On July 23, 2015, the U.S. Court of Appeals for the Seventh Circuit issued a precedential opinion inUnited States v. Sinovel Wind Group Co., Ltd.[1]—one of the few appellate cases to raise the issue of whether the U.S. government can rely on an “alter ego” theory to serve a federal criminal summons on a foreign defendant by way of its U.S.-based subsidiary. The court of appeals ultimately declined to address this question, concluding that it lacked appellate jurisdiction and that the case did not meet the demanding standard of mandamus. By doing so, the Seventh Circuit confirmed federal appellate courts’ unwillingness to undertake an early review of whether the U.S. government has properly served a foreign corporate defendant with criminal process, even though the court did not foreclose the availability of such review via mandamus in exceptional circumstances.

By refusing to exercise appellate jurisdiction until the criminal proceedings have been completed, the Seventh Circuit left open the question of what restrictions the current Federal Rules of Criminal Procedure (the “Criminal Rules”) impose on the service of process on foreign corporate defendants, particularly under the “alter ego” theory. Thus, there remains no appellate guidance on when the Criminal Rules permit the U.S. government to summon a foreign organizational defendant from abroad, including by serving the defendant’s domestic subsidiary. In the wake of the Seventh Circuit’s ruling, foreign companies facing potential service of criminal summonses should consider carefully their options for challenging such service, but should not expect an early appellate review, barring unusually compelling circumstances.

Foreign corporate defendants should also continue to monitor the ongoing rulemaking process to amend the Criminal Rules initiated by the United States Department of Justice (“DOJ”), which is designed to expressly authorize alternative means of serving foreign corporations that have no agent or principal place of business in the United States. We have previously profiled the status of these rulemaking efforts—which are not expected to conclude until December 2016 at the earliest—as well as the overall evolving case-law governing service of foreign corporate criminal defendants.

Background

Criminal Rule 9 governs service of a summons on an indictment, and requires compliance with Criminal Rule 4 when serving the summons on a criminal defendant.[2] Criminal Rule 4, however, appears to restrict the scope of extraterritorial service in significant respects.

First, Criminal Rule 4(c)(2) provides that a “warrant may be executed, or a summons served, within the jurisdiction of the United States or anywhere else a federal statute authorizes an arrest.”[3] The plain language of Criminal Rule 4(c)(2), therefore, appears to limit service of a summons to the territorial jurisdiction of the United States, absent a “federal statute authoriz[ing] an arrest [abroad]” (such as in the instance of criminal laws applicable to U.S. military personnel and contractors abroad, where law expressly authorizes overseas arrests for violations of such laws).

Criminal Rule 4 contains additional requirements to perfect service upon organizational defendants. The U.S. government must (i) deliver the criminal summons “to an officer, to a managing or general agent, or to another agent appointed or legally authorized to receive service of process” (the “Delivery Requirement”), and (ii) it “must also” mail a copy of the summons to the corporation’s “last known address within the district or to its principal place of business elsewhere in the United States” (the ”Mailing Requirement”).[4]

Compliance with Criminal Rule 4 is critical because, without it, a defendant may argue that personal jurisdiction does not attach, that service of the summons should be quashed, and even that the indictment should be dismissed. There has always been uncertainty, however, of whether immediate review of a district court’s refusal to quash service could be obtained, either via the collateral order doctrine (which permits appeals on issues that are separate from the merits in limited circumstances) or via a petition for a writ of mandamus.[5]

Seventh Circuit’s Sinovel Appeal

In Sinovel, a trade secrets matter involving a Chinese wind turbine manufacturer, the U.S. government claimed to have served the Chinese parent through its alleged alter ego, an affiliated entity in the United States. The district court accepted the government’s alter ego theory based on the factual record and Sinovel appealed that decision to the Seventh Circuit and, in the alternative, requested relief via mandamus. Sinovel argued that the alter ego theory, which was developed in the civil personal jurisdiction cases, has no applicability in the context of serving a summons under the Criminal Rules. And even if such theory were permissible, Sinovel argued that the facts of the case did not justify piercing the corporate veil between the foreign company and its U.S.-based subsidiary.

On April 1, 2015, the Seventh Circuit heard oral argument on the appeal. The appellate panel consisted of Chief Judge Wood, Judge Flaum, and U.S. District Judge Kennelly, sitting by designation. To a significant extent, the argument focused on whether the court had appellate jurisdiction under the collateral order doctrine, or whether it could only award Sinovel relief via mandamus, where relief is discretionary and the defendant must meet a heightened standard before such relief can be granted. The panel addressed the merits of Sinovel’s appeal to a much more limited extent, mainly raising questions about the scope of the alter ego theory (or a similar general agency theory) of serving criminal summonses on foreign corporations.

In a unanimous opinion, authored by Chief Judge Wood, the Seventh Circuit held that Sinovel’s motion to quash service of process was not immediately appealable under the collateral order doctrine, a narrow exception to the general rule that appellate courts have jurisdiction only over appeals from final decisions of a district court. The collateral order doctrine permits an appeal if the district court’s ruling is conclusive, it resolves important questions separate from the merits, and it is effectively unreviewable on appeal from a final judgment.[6] Stressing the Supreme Court’s instruction that the doctrine be applied sparingly, the Seventh Circuit refused to expand the scope of collaterally appealable orders where, as Sinovel argued, a foreign, partially state-owned enterprise would be prosecuted by the DOJ despite the unambiguous failure to comply with the technical requirements of the Criminal Rules.

The court found that Sinovel’s position offered “no principled way to avoid the conclusion that every denial of a motion to quash service of process [would be] appealable.”[7] According to the Seventh Circuit, the district court’s order was not effectively unreviewable because, if Sinovel were convicted at trial, it could raise objections to personal jurisdiction on appeal (and, if the appellate court concluded that the district court had erred, the judgment could be set aside).[8] Acknowledging that the district court’s ruling had “eliminated the option of avoiding the proceedings altogether,” the appellate court emphasized that Sinovel “never had such a right” in the first instance.[9]

In addition, the Seventh Circuit rejected Sinovel’s arguments that a criminal prosecution would harm comity between the U.S. and China, which owned a minority (18%) interest in Sinovel. The appellate court found no reason to confer “sovereign immunity” on Sinovel; indeed, the court stated that the Foreign Sovereign Immunities Act does not recognize special rights for foreign government ownership of less than a majority of the shares.[10] Nor did the court believe that Sinovel offered a compelling reason for it to depart from the Executive Branch’s assessment—expressed through the DOJ’s decision—that a criminal prosecution was warranted based on the alleged facts.

The Seventh Circuit also refused to issue a writ of mandamus. Under the All Writs Act, 28 U.S.C. § 1651(a), a court of appeals may issue mandamus “to confine an inferior court to a lawful exercise of its prescribed jurisdiction or to compel it to exercise its authority when it is its duty to do so.”[11] The remedy of mandamus is “to be invoked only in extraordinary situations.”[12] A party seeking mandamus must show, first, that there are “no other adequate means to attain the relief [the party] desires—a condition designed to ensure that the writ will not be used as a substitute for the regular appeals process,” and, second, a clear and indisputable right to such relief.[13] Even if these two prerequisites are met, the court of appeals “must be satisfied that the writ is appropriate under the circumstances.”[14]

The Seventh Circuit emphasized that it is “willing to issue writs of mandamus only in the most unusual circumstances[,]” such as where the jurisdictional issue is “‘crystal’ clear” and the exercise of the jurisdiction would have had “‘appreciable foreign policy consequences’ with ‘astronomical’ potential damages.”[15] Having rejected Sinovel’s argument that the district court’s assumption of jurisdiction over Sinovel would damage U.S.-China relations, the court of appeals found “[n]o such compelling reason for immediate action[,] …” prior to an appeal from any final judgment.[16]

Conclusion

The Sinovel court’s holding that denial of a motion to quash service on a foreign criminal defendant is not immediately appealable under the collateral order doctrine, and the court’s emphasis that only “the most unusual circumstances” would justify mandamus review (at least where service is based on the alter ego doctrine) will likely further foreclose immediate appellate review of such decisions.[17] The Seventh Circuit’s insistence that a foreign defendant must wait until after the criminal trial and sentencing to challenge the propriety of service on appeal places a greater premium on successfully opposing service in the district court.[18] At the same time, however, the Seventh Circuit left open the possibility that “unusual” circumstances—such as, notably, adverse foreign policy consequences—may justify the exercise of mandamus to “confine an inferior court to a lawful exercise of its prescribed jurisdiction.”[19] Foreign companies facing potential service of criminal summonses should consider carefully the evolving case law on when such service is proper under the current Criminal Rules, as well as the DOJ’s pending proposals to amend those rules.