International Law

Chinese Companies As Prime Litigation Target. DMG v. VisionChina, Part II.

By Dan

It is not at all uncommon for English language publications to write about our posts on here, but it is quite uncommon for Chinese language publications to do so. This only makes sense. So I was both surprised and delighted to learn that Caixan, probably China's best business magazine had written on one of our recent posts. The post is "US-Listed Chinese Companies. Let's Watch The Sausage Get Made" and the Caixin article (in Chinese) can be found here. 

The translated title of the Caixin article is "American Lawyer Analyzes VisionChina Lawsuits against DMG and Its Former Shareholders" and its focus is on how Chinese companies doing business in the United States will be succeptible to lawsuits there if they insist on doing business as though they are in China:

According to Dan Harris, a senior lawyer with Harris & Moure law firm in the U.S., small-time Chinese firms are used to doing business on their own terms, often with little regard to contracts; but the situation is gradually changing with more Chinese companies getting listed in the U.S. And the VisionChina / DMG case will become a case study for other such contract disputes cases in the US.

It then describes the VisionChina/DMG case: 

In October 2009, VisionChina announced that it agreed to buy DMG with US$ 160 million in cash and stock. And according to the Agreement, DMG's investors would get US$ 100 million in cash and stock at or about when the deal closed, along with two subsequent US$ 30 million cash instalments on each of the first two anniversaries of the closing date.

On December 27th, VisionChina pre-emptively sued former shareholders of DMG claiming fraud, and said VisionChina was led to pay a price higher than DMG was really worth. VisionChina's claimed in its complaint it received the 'E&Y report' on December 24th, 2009, and VisionChina found the 'E&Y Report' on DMG financial statement for the first eight months in 2009 did not match the same period covered by the DMG-presented Management Accounts.

Subsequently, former shareholders of DMG countersued VisionChina, claiming VisionChina was not able to deliver the first pay of USD 30 million on time. Former shareholders of DMG requested the Court to force VisionChina to fulfil the Agreement, and make compensations accordingly. 

In the March 17 article, Harris noted that VisionChina apparently released tens of millions of dollars from escrow on January 2, 2010, more than a week after it said it received the E&Y Report. Then five months later, VisionChina released millions more. VisionChina apparently waited more than a year after reading the E&Y Report to bring its case against the DMG investors.

The story concludes with the key point, that Chinese companies listing or doing business in the United States had better start getting used to being sued in the United States

According to Harris, that VisionChina, a Chinese company doing business exclusively in China, chose to sue in New York is a testament in itself to the new calculation for US-listed companies. He says he is 'looking forward to watching this case play out.' 

I have written extensively in the past on Glocalization and on how companies that operate internationally must be prepared to meet international standards because what happens in one country does not stay in one country. For more on this, check out "China, Glocalization, And The Specter Of Product Liability And More" and "Toyota And China. It's A Small World After All." And for more on suing Chinese companies, check out the following:

• How To Sue A Chinese Company. Part I. Jurisdiction And Service Of Process.
• How To Sue a Chinese Company, Part II. Discovery.
• How to Sue a Chinese Company. Part III. Litigation Strategies and Enforcing Judgments.
• How to Sue a Chinese Company. Part IV. Arbitration in the U.S. and Suing in China.

Full post as published by China Law Blog on March 24, 2011 (boomark / email).