S. 1606—The Foreign Manufacturers Legal Accountability Act of 2009:
Congress’s Attempt to Haul Foreign Manufacturers Before United States Courts
March 2010
International Litigation & ADR Update
Introduction
Currently pending before the Senate is a bi-partisan Bill, S. 1606, that, if passed, would make it substantially easier for American litigants to sue non-domiciled foreign manufacturers (for the purpose of this article – “foreign manufacturers”) of products sold in the United States. Although consideration of the Bill has thus far taken a backseat to healthcare reform, manufacturers will want to monitor developments going forward, in particular whether S. 1606 emerges from the Senate Finance Committee in 2010.
The Origin of S 1606
On May 19, 2009, Senator Whitehouse presided over a Hearing of the Subcommittee on Administrative Oversight and the Courts of the Senate Judiciary Committee entitled, “Leveling the Playing Field and Protecting Americans: Holding Foreign Manufacturers Accountable.” During the hearing, the members of the panel unanimously testified that American litigants using United States courts face significant obstacles in when seeking to redress harms allegedly caused by the products of foreign manufacturers (foreign companies not domiciled in the United States). The panel identified four distinct obstacles: (1) product identification, (2) service of process, (3) obtaining personal jurisdiction and (4) enforcing judgments against foreign entities abroad.
With respect to product identification, the panel noted that United States laws are generally lax and do not adequately require identification of products’ origin; hence, the generic label “made in [country X].” American litigants are therefore forced to spend time and money trying to identify the foreign company responsible for manufacturing a defective product.
With respect to service of process, the United States Constitution requires that all defendants be put on notice through the proper service of legal papers which, the panel testified, can be difficult and expensive to effect abroad. Specifically, American litigants generally must effect service upon foreign companies in their native countries via treaties, which require cumbersome and time-consuming procedures. For example, the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (“Hague Convention”) governs the manner in which American litigants must serve companies domiciled within the borders of most of the United States’s major trading partners., and service pursuant to the Hague Convention can take nine months or more and can cost thousands of dollars.
With respect to personal jurisdiction, the panel described how yet another United States constitutional requirement impedes American litigants’ efforts to sue foreign corporations. Under the due process clause of the 14th Amendment to the Constitution, a defendant cannot be sued in the United States unless it has “minimum contacts” with a particular jurisdiction within the United States and unless exercise of jurisdiction would not offend “traditional notions of fair play and substantial justice.” Since 1987, United States courts have been guided by the Asahi case, [1] which generally requires a certain minimum level of purposeful activity by the foreign entity directed at the United States forum, and limits the exercise of personal jurisdiction over foreign defendants, even where minimum contacts exist, if exercise of jurisdiction would be fundamentally unfair under the circumstances. The panel noted that lack of personal jurisdiction is regularly raised as a defense by foreign corporations that have been sued in United States courts, and that jurisdictional disputes lead to increased costs for plaintiffs, as well as delays and strains on judicial resources.
As to enforceability of judgments, the panel noted that while United States courts regularly enforce foreign judgments against American entities, reciprocity is often lacking in foreign countries. Moreover, foreign corporations often structure assets so that judgments obtained in the United States cannot be enforced in the foreign country.
Because these four hurdles make it difficult to bring a claim or enforce a judgment against a foreign manufacturer, American litigants often pursue only domestic defendants, even if the domestic defendants’ share of liability is minor in relation to that of a foreign manufacturer in the chain of distribution. Accordingly, the panel members suggested that Congress enact legislation to help ensure that foreign manufacturers can be held accountable for products that allegedly cause harm in the United States.
How S. 1606 Would Work
S. 1606, by its terms, is “a bill to require foreign manufacturers of products imported into the United States to establish registered agents in the United States who are authorized to accept service of process against such manufacturers and for other purposes.” By requiring foreign manufacturers to appoint registered agents, the Bill would significantly lessen the burden upon United States litigants in connection with service of process. Notably, this requirement would obviate the need for American litigants to utilize the Hague Convention to effect service upon entities domiciled in foreign countries. Yet S. 1606 would not violate the Hague Convention, because that treaty governs only the service of process abroad within the territory of a foreign country, and not service (such as service upon a registered agent) within the United States.
In addition, S. 1606 specifically requires that a foreign manufacturer’s registered agent be located in a state in which the company has a “substantial connection to the importation, distribution or sale of [its] products. . . .” Thus, S. 1606 tackles the concerns addressed in the Asahi decision (see above) by seeking to ensure that the “purposeful activity” standard for exercise of jurisdiction will be satisfied in respect of any suit initiated by service upon a statutorily appointed registered agent. Indeed, the effect of the Bill is that a foreign corporation will be deemed to have consented to exercise of personal jurisdiction over it upon appointment of a registered agent pursuant to the statute’s terms.
From a technical standpoint, the Bill targets foreign manufacturers of “covered products,” which include: (1) drugs, devices and cosmetics as defined by the Federal Food, Drug, and Cosmetic Act; (2) biological products as defined in Section 351(i) of the Public Health Service Act; (3) consumer products as defined by section 3(a) of the Consumer Product Safety Act; (4) chemical substances as defined by section 3 of the Toxic Substances Control Act; and (5) pesticides as defined by section 2 of the Federal Insecticide, Fungicide, and Rodenticide Act.
The Bill expressly requires the head of each “applicable agency” (defined in the Act), including the Food and Drug Administration, the Consumer Product Safety Commission and the Environmental Protection Agency, to ensure that all foreign corporations which import and distribute covered products in commerce register an agent for acceptance of service within 180 days of the passage of the Act. After this time period elapses, it would be illegal for any unregistered foreign company to import a covered product into the United States for distribution in commerce. S. 1606 directs the Secretary for Homeland Security to prescribe regulations to enforce this prohibition. The Bill also requires the Secretary of Commerce to work with the other agency heads to create a public internet registry of the registered companies. While the Bill does not specifically delve into actual product identification requirements, the aforementioned agencies could promulgate rules that require registering foreign manufacturers to list the products that each imports into the United States.
“Product” Exemptions
Section 5(a)(3) of the Bill provides an exemption for manufacturers that import covered products of a minimum value or quantity; the relevant agency head is charged with determining minimum values and quantities of covered products. Additionally exempted, at least for the time being, are agricultural products. However, the Bill requires the Secretary of Agriculture and the Commissioner of the Food and Drug Administration to complete a joint feasibility study and report for Congress’s review concerning the advisability of requiring foreign producers of foods distributed in commerce in the United States to appoint registered agents.
Judgment Enforcement?
One issue not addressed by S. 1606 is the recoverability of judgments. A suggestion that Congress require foreign manufacturers to maintain product liability insurance never materialized in S. 1606. Nonetheless, obstacles to recoverability of judgments may dissipate to some extent should there be an improvement of reciprocity between foreign court systems and those of the United States. As the panel noted, United States courts regularly enforce foreign judgments against American entities. Indeed, the Court of the Appeals for the Ninth Circuit recently entered an Order enforcing a Chinese judgment for over three million dollars against a United States helicopter manufacturer, arising out of the crash of one of its helicopters in China.[2] Such decisions are surely noticed by foreign courts and may be leveraged upon by American litigants and politicians demanding reciprocity for judgments issued by United States courts. An additional consideration is that, with the resources saved through elimination of product identification investigations, and the streamlining of procedures relating to service of process and personal jurisdiction, American litigants will have significantly more time and money to pursue judgments against foreign companies after a case is won on its merits.
Conclusion
S. 1606 has now been "in committee" for over five months with no action. With the current Senate schedule, it may be difficult to find time on the Senate floor to address S. 1606 on a stand-alone basis in 2010. However, because the bill does have bipartisan support, it may be possible for the bill to be added, in the form of an amendment, to another appropriate piece of legislation that is being considered on the Senate floor. Ultimately then, S. 1606’s success may depend on Senator Whitehouse’s ability to find a suitable piece of proposed legislation to "manufacture" the necessary votes to turn this Bill into law.
Notes
[1] Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987).
[2] Hubei Gezhouda Sanlian Industrial Co., Ltd. v. Robinson Helicopter Company, Inc., 2009 WL 2190187 (9th Cir. 2009)(unpublished).