Japan is currently the fourth-largest U.S. trading partner, exporting on average, $130 billion in goods to the United States each year. More than half of all of those goods are manufactured products in the form of vehicles or machinery, making Japanese companies subject to a significant exposure in the area of U.S. product liability litigation.
The United States and Japan are signatories to The Hague Convention on the International Service of Process. The application of the Hague Convention in product liability cases brought against Japanese companies has been sharply litigated.
The Hague Convention requires service of a Summons and Complaint on a foreign defendant to be executed through a designated “central authority,” a term that includes the ministries of foreign affairs in signatory countries. Service upon a Japanese company under the requirements of The Hague Convention is expensive and time-consuming. So, plaintiffs’ attorneys will attempt to evade the requirements for Hague service.
Japanese companies that are defendants in U.S. litigation commonly insist on service of the Summons and Complaint by The Hague Convention, and rightfully so. Despite this long-standing international treaty, courts have eroded the requirements under the Hague Convention for service of process over foreign companies. Based on the U.S. Supreme Court decision in Volkswagenwerk Aktiengesellschaft v. Schlunk 486 U.S. 694, (1988), plaintiffs typically attempt to serve American subsidiaries as “agents” of their foreign parent companies. Basically, the Schlunk case created an exception to the Hague Convention service requirement. The decision stands for the notion that if there is an “agent” conducting business in a particular state, the plaintiff can serve that “agent.”
Recently, courts have held that the American subsidiaries of Japanese manufacturers are agents of their foreign parents. Two recent California decisions are examples of this. One is against Yamaha and the other against Panasonic. Both of these decisions arose out of the same asbestos case.
Some think this is a trend that may eventually undermine the purpose of the Hague Convention altogether. The courts in the cases mentioned above made the determination of whether a subsidiary is an agent based on the facts of each relationship and the specific activities of each subsidiary. This does not mean Japanese defendants should abandon their rights to service of process under the Hague Convention. Instead, Japanese defendants should continue to object to methods of attempted service that do not comply with the requirements of the Hague Convention.
The recent U.S. Supreme Court decision in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), may also help foreign defendants. In that case, the Supreme Court ruled that there is rarely general jurisdiction over a company outside of its domiciled state (i.e., its state of incorporation and/or state where its principal place of business is located). This limitation on general jurisdiction may be used in opposition to a plaintiff’s attempt to serve a U.S. subsidiary of a Japanese company under the rationale that the subsidiary is the “agent” of the Japanese parent company.
An additional factor that has been relied on by plaintiffs’ attorneys in their attempt to avoid the expensive and time-consuming requirements for service on a Japanese company is the fact that Japan did not object to Article 10A of The Hague Convention. Article 10A expressly allows documents to be “sent” by mail. State courts have interpreted this inconsistently, some ruling that Article 10A is limited to sending documents by mail after a Summons and Complaint have been otherwise served, while others have ruled that article 10A allows service of a Summons and Complaint by mail. Japanese defendants need to review this issue in the states where they are named as defendants before deciding whether it is worthwhile to object to service of process that was not executed through a central authority in Japan.