The Challenge of China Seeking Justice Within and

The Challenge of China: Seeking Justice Within and Outside Its Borders Edward E. Lehman Managing Director of LEHMAN, LEE & XU November 2, 2007 www. lehmanlaw. com LEHMAN, LEE & XU

Agenda (1) Background (2) Litigation in China (3) Class Actions in China (4) Case Studies www. lehmanlaw. com LEHMAN, LEE & XU

Background: A Comparison Lawyer Statistics China (2005) U. S. (2006) • Number of Lawyers 114, 000 1, 116, 967 • Percent of population 0. 009% 0. 4% • Lawsuits per year 75. 2 million www. lehmanlaw. com 1. 5 million LEHMAN, LEE & XU

Litigation in China • Disputes are under the jurisdiction of the People’s Court of the location where defendant is domiciled • Civil Procedure Law of the People’s Republic of China • Two Instances – First instance (Intermediate/district court) – One avenue of appeal to a higher level court www. lehmanlaw. com LEHMAN, LEE & XU

Proceedings Foreign-related cases Domestic cases • Intermediate Court • District Court (First Instance) – submit evidence – time from application to decision: 6 months – 1 year 6 months – 30 days to appeal – 15 days to appeal • High Court (Second Instance) – submit new evidences – 6 months to 1 year – no appeal www. lehmanlaw. com • Intermediate Court (Second Instance) – submit new evidences – 3 months – no appeal LEHMAN, LEE & XU

Collection of Evidence • Submitted in the first instance • In foreign cases: – verification and notarization by – Chinese embassy in home jurisdiction – translated into Chinese • Preservation of evidence – requires application to the People’s Court – applicable when there is risk that evidence may be destroyed www. lehmanlaw. com LEHMAN, LEE & XU

Challenges in Submitting Evidence • • Scarce resources and lack of transparency Different types of documentary evidence some of which may not be recognized by the court Expert opinions Translation must be done by a translator with both legal and technical background www. lehmanlaw. com LEHMAN, LEE & XU

Typical Chinese Court www. lehmanlaw. com LEHMAN, LEE & XU

Judgment • Shall include – cause of action, claims, facts and cause of the dispute – facts and causes as found in judgment, and basis of application of law – outcome of adjudication and costs – time limit for filing an appeal and – appropriate appellate court www. lehmanlaw. com LEHMAN, LEE & XU

Appeal: second instance • If party refuses to accept judgment • 15 days for domestic – 30 days foreign cases • Petition shall be submitted through the Court which tried the case • Basis of second instance court review – relevant facts – application of the law • Judgment is final www. lehmanlaw. com LEHMAN, LEE & XU

Execution • Effective Judgment executed by the People’s Court of First Instance • If a party refuses to comply with the judgment, the other party may apply for execution and/or enforcement • Time limit to apply for execution is 1 year / 6 months www. lehmanlaw. com LEHMAN, LEE & XU

Class Actions in China • Joint Action (Article 53 of the CPL) • Representatives of Joint Action (Article 54) • Registration Procedures (Article 55) www. lehmanlaw. com LEHMAN, LEE & XU

Registration Procedures for a Representative Joint Action • Three requirements: – Public notice – Registration – Designation of Class Representative www. lehmanlaw. com LEHMAN, LEE & XU

Public Notice • Public notice issued by the People’s Court stating the particulars and claims of the case • Public notice period can be varied but no less than 30 days • Means of public notice: most conveniently accessible by potential parties www. lehmanlaw. com LEHMAN, LEE & XU

Registration • Shall register within the public notice period • Basic information of the participants including identification, relevancy to the case, proof of the legal relationship with the opposing party, and proof of injury if in damage compensation case • Legal effects of the registration www. lehmanlaw. com LEHMAN, LEE & XU

Designation of Class Representative • Participants who bring the case to or register at the People’s Court can elect their representatives • In the alternative, court can negotiate with the participants to agree on the representatives • Second alternative, court can appoint representatives among the participants www. lehmanlaw. com LEHMAN, LEE & XU

Case: Transportation Insurance Background • Nov. 15 th 2000 plaintiff spent RMB 30, 000 on transportation insurance for machinery • On the next day, machinery was stolen in Canada. • Defendant refused to pay because they had begun taking delivery and transport on Nov. 14 th (Canada time) when insurance liability had not taken effect. www. lehmanlaw. com LEHMAN, LEE & XU

Case: Transportation Insurance Result at First Instance • Defendant pays for plaintiff’s loss • Defendant refuses to obey appeal – (day of delivery is earlier than day of insurance) Result at Second Instance • Plaintiff demand is rejected • Defendant gives RMB 30000 back www. lehmanlaw. com LEHMAN, LEE & XU

Case: Transportation Insurance Reasons for rejection • Time difference: thirteen hours difference between China and Canada – By Beijing time, goods stolen on Nov. 16 th • (insurance liability) – By Ottawa time, goods stolen on Nov. 15 th • (no insurance liability) • Problematic evidence collection www. lehmanlaw. com LEHMAN, LEE & XU

Case: Baotou Air Crash Background • On Nov. 21, 2005, China Eastern airlines flight MU 5210 from Baotou to Shanghai crashed less than one minute after take-off • Forty seven passengers, six crew members, and two ground crew members perished • Lehman, Lee & Xu, in partnership with Lieff Cabraser, is representing the families of Chinese victims of this crash www. lehmanlaw. com LEHMAN, LEE & XU

Case: Baotou Air Crash Problems with the CRJ-200 aircraft • Bombardier Company’s wing design • Engine manufactured by General Electric was smoking as the plane took off • China Eastern Airlines failed to properly maintain aircraft However, no “black box” record exists www. lehmanlaw. com LEHMAN, LEE & XU

Case: Baotou Air Crash Proceedings • On Nov. 27, 2004, China Eastern Airlines paid each victim a total of 211, 000 yuan • On Oct. 26, 2005, one Indonesian and thirty Chinese families of the victims engaged Lehman, Lee & Xu and Lieff Cabraser to pursue China Eastern Airlines, Bombardier Company and General Electric as strictly liable under product defect theory in the Los Angeles Superior Court – the first time Chinese nationals sued Chinese, Canadian and American companies in a US court www. lehmanlaw. com LEHMAN, LEE & XU

Case: Baotou Air Crash Proceedings • China Eastern Airlines has moved to have this case transferred to a Chinese court due to Forum Non Conveniens – on the first instance, it was approved. • We are appealing this decision. www. lehmanlaw. com LEHMAN, LEE & XU

Case: Mattel Recall • • • On July 30, Mattel’s safety lab in China detected lead in the paint used for toy cars. First week of August, a European retailer discovers lead in the same Mattel products. Mattel recalls 1 million potentially leadtainted toys. Primary manufacturer was Lida Plastic Toys (Foshan, Guangdong), a longstanding supplier to Mattel. Potential suspects: Mattel Q. C. , Lida and Lida’s paint material suppliers. www. lehmanlaw. com LEHMAN, LEE & XU

Case: Mattel Recall Results • Hong Kong businessman and owner, Zhang Shuhong kills himself on August 11. • Construction of 3 new factories and a new workers dorm halted. • 2500 workers laid off without pay since event of the recall. • Xinhua reports total suspension of Lida’s operations on Sep. 25. www. lehmanlaw. com LEHMAN, LEE & XU

Case: Mattel Recall Was the Chinese manufacturer to blame? A foreign media frenzy: • Event occurred during a year when various Chinese products were alleged to be defective: i. e. pet food and medicines • A senior official with the European retail giant Carrefour even called upon foreign media to stop exaggerating quality problems of made-in-China products • "Mattel revealed the name of our company to the public under great pressure from the media, which made us the target of the event, " – Xie Yuguang, board chairman of Lida. www. lehmanlaw. com LEHMAN, LEE & XU

Case: Mattel Recalls Mattel’s Fault? Mattel Admits Lack of Sufficient Quality Control Standards: • Mattel initially blames supplier but then reverses and issues the following statement: “Mattel takes full responsibility for these recalls and apologises personally to you, the Chinese people, and all our customers who received the toys. ” “ • ”…vast majority of those products that were recalled were the result of a design flaw in Mattel’s design, not through a manufacturing flaw in China’s manufacturers, ” • "We understand appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers” • – Thomas Debrowski, Vice President of Mattel. www. lehmanlaw. com LEHMAN, LEE & XU

Case: Mattel Recalls Potential Lawsuit Remedy Against Mattel? • Favorable Forum: U. S. Court • Amount of Recoverable Damages • Ability to Enforce Judgment • Developed pro-plaintiff court system • Potential Plaintiffs • Family of businessman, Zhang Shuhong • Lida • Suppliers to Lida www. lehmanlaw. com LEHMAN, LEE & XU

Case: Mattel Recalls Potential Action: Negligence • Failure to exercise the standard of care that a reasonably prudent person would have exercised in a similar situation. • Legal theory: • Mattel was negligent because it did not have the proper quality control standards in place. • As per industry standards, Mattel didn’t have proper supervision of its foreign manufacturers. • Mattel was negligent by disclosing the identity of its supplier, Lida to the public. • Mattel was potentially negligent if the paints or materials used on the toy cars was as per their design and/or specifications www. lehmanlaw. com LEHMAN, LEE & XU

Case: Mattel Recalls Potential Action: Wrongful Death • Wrongful death lawsuit alleges that the decedent was killed as a result of the negligence (or other liability) on the part of the defendant, and that the surviving dependents or beneficiaries are entitled to monetary damages as a result of the defendant’s conduct. • Legal theory: Mattel’s negligence through shoddy quality control standards and publicizing identity of Lida caused Zhang Shuhong to suffer emotional distress, resulting in his eventual death. www. lehmanlaw. com LEHMAN, LEE & XU

Case: Mattel Recalls Potential Action: Defamation • The act of harming the reputation of another by making a false statement to a third person. • Legal Theory: Mattel made statements to the international media that Lida was at fault for manufacturing toys with lead paint. However, after making such a statement, Mattel reversed its position and took full blame for the scandal. www. lehmanlaw. com LEHMAN, LEE & XU

Mattel Case: Next Steps? • Signing up potential client(s) for possible “class action” or single lawsuit. • Searching for and partnering up with a U. S. firm. – E. g. Similar to our arrangement with the Lieff Cabraser firm in the Baotou. – A plaintiff firm with extensive trial experience in the correct jurisdiction (where Mattel is domiciled). www. lehmanlaw. com LEHMAN, LEE & XU

THANK YOU LEHMAN, LEE & XU 10 -2 Liangmaqiao Diplomatic Compound No. 22 Dongfang East Road Chaoyang District Beijing 100600 China Tel: (86)(10) 8532 -1919 Fax: (86)(10) 8532 -1999 E-mail: elehman@lehmanlaw. com Web site: http: //www. lehmanlaw. com LEHMAN, LEE & XU