Khan Funds Management America, Inc. v. Nations Technologies Inc.

Background

Khan Funds Management America, Inc. and its chief executive officer, Xuefeng “Eric” Dai, sued Nations Technologies Inc., its subsidiaries and related individuals and companies. The amended complaint asserted claims under the Racketeer Influenced and Corrupt Organizations Act, conspiracy to violate that law, common-law fraud, and the Computer Fraud and Abuse Act. The plaintiffs alleged that the defendants operated an enterprise that used fraud, threats, and extortion to force them to help obtain semiconductor technology for China’s military.

The motion addressed service on Nations Technologies Inc., Nations Technologies (USA) Inc., Shenzhen Qianhai Nations Investment Management Co. Ltd. (“Nations Investment”), Zhaoxue Luo, Yingtong Sun, Junee Yu, and Baoxin Huang. The plaintiffs first attempted service through procedures under the Hague Convention. They submitted translated service documents to authorities in the People’s Republic of China, but those authorities rejected the requests under Article 13, stating that carrying them out would infringe China’s sovereignty or security. The opinion states that, after an Article 13 denial, China provides no further process for completing service through that route.

The plaintiffs then asked for permission under Federal Rule of Civil Procedure 4(f)(3) to serve the defendants through their U.S. counsel, Norton Rose. After the motion was filed, Nations Technologies Inc., Nations Technologies (USA) Inc., Luo, Sun, Yu, and Huang waived their objections to service. Nations Investment did not waive its objections, did not consent to service, and did not oppose the motion.

Legal standard

Rule 4(f)(3) permits a federal court to order a method of serving a foreign defendant that is not prohibited by an international agreement. Courts generally consider whether the plaintiff reasonably attempted service and whether court intervention is necessary. The alternative method must also satisfy due process, meaning it must be reasonably calculated to notify the defendant about the lawsuit and give the defendant an opportunity to respond.

Court’s analysis

The court found that the plaintiffs had reasonably attempted service on Nations Investment. They had investigated the relevant addresses, translated the necessary documents, and submitted them through the Hague Convention process. The Chinese authorities’ rejection made those efforts unsuccessful and supported the need for court intervention.

The court also ruled that service through U.S.-based counsel was not prohibited by the Hague Convention. Although Norton Rose stated that it did not represent Nations Investment and was not authorized to accept service for it, the court held that this statement did not prevent the court from ordering service on the firm under Rule 4(f)(3). The court agreed with the majority view in the Southern District of New York that service on U.S.-based counsel is permissible under that rule.

For due process, the court relied on the close relationship alleged between Nations Technologies Inc. and Nations Investment, including their parent-subsidiary relationship and their alleged involvement in the same enterprise. Norton Rose had represented Nations Technologies Inc. in the litigation, filed papers on its behalf, and appeared at a court conference. Based on those circumstances, the court found that serving Norton Rose was reasonably likely to inform Nations Investment about the lawsuit.

Disposition

The court granted the plaintiffs’ motion for alternative service on Nations Investment through service upon Norton Rose. The plaintiffs were directed to serve Norton Rose personally at its offices and file proof of service by July 5, 2024.

The court denied as moot the plaintiffs’ motion for alternative service on Nations Technologies Inc., Nations Technologies (USA) Inc., Luo, Sun, Yu, and Huang because those parties had waived service. The Clerk of Court was directed to terminate the relevant motions.