Enforcing Chinese Judgments in the U.S.

September 13, 2011

As the first case in history where a Chinese judgment was successfully recognized and enforced in the U.S., Hubei Gezhouba Sanlian v. Robinson is a milestone. Hubei Gezhouba Sanlian Industrial Co., Ltd. and Hubei Pinghu Cruise Co., Ltd vs. Robinson Helicopter Company, Inc. CV-01798-FMC (2009) (U.S. Court of Appeals, 9th Circuit - Case No. 09-56629.

The case involved a lawsuit over an accident in China involving a helicopter manufactured by Robinson Helicopter Company, Inc. (“Robinson Helicopters”) that resulted in the deaths of three people. A judgment in excess of six million U.S. Dollars was entered against Robinson Helicopters by the Shanghai Supreme Court after a lengthy evidentiary hearing before three judges. Robinson Helicopters did not participate in the hearing notwithstanding being served with notice of the hearing.

The United States District Court overcame the absence of any U.S./Chinese treaty for the enforcement of foreign judgments by relying on the California Uniform Foreign Money Judgment Recognition Act (UFMJRA) to enforce the Chinese judgment.

Based on the doctrine of “stare decisis”, which obligates trial judges and lower appellate courts to follow judicial precedent established by the appellate court judgment, creditors from China can, subject to the facts of the underlying case and the circumstances in which the Chinese judgment was obtained, file a civil action in a District Court in the Ninth Circuit for enforcement of the Chinese judgment.

The major issues considered by the District Court and by the Ninth District Courts of Appeal in granting recognition of the judgment against Robinson Helicopters were the following:

1. The jurisdiction of the Chinese court. The case was originally filed in the District Court in California. The Defendant filed a motion to stay the proceedings based on their argument that the District Court was not the proper court according to the principle of forum non conveniens and agreed to submit to the jurisdiction of the court in China as a condition of the District Court granting the motion to stay the proceedings. Therefore, when the judgment creditor filed the motion to enforce the Chinese judgment, Robinson Helicopters was estopped from arguing the Chinese Court did not have jurisdiction in the underlying case.

2. Whether the Defendant was denied” due process” in the judicial proceedings in China. Robinson Helicopters argued it was denied its right to due process in the Chinese judicial proceedings. The District Court concluded Robinson Helicopters had actual notice of the judicial proceedings in China and had both sufficient time and the opportunity to participate in the judicial proceedings. The judgment was entered by a panel of three judges after evidence was presented by the plaintiff during the evidentiary hearing. The District Court found the judicial proceedings in the Chinese court were fundamentally fair, did not offend against basic fairness and complied with the concept of “due process” in foreign judicial proceedings as set out in Society of Lloyd’s v. Ashenden, 233 F.3d 473, 476-77 (7th Cir. 2000); Shell Oil Co. v. Franco, 2004 WL 5615657 (C.D. Cal. 2004) (citing Ashenden).

3. Whether service of process was proper. The District Court determined service of process was made in compliance with the requirements of the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (“Hague Convention”).

4. Whether it would be equitable to enforce the Chinese judgment. The Defendant argued there are neither bilateral treaties nor multilateral international conventions between the U.S. and China with respect to the mutual recognition and enforcement of judgments issued by each country’s courts in civil and commercial matters. The District Court held lack of reciprocity is not grounds for refusal of recognition under the UFMJRA and it’s successor statute.

It is worth noting this case was very fact-specific. The Defendant by filing the motion to stay the action in California based on form non convens consented to jurisdiction over the case in the court in China and could not challenge the jurisdiction of the court in China in subsequent enforcement proceedings in the District Court. In addition, the Plaintiff made sure service of process strictly complied with the Hague Convention; the judicial proceedings in the Chinese court were complete, fair and complied with the U.S District Court’s due process requirements for proceedings in foreign countries; and the statute of limitations was property tolled.

Chinese entities doing business with U.S. persons or entities need to carefully draft their contracts to resolve all issues of jurisdiction, applicable laws, conflict of laws, service of process and enforcement of judgments obtained in China in the U.S. to take advantage of this judicial precedent. Chinese judgment creditors with judgments against U.S. persons or entities proposing to enforce the Chinese judgments in the U.S. who have not previously agreed on all these fundamental issues with the U.S. judgment debtor will have a difficult time fitting within the four corners of this judicial precedent. They may be successfully in enforcing a Chinese judgment in the Ninth District if they can establish the Chinses court was the forum convens, the U.S. defendant was properly served with process and had an opportunity to meaningfully participate in the legal proceedings in China, and the Chinese judicial proceedings conformed to the Ninth Circuit’s definition of due process in foreign judicial proceedings.