Www.lehmanlaw.comLEHMAN, LEE & XU The Challenge of China: Seeking Justice Within and Outside Its...

www.lehmanlaw.com LEHMAN, LEE & XU

The Challenge of China: Seeking

Justice Within and Outside Its Borders

Edward E. LehmanManaging Director of LEHMAN, LEE & XUNovember 2, 2007


Agenda

(1) Background(1) Background

(2) Litigation in China(2) Litigation in China

(3) Class Actions in China(3) Class Actions in China

(4) Case Studies(4) Case Studies


Background: A Comparison

Lawyer StatisticsLawyer Statistics

China (2005)China (2005) U. S. (2006)U. S. (2006)

•Number of LawyersNumber of Lawyers

•Percent of populationPercent of population

•Lawsuits per yearLawsuits per year

114,000114,000

0.009%0.009%

1.5 million1.5 million

1,116,9671,116,967

0.4%0.4%

75.2 million75.2 million


Litigation in China

• Disputes are under the jurisdiction of Disputes are under the jurisdiction of the People’s Court of the location the People’s Court of the location where where defendant is domicileddefendant is domiciled

• Civil Procedure Law of the People’s Civil Procedure Law of the People’s Republic of ChinaRepublic of China

• Two InstancesTwo Instances– First instance (Intermediate/district court)First instance (Intermediate/district court)

– One avenue of appeal to a higher level courtOne avenue of appeal to a higher level court


Proceedings

Foreign-related casesForeign-related cases• Intermediate CourtIntermediate Court (First Instance)(First Instance)

– ssubmit evidenceubmit evidence– time from application to decision: time from application to decision:

6 months – 1 year 6 months – 1 year – 30 days to appeal30 days to appeal

• High CourtHigh Court (Second Instance)(Second Instance)

– submit new evidencessubmit new evidences– 6 months to 1 year6 months to 1 year– no appealno appeal

Domestic cases• District Court (First Instance)

– submit evidence

– time from application to decision: 6 months

– 15 days to appeal

• Intermediate Court (Second Instance)

– submit new evidences

– 3 months

– no appeal


Collection of Evidence

• Submitted in the first instanceSubmitted in the first instance• In foreign cases:In foreign cases:

– verification and notarization by verification and notarization by – Chinese embassy in home jurisdictionChinese embassy in home jurisdiction– translated into Chinese translated into Chinese

• Preservation of evidencePreservation of evidence– requires application to the People’s Courtrequires application to the People’s Court– applicable when there is risk that evidence may applicable when there is risk that evidence may

be destroyedbe destroyed


Challenges in Submitting Evidence

• Scarce resources and lack of Scarce resources and lack of transparencytransparency

• Different types of documentary Different types of documentary evidence - some of which may not be evidence - some of which may not be recognized by the courtrecognized by the court

• Expert opinionsExpert opinions• Translation must be done by a Translation must be done by a

translator with both legal and translator with both legal and technical backgroundtechnical background


Typical Chinese Court


• Shall include– cause of action, claims, facts and cause of the

dispute– facts and causes as found in judgment, and basis

of application of law– outcome of adjudication and costs– time limit for filing an appeal and – appropriate appellate court

Judgment


Appeal: second instance

• If party refuses to accept judgmentIf party refuses to accept judgment

• 15 days for domestic – 30 days for foreign 15 days for domestic – 30 days for foreign casescases

• Petition shall be submitted through the Court Petition shall be submitted through the Court which tried the casewhich tried the case

• Basis of second instance court reviewBasis of second instance court review– relevant facts relevant facts – application of the lawapplication of the law

• Judgment is finalJudgment is final


Execution

• Effective Judgment executed by the People’s Effective Judgment executed by the People’s Court of First InstanceCourt of First Instance

• If a party refuses to comply with the judgment, If a party refuses to comply with the judgment, the other party may apply for execution and/or the other party may apply for execution and/or enforcementenforcement

• Time limit to apply for execution is 1 year /Time limit to apply for execution is 1 year /

6 months6 months


Class Actions in China

• Joint Action (Article 53 of the CPL)Joint Action (Article 53 of the CPL)

• Representatives of Joint Action (Article 54)Representatives of Joint Action (Article 54)

• Registration Procedures (Article 55)Registration Procedures (Article 55)


Registration Procedures for a Representative Joint Action

• Three requirements:Three requirements:– Public noticePublic notice– RegistrationRegistration– Designation of Class Designation of Class

RepresentativeRepresentative


Public Notice

• Public notice issued by the People’s Court Public notice issued by the People’s Court stating the particulars and claims of the case stating the particulars and claims of the case

• Public notice period can be varied but no Public notice period can be varied but no less than 30 daysless than 30 days

• Means of public notice: most conveniently Means of public notice: most conveniently accessible by potential partiesaccessible by potential parties


Registration

• Shall register within the public notice Shall register within the public notice periodperiod

• Basic information of the participants Basic information of the participants including identification, relevancy to the including identification, relevancy to the case, proof of the legal relationship with the case, proof of the legal relationship with the opposing party, and proof of injury if in opposing party, and proof of injury if in damage compensation casedamage compensation case

• Legal effects of the registrationLegal effects of the registration


Designation of Class Representative

• Participants who bring the case to or Participants who bring the case to or register at the People’s Court can elect their register at the People’s Court can elect their representativesrepresentatives

• In the alternative, court can negotiate with In the alternative, court can negotiate with the participants to agree on the the participants to agree on the representativesrepresentatives

• Second alternative, court can appoint Second alternative, court can appoint representatives among the participantsrepresentatives among the participants


Case: Transportation Insurance

Background Background • Nov.15Nov.15thth 2000 plaintiff spent RMB 30,000 on 2000 plaintiff spent RMB 30,000 on

transportation insurance for machinery transportation insurance for machinery • On the next day, machinery was stolen in Canada.On the next day, machinery was stolen in Canada.• Defendant refused to pay because they had begun Defendant refused to pay because they had begun

taking delivery and transport on Nov.14taking delivery and transport on Nov.14 thth (Canada (Canada time) when insurance liability had not taken effect.time) when insurance liability had not taken effect.



Result at First InstanceResult at First Instance• Defendant pays for plaintiff’s loss Defendant pays for plaintiff’s loss • Defendant refuses to obey appealDefendant refuses to obey appeal

– (day of delivery is earlier than day of insurance)(day of delivery is earlier than day of insurance)

Result at Second InstanceResult at Second Instance• Plaintiff demand is rejectedPlaintiff demand is rejected

• Defendant gives RMB 30000 backDefendant gives RMB 30000 back



Reasons for rejectionReasons for rejection• Time difference: Time difference: thirteen hours difference between thirteen hours difference between

China and CanadaChina and Canada– By Beijing time, goods stolen on Nov. 16By Beijing time, goods stolen on Nov. 16thth

• (insurance liability)(insurance liability)

– By Ottawa time, goods stolen on Nov. 15By Ottawa time, goods stolen on Nov. 15thth

• (no insurance liability)(no insurance liability)

• Problematic evidence collectionProblematic evidence collection


Case: Baotou Air Crash

BackgroundBackground• On Nov. 21, 2005, China On Nov. 21, 2005, China Eastern airlines flight Eastern airlines flight MU5210 from Baotou to Shanghai crashed less than MU5210 from Baotou to Shanghai crashed less than

one minute after take-offone minute after take-off• Forty seven passengers, six crew members, and two Forty seven passengers, six crew members, and two

ground crew members perishedground crew members perished• Lehman, Lee & Xu, in partnership with Lieff Lehman, Lee & Xu, in partnership with Lieff

Cabraser, is representing the families of Chinese Cabraser, is representing the families of Chinese victims of this crashvictims of this crash



Problems with the CRJ-200 Problems with the CRJ-200 aircraftaircraft

• Bombardier Company’s wing Bombardier Company’s wing design design

• Engine manufactured by Engine manufactured by General Electric was smoking General Electric was smoking as the plane took offas the plane took off

• China Eastern Airlines failed to China Eastern Airlines failed to properly maintain aircraftproperly maintain aircraft

However, no “black box” record However, no “black box” record existsexists



ProceedingsProceedings• On Nov. 27, 2004, China Eastern Airlines paid each victim On Nov. 27, 2004, China Eastern Airlines paid each victim

a total of 211,000 yuana total of 211,000 yuan

• On Oct. 26, 2005, one Indonesian and thirty Chinese On Oct. 26, 2005, one Indonesian and thirty Chinese families of the victims engaged Lehman, Lee & Xu and families of the victims engaged Lehman, Lee & Xu and Lieff Cabraser to pursue China Eastern Airlines, Lieff Cabraser to pursue China Eastern Airlines, Bombardier Company and General Electric as strictly Bombardier Company and General Electric as strictly liable under product defect theory in the Los Angeles liable under product defect theory in the Los Angeles Superior Court – the first time Chinese nationals sued Superior Court – the first time Chinese nationals sued Chinese, Canadian and American companies in a US courtChinese, Canadian and American companies in a US court



ProceedingsProceedings• China Eastern Airlines has moved to have China Eastern Airlines has moved to have

this case transferred to a Chinese court due this case transferred to a Chinese court due to to Forum Non ConveniensForum Non Conveniens – on the first – on the first instance, it was approved.instance, it was approved.

• We are appealing this decision.We are appealing this decision.


Case: Mattel Recall

• On July 30, Mattel’s safety lab in China On July 30, Mattel’s safety lab in China detected lead in the paint used for toy cars. detected lead in the paint used for toy cars.

• First week of August, a European retailer First week of August, a European retailer discovers lead in the same Mattel products.discovers lead in the same Mattel products.

• Mattel recalls 1 million potentially lead-Mattel recalls 1 million potentially lead-tainted toys.tainted toys.

• Primary manufacturer was Lida Plastic Primary manufacturer was Lida Plastic Toys (Foshan, Guangdong), a Toys (Foshan, Guangdong), a longstanding supplier to Mattel.longstanding supplier to Mattel.

• Potential suspects: Mattel Q.C., Lida and Potential suspects: Mattel Q.C., Lida and Lida’s paint material suppliers.Lida’s paint material suppliers.


Case: Mattel Recall

ResultsResults• Hong Kong businessman and owner, Zhang Hong Kong businessman and owner, Zhang

Shuhong kills himself on August 11.Shuhong kills himself on August 11.• Construction of 3 new factories and a new workers Construction of 3 new factories and a new workers

dorm halted.dorm halted.• 2500 workers laid off without pay since event of 2500 workers laid off without pay since event of

the recall. the recall. • Xinhua reports total suspension of Lida’s Xinhua reports total suspension of Lida’s

operations on Sep. 25. operations on Sep. 25.


Was the Chinese manufacturer to blame?A foreign media frenzy:

• Event occurred during a year when various Chinese products were alleged to be defective: i.e. pet food and medicines

• A senior official with the European retail giant Carrefour even called upon foreign media to stop exaggerating quality problems of made-in-China products

• "Mattel revealed the name of our company to the public under great pressure from the media, which made us the target of the event," – Xie Yuguang, board chairman of Lida.

Case: Mattel Recall


Case: Mattel Recalls

Mattel’s Fault?Mattel’s Fault?Mattel Admits Lack of Sufficient Quality Control Standards:Mattel Admits Lack of Sufficient Quality Control Standards:

• Mattel initially blames supplier but then reverses and issues the Mattel initially blames supplier but then reverses and issues the following statement: “Mattel takes full responsibility for these recalls following statement: “Mattel takes full responsibility for these recalls and apologises personally to you, the Chinese people, and all our and apologises personally to you, the Chinese people, and all our customers who received the toys.” customers who received the toys.” ““

• ”…”…vast majority of those products that were recalled were the result of vast majority of those products that were recalled were the result of a design flaw in Mattel’s design, not through a manufacturing flaw in a design flaw in Mattel’s design, not through a manufacturing flaw in China’s manufacturers,” China’s manufacturers,”

• "We understand and appreciate deeply the issues that this has caused "We understand and appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers”for the reputation of Chinese manufacturers”

• – – Thomas Debrowski, Vice President of Mattel.Thomas Debrowski, Vice President of Mattel.



Potential Lawsuit Remedy Against Mattel?• Favorable Forum: U.S. CourtFavorable Forum: U.S. Court

• Amount of Recoverable DamagesAmount of Recoverable Damages• Ability to Enforce JudgmentAbility to Enforce Judgment• Developed pro-plaintiff court system Developed pro-plaintiff court system

• Potential Plaintiffs Potential Plaintiffs • Family of businessmanFamily of businessman, , Zhang ShuhongZhang Shuhong• Lida Lida

• Suppliers to LidaSuppliers to Lida



Potential Action: NegligencePotential Action: Negligence• Failure to exercise the standard of care that a reasonably Failure to exercise the standard of care that a reasonably

prudent person would have exercised in a similar situation. prudent person would have exercised in a similar situation.

• Legal theory: Legal theory: • Mattel was negligent because it did not have the proper quality Mattel was negligent because it did not have the proper quality

control standards in place.control standards in place.

• As per industry standards, Mattel didn’t have proper supervision As per industry standards, Mattel didn’t have proper supervision of its foreign manufacturers. of its foreign manufacturers.

• Mattel was negligent by disclosing the identity of its supplier, Lida Mattel was negligent by disclosing the identity of its supplier, Lida to the public.to the public.

• Mattel was potentially negligent if the paints or materials used on Mattel was potentially negligent if the paints or materials used on

the toy cars was as per their design and/or specificationsthe toy cars was as per their design and/or specifications



Potential Action: Wrongful Death

• Wrongful death lawsuit alleges that the decedent was killed as a result of the negligence (or other liability) on the part of the defendant, and that the surviving dependents or beneficiaries are entitled to monetary damages as a result of the defendant’s conduct.

• Legal theory: Mattel’s negligence through shoddy quality control standards and publicizing identity of Lida caused Zhang Shuhong to suffer emotional distress, resulting in his eventual death.



Potential Action: DefamationPotential Action: Defamation

• The act of harming the reputation of another by making The act of harming the reputation of another by making a false statement to a third person. a false statement to a third person.

• Legal Theory: Mattel made statements to the Legal Theory: Mattel made statements to the international media that Lida was at fault for international media that Lida was at fault for manufacturing toys with lead paint. However, after manufacturing toys with lead paint. However, after making such a statement, Mattel reversed its position making such a statement, Mattel reversed its position and took full blame for the scandal.and took full blame for the scandal.


Mattel Case: Next Steps?

• Signing up potential client(s) for possible Signing up potential client(s) for possible “class action” or single lawsuit.“class action” or single lawsuit.

• Searching for and partnering up with a U.S. Searching for and partnering up with a U.S. firm.firm.– E.g. Similar to our arrangement with the Lieff Cabraser E.g. Similar to our arrangement with the Lieff Cabraser

firm in the Baotou. firm in the Baotou.

– A plaintiff firm with extensive trial experience in the A plaintiff firm with extensive trial experience in the correct jurisdiction (where Mattel is domiciled). correct jurisdiction (where Mattel is domiciled).


THANK YOU

LEHMAN, LEE & XU10-2 Liangmaqiao Diplomatic Compound

No.22 Dongfang East Road Chaoyang DistrictBeijing 100600 China

Tel: (86)(10) 8532-1919Fax: (86)(10) 8532-1999

E-mail: [email protected] site: http://www.lehmanlaw.com

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