It is almost always a waste of time to sue Chinese companies in United States courts. But this seems to be news to many American lawyers.
Just about every month, my firm gets a call from a lawyer somewhere in the United States expecting us to jump at the chance to help enforce a multi-million dollar U.S. court judgment against a Chinese company.
The problem is China does not enforce U.S. court judgments…
The calls usually go something like this:
I have a $2.8 million judgment against a Chinese company for breach of contract. We got the judgment from such and such U.S. court and “all we have to do now” is get the judgment enforced in China. [I swear they nearly always say this as if they have delivered a perfect pass and we are 7-footers who merely need to catch and dunk the basketball.] Do you want to help us on this [again, always asked as though we would be crazy to pass this up]?
I usually respond by saying that we have zero desire to take the case on a contingency-fee basis because China does not enforce U.S. judgments. It never has — and it almost certainly never will — unless and until the U.S. and China sign a treaty mandating that it do so. I then ask what the contract says about dispute resolution, and 99.9% of the time the answer is that the contract called for all disputes to be resolved in the U.S. hometown of the lawyer’s client.
Clinging to the hope that she does not need to go back to her client to explain why she drafted a contract that fails to give her client any real remedy and/or why she just charged her client around $50,000 to file and prosecute a meaningless lawsuit to judgment, the lawyer caller usually asks one or more of the following questions, to which I give the following answers:
- How can China not enforce U.S. judgments? China is an independent country that does not particularly like the U.S. legal system and has not ratified any treaty requiring it to honor U.S. judgments. China can pretty much do whatever it wants when it comes to enforcing U.S. judgments.
- But this judgment is from a U.S. District Court. Surely that makes some difference. No, that makes no difference whatsoever.
- Why don’t we just file a new lawsuit in China? There are two reasons that cannot work. First, your client has a valid written agreement stating very clearly that all disputes must be resolved in a particular U.S. court. China may not enforce U.S. judgments, but it does generally enforce dispute resolution provisions and it will undoubtedly enforce this one by refusing to hear the case. Second, you have already sued the Chinese company in the United States and won, and suing again in China will be blocked by collateral estoppel (another doctrine that is given effect in China, especially when it favors Chinese defendants).
What can be done to avoid this judgment limbo?
- Provide for disputes to be resolved in a Chinese court using Chinese law. If you do this, your contract should be in Chinese.
- Provide for disputes to be resolved by arbitration, either within China or outside China. Chinese courts generally enforce China arbitrations, but their record on enforcing foreign arbitrations is mixed.
For more on dispute resolution provisions when contracting with a Chinese company, check out How To Write A China Contract. Arbitration Versus Litigation. Say Where?
Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firstname.lastname@example.org.