Friday, September 25, 2009

Don't Chi Ku if You Don't Have To

By Edythe Huang and Robert J. Allan

Our clients are giving us déjà vu. It's better than many ailments, but the eerie feeling is just as disconcerting, especially when the root cause is known. As we sit in on client interview after client interview in which they tell us their story, we can't help but let that peculiar sensation wash over us. . . the sensation that we've heard this all before.

Typically, the story goes something like this:

There's a Chinese seller and an American buyer who have cultivated a relationship over a couple of years. According to the contract they have been following for the last year or two, the Chinese seller is to deliver goods in installments over a period of time. The American buyer has always paid on time, and the relationship is a good one.

Suddenly, upon receiving one of the installments, the American buyer calls up the Chinese seller and sternly says, "the goods weren't conforming this time and I'm not paying for them." The Chinese seller is puzzled, but writes it off as a singular incident and sends the buyer the next installment of goods on time.

This time, the American buyer accepts the goods and pays on time. The Chinese seller is reassured and sends off the next installment of goods on time.

The American buyer finds something wrong with this third installment and refuses to pay. Once again, the Chinese seller believes that there must be something wrong with the shipment. After all, he and the American buyer have a long standing relationship. Next time, he tells himself, everything will be fine and he'll get paid. . . just like last time.

He sends a fourth shipment. Again, the American buyer finds something wrong with the shipment and refuses to pay.

If he's smart and on top of things, the Chinese seller realizes that the long term relationship that he spent years cultivating with the American buyer may not be as strong as he thought it was. He calculates that he has sent three installments and is owed a few tens of thousands of dollars, yet knows he is not going to get paid. Many buyers do not realize that they are not going to be paid until a few more installments of goods have gone out and they are out a few hundreds of thousands of dollars.

Panic sets in. What can he do about it? Many decide that all they can do is chi ku, or ”eat the bitter.” The accounts receivable gets moved to a loss, a very painful loss.

But there are a few brave souls who have ventured into the American justice system. Those are the ones who are giving me déjà vu. They are approaching American lawyers to help them collect. And we're able to collect, but it takes the Chinese seller to, first, be able to recognize the problem, and second, get in touch with an attorney who can collect.

If you and your business don’t have to chi ku, then why would you?

Monday, September 14, 2009

Enforcing Chinese Judgments in the United States
By Julia Zhu and Robert Allan

We often receive inquiries from our clients on enforceability of judgments entered by US courts either in Hong Kong or China. Now, here comes the other side of the coin. We were recently asked by a reporter about how many judgments entered by Chinese courts are enforced in the US.

The enforcement of foreign judgments is frequently regulated by bilateral treaty or multilateral international convention between two states. Presently, the United States is not a party to an international agreement for the general recognition of foreign judgments. No treaty obligates foreign courts to recognize judgments of U.S. courts and vice versa.

Actions to enforce a foreign judgment generally are filed in a federal court of the United States because jurisdiction is based on diversity. However, the enforcement of a foreign money judgment in a court of the United States is determined by the laws of each individual state.

If the time to appeal in the court of origin has lapsed, and the judgment has become final, the holder of a foreign judgment, decree or order may file suit before a competent court in the U.S. which will determine whether to give effect to the foreign judgment. The local version of the Uniform Foreign Money Judgments Recognition Act applies in most states, including California.

Foreign country money judgments may be enforceable in California if they meet the requirements of the UFMJRA and the creditor brings an action in California to obtain a domestic judgment. California courts, however, have broad discretion to deny enforcement of foreign country judgments. The UFMJRA applies to any foreign country judgment granting or denying recovery of a sum of money. It does not apply to a judgment for taxes, a fine or other penalty or a judgment for support in family law matters. The UFMJRA does not prevent recognition by “comity” (or nonrecognition) of a judgment that does not come within the terms of UFMJRA.

A foreign country money judgment may be recognized in California only if final, conclusive, and enforceable where rendered even though an appeal is pending or may be taken.

We conducted a research on Westlaw for case law nationwide regarding enforcement of Chinese judgments, 68 cases came up.

A very recent case is worth our attention. On August 12, 2009, the United States District Court for the Central District of California issued a judgment enforcing a $6.5 million dollar Chinese judgment against an American corporate defendant under California’s version of the UFMJRA.

It is generally believed that United States courts will not enforce Chinese judgments given the lack of a treaty between the two countries on the issue and given that Chinese courts generally do not enforce United States judgments in China, which limits the argument for reciprocity in the United States. Given this decision, California may become a favorable forum for enforcement of Chinese judgments in the United States. One can expect this decision to be of great interest to Chinese plaintiffs with Chinese judgments against American corporate defendants, especially those located in the state of California. Other states that have enacted the UFMJRA, including New York, may also be affected.