Further Developments in Smart Study

TLB has been following Smart Study v. Happy Party-001, a Chinese counterfeiting case in the Southern District of New York, since Judge Gregory Woods issued his thoughtful opinion last summer concluding that service by email on Chinese defendants is not permitted by the Hague Service Convention (a decision we covered in a prior blog post). The plaintiff immediately appealed that decision, but yesterday the Second Circuit dismissed the interlocutory appeal for lack of appellate jurisdiction (an issue we flagged in another blog post).

Because the question of email service on defendants in Hague Service Convention member states is an important and recurrent one, Bill Dodge and I (with help from Katie Kramer) filed an amicus brief before the Second Circuit urging affirmance of Judge Woods’s decision. This post summarizes the points we raised in the brief, as well as how the case has developed, how it might have developed, and what might happen next.

Supporting the District Court

Our amicus brief explained that the Hague Service Convention does not permit service by email unless the receiving state (e.g., China) has expressly authorized email service in international cases. As we summarized:

The text and structure of the Convention establish that its specified methods of service are exclusive and that unspecified methods of service are prohibited. The principal means of service under the Convention is through a Central Authority designated by each contracting state. Other means of service are permitted, including via “postal channels,” but only with the receiving state’s consent. The fact that each of the alternative means authorized by the Convention requires the receiving state’s consent makes clear that means not authorized by the Convention are prohibited. The negotiating history of the Convention, the unanimous views of the contracting states expressed during two Special Commissions, and the views of the Permanent Bureau of the Hague Conference on Private International Law (which administers the Convention), also establish the “exclusive” character of the Convention.

Thus, absent express authorization by China, service by email on defendants in China is prohibited by the Convention.

Federal Rule of Civil Procedure 4(f), which governs service on defendants residing outside of the United States, does not provide an escape hatch for that treaty obligation (nor could it). Rule 4(f)(1) authorizes service by internationally agreed means, such as under the Convention. Because the Convention does not authorize service by email, service by email does not satisfy Rule 4(f)(1). Rule 4(f)(2) applies only if there is no internationally agreed means or if the international agreement permits other means, which is not true of the Convention. And Rule 4(f)(3) allows a court to order only “other means not prohibited by international agreement.” Again, the Convention prohibits methods of service to which the receiving state has not expressly consented.

The plaintiff in Smart Study argued that Article 15 of the Convention and a 1993 Advisory Committee Note to Rule 4(f)(3) authorize special forms of service in cases of urgency. But Article 15 only permits the granting of provisional relief absent service under the Convention; it does not waive the requirement that service under the Convention at least be attempted before any judgment be entered against a defendant. The Advisory Committee note is perhaps unclear, but in any event, it cannot alter the plain language of Rule 4(f)(3), which limits service to means “not prohibited by international agreement.” Moreover, the plain language of Article 15 requires at least an attempt at service under the Convention before granting a default judgment.

But, we pointed out, the fact that the Convention does not permit service by email will not prevent service by email in all transnational cases. By its terms, the Convention does not apply “where the address of the person to be served with the document is not known” (art. 1). If counterfeiters do conceal their physical addresses, the Convention will not apply and service by alternative means, including by email, may be permissible under Rule 4(f)(3). But we urged the court to require a meaningful showing of effort to ascertain foreign defendants’ physical addresses. Otherwise, given the ex parte nature of requests for alternative methods of service, district courts will once again become unwitting accomplices in violating U.S. treaty obligations.

The Dangers of Ex Parte Briefing

Indeed, Smart Study is a case study in the risks of one-sided briefing. Diligent (but busy) judges and law clerks can easily overlook contrary law and reasoning when only one side of a dispute appears before the court, especially if that one side—like the plaintiff in Smart Study—does not cite any contrary authority. The result is an echo chamber in which district courts, without the aid of adversarial briefing, rely on decisions by prior courts that also had to resolve the question without the aid of adversarial briefing, while decisions coming out the other (correct) way are not brought to the courts’ attention.

In this case, for example, Judge Woods initially granted the plaintiff’s request for a temporary restraining order (TRO) based on ex parte briefing; only after a couple of the defendants appeared and protested the method of service was the issue flagged for the court. The plaintiff voluntarily dismissed those defendants, but the cat was out of the bag. Judge Woods sought amicus briefing on Chinese law from a law professor and ultimately denied plaintiff’s motion for default judgment against the remaining defendants. “The Court’s previous decision was decided in a vacuum,” he explained. “Plaintiff’s application for a TRO was not opposed, and Plaintiff wholly failed to bring to the Court’s attention any precedent that had determined that service under the Hague Convention was not permitted.”

Likewise on appeal before the Second Circuit, the plaintiff continued to cite only those cases that supported its position. Plaintiff’s Chinese law expert below, Richard Wagner, also filed an amicus brief reiterating his view (which the district court rejected) that Chinese law permits individuals to serve process by email.  Ours was the only briefing that questioned the permissibility of email service. The problem of ex parte feedback loops arises in other areas of transnational litigation, too, like with requests for assistance with discovery under 28 U.S.C. § 1782. For this reason, it would have been particularly helpful for the Second Circuit to address the question of email service in Hague Service Convention countries in a decision that would be binding within the circuit and highly persuasive outside of it.

Limits on Interlocutory Appeals

Unfortunately, the plaintiff did not invoke viable bases for appellate jurisdiction. Interlocutory appeals are disfavored, and the appellate courts’ jurisdiction over them is limited. The Second Circuit requested additional briefing by the plaintiff on the question of jurisdiction shortly before the case was submitted on the briefs, and the plaintiff’s letter in response did itself no favors.

First, the plaintiff argued that an interlocutory appeal was appropriate under 28 U.S.C. § 1292(a)(1) because the district court’s decision was one “granting, continuing, modifying, refusing or dissolving” an injunction, or “refusing to dissolve or modify” an injunction. But the district court’s decision made no mention of either altering the preliminary injunction or denying a permanent one. Instead, the plaintiff argued it would suffer irreparable harm when the district court does dissolve the preliminary injunction (a risk, the Second Circuit pointed out, that is typically addressed through an injunction pending appeal).

Second, it argued that jurisdiction was proper under 28 U.S.C. § 1291 because the denial of a default judgment was a “final” decision, even though the plaintiff conceded that the district court had not yet dismissed the case or dissolved the preliminary injunction. To the contrary, as the Second Circuit noted, the district court has issued an Order to Show Cause why the case should not be dismissed—providing the plaintiff with an additional opportunity to correct service.

There was a better avenue for interlocutory appeal that the plaintiff failed to pursue. Section 1292(b) permits ad hoc interlocutory appeals when the district judge certifies that its order “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” The plaintiff does not appear to have requested such a certification, but Judge Woods signaled he was open to providing one. After the plaintiff filed its notice of appeal, Judge Woods explained in an order staying the case that “[t]he issues involve substantial concerns regarding the treaty obligations of the United States and the People’s Republic of China” and suggesting that amicus counsel be appointed and that the “viewpoints of the state actors whose treaties and laws are at issue here” be consulted.

Even if the plaintiff had sought such a certification, the Second Circuit would still have had to agree to hear the appeal under § 1292(b). But it would have been wise to do so. This question of email service under the Convention comes up all the time; it implicates the United States’ treaty obligations; it has divided the lower courts (in large part, I hazard to guess, because of the lack of adversarial briefing); and it is not often squarely presented to the appellate courts. Furthermore, Judge Woods’s opinion is strong and would have provided an excellent foundation from which to draw. One strong appellate decision could make a difference nationwide, given the current dearth of appellate caselaw on this question.

Next Steps

Now the case will resume before the district court. The plaintiff has a few options. It can make a more diligent effort to identify physical addresses for the Chinese defendants, which would either allow it to pursue service under the Convention or (if the addresses cannot be ascertained) confirm that the Convention, by its own terms, does not apply. If the latter—which seems the more likely—the plaintiff could then seek permission for alternative service under Rule 4(f)(3).

Alternatively, the plaintiff could permit the district court to dismiss the case and then appeal from that final judgment. While that would put the question squarely before the Second Circuit again, this time on firmer jurisdictional footing, it may be the less safe option for the plaintiff: If the Second Circuit agrees with Judge Woods, the plaintiff’s only remaining recourse is the U.S. Supreme Court. And given the Supreme Court’s unanimous decision not long ago in Water Splash, Inc. v. Menon (2017), in which the Court adopted a sensible interpretation of the Hague Service Convention that aligned with the views of other member states, the likelihood of success for the plaintiff there seems slim.

In the meantime, other litigants and other courts will continue to struggle with whether the Hague Service Convention permits service by email. If past cases are any guide, some of these courts will authorize service by email. In Bill’s and my view, such decisions may violate U.S. treaty obligations and be in excess of the courts’ authority under the Federal Rules—all because a lack of adversarial briefing has left the courts hearing only one side of the argument.