619) 685-1704,  dbrisco@cozen.com

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