Case of the Day: Intercontinental Industries Corp. v. Luo

Our case of the day is Intercontinental Indus. Corp. v. Luo, Civ. A. No. 10-4174 (C.D. Cal. Jan. 20, 2011). Intercontinental sued Luo, the Communist Party Secretary of Hubei Province and owner of Wushan State Owned Industrial Holding Co., for fraud and violations of the RICO Act. The claim was that Luo induced Intercontinental to invest $1.7 million dollars in the Wushan firm with assurances that he would use his governmental post to smooth the way for Intercontental’s dealings in China, but that he then attempted to shake Intercontinental down for more money. Intercontinental attempted to serve process on Luo through the Chinese central authority under the Hague Service Convention. But the central authority refused the request under Article 13 of the Service Convention, on the grounds that execution of the request “would infringe the sovereignty or security of China.”

Intercontinental moved for approval of alternate methods of service, namely, service by commercial courier or publication. The court denied the motion for service by commercial courier. China had objected to service by postal channels under Article 10(a).  The court referred to the 2003 Special Commission on the Practical Operation of the Hague Apostille, Evidence, and Service Conventions was “the equivalent of the postal channel,” and although the Ninth Circuit has not spoken on the issue, the court cited a handful of district court decisions that reached that result as well.

Service by publication is not barred by the Service Convention, but the court denied the motion to permit service by publication in the absence of a showing that the published notice would be reasonably calculated to reach Luo, as the Due Process Clause requires. Intercontinental is arguably left without a remedy.

Intercontinental seems to present a strong case for the use of an arbitration clause designating a neutral country as the seat of the arbitration. Intercontinental was doing business with a powerful local politician in China, and it may well have been doing business with him precisely because he was a powerful local politician. It should not have come as a shock that the Chinese central authority (the Ministry of Justice) would have refused to cooperate in a lawsuit against him. But as this report by Henry Chen and Ted Howes of McDermott, Will & Emery suggests, empirically, Chinese courts have been willing, on the whole, to recognize and enforce international arbitral awards under the New York Convention.

This Post Has 3 Comments

  1. Ted Folkman

    Russell Beck has a good post at his Fair Competition Law blog about trade secret protection vis-a-vis China. It seems to me that his point about the risks of trade secret theft emphasizes the importance of considering arbitration agreements, as I discussed in this post.

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