SDNY Rejects Service by Email on Chinese Companies
August 2, 2022
Photo by William S. Dodge
In Smart Study Co. v. Acuteye-US, a federal court in the Southern District of New York (Judge Gregory Woods) rejected service by email on Chinese companies in a trademark and copyright infringement case. China and the United States are parties to the Hague Service Convention. The court reasoned that the Convention precludes service by email, particularly given China’s objection to service by “postal channels.”
As previously discussed on this blog (here and here), whether the Hague Service Convention permits service by email is an important question that has divided U.S. courts. Judge Woods candidly acknowledged in his opinion that he was not aware of the issue until it was raised by one of the defendants in a brief seeking to dissolve a preliminary injunction. But once the issue caught his attention, Judge Woods examined it thoroughly, even seeking input from experts on Chinese law. His comprehensive and convincing opinion in Smart Study seems likely to become a leading decision on whether email service is permitted under the Convention.
Plaintiff owns federal trademarks and copyrights for the song “Baby Shark.” It sells Baby Shark-related merchandise through its Pinkfong website as well as major retailers such as Walmart, Target, and Amazon. Defendants, all companies located in China, allegedly sold counterfeit Baby Shark products through merchant storefronts on Amazon.com.
The complaint alleged trademark infringement, copyright infringement, and unfair competition. Two days after filing the complaint, the plaintiff moved for a temporary restraining order and permission to serve the defendants by email under Federal Rule of Civil Procedure 4(f)(3). The district court granted these requests and later issued a preliminary injunction. Only months later, when one of the defendants sought to dissolve the preliminary injunction and argued that service by email was not permitted under the Hague Service Convention, did the judge become aware that email service might violate the Convention.
Plaintiff voluntarily dismissed the defendants who had appeared to contest the injunction and moved for default judgment against the defendants who had not. But by this time, Judge Woods had apparently determined to get to the bottom of the question. He solicited an amicus brief from Professor Benjamin Liebman, an expert on Chinese law, and also received a declaration from plaintiff’s expert Richard Wagner.
Hague Service Convention and Rule 4(f)
Before considering Judge Woods’s opinion in Smart Study, a brief introduction to the Hague Service Convention and Federal Rule 4(f) may be helpful. The Convention is a treaty to which China, the United States, and 77 other countries are parties. It applies “in all cases, in civil or commercial matters, where there is occasion to transmit a judicial or extrajudicial document for service abroad,” except when “the address of the person to be served with the document is not known.”
The Convention requires that member states designate a Central Authority to receive requests for service, serve the documents consistent with its own law, and return a certificate of service to the requesting party. The Convention permits certain other methods of service unless they are objected to by the receiving country, including service by “postal channels” to which China has objected. Under Article 11 countries may agree to additional means of service among themselves, and under Article 19 countries may unilaterally permit additional means of service from abroad under their domestic law.
Articles 15 and 16 deal with default judgments. As relevant here, Article 15 permits each country to declare that it will allow the entry of a default judgment, even if no certificate of service has been received, if the document was transmitted by a means permitted by the Convention, not less than six months have elapsed, and every reasonable effort has been made to obtain a certificate through the receiving state. Both China and the United States have made such declarations.
Turning to domestic law, Rule 4(f) authorizes service on individuals outside the United States, and Rule 4(h) extends most of its provisions to corporations abroad. These rules are designed to work with treaties like the Convention. Rule 4(f)(1) authorizes service by “any internationally agreed means” and goes on to refer specifically to the Hague Service Convention. If there is no international agreement or if the agreement allows other means of service, Rule (4)(f)(2) provides several alternatives, but only if they are permitted by the law of the country in which service is made. Finally, Rule 4(f)(3) allows the court to order other means of service so long as they are “not prohibited by international agreement.” In short, when the Hague Service Convention applies, Rule 4(f) requires service either through the Convention or by a means prohibited neither by the Convention nor by foreign law.
Whether the Hague Service Convention Applies
In Smart Study, Judge Woods first considered whether the Convention was inapplicable because the defendants’ addresses were unknown. Other courts have held that this exception to the Convention applies only when plaintiffs exercised “reasonable diligence” to discover the addresses. Noting that plaintiff’s only effort in this regard consisted of examining the defendants’ online merchant store fronts, the court concluded that “Plaintiff has not demonstrated that it used reasonable diligence to determine the defendants’ physical addresses.” Therefore, the Convention applied.
Whether the Convention Prohibits Service by Email
Judge Woods then turned to whether the Convention prohibits service by email. If so, Rule 4(f)(3) precludes the court from ordering it. As noted above, courts have divided on the question. Courts authorizing service by email typically reason that the Convention does not expressly prohibit service by email and that countries’ objections under the Convention to the use of “postal channels” does not encompass the use of email. Indeed, another judge in the SDNY adopted precisely this reasoning just the week before the decision in Smart Study.
Judge Woods disagreed. First, he read the Supreme Court’s decisions in Water Splash, Inc. v. Menon (2017) and Volkswagenwerk Aktiengesellschaft v. Schlunk (1988) as indicating that only methods of service specified in the Convention are permissible. This may be the least convincing aspect of his opinion. Water Splash considered whether Article 10’s permission to “send” documents through postal channels allowed them to be “served” that way, whereas Schlunk held that the Convention did not apply when service was completed within the United States according the forum’s law. Neither decision considered whether the means specified in the Convention are exclusive.
Articles 11 and 19 provide greater support for that conclusion. As noted above, Article 11 allows countries to agree to additional means of service not specified in the Convention, whereas Article 19 allows each country to permit additional means of service in foreign lawsuits under its own domestic law. As Judge Woods noted, “those articles would be largely superfluous if litigants could serve a party in another country merely by selecting a method that is not expressly listed in the Hague Convention.”
The same may be said for Article 10, which authorizes certain additional means of service including by postal channels so long as a country does not object to them. “But if the Convention’s silence as to a method of service implicitly authorizes that service,” Judge Woods reasoned, “there would be no ready way to object to that method of service.” It makes no sense for the parties to the Convention to have carefully negotiated additional means that would be available subject to a country’s right to object if everything not mentioned would be permissible with no right to object.
In short, the Convention provides one principal means of service: through each country’s Central Authority. It also allows countries to consent to additional means either by failing to object to the specific measures listed under Article 10 or by affirmatively agreeing under Articles 11 and 19. But the fact that the additional means turn on the consent of the receiving state strongly indicates that the means of service set forth in the Convention are exclusive.
Judge Woods also observed that some courts have read Article 10’s authorization of service “by postal channels” to include service by email, a question that Ted Folkman has explored in detail. This interpretation would permit email service in countries like the United States that have not objected to service by postal channels. But, of course, this does not work for China. If service “by postal channels” encompasses service by email, the judge noted, “it must be true that China’s objection to service via ‘postal channels’ would necessarily encompass an objection to service via email.” This position finds confirmation in recent guidance from China’s Supreme People’s Court (Article 11 available in Chinese here), which instructed Chinese courts to interpret other countries’ objections to service by mail under the Convention as objections to electronic service.
Service Under Rule 4(f)(2)
The court also considered whether service by email might be proper under Rule 4(f)(2), which applies “if there is no internationally agreed means, or if an international agreement allows but does not specify other means.” Initially, Judge Woods expressed doubt that Rule 4(f)(2) applied: “Here, there is an internationally agreed upon means—the Hague Convention spells out specific methods that could have been used to serve Defendants. And as discussed, the Hague Convention does not allow service by email on litigants in China.”
But even if Rule 4(f)(2) applied, its additional means of service are available only if permitted under foreign law. Specifically, subsection (c), on which plaintiff relied, authorizes personal service or service by mail sent by the clerk of the court “unless prohibited by the foreign country’s law.” Judge Woods found that China only permits service through its own courts, which precludes parties from attempting to make service directly through email.
The amicus brief filed Professor Benjamin Liebman pointed to Article 284 of the Civil Procedure Law of the People’s Republic of China, which provides: “no foreign agency or individual may, without the consent of the competent authorities of the People’s Republic of China, serve documents … within the territory of the People’s Republic of China.” (The law was amended effective January 1, 2022. Only an English translation of the previous version is currently available, in which this provision is numbered Article 277.) “Thus,” the court reasoned, “a foreign individual or entity cannot, as a general rule, directly serve an individual in China by any means—not just email.” This is consistent with the general practice in China, noted in the amicus brief, that courts rather than parties are responsible for serving documents.
The declaration by the plaintiff’s expert Richard Wagner pointed instead to Article 274 of the Civil Procedure Law (formerly Article 267) as the applicable provision. It provides that “[a] people’s court may serve procedural documents on a party without a domicile within the territory of the People’s Republic of China … by facsimile, e-mail and any other means through which the receipt of the document may be acknowledged.” Judge Woods found this provision unpersuasive, however, because it refers to service by “a people’s court” rather than by a party and because it seems to apply only to service on parties not located in China.
Finally, the judge found the provision on consent to electronic service in Article 90 (former Article 87) unhelpful because it too referred only to service by a people’s court.
Judge Woods also explained that default judgment would be impermissible even if service by email were allowed under the Hague Service Convention. As mentioned above, if the country in which the litigation is occurring makes a proper declaration, as the United States has, Article 15 allows the entry of default judgment if a certificate of service is not returned. But this possibility is subject to three requirements: (i) that the document was transmitted by a method provided for in the Convention; (ii) that at least six months have elapsed; and (iii) that “every reasonable effort has been made to obtain [a certificate of service] through the competent authorities of the State addressed.” Judge Woods found that the plaintiff had not transmitted service by the only method China allows—its Central Authority—and had not made reasonable effort to obtain a certificate of service from Chinese authorities. Under these circumstances, the Convention itself precludes a default judgment.
The Significance of Smart Study
Judge Woods noted in his opinion that requests to serve defendants in China by email are frequently filed and often unopposed. Lack of argument on the other side goes a long way towards explaining why many courts have concluded that the Hague Service Convention does not preclude service by email. The opinion in Smart Study seems intended to remedy this situation by dealing comprehensively with all the interrelated issues under the Convention, Rule 4(f), and Chinese law.
Of course, the unavailability of service by email will make service more difficult in many cases, and perhaps particularly in cases like this one involving the sale of counterfeit products online by companies abroad. The court noted that plaintiff’s counsel’s firm filed approximately 40 requests for service by email in 2022 in the Southern District of New York alone. Going forward, plaintiffs will have to convince the court that the Convention does not apply because the defendants’ addresses are genuinely unknown by making greater efforts to find those addresses. Or, if they find the defendants’ addresses, plaintiffs will have to serve them through China’s Central Authority, which does take time. Plaintiffs may still be able to obtain default judgments if they have not received a certificate of service, but only after at least six months have elapsed and only if they have attempted to follow up with China’s Central Authority. Judge Woods acknowledged that “the procedures outlined in the Hague Convention can be lengthy.” But he also correctly noted that a court “may not ignore the text of Rule 4(f), the Hague Convention, and Chinese law in order to make service more efficient for Plaintiff.”
Finally, the decision in Smart Study provides an example of the distinctive issues raised in transnational litigation and covered in this blog. Judge Woods is clearly a capable and conscientious judge. He did an admirable job getting to the bottom of a difficult question once it came to his attention. But the fact that the question was not immediately apparent shows just how much education about transnational litigation remains necessary for both the bench and the bar.