Academic journal article Fordham Journal of Corporate & Financial Law

Judgment Unenforceability in China

Academic journal article Fordham Journal of Corporate & Financial Law

Judgment Unenforceability in China

Article excerpt

ABSTRACT

Parties often take judgment enforcement for granted in the United States as a result of decades of reinforcement from the Full Faith and Credit Clause. As the world becomes increasingly globalized, however, corporate defendants may only have nominal holdings within the United States, with the majority of their assets held abroad. Plaintiffs may then be in for a rude awakening when they bring their U.S. money judgments abroad, for such judgments are routinely unenforceable. China has proven no exception, and foreign judgments are rarely, if ever, enforced there. The problem is compounded by the fact that trade between the United States and China increases every year, leading to a likely corresponding increase in cases where U.S. money judgment creditors are left holding the bag. This Comment briefly explains the reasons for why U.S. money judgments often go unenforced abroad-a strange confluence of principles of federalism, comity, and Erie doctrineand discusses recent cases of judgment unenforceability against Chinese parties. More importantly, however, the Comment seeks to provide professionals with practical advice in how to plan ahead when transactions involve foreign parties.

INTRODUCTION

Globalization has provided a host of benefits to countries around the world and offers an increasingly vast array of opportunities for investors of all kinds to choose from.1 Nonetheless, any parties to an international project or deal must carefully consider a range of issues and concerns.2 Sovereignty remains a critical issue which overshadows all disputes that may result in judicial litigation between parties of diverse nationalities,3 and investors and practitioners in the United States must remember that a money judgment which cannot be enforced is practically worthless.4

Nations' inclinations to enforce foreign judgments vary widely and often turn on a variety of factors.5 This Comment principally focuses upon the notoriously difficult enforcement of U.S. money judgments ("USMJs") in China in light of the absence of a treaty of reciprocity for the enforcement of judgments. In particular, holders of USMJs are in a highly unenviable position when they discover that their Chinese adversaries have few to no assets in the United States and that they have few viable options in reducing their judgment into assets.6

Moreover, it appears that instances of judgment unenforceability are no longer discrete incidents as trade increases between the United States and China.7 The net result of judgment unenforceability is a limitation on trade between both nations8 -U.S. parties are less competitive when they must demand greater concessions to secure their interests from their Chinese counterparts, and Chinese parties are less attractive because such demands must be made in the first place.9

Part I of this paper first briefly discusses both the domestic and foreign enforcement of USMJs. Part II summarizes several cases where USMJ creditors have been stymied by the lack of judgment enforcement in China. Part III then discusses several major factors giving rise to judgment unenforceability in China, while Part IV discusses the attendant ramifications. Finally, Part V provides some suggestions for practitioners to avert enforceability issues and a discussion of a broader policy solution through the ratification of a treaty for the mutual enforcement of judgments.

I. Enforcement of United States Judgments

Parties do not litigate for the privilege of obtaining a piece of paper from a judge; rather, it is what the paper represents that is critical-a judgment with the force of the law.10 Accordingly, a judgment which cannot be enforced has little value.11

A. Domestic Doctrine-The Full Faith and Credit Clause

Domestic enforcement of USMJs is governed by the Full Faith and Credit Clause, which requires state courts to recognize and enforce the judgments of other states.12 Thus, in theory, parties cannot avoid judgment enforcement simply by leaving the state where the judgment was issued. …

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