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California Supreme Court Upholds Default Judgment Confirming $414,601,200 Default International Arbitration Award

April 20th, 2020 Arbitration Practice and Procedure, Award Confirmed, Awards, California Supreme Court, Confirmation of Awards, Default Award, FAA Chapter 1, FAA Chapter 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 9, International Arbitration, Personal Jurisdiction, Practice and Procedure, Service of Process Comments Off on California Supreme Court Upholds Default Judgment Confirming $414,601,200 Default International Arbitration Award By Philip J. Loree Jr.
default judgment award confirm

On April 2, 2020 the California Supreme Court rejected a service-of-process challenge to a default judgment confirming a $414,601,200 international arbitration award. The parties agreed that notice could be given, and service of process made, by Federal Express (“FedEx”), and the Court held that the petitioner was not required to make service under the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, November 15, 1965, 20 U.S.T. 361, T.I.A.S. No. 6638 (the “Hague Convention”).  

Facts and Procedural History

Party A, apparently headquartered in the U.S., and Party B, headquartered in China, entered into a memorandum of understanding (“MOU”), which contemplated the two companies forming another. But that didn’t happen and Party A demanded arbitration against Party B under the arbitration agreement in the MOU.

Party A served the arbitration agreement by FedEx, as agreed. Party B did not appear in the arbitration and the arbitrator, after hearing evidence, entered a default arbitration award. Service of the arbitration demand was made by FedEx, and Party B was given notice of each of the proceedings that comprised the arbitration.

The Arbitrator made a default award against B in the amount of $414,601,200. Party A commenced confirmation proceedings in a California state court, serving B by FedEx, as expressly agreed in the parties’ agreement.

But Party B did not appear at the confirmation proceedings, and the Court entered a default judgment confirming the award.

Party B then challenged the default judgment, contending that the Court lacked personal jurisdiction over it because service was made by FedEx, and not through the procedures prescribed by the Hague Convention.

The trial court rejected the challenge, the intermediate appellate court reversed, and the California Supreme Court, in a unanimous decision, reversed the intermediate appellate court.

The California Supreme Court’s Decision to Uphold the Default Judgment

The question before the California Supreme Court was whether the Hague Convention preempted the parties’ right to serve by their agreed method of service, FedEx. California’s highest court said the answer was “no.”

The Court determined “that the Convention applies only when the law of the forum state requires formal of service of process to be sent abroad.” Rockefeller Tech. Invs. (Asia) VII v. Changzhou SinoType Tech. Co., No. S249923, slip op. at 2 (Cal. Apr. 2, 2020). It “further conclude[d] that, because the parties’ agreement constituted a waiver of formal service of process under California law in favor of an alternative form of notification, the Convention [did] not apply.” Slip op. at 2.

As the Court explained, “[w]hen parties agree to California arbitration, they consent to submit to the personal jurisdiction of California courts to enforce the agreement and any judgment under” California’s arbitration statute. Slip op. at 23.

“When,” said the Court, “the agreement also specifies the manner in which the parties ‘shall be served,’ consistent with [California’s arbitration statute]. . . , that agreement supplants statutory service requirements and constitutes a waiver of formal service in favor of the agreed upon method of notification.” Slip op. at 23. And when “an arbitration agreement fails to specify a method of service, the statutory service requirements of [California’s arbitration statute]. . . would apply, and those statutory requirements would constitute formal service of process.” Slip op. at 23.

The Court’s opinion contains a thorough and scholarly discussion of many reasons why: (a) the Hague Convention applies only when the forum service of process procedures require “formal service of process to be sent abroad[;” and (b) why here, California law authorized persons to waive formal service of process requirements and to replace them with the parties’ agreed method of service.

You can read the opinion here.  

About the Author

Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He has nearly 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation. He is a former partner of the litigation departments of the New York City firms of Rosenman & Colin LLP (now known as Katten Munchin Rosenman LLP ) and Cadwalader, Wickersham & Taft LLP.

Loree & Loree focuses its practice on solving arbitration problems for small businesses and professional practices, usually by representing them in arbitration proceedings and in arbitration-related litigation.

It represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and often serves as co-counsel, local counsel or legal adviser to other domestic and international law firms requiring assistance or support.

Loree & Loree was recently selected by Expertise.com out of a group of 1,763 persons or firms reviewed as one of Expertise.com’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)

You can contact Phil Loree Jr. at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.



         

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