Substituted Service and the Hague Service Convention

Can state law be used to avoid a federal treaty, even though the Supremacy Clause of the U.S. Constitution makes treaties supreme over state law? The somewhat surprising answer is yes—at least when it comes to the Hague Service Convention and state rules on substituted service.

The Hague Service Convention governs transnational service of process in the 79 countries that have joined it, including the United States. When the Convention applies, plaintiffs must follow its procedures to serve a defendant located abroad. The U.S. Supreme Court held in Volkswagenwerk Aktiengesellschaft v. Schlunk (1988) that forum law determines when there is occasion to transmit a document for service abroad and thus when the Hague Service Convention applies. Illinois law allowed service on a foreign parent company through substituted service on its local subsidiary. Because service was completed within Illinois, Schlunk held, the Convention did not apply.

In a new article, I look at substituted service in all 50 states and how it may be used to avoid the Hague Convention. There are two basic kinds of substituted service, and each raises different questions. The first is the kind of service in Schlunk, substituted service on an affiliated company, which is currently permitted in 21 states. Here, the main question is whether to adopt a veil-piercing test or a standard that focuses more directly on notice. The second kind is substituted service on a state official such as the secretary of state, which is currently permitted in all fifty states, and often comes into to play when a foreign corporation has registered to do business in the state or is required to register but has not done so. Here, the main question is whether the state official is required to transmit a copy of the service abroad to the foreign defendant, thus implicating the Hague Service Convention.

Substituted Service on Affiliated Companies

Currently, three states—California, Illinois, and Massachusetts—allow substituted service through an affiliated company when such service is reasonably certain to provide notice to the defendant. Another eighteen states—Alabama, Delaware, Florida, Indiana, Kansas, Maryland, Minnesota, Mississippi, Nebraska, New Mexico, New York, Oklahoma, Pennsylvania, Texas, Virginia, Washington, West Virginia, and Wisconsin—allow substituted service through an affiliated company only when there are grounds for piercing the corporate veil, a tougher test to meet. Three other states—Georgia, Michigan, and New Jersey—have rejected substituted service through an affiliated company. And the rest of the states have not considered the question.

I argue that the liberal approach taken in California, Illinois, and Massachusetts is the right one. As the Supreme Court noted in Daimler AG v. Bauman (2014), agencies “come in many sizes and shapes.” An affiliated company may be an agent for some purposes and not for others. When a plaintiff seeks to hold a parent company liable for the acts of its subsidiary, grounds for veil piercing should be required. But when a plaintiff seeks to hold a parent company liable for its own acts and uses the subsidiary only as an agent for service, there need not be grounds to pierce the corporate veil. Instead, the test for agency should turn on factors relating to service, specifically whether the relationship between the affiliated company and the defendant is sufficiently close that service on the former will provide notice to the latter.

An example illustrates the point. In a recent case, a California plaintiff diagnosed with mesothelioma sued a Japanese brake manufacturer whose products contained asbestos, as well as its U.S. subsidiary. The U.S. subsidiary had a designated agent for service in California, which the plaintiff used to serve both the subsidiary and the parent. Although there probably were not grounds to pierce the corporate veil between the U.S. subsidiary and its Japanese parent for purposes of liability, it was clear that the U.S. subsidiary would appraise its parent corporation of service. As the California Court of Appeal correctly held, under California law, service on foreign defendant was completed within California. There was no need to follow the procedures of the Hague Service Convention.

Substituted Service on State Officials

Far more problematic are state statutes permitting substituted service on state officials. This is common for foreign corporations that have registered to do business in the state (40 states), and somewhat less common for foreign corporations that do business without registering (17 states). In addition, 20 states have long-arm statutes that permit substituted service on unregistered corporations, registered corporations, or both.

Unlike affiliated companies, state officials have no preexisting relationships with the foreign defendants that would cause them to give notice of the lawsuit in the absence of a statutory obligation to do so. Many state statutes impose such an obligation. But even when a statute requires a state official to forward a copy of the service to the defendant, some courts have held that service is nevertheless complete when the state official is served, meaning that the Hague Service Convention need not be followed.

Again, an example may be useful. In a recent case, a South Carolina resident who was injured while using a Suzuki quadrunner sued the Japanese manufacturer and its U.S. subsidiary. Under a provision of South Carolina’s long-arm statute, a foreign company not authorized to do business in the state is deemed to appoint the secretary of state as its agent for service of process for suits that arise from doing business in the state. The Japanese Manufacturer argued that the provision’s requirement to forward a copy of the process to the defendant meant that a document would be transmitted for service abroad. Thus, the Hague Service Convention applied, and the document could not be sent by mail (a means of service to which Japan had objected under the Convention). But the U.S. district court disagreed. It read the statute to provide that service was complete when the secretary was served and interpreted the obligation to forward a copy as an additional means of providing notice rather than as a requirement for service.

In addition to South Carolina, courts in Kansas, New Mexico, and Rhode Island have read state statutes authorizing substituted service on state officials to avoid the Hague Service Convention. There is also support for this position in Maryland and New York, although the question has not yet been addressed in a Hague Convention case.

I argue that the South Carolina case and similar decisions are wrong. Under Mullane v. Central Hanover Bank & Trust Co.(1950), due process requires “notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action.” Service on a state official does not meet this standard absent an obligation to transmit a copy of the service to the defendant abroad. And that obligation to transmit a document for service makes the Hague Service Convention applicable.

The Importance of State Law in Transnational Litigation

Statutes permitting substituted service are just one example of state laws that impact transnational litigation. Such statutes affect litigation not just in state court but also in federal court, since under Federal Rules of Civil Procedure 4(e)(1) and (h)(1) service can be made within a judicial district by following the procedures of state law.

Other examples include state rules on personal jurisdiction, which are incorporated in Federal Rule 4(k)(1)(A), as well state rules on choice-of-law and the recognition and enforcement of foreign judgments, which federal courts are required to apply when sitting in diversity. Some states have their own presumptions against extraterritoriality that apply to state statutes, and almost all states have their own doctrines of forum non conveniens, which often differ from the federal doctrine. Although law professors and their students typically ignore state law when studying Civil Procedure and Transnational Litigation, practicing lawyers cannot afford to do so.