Written by Tiana A. Bey and Theresa B. Bowman
Last week, in Rockefeller Technology Investments (Asia) VII v. Changzhou Sinotype Technology Co., Case No. S249923 (Cal. April 2, 2020), the California Supreme Court held that the Hague Service Convention does not apply to the state’s arbitration enforcement proceedings where transnational parties agree to informal notice of suit methods. The Court concluded that when these parties agree to submit to California arbitration, the California Arbitration Act ultimately governs service of process. And because the Act allows parties to enter into informal service arrangements, formal service of process procedures – including the Convention’s service mechanisms – are waived. This result should prompt foreign parties to re-evaluate the pros and cons of submitting to arbitration in California and agreeing to include informal notice of suit provisions in their underlying contracts.
The outcome presents a notable exception to the norms that foreign entities typically rely on in the Hague Convention. Generally, the Convention requires parties to serve notice of suit through each signatory’s Central Authority, which in turn carries out service consistent with their respective country’s domestic laws. As the U.S. Supreme Court held in Water Splash v. Menon, 137 S. Ct. 1504 (2017), additional methods of service are also allowable if the receiving country does not expressly prohibit it and if the domestic law of the forum country provides for it. One benefit of the Convention is that it protects international litigants from being hauled into a foreign court based on application of inconsistent and unfamiliar rules for providing them with notice of suit.
In Rockefeller, an underlying arbitration dispute arose in connection with a Memorandum of Understanding (“MOU”) between the parties that contained an arbitration provision selecting California as the arbitration forum and governing law. After obtaining a $414M default-arbitration award in California, Rockefeller sought confirmation of the award in California Superior Court. Rockefeller served its petition by Federal Express in accordance with the method agreed to in the MOU, but SinoType (a Chinese company) failed to appear in the enforcement proceeding. Rockefeller obtained a default judgment. After SinoType received notice of the judgment, it specially appeared to challenge it, arguing that Rockefeller’s service of its petition through Federal Express constituted insufficient service of process because Rockefeller failed to serve the petition in accordance with the Hague Service Convention. More specifically, SinoType claimed that because China had objected to service by postal channels in the Convention, Rockefeller’s service efforts through Federal Express were invalid.
The question presented to the California Supreme Court was whether China’s objection to service by postal channels in the Convention preempted Chinese litigants from agreeing to service by postal channels in their contracts. Instead of resolving that question more broadly, the Court decided that the Convention was not pertinent under the facts of the case. Specifically, the Rockefeller Court held that the Hague Service Convention “applies only when the law of the forum state requires formal service of process to be sent abroad[.]” It found that where, as in the case before it, a foreign party agrees to informal notice methods and to California as both the forum state for arbitration and the source of applicable procedural law, the foreign entity waives formal service of process rights provided by the Hague Service Convention. As such, the case primarily turned not on whether China precluded service by Federal Express, but on whether, under the Arbitration Act, a formal process of service is required in the first place for petitions for arbitration or arbitral award enforcement.
The Court acknowledged that the Convention would normally govern formal service of process in the case, but ultimately declined to find that formal service was required. It explained that under the California Arbitration Act, any party who makes an agreement in California to conduct an arbitration in the state is subject to California’s personal jurisdiction to enforce such arbitration agreements and confirm arbitral awards arising out of such agreements. The Court reasoned that California’s jurisdiction over SinoType triggered the service requirements under the Arbitration Act and held that informal suit notification methods that replace formal service of process requirements are consistent with the Arbitration Act’s statutory scheme for service. Thus, under the Act, a foreign party waives its right to formal service once it agrees to an alternate form of informal service.
Interestingly, the Court held, generally, that the Arbitration Act’s statutory scheme specifies that a petitioner must follow one of three methods of service to properly effect service. A petitioner looking to bring another party into court must give priority to the parties’ agreed method of effecting notice of suit if one exists. The Court designates this type of service as “informal notification.” If there is no such agreement for informal notification, then the petitioner is to proceed with the methods designated by the Court as “formal service of process” under the Arbitration Act. For a U.S. respondent outside of California, that means petitioners would continue using the obligatory formal service methods under the Act. But for a non-U.S. respondent that resides in a country that is a signatory of the Hague Service Convention, the petitioner would then proceed with Hague Service Convention methods because the California law vis-a-vis the Arbitration Act would have required formal service as the next step, effectively placing service back into the purview of the Convention.
In the end, the Rockefeller holding reminds foreign parties to pay careful attention to the unintended consequences of (1) agreeing to informal notice of suit provisions and (2) submitting to a particular state’s jurisdiction through an arbitration agreement, which might adversely impact certain due process rights to which they may be entitled normally under the Hague Service Convention or any other international treaty. While U.S. parties seeking to include a California-centric arbitral provision in their contracts with foreign entities might take comfort from the Rockefeller opinion, foreign parties will likely be more circumspect.