In a significant decision on serving foreign companies in criminal cases, a federal appeals court refused to invalidate service of criminal process in In re Pangang Group Co., Ltd., No. 17-72370 (9th Cir. Aug. 22, 2018). The court held the district court properly rejected a motion by foreign defendants to quash service of criminal process on the defendants’ lawyers, who were appearing in the case for the special purpose of challenging service. The case places pressure on a foreign company to respond to US charges if it has actual notice of those charges. The case suggests that prosecutors may try to serve process without the consent of a foreign government and even in violation of an international agreement. These methods may include service through a letter or email. Foreign companies facing a US criminal investigation will need to consider this case carefully as they decide how to respond.
The First Attempt at Service
Federal prosecutors charged the defendant companies, which were owned and controlled by the Chinese government, with trade secret offenses. The government tried to serve criminal process on a US subsidiary and other associated individuals and addresses in the US, as well as through an unsuccessful request to the Chinese government. The defendant companies appeared through a law firm making a special appearance to quash service. The trial court agreed with the attorneys’ objections and quashed service.
The Amended Rule
That did not end the matter; for in the meantime, the Supreme Court amended the relevant procedural rule (Federal Rule of Criminal Procedure 4). The amended rule provides that a criminal summons may be served on “an organization not within a judicial district of the United States” through service on the organization’s authorized officer or agent, or through “any other means that gives notice,” including three specified means that, according to the rules advisory committee, were “non-exhaustive.”
The rule change was made at the request of the US Department of Justice based on its difficulties serving foreign corporations under the prior version of the rule. In petitioning for the rule change, the government asserted that foreign corporations had gained “an undue advantage” over the government in the initiation of criminal proceedings and sought to amend the rule so that “the means of service reflects the realities of today’s global economy, electronic communication, and federal criminal practice.”
The Second Service on the Defendants’ Lawyers
After the amendment, prosecutors obtained a superseding charge against the defendant companies. While trying to serve an officer of a US affiliate—and again unsuccessfully requesting the Chinese government to make service in China—prosecutors also delivered the summonses to the defendant companies’ attorneys by email and certified mail. The attorneys resisted because they were not authorized to accept service, and they stated they would not send the summonses to the defendant companies.
The defendants’ attorneys again made a special appearance to quash service. This time, the trial court denied the motion and found that the companies had received actual notice, based in part upon the clear prior relationship between the attorneys and the companies and on a statement made by one of the defense attorneys at the hearing that the companies knew about the proceedings and had authorized the attorneys to appear.
The Petition for a Writ of Mandamus to the Ninth Circuit
The defendants petitioned the Ninth Circuit for a writ of mandamus while the case remained pending in the trial court. The Ninth Circuit denied the petition, because the trial court’s order was not clearly erroneous. That is, under a “straightforward application” of revised Rule 4, the defendant companies were not within a US judicial district and they had evidently received “actual notice” by way of the service on their attorneys, so that the prosecutors made valid service.
The court rejected defendants’ arguments that approving service here would render other parts of the rule superfluous. Instead, the court commented—but did not hold—that the rules advisory committee had considered the issue that the revision might enable foreign service on a foreign entity “without its consent, or in violation of international agreement.” The court also noted counsel’s own letter to the committee, commenting on the draft rule, in which counsel expressed concern that the amended rule could be read to authorize service by letter or email.
The court therefore denied the petition and allowed the case to proceed in the district court.
Significance of the Opinion
The Pangang opinion is significant for foreign companies and other entities with either no presence or limited connections in the United States that may face US criminal charges. Even if the company is based in a country that is reluctant to transmit service through, for example, a Mutual Legal Assistance Treaty or Agreement with the US, that may not matter. The opinion places weight on “actual notice,” and the method used here—service on counsel seeking to make a limited appearance—suggests there may be means available to prosecutors for effectuating such notice that would not necessarily apply in civil cases.
Especially in light of prior precedent that had forced the government to go to great lengths to effect service on foreign companies with limited US connections, the opinion will likely encourage the government to be increasingly aggressive to make effective service on a foreign company in a criminal case.
Pangang also refers to methods of notice that prosecutors might use that do not depend on the company’s consent or that might even be in violation of an international agreement, although the court did not have occasion to pass on whether those methods would be valid. Nonetheless, those other methods—including a letter or even email—may need to be considered as a foreign company decides whether and how to respond to a US charge.