Court Rules That Contract Dispute Between Two Asian Companies Should Not be Decided in California.
Chinese, Japanese, and Taiwanese legal translators and interpreters play an important role in litigation involving disputes with Asia-based companies. In the case described below, a California court held that a dispute between two Asian companies with no connection to California should not be decided in California.
In Quanta Computer, Inc. v. Japan Communications, Inc., a Taiwanese company (plaintiff), contracted to manufacture and sell cellular phones to a Japanese company (defendant). In their agreement, the plaintiff promised that the devices it manufactured would not be defective per Japanese law and that it would help the defendant to import the devices into Japan. The agreement contained a forum selection clause which provided that any and all disputes would be resolved under California law by a California court. The parties signed their written agreement in 2015, and the defendant ordered 70,000 cell phones pursuant to the contract.
The defendant subsequently accepted delivery of the phones, but failed to pay for all of them because over 14,000 devices allegedly had “quality issues.” In June of 2016, the parties negotiated an oral agreement whereby the plaintiff agreed to repair the defective products and the defendant agreed to make payments towards the outstanding balance in the ensuing months.
The defendant allegedly failed to reimburse plaintiff under the terms of the oral agreement and the plaintiff subsequently filed suit against defendant for breach of oral contract, breach of written contract, breach of the covenant of good faith and fair dealing, and for quantum meruit.
Defendant Files Lawsuit in Japan.
In September of 2016, after the plaintiff filed a lawsuit in California, the defendant filed its own lawsuit in Japan against the plaintiff seeking over $6 million in damages for the allegedly defective devices and the harm its business suffered selling the defective smart phones. The defendant also sought a declaration that it did not owe the manufacturer any sum of money.
Defendant Moves to Dismiss California Lawsuit.
On the same day as it filed its own Japanese lawsuit, the defendant filed a motion to dismiss the plaintiff’s California lawsuit on the grounds that the parties’ agreement should not be enforced because the case had no connection or “nexus” to California. Specifically, the defendant argued that the products were manufactured in China, that all of the negotiations occurred in Japan or Taiwan, that the parties’ employees resided in Asia, and that none of the activities related to the contract occurred in California or in the United States. The defendant also argued that all of the relevant documents and witnesses were located in Japan and China.
Plaintiff Response to Motion to Dismiss.
In response to the defendant’s motion to dismiss its lawsuit, the plaintiff submitted evidence that it was the defendant that proposed the State of California as a neutral forum in which to settle disputes after rejecting plaintiff’s proposal of Singapore as the choice of law and forum.
Trial Court Grants Motion to Dismiss.
Following an oral argument on the matter, the court granted the defendant’s motion to dismiss. The court held as follows: “There are no contacts in California. California courts have no expertise to determine whether [plaintiff] failed to meet quality standards tied to the Japanese, not the California, market.” The court also held that California had “no logical nexus” to the parties or the case. The court held that Japan, China, Taiwan, and Singapore were suitable forums in which to hear the parties’ dispute.
Plaintiff Appeals; Argues Forum Selection Clause Should Be Upheld.
The plaintiff appealed the trial court’s order on the grounds that the court abused its discretion by refusing to enforce the mandatory forum selection clause. The plaintiff also argued that the court erred by granting the motion to dismiss pursuant to the forum non conveniens doctrine. The court rejected the defendant’s forum non conveniens arguments, finding that the defendant could hardly justify this argument since it was the one that likely suggested California as the mandatory forum.
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However, the court did agree with the lower court that the matter should be dismissed due to a lack of any connection with California. The court held that neither party were California corporations and neither had any connection to California besides the forum selection clause. Thus, California had no public interest whatsoever in having a dispute between two Asian companies decided by a California court.
Specifically, the court also held that “[t]he trial court could reasonably concluded that the logistics involved in litigating a dispute in which most or all witnesses are from Asia, many of whom may require the assistance of a court interpreter, would be an unnecessary burden on the California courts.” The court reasoned that the parties did not dispute that the parties’ disagreement could be resolved through “relevant Japanese law.” Thus, the court affirmed the lower court’s dismissal of the plaintiff’s complaint.
The case is Quanta Computer Inc. v. Japan Communications, Inc. decided on March 16, 2018 by the Court of Appeal of the State of California, Second Appellate District, Division Five.
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