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SATCORP INT'L GROUP v. CHINA NAT'L IMPORT & EXPORT

March 13, 1996

SATCORP INTERNATIONAL GROUP and SINO AMERICAN TRADING CORPORATION, Plaintiffs, against CHINA NATIONAL IMPORT & EXPORT CORPORATION, Defendant.


The opinion of the court was delivered by: KAPLAN

 LEWIS A. KAPLAN, District Judge.

 The plaintiffs in this action sue the defendant, a corporation organized under the laws of the People's Republic of China ("PRC"), on a default judgment previously obtained by them against one of the defendant's subsidiaries, also a PRC corporation. The theory of the complaint is that the judgment debtor is an alter ego of the defendant, which therefore allegedly is responsible for the debt. The defendant moves to dismiss for lack of in personam jurisdiction. Plaintiffs counter that (1) the defendant does business in New York because (a) another subsidiary, a New York corporation, is present here and is an alter ego of the defendant, (b) the defendant's own employees were involved in the transactions that led to the default judgment, or (c) both, and (2) the jurisdictional defense should be stricken and other sanctions imposed for alleged failure to comply with one of the Court's discovery orders.

 Background

 The Parties

 The plaintiffs in this action are Sino American Trading Corporation ("Sino American"), a Delaware corporation, and Satcorp International Group ("Satcorp"), a New York corporation. Sino American is owned by James Vena and Susan L. Huang. It in turn owns Satcorp International (Hong Kong) Limited ("Satcorp HK"), a Hong Kong corporation. The precise relationship between Satcorp, on the one hand, and Sino American and Satcorp HK, on the other, is unclear, save that Satcorp HK is said to have acted as agent for Satcorp in those respects in which Satcorp HK's actions are relevant to this dispute.

 The defendant is China National Silk Import and Export Corporation ("China National"), which is based in Beijing. It has a number of subsidiaries and organizational units, two of which are pertinent here: (1) China Silk Materials Import Corporation, a PRC corporation based in Beijing, and (2) China Silk America, Inc. ("China America"), which is organized under the laws of, and located in, New York.

 The Contracts and the Default Judgment

 In the late 1980's, Satcorp HK, allegedly as agent for Satcorp, contracted to sell China Materials nylon filament yarn which it purchased from U.S. suppliers and caused to be delivered in Shanghai. A dispute arose concerning the failure of the purchaser to return hundreds of thousands of bobbins, as a result of which Satcorp allegedly was forced to make substantial payments to U.S. yarn manufacturers. In 1993, Satcorp sued China Materials in this Court. Apparently unable to serve China Materials within this district, it served process on China America, presumably on the theory that China America was an agent or alter ego of China Materials. In due course, Satcorp obtained a default judgment against China Materials in the amount of $ 1,267,905.90. No application ever has been made to vacate that judgment, which has gone unsatisfied. *fn1" Frustrated by its inability to collect from China Materials, the plaintiffs then commenced this action on the judgment against China National.

 Prior Proceedings

 This Court held a pretrial conference on March 13, 1995 at which the defendant appeared and indicated that it intended to move to dismiss for lack of personal jurisdiction. The parties expressed a desire for limited discovery in order to prepare for the motion, and a schedule for document production, depositions, and the filing of motion papers was established. The discovery was to have been concluded by the end of April and the motion filed by June 2, 1995. What ensued, however, was little short of a brawl. The lack of cooperation between the parties was remarkable. Repeated discovery applications were made to the Court. The schedule was extended. The motion was not fully submitted until late November.

 The Present Motions

 China National now moves to dismiss the action pursuant to Fed. R. Civ. P. 12(b)(2) for lack of personal jurisdiction. Plaintiffs oppose the motion and, in the alternative, seek to strike China National's jurisdictional defense and deem certain facts established as a discovery sanction pursuant to Fed. R. Civ. P. 37 on the ground that China National failed to comply with this Court's August 14, 1995 discovery order.

 Discovery Sanctions

 Plaintiffs, as noted, contend that the Court has jurisdiction over China National on the theory, among others, that China America and China National are alter egos. Since China America undeniably is present in New York, establishment of the alter ego theory would mandate the conclusion that China National also is present here and subject to jurisdiction under N.Y. CPLR ┬ž 301. Volkswagenwerk AG v. Beech Aircraft Corp., 751 F.2d 117, 120 (2d Cir. 1984). In consequence, plaintiffs set out to prove that China America in substance is simply a department of China National.

 On March 24, 1995, plaintiffs served an amended Rule 34 request, item 27 of which sought production of "all correspondence, documents, communications between China National and China Silk America, Inc. relating to business in New York in 1988, 1989, 1990 and 1994 to the present." (Emphasis added) On May 25, 1995, Zhou Ji, manager of China National's Enterprise Administration Department and a lawyer, testified that China National had no such correspondence. (Ji Dep. 51, 10-11) With the exception of some circulars, notices and the like and, ultimately, certain loan agreements, it produced no written communications between itself and China America. (Barra Reply Aff. PP 8-9)

 Discovery disputes concerning this and other matters ensued during the spring and summer of 1995, requiring the intervention of the Court. The specific issue of item 27 came before the Court on August 14, 1995, when plaintiffs' counsel castigated China National for allegedly withholding documents, arguing at length that it was inconceivable that there would be no correspondence between the parent and its New York subsidiary, which does over $ 2 million in sales. (Tr., Aug. 14, 1995, at 4-8) Counsel for China National took great umbrage at the accusation and flatly represented to the Court that there was "no question" that all documents sought by the March 24, 1995 request had been produced. (Id. at 9) In view of that representation as well as China National's statement that it had no objection "in principle," and without making any finding as to compliance or lack thereof, the Court directed ...


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