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Litigation Alert: California Court of Appeal Holds That a Foreign Manufacturer Can Be Sued in California By Serving Process on an American Subsidiary

Date: Jun 15, 2009

A California Court of Appeals ruled that to be brought in front of a California court, a foreign company does not have to be served in accordance with the Hague Service Convention ("Convention") if its domestic subsidiary is properly served under California law.[1] The court's unanimous decision makes it easier to haul foreign companies in front of California courts by avoiding the costs and frequent delays associated with service through the Convention.

The decision should be of particular concern to foreign companies because the applicability of the holding is not limited to foreign companies with California subsidiaries. Instead, the implication of Yamaha is that to the extent the foreign company has a domestic subsidiary anywhere in the United States but with sufficient "minimum contacts" with California, service on the domestic subsidiary may be sufficient to bring the foreign company in front of a California court without regard to the Convention.

In Yamaha, the plaintiff was injured while riding on a 2005 Yamaha Rhino, an all terrain vehicle. The plaintiff filed suit against the American subsidiary, Yamaha Corporation of America ("Yamaha-America), as well as Yamaha Corp. ("Yamaha- Japan"), serving both in the United States. Yamaha-Japan filed a motion to quash service, arguing that service on its subsidiary was not valid service on Yamaha-Japan, and that service should have been made through the Hague Service Convention. The trial court denied the motion and the court of appeals denied Yamaha-Japan's petition for writ of mandate.

The appellate court cited to Vokswagenwerk Aktiengesellschaft v. Schlunk (1988) 486 U.S. 694, a United States Supreme Court case, which held that when service is valid under state law on the American subsidiary of a foreign manufacturer, there is no need to serve papers in accord with the Hague Service Convention. The appellate court also found a non-overruled and non-distinguishable California Supreme Court case, Cosper v. Smith & Wesson Arms Co. (1959) 53 Cal.2d 77, which held that service on the California representative of a foreign parent is valid as to the foreign parent, under California law. Based on federal and California precedent, the Court of Appeals found that it had no choice but to deny Yamaha's appeal.

In Cosper, plaintiff sued a Massachusetts corporation in California. The Massachusetts corporation had a California representative who promoted the sale of its products on the West Coast. The court held that the Massachusetts company had done enough business in California through its representative that it would not be a denial of due process to have it sued in California. Thus, taken together, Yamaha and Cosper suggest that a foreign corporation's subsidiary may not have to be located in California for the holding of Yamaha to apply. Instead, to the extent the domestic subsidiary is amendable to California's long arm jurisdiction, i.e., has sufficient minimum contacts with California, it may be possible to bring the foreign company in front of a California court by serving its non-California subsidiary.

The appellate court also noted that because Yamaha-Japan did not make it easy to be served in California, service on its domestic subsidiary was sufficient. The implication seems to be that service on the foreign corporation's domestic subsidiary may be insufficient if the foreign company has an easily ascertainable designated agent for service of process in the State of California.[2]

The court's decision obviously favors plaintiffs at the outset of litigation in that it makes it easier and less expensive to sue foreign companies in California. However, as the Court noted, "easy is not necessarily better." In the long run, those who ignore the Convention's procedures run the risk of later being unable to enforce their judgments against parent companies in foreign jurisdictions. For that reason, compliance by plaintiffs with the Hague Service Convention is still encouraged.

 

For more information on Keller and Heckman LLP's litigation practice, please contact Doug Behr at 202-434-4213 or behr@khlaw.com.


[1] Yamaha Motor Company, LTD. V. Superior Court, Case No. G041255 (Cal.App. 4th Dist.), available at 2009 WL 1458270

[2] See General Motors Corp. v. superior Court (1971) 15 Cal.App.3d 81

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