Chinese state-backed corporations beat US lawsuits with sovereign immunity

Sovereign immunity prevents one government from using its courts to attack another, but Chinese state-backed industries are taking it to new places, arguing that sovereign immunity means that the US courts have no jurisdiction over Chinese companies whose products are harmful or whose conduct is negligent — and US courts are buying that argument.

For example, China National Building Materials Group Corporation used the argument to escape a suit that alleged that its drywall caused health problems for its US customers.

Yves at Naked Captalism raises an important point about this: "Imagine the toxicity such legal stratagems could cause if coupled with the the Trans Pacific Partnership's Investor-State Dispute Settlement provision. 'We can devastate your environment and abuse your workers, enjoy sovereign legal immunity for doing so, and sue you for lost profits if you try to say otherwise.'"

In the drywall case, China's Foreign Ministry called SASAC's inclusion in the lawsuit "extremely ridiculous".

"The U.S. court's acceptance of the lawsuit and the attempt to serve on SASAC through various channels has seriously infringed on the national sovereignty and interests of China," its diplomatic note said.

In March, the judge in the case dismissed CNBM from the suit, reasoning that plaintiffs had not proven the company conducted any commercial activity related to drywall in the United States.

James Stengel, a partner of the New York office of law firm Orrick – which represented CNBM in the suit, said the sovereignty doctrine "is highly relevant" for Chinese state-owned companies.

"You can make the argument that a different economic and political system gives Chinese companies an advantage in some ways. But that's U.S. law, and the U.S. government has made a clear decision that we will recognize the sovereign immunity of appropriately structured enterprises," Stengel said.

Chinese state entities argue they have 'sovereign immunity' in U.S. courts
[Matthew Miller and Michael Martina/Reuters]

(via Naked Capitalism)