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Shanghai Commercial Bank Ltd. v. Chang

Supreme Court of Washington, En Banc

October 12, 2017

SHANGHAI COMMERCIAL BANK LIMITED, a banking corporation organized and existing under the Laws of Hong Kong Special Administrative Region, the People's Republic of China, Respondent,
v.
KUNG DA CHANG and "JANE DOE" CHANG, husband and wife, and the marital community comprised thereof, Petitioners.

          MADSEN, J.

         The present iteration of this case concerns whether a Hong Kong judgment is enforceable against marital community property in Washington State. At issue is the efficacy of a choice of law contractual provision in a Hong Kong contract along with application of the "most significant relationship" test for determining conflict of law issues and, ultimately, whether Hong Kong law should be applied to reach the community assets in Washington to satisfy a valid and enforceable foreign judgment. We hold that under the facts of this case, the debtor's community property may be reached to satisfy the Hong Kong judgment.

         FACTS

         The facts relevant to the present matter, which concerns Shanghai Commercial Bank's (SCB's) second motion for summary judgment in this case, [1] are undisputed and as follows. Kung Da Chang entered into a credit facility arrangement with SCB between March and April 2008 by executing five agreements. Together, these five agreements enabled Chang and his father, Clark Chang (Clark), to borrow large sums from SCB, and those sums make up the underlying debt obligation at issue in this lawsuit. These five documents define Chang and SCB's agreement and govern their obligations. The parties' agreement explicitly includes a choice of law provision selecting Hong Kong law as the governing law.

         The "Facility Letter" that Chang signed provides that the signor is subject to its terms and conditions, which "form an integral part of this Facility Letter." Clerk's Papers (CP) at 148. The "Terms and Conditions for Bank Accounts and General Services" contains a labeled "Governing Law and Jurisdiction" section that provides, "The validity, construction, interpretation, and enforcement of the Agreement and/or the Relevant Terms and Conditions shall be governed by the laws of HKSAR [Hong Kong Special Administrative Region]." Id. at 172 (emphasis added).[2]

         During exchange of the documentation that forms the parties' agreement, SCB delivered the papers for Chang's signature to an address in Shanghai that was actually Clark's residence. Clark sent the documents to his son in Seattle, [3] Chang signed the documents and returned them to his father in Shanghai, and Clark forwarded them to SCB in Hong Kong. There is no indication in the record that at this time SCB knew that it was dealing with a person residing in Seattle.

         Chang ultimately defaulted on the debt obligation, the parties litigated the matter in Hong Kong in high court action no. 806/2009 (HCA 806), and SCB prevailed and secured a $9 million dollar judgment. Id. at 290. It is undisputed that the HCA 806 judgment under Hong Kong law encompasses what Washington considers Chang and his wife's marital community, as Hong Kong law exempts solely separate property of a spouse, not community property, from judgments entered against one spouse (Chang).[4]

         Following SCB's successful (first) summary judgment motion, which established that HCA 806 is enforceable in Washington, [5] SCB's filed the present (second) summary judgment motion in this continuing enforcement action on July 2, 2015, seeking a ruling that HCA 806 could be enforced against Chang's community property. The trial court granted the second summary judgment motion on August 21, 2015, ruling that the express choice of law provision was determinative, and that even if there were no such provision in this case, the Hong Kong law would apply anyway because it had more significant contacts. The trial court denied Chang's motion for reconsideration on September 15, 2015, and Chang appealed. Court of Appeals, Division One, affirmed, holding that Hong Kong had the most significant relationship to Chang's agreement with SCB and thus under Washington's conflict of law principles, Hong Kong law applied making property that in Washington belongs to Chang and his wife's marital community available for collection of the Hong Kong judgment. Shanghai Commercial Bank Ltd. v. KungDa Chang, 195 Wn.App. 896, 906-07, 381 P.3d 212 (2016). Division One did not reach the effect of the choice of law provision in the agreement between Chang and SCB. Id. Chang sought review, which we granted. See Shanghai Commercial Bank Ltd. v. Kung Da Chang, 187 Wn.2d 1017, 390 P.3d 337 (2017).

         ANALYSIS

         Standard of Review

         This court reviews the trial court's summary judgment decision de novo. Mohr v. Grantham, 172 Wn.2d 844, 859, 262 P.3d 490 (2011). "Summary judgment 'shall be rendered forthwith if. . . there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.'" Id. (alterations in original) (quoting CR 56(c)). The court must draw all reasonable inferences from the evidence in favor of the nonmoving party. Id. This court reviews the denial of a motion for reconsideration for abuse of discretion. Rivers v. Wash. State Conf. of Mason Contractors, 145 Wn.2d 674, 685, 41 P.3d 1175 (2002). Statutory interpretation is a question of law that the court reviews de novo. Philippides v. Bernard, 151 Wn.2d 376, 383, 88 P.3d 939 (2004). Choice of law is a question of law that the court reviews de novo. Erwin v. Cotter Health Ctrs., Inc., 161 Wn.2d 676, 691, 167 P.3d 1112 (2007); Seizer v. Sessions, 132 Wn.2d 642, 650, 940 P.2d 261 (1997).

         Restatement (Second) of Conflict of Laws § 187 (Am. Law Inst. 1971)

         Washington courts "shall recognize a foreign-country judgment" for money damages that is "final, conclusive, and enforceable" where rendered, unless one or more of the mandatory or discretionary grounds for nonrecognition applies. RCW 6.40A.030(1), .020(1)(b). As noted, SBC's previous summary judgment motion established that the Hong Kong judgment is valid and enforceable in Washington. Shanghai Commercial Bank Ltd. v. Chang, No. 70526-1-1, at 1 (Wash.Ct.App. Aug. 25, 2014) (unpublished), http://www.courts.wa.gov/opinions/, review denied, 182 Wn.2d 1006, 342 P.3d 327 (2015), cert denied, 135 S.Ct 2847, 192 L.Ed.2d 877 (2015). A recognized "foreign-country judgment is . . . [e]nforceable in the same manner and to the same extent as a judgment rendered in this state." RCW 6.40A.060(2).

         The first appeal having resolved that the Hong Kong judgment, HCA 806, is enforceable in Washington, this court is now asked to decide whether the judgment debtor's community property may be reached to satisfy the Hong Kong judgment. In deciding that issue, we must address the efficacy of the parties' express choice of law provision in their governing agreement. Our decision in Erwin directs that such inquiry be undertaken and provides the appropriate analysis.

         In Erwin, we explained that in resolving disputes concerning choice of law the court need decide (1) whether there is an actual conflict of laws and, if so, (2) whether the parties' agreement's choice of law provision is effective. 161 Wn.2d at 692. '"When parties dispute choice of law, there must be an actual conflict between the laws or interests of Washington and the laws or interests of another state before Washington courts will engage in a conflict of laws analysis.'" Id. (quoting Seizer, 132 Wn.2d at 648). "If the result for a particular issue 'is different under the law of the two states, there is a "real" conflict.'" Id. (quoting Seizer, 132 Wn.2d at 648 (citing Pac. Gamble Robinson Co. v. Lapp, 95 Wn.2d 341, 344-45, 622 P.2d 850 (1980), overruling on other grounds as recognized by Haley v. Highland, 142 Wn.2d 135, 12 P.3d 119 (2000))). '"[W]here laws or interests of concerned states do not conflict, ' the situation presents 'a false conflict' and 'the presumptive local law is applied.'" Id. (internal quotation marks omitted) (quoting Seizer, 132 Wn.2d at 648-49).

         Here, there is an actual conflict between Hong Kong law and Washington law on the issue of whether Chang and his wife's community property is reachable for satisfaction of the HCA 806 judgment. As noted, evidence in the record regarding Hong Kong law states in relevant part that "Hong Kong is a separate property jurisdiction, and there is no community property concept/principle." CP at 76. Accordingly, "[t]he judgment in . . . HCA 806 . . . against KD Chang is enforceable in Hong Kong against all of KD Chang's assets, . . . includ[ing] those assets that would be considered 'community property' in Washington." Id.

         Washington law yields a different result. Similar to this case, in Potlatch No. 1 Federal Credit Union v. Kennedy, 76 Wn.2d 806, 459 P.2d 32 (1969), the husband (a Washington resident) undertook a loan obligation (as cosigner) with a lender in Idaho, a noncommunity property state. Upon default, the foreign creditor sought relief against the husband, his wife, and their Washington community. The trial court, applying Washington law, ruled that the foreign creditor was not entitled to judgment against the wife or the community. Id. at 807-08. In the course of affirming the judgment, this court explained that "[u]nder the law of this state [(Washington)], community property is liable for the suretyship debt of one of the parties only if the community has been benefited by the obligation." Id. at 808.[6] "Under Idaho law, however, the community is liable for the separate debts of the husband, irrespective of whether they were incurred for the benefit of the community."[7] Id. Accordingly, if Idaho law were applied, "[the foreign creditor] plaintiff would have been entitled to judgment against the . . . community." Id. But if Washington law were applied, "there would be no recovery against the community." Id. In the absence of a choice of law by the parties, this court applied the "most significant relationship" test (discussed below) and, based on the specific facts, applied Washington law and affirmed the trial court. Id. at 809-14.

         As discussed in Potlatch, this is an actual conflict. See also Erwin, 161 Wn.2d at 692 (if the result for a particular issue is different under the law of the two states, there is a "real" conflict).

         Given an actual conflict, the analysis turns to whether the parties' contractual choice of law is effective. Id. at 693. In Erwin, this court adopted Restatement section 187 as "the law of Washington when resolving conflict of laws issues in which the parties have made an express contractual choice of law to govern their contractual rights and duties." Id. at 694. This court explained that "[s]ince 1967, Washington has followed the most significant relationship test... [of] the Restatement [section 188] when resolving contractual choice-of-law problems in which the parties did not make an express choice of law." Id. at 693-94 (citing Mulcahy v. Farmers Ins. Co. of Wash, 152 Wn.2d 92, 100, 95 P.3d 313 (2004)); see also id. at 696. "Section 187 of the Restatement provides the rule for conflict of laws problems in which the parties have made an express contractual choice of law." Id. at 694.[8] Restatement section 187 provides as follows:

"'§ 187. Law of the State Chosen by the Parties
'(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.
'(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in ...

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