On April 2, the California Supreme Court unanimously held in Rockefeller Technology Investments VII v. Changzhou Sinotype Technology Co., Ltd., 2020 DJDAR 2943, that "sophisticated business entities" that are contracted for arbitration under California law and who "also agreed to provide notice and 'service of process' to each other through Federal Express or similar courier" waived "formal service of process under California law in favor of an alternative form of notification." In doing so, the court ruled these parties thereby avoid application of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, adopted in the Hague on Nov. 15, 1965. The court issued the decision -- which it explicitly described as "narrow" -- against a broader backdrop of court decisions that have addressed plaintiffs' attempts to avoid compliance with the Hague Convention, especially when it comes to serving defendants who are based in China, such as the defendant in Rockefeller.
The Hague Convention and Service for China-Based Defendants
The Hague Convention is a multilateral treaty that "was intended to provide a simpler way to serve process abroad, to assure that defendants sued in foreign jurisdictions would receive actual and timely notice of suit, and to facilitate proof of service abroad." Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 698 (1988). Both the United States and China are signatories to the convention, which "shall apply in all cases, in civil or commercial matters, where there is occasion to transmit a judicial or extrajudicial document for service abroad." "[C]ompliance with the convention is mandatory in all cases to which it applies," but it only applies when the service of process requirements of the forum state require "the transmittal of documents abroad." Thus, if -- under the law of the forum -- service can validly occur in the U.S., the convention does not apply.
Generally, if the convention applies, it requires each member state to designate a "Central Authority" to receive and execute requests for service of process from litigants in foreign countries. While Article 10 of the convention states that the treaty does and will not interfere with parties alternatively effecting service directly through "postal channels," China has objected to this article. Therefore, plaintiffs seeking to serve Chinese defendants in compliance with the Hague Convention must usually go through China's Central Authority. See, e.g., Zhang v. Baidu.com Inc., 932 F. Supp. 2d 561, 567 (S.D.N.Y. 2013).
There may be delays and other logistical challenges associated with serving defendants with process in China through the Central Authority. See Hague Conference on Private International Law, China-Central Authority & practical information (describing technical requirements and three to four month delay for service). Thus, plaintiffs often seek to avoid application of the convention when attempting to serve defendants located in China. For example, plaintiffs in federal courts have invoked alternative methods for service under Federal Rule of Civil Procedure 4(f)(3) to serve China-based defendants through email, their U.S.-based counsel or U.S.-based subsidiaries. See, e.g., Brown v. China Integrated Energy, Inc., 285 F.R.D. 560, 563-64 (C.D. Cal. 2012) (permitting service through U.S.-based counsel); Fourte Int'l Ltd. BVI v. Pin Shine Indus. Co., 2019 U.S. Dist. LEXIS 8723, at (S.D. Cal. Jan. 17, 2019) (permitting email service); In re LDK Solar Sec. Litig., 2008 U.S. Dist. LEXIS 90702, at * (N.D. Cal. June 12, 2008) (permitting service of individual defendants via U.S.-based subsidiary of defendants' employer without requiring plaintiff to make any attempt to serve through the convention). However, some courts reject these alternative means unless the plaintiff has first made an adequate attempt to serve the defendant through the convention. See, e.g., Xu v. Gridsum Holding Inc., 2020 U.S. Dist. LEXIS 55452, at *38 (S.D.N.Y. Mar. 30, 2020) (noting that district courts "routinely" examine whether plaintiffs attempted to effectuate service through the convention before ordering alternative service "in order to prevent parties from whimsically seeking an alternate means of service").
Moreover, for cases pending in California courts, such alternative methods are generally not available. In contrast to Federal Rule of Civil Procedure 4(f)(3), which permits service on defendants outside the U.S. by any "other means not prohibited by international agreement, as the court orders," California Code of Civil Procedure Section 413.10, which governs service of process on persons outside the U.S., "requires transmission of documents abroad" and therefore, compliance with the convention. Kott v. Superior Court, 45 Cal. App. 4th 1126, 1135-36 (1996).
The Rockefeller Decision
The California Supreme Court's decision in Rockefeller is another example of a plaintiff seeking to avoid serving a defendant in China in compliance with the Hague Convention. In Rockefeller, the plaintiff and defendant entered into a memorandum of understanding (MOU) aimed at forming a joint venture. The MOU stated that it was in "full force and effect" and that the parties would, "with all deliberate speed," aim to execute a long-form agreement. The MOU also stated that "The Parties shall provide notice ... via Federal Express or similar courier" and "The Parties hereby submit to the jurisdiction of the Federal and State Courts in California and consent to service of process in accord with the notice provisions above." The MOU included a mandatory arbitration clause requiring arbitration in California pursuant to the state's law.
The parties ultimately were unable to execute a long-form agreement. The plaintiff thereafter initiated an arbitration in California, giving the defendant in China notice of the arbitration via Federal Express in accordance with the MOU. The defendant did not appear or participate in the arbitration and the arbitrator issued an award of $414 million in the plaintiff's favor. The plaintiff then petitioned to confirm the arbitration award in California state court, again providing notice to the defendant in China via Federal Express. The defendant again did not appear, and the award was confirmed by the court. When the plaintiff began to take action to collect the judgment, the defendant appeared, moving to set aside the judgment on the basis that he had not been properly served with the petition in accordance with the convention.
The trial court denied the defendant's motion to set aside, but the state's Court of Appeal reversed. The court reasoned that because China objected to Article 10 of the Hague Convention, service via "postal channels," including Federal Express, violated the Hague Convention. It further reasoned that private parties cannot "contract around the convention's service requirements," so the notice provision in the parties' MOU did not make service valid. Rockefeller Technology Investments VII v. Changzhou Sinotype Technology Co., Ltd., 24 Cal. App. 5th 115, 129 (2018). The court emphasized that the convention grants rights to member states, not the citizens of those states, to determine how service shall be effected. It also rejected the two decisions that, at that time, had concluded that parties could "contract around" the convention, concluding that they lacked any "textual analysis" to support their conclusion.
In reversing the decision of the Court of Appeal, the California Supreme Court avoided the far-reaching question addressed by the Court of Appeal of whether parties could contractually alter the service of process requirements of the Hague Convention. Instead, it characterized the notice provision in the MOU not as an agreement to a particular method of service of process, but as a waiver of formal service. The court did not base this characterization on the language of the MOU, which said nothing about "waiving" service of process. Rather, it focused on California Code of Civil Procedure Section 1290.4(a), which provides that notices regarding arbitrations may "be served in the manner provided in the arbitration agreement for the service of such petition and notice." It interpreted Section 1290.4(a) to "authorize parties to an arbitration agreement to waive otherwise applicable statutory requirements for service of summons in connection with a petition to confirm an arbitration award." In describing Section 1290.4(a), the Supreme Court specifically noted that its "conclusions as to California law are narrow." If the parties do not specify a method of service under Section 1290.4(a), "the statutory service requirements of Section 1290.4, subdivisions (b) or (c) would apply, and those statutory requirements would constitute formal service of process." It expressed no view on the outcome under those circumstances. However, based on its conclusion that the parties waived formal service of process, the court held that the service of process requirements of the Hague Convention did not apply.
As the court itself acknowledged, its decision was indeed narrow. Accordingly, the court did not conclude that every agreement for a particular method of service of process constitutes a "waiver" of formal service of process requirements, and instead ruled that an agreement governed by Section 1290.4(a) and providing a method for service of arbitration-related documents constitutes a waiver. As such, it is not clear that the court's decision will have any effect on agreements outside the arbitration context or on agreements that are governed by the Federal Arbitration Act instead of California's arbitration procedures. In this regard, parties should likely not conclude that the California Supreme Court has created a new loophole for parties to avoid application of the Hague Convention or service through China's Central Authority.
Nevertheless, parties that are otherwise entitled to service in accordance with the Hague Convention should review their contracts carefully. If they wish to avoid a waiver of formal service requirements, they should make that clear in their contracts, especially those containing arbitration provisions.
The views expressed herein are those of the authors and not of Skadden or its clients.