Judicial Review of Service under the Hague Service Convention

German defendants in foreign litigation can ask the German courts to review a request for service of process under the Hague Service Convention originating from a US court for compliance with the Convention. There are references to this procedure in several US cases, such as In re South African Apartheid Litig., 643 F. Supp. 2d 423, 437 (S.D.N.Y. 2007) or Bauman v. DaimlerChrysler AG, 2005 WL 3157472, at *1 (N.D. Cal. Nov. 22, 2005) and the question how that mechanism works comes up time and time again in discussions with US colleagues. This post describes the procedure and some recent cases that illustrate the approach of the German courts to – mainly US – service requests.

A decision on service by the Central Authority under the Hague Service Convention constitutes a Judicial Administrative Act (Justizverwaltungsakt). The Central Authority typically is the President of the Court of Appeals (Oberlandesgericht) in the German federal state concerned, but acting in an administrative capacity, rather than in a judicial one. Judicial Administrative Acts constitute a separate class of actions taken within the court system. One can, by and large, characterize these acts as everything that is not a substantive decision of a judge in a pending litigation itself, be it procedural or otherwise. Section 23 et seq. Introductory Act to the Courts Constitution Act (EGGVG) govern the judicial review of such Judicial Administrative Acts. A defendant who is served can approach the Court of Appeals – acting in its judicial, not in its administrative capacity – and seek review of a decision to order service as per the request from the US court.

For some time, German defendants tried to use this review process to prevent the service of proceedings in class actions, and, in particular, in proceedings where punitive damages could be awarded against them. The most high profile of these cases was the Bertelsmann case, where Bertelsmann was sued in the US for USD 17 billion in damages for its involvment with Napster. In July 2003 Bertelsmann successfully applied for a preliminary injunction from the Federal Constitutional Court (Bundesverfassungsgericht) which suspended the service of process. One of the key arguments was that USD 17 billion was an amount that was totally disproportionate to the alleged actions and the action was brought only to exercise undue pressure on Bertelsmann.

Ultimately, however, the attempt to prevent service failed. The preliminary injunction was not confirmed in main proceedings. Today, the courts will consider the outcome of the US proceedings only once a judgment has been entered into, that is, at the enforcement stage. If punitive damages were granted that violate German public policy, then a judgment would not be declared enforceable. However, that analysis will be strictly separated from the analysis at the service stage, and service in such a matter does not per se violate public policy. Service can not be stopped on the basis that the US matter is a class action,  that it will lead pre-trial discovery or that it allows for punitive damages. A recent case discussing and dismissing all three arguments is a 2009 judgment of the Düsseldorf Court of Appeals that allowed service in a South African Apartheid litigation matter in New York.

Therefore, the more recent cases primarily deal with the question whether the foreign action falls within the scope of the HagueService Convention:

For example, the Frankfurt Court of Appeals has held in a judgment in December 2009 that an order made by the President of the Court in his capacity as the Central Authority, which allowed service of an action originating from the United States District Court, Eastern District of Virginia, in relation to civil penalties under the False Claims Act should not have been made. The court held that civil penalties do not fall within the definition of “civil or commercial matter” of the HagueService Convention. This ruling of the Court of Appeals then means that from a German perspective, the service was invalid, even if compliant with the Hague Service Convention procedure.

This judgment, by the way, also illustrates that the various central authorities across the country may reach different conclusions. The President of the Munich Court of Appeals in the same matter had not allowed service on parties domiciled in Bavariain the first place, saving the Bavarian defendants the effort of challenging the execution of the US service request.

The question what constitutes a civil or commercial matter arose in two other cases that both had anti-trust elements:

One matter in the High Court in Auckland, New Zealand, had been brought by New Zealand’s Commerce Commission. In substance, it was a competition and anti-trust matter which could have led to penalties against the German party. The Frankfurt Court of Appeals in 2010 held that not withstanding the fact that New Zealand treated the matter as commercial and the High Courtentered hat it into the Commercial List, it did not qualify as a civil or commercial matter for the purposes oft he Hague Service Convention. The service accordingly was held to be invaild.

It is interesting to compare this case with a 2008 Düsseldorf case. The service request originated from a US private enforcement action in an anti-trust matter. The German Federal Cartel Office (Bundeskartellamt) has fined the German defendants for anti-competitive behaviour, and the US parties alleged that they were victims of the cartel, seeking  treble damages in the US. As the US claimants were private parties, unlike the New Zealand claimant, the matter did qualify as a civil action, and service was held to be valid.

In short, the case law that developed in Germany over the last couple of years provides robust guidelines on how to deal with US service requests. German courts will allow service in all civil and commercial matters, the peculiar and often frightening aspects of US law and civil procedure that were invoked as a defence not withstanding.

P.S.: This post is also published over at Ted Folkman’s Letters Blogatory, and Ted’s editorial comments provide some US perspective on the topic.

P.P.S.: I have just noted that this is post no. 100, since I started Dispute Resolution Germany in October last year.