Taishan Gypsum Co. v. Gross

This excerpt looks only at the long arm statute analysis of this opinion. Later in our study of personal jurisdiction, we will read the sections of this case that deal with the Due Process aspects of personal jurisdiction in this case. This excerpt has been edited for brevity and readability, and most citations and all footnotes have been removed.

In re CHINESE-MANUFACTURED DRYWALL PRODUCTS LIABILITY LITIGATION.

United States Court of Appeals, Fifth Circuit.

May 20, 2014.

Before SMITH, DeMOSS, and HIGGINSON, Circuit Judges.

HIGGINSON, Circuit Judge:

     This appeal encompasses three cases in the Chinese Drywall multidistrict litigation — Mitchell, Gross, and Wiltz. Picking up where we left off in Germano v. Taishan Gypsum Company, Ltd., 742 F.3d 576 (5th Cir.2014) (affirming as to a fourth), we hold that personal jurisdiction lies over Taishan Gypsum Company, Limited and Tafan Taishan Plasterboard Company, Limited, in their respective cases. We further hold that the district court did not abuse its discretion when it refused to vacate the preliminary default entered in Mitchell. We therefore AFFIRM.

I.

     From 2005 to 2008, a housing boom coincided with the destruction of Hurricanes Katrina and Rita to sharply increase the demand for construction materials in the Gulf South and East Coast. In response, Chinese companies manufactured considerable quantities of gypsum wallboard (“Chinese drywall”) and sold it to United States companies. Homeowners experienced problems with the drywall, and affected parties sued entities involved in manufacturing, importing, and installing the Chinese drywall. The cases multiplied, and the Judicial Panel on Multidistrict Litigation transferred the cases to a single court in the Eastern District of Louisiana (the “MDL” court). The Honorable Eldon E. Fallon presides over the MDL.

     Four cases in the MDL have reached our court: Germano, Mitchell, Gross, and Wiltz. Germano is a class action originally filed by Virginia homeowners in the United States District Court for the Eastern District of Virginia. Mitchell is a class action originally filed by homebuilders in the United States District Court for the Northern District of Florida. Gross and Wiltz are class actions on behalf of property owners and were directly filed in the MDL in the Eastern District of Louisiana.

     Plaintiffs-Appellees are the class-action plaintiffs in each of the four cases. Defendants-Appellants are two Chinese companies that manufacture and sell drywall: Taishan Gypsum Company, Limited (“TG”) and Tai'an Taishan Plasterboard Company, Limited (“TTP”) (collectively “Taishan”). Both entities are defendants in Gross and Wiltz, but only TG is a defendant in Germano and Mitchell. TG and TTP appeal in their respective cases from the MDL court’s omnibus September 4, 2012 order. In Germano v. Taishan Gypsum Company, Ltd., 742 F.3d 576 (5th Cir.2014), our court affirmed the district court’s decision finding personal jurisdiction over TG. We are tasked with the three remaining appeals: Mitchell, Gross, and Wiltz.

A. Mitchell, Gross, and Wiltz

1. Mitchell

     The Mitchell Company (“Mitchell”) is an Alabama construction company that has built homes and apartments in Alabama, Mississippi, Louisiana, Georgia, and Florida. On March 6, 2009, Mitchell sued TG, among others, in the United States District Court for the Northern District of Florida. Mitchell sued on behalf of itself and a class “composed of all persons and entities” in Alabama, Mississippi, Louisiana, Georgia, Texas, and Florida who “constructed an improvement to real estate using drywall manufactured or distributed by Defendants” and incurred expenses associated with repairing the drywall itself, repairing property damage that the drywall caused, and liability to property owners as a result of the damage.

     Mitchell properly served TG on May 8, 2009. On June 15, 2009, the MDL panel transferred Mitchell to the Eastern District of Louisiana. TG failed to appear, and Mitchell moved for a default judgment. The Clerk entered a preliminary default against TG on September 22, 2009, and on June 10, 2010, TG made its first appearance. TG moved to vacate the preliminary default under Rule 55(c) and also moved to dismiss the case for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). The MDL court denied TG’s motions in its omnibus September 4, 2012 order.

2. Gross

     The Gross plaintiffs filed directly in the MDL court on October 7, 2009. The plaintiffs sued, among others, TG and TTP, on behalf of themselves and all United States homeowners who have defective drywall in their homes. They allege that defendants’ drywall has caused them economic harm ¡from the costs of inspection, costs of repairs, and devaluation of their homes, and physical harm such as an increased risk of disease. Because plaintiffs concede that they have failed to “identify the manufacturer of the product that caused the harm,” they urge liability for the defendants “in ratio to their proportionate share of the relevant market.”2 After jurisdictional discovery, TG and TTP moved to dismiss for lack of personal jurisdiction under Rule 12(b)(2). The district court denied the motion in its omnibus September 4, 2012 order.

3. Wiltz

     The Wiltz plaintiffs also filed directly in the MDL court. They are suing, among others, TG and TTP, on behalf of themselves and all owners and residents of property containing defective Chinese drywall. After completing jurisdictional discovery, TG and TTP moved to dismiss Wiltz for lack of personal jurisdiction under Rule 12(b)(2). The district court denied the motion in its omnibus September 4, 2012 order.

B. The Taishan Entities (TG and TTP)

     TG is a Chinese corporation with its principal place of business in Ta'in City, Shandong Province, China. It began manufacturing drywall in 1992 and has grown to be one of the largest drywall manufacturers in China. In 2006, TG formed a wholly owned subsidiary, TTP. TTP stopped operating in 2008. TG and TTP are referred to collectively as “Taishan.”

C. The District Court’s Order

     On September 4, 2012, the district court ruled on Taishan’s motions in Germano, Mitchell, Gross, and Wiltz in a 142-page order. In Germano the district court determined that personal jurisdiction was proper over TG in Virginia. The district court also denied TG’s motion to vacate the default judgment. In Mitchell, the district court determined that personal jurisdiction was proper over TG in Florida. In so holding, the district court determined that TTP’s contacts with Florida could be imputed to TG for the purposes of personal jurisdiction. The district court also denied TG’s motion to vacate the preliminary default. In Gross and Wiltz, the district court determined that personal jurisdiction was proper over TG and TTP in Louisiana. The district court again held that TTP’s contacts could be imputed to TG for the purposes personal jurisdiction. The district court subsequently certified an interlocutory appeal under 28 U.S.C. § 1292(b), and this court granted permission to appeal.

II.

     Whether personal jurisdiction can be exercised over a defendant is a question of law subject to de novo review. A district court’s jurisdictional findings of fact, however, are reviewed for clear error. “The burden of establishing personal jurisdiction over a nonresident defendant lies with the plaintiff.” Ainsworth v. Moffett Eng’g, Ltd., 716 F.3d 174, 176 (5th Cir.), cert. denied, — U.S. -, 134 S.Ct. 644, 187 L.Ed.2d 420 (2013). Because the district court held an evidentiary hearing on personal jurisdiction, the plaintiffs must establish personal jurisdiction by a preponderance of the evidence.

     Under Federal Rules of Civil Procedure 55(c) and 60(b), a district court may set aside an entry of default for “good cause.” The denial of such relief is reviewed for abuse of discretion and any factual determinations underlying the district court’s decision are reviewed for clear error. Id.

III.

     We begin with the Mitchell appeal, in which TG argues that the district court erred in finding specific jurisdiction over it in Florida.

B. The Florida Long-Arm Statute

     “A federal district court sitting in diversity may exercise personal jurisdiction over a nonresident defendant if (1) the long-arm statute of the forum state confers personal jurisdiction over that defendant; and (2) exercise of such jurisdiction by the forum state is consistent with due process under the United States Constitution.” Ainsworth, 716 F.3d at 177 (quoting Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir.1999)). The first prong of this two-prong jurisdictional analysis asks “whether the long-arm statute of the forum state confers personal jurisdiction over the defendant.” It is undisputed that Florida’s long-arm statute — Fla. Stat. Ann. § 48.193 — applies. Florida’s long-arm statute provides in relevant part:

(1)(a) A person, whether or not a citizen or resident of this state, who personally or through an agent does any of the acts enumerated in this subsection thereby submits himself or herself and, if he or she is a natural person, his or her personal representative to the jurisdiction of the courts of this state for any cause of action arising from any of the following acts:

1. Operating, conducting, engaging in, or carrying on a business or business venture in this state or having an office or agency in this state.

2. Committing a tortious act within this state.

6. Causing injury to persons or property within this state arising out of an act or omission by the defendant outside this state, if, at or about the time of the injury, either:

a. The defendant was engaged in solicitation or service activities within this state; or

b. Products, materials, or things processed, serviced, or manufactured by the defendant anywhere were used or consumed within this state in the ordinary course of commerce, trade, or use.

§ 48.193.

     “Florida’s long-arm statute is to be strictly construed,” and some courts interpreting Florida’s statute have noted that it “confers less jurisdiction upon Florida courts than allowed by the Due Process Clause.

     First we overlay Taishan’s (TTP and TG’s) contacts with Florida and then analyze their sufficiency under § 48.193(l)(a)(l).

1. Taishan’s contacts with Florida

     Having concluded that TTP was TG’s agent under Florida law allowing imputation of TTP’s contacts to TG, we next ask whether the entities’ contacts with Florida were sufficient to allow personal jurisdiction over TG in Florida. Again, we benefit from the district court’s extensive factual findings on Taishan’s contacts with Florida.

a. Taishan deals with OTC.

     Taishan sold 200,000 sheets of its drywall to Florida customers or customers doing business in Florida and made almost $800,000 from these sales. Taishan’s specific dealings with OTC, however, are particularly relevant to our jurisdictional analysis. TTP entered into a sole agency agreement with OTC — a Florida company — in which OTC agreed to purchase at least 20,000 sheets of TTP drywall between November 2006 and February 2007, and not less than 1,000,000 sheets in the following twelve months. The agreement with OTC was notarized under Florida law, OTC paid a $100,000 deposit to TTP under the agreement, and OTC purchased about 57,800 sheets of drywall for $208,711.20 from TTP.

     Taishan knew through communications with OTC that its drywall would be shipped to Florida, as invoices and emails provided that shipments would be to Miami, Florida. TTP also issued export invoices on 44,490 pieces of drywall sold to OTC and shipped to Miami. OTC and Taishan discussed expanding the sales in the United States, and Taishan said it would help OTC market and sell the drywall.

     Further, OTC requested that the drywall meet American Codes and Standards. Specifically, Taishan customized its drywall to meet American Society for Testing and Materials (“ASTM”) standards and provided ASTM certificates. Taishan also manufactured its drywall in inches, altered its DUN brand colors to reflect the colors of the American flag, and shipped samples of its drywall to Florida. Moreover, Taishan hosted OTC’s representative for a visit in China.

     Taishan arranged shipments from China to Florida, and although the shipping was FOB China, Taishan handled and paid for the shipping of drywall to Florida. Taishan made suggestions as to which Florida port would be best for shipping, and all of OTC’s shipments went to Florida. Taishan also complied with Florida Department of Transportation’s regulations. After their business relationship ended, OTC and Taishan discussed a new business relationship, in which Taishan would provide electronics to OTC in the United States.

b. Taishan deals with B. America.

     TTP also sold drywall to B. America Corporation through Onyx GBB Corporation — both Florida companies. B. America purchased 1,320 sheets of TTP drywall, compliant with ASTM standards, and delivered “CFR MIAMI.” B. America wired half of the purchase price to TTP, but the deal fell through when the American market suffered. B. America tried to get a refund for the wire transfer, but TTP refused. As a result, B. America purchased the drywall from TTP and contacted R & R Building Materials (“R & R”) to purchase this drywall from B. America. TTP prepared an invoice selling 660 sheets to B. America in exchange for $5,656.20 and noting that the delivery was “CIF [cost, insurance, freight] Miami Port.” In communications to Onyx and B. America, Taishan wrote: “We will arrange the shipping to Miami Port at an early time.” TTP took out insurance on its shipment to B. America, and the policy notes that the shipment is going to Florida. After the shipment reached Florida, Onyx sold it to R & R in Miami.

c.Taishan deals with Wood Nation.

     Wood Nation, Inc. — another Florida company-also purchased drywall from TTP. Richard Hannam, the president of Wood Nation, visited TTP in China, and entered into a contract with TTP for the purchase of 333,000 sheets of TTP drywall. The contract provided that the port of discharge was Tampa, Florida and that Wood Nation was registered at Tampa, Florida. TTP provided Wood Nation with test reports showing that it qualified with ASTM standards. Wood Nation requested that TTP customize the drywall by putting “ASTM C 1396-04” on the back of each piece of drywall, and TTP stamped each board with “Tampa, Florida” as the contact location as well as a Florida phone number as the contact phone number. Wood Nation revised its contract to purchase only 26,000 sheets of drywall in order to accommodate a smaller order from its customer. Wood Nation handled shipping the drywall from China to Florida.

d. Taishan sells drywall to Devon.

     A Pennsylvania company, Devon International Trading, was also interested in purchasing Chinese drywall. Devon’s president toured Taishan’s factory in China, and TG sent samples of its drywall to Devon. Devon and another company, North Pacific Group, entered a purchase order of 485,044 sheets of drywall to be sent to Pensacola, Florida. Devon requested to purchase drywall from TG to satisfy the North Pacific purchase order. The product was purchased through a trading company, Shanghai Yu Yuan Import & Export Company, and the Devon logo was stamped on each package. Each piece of drywall was also stamped with a guarantee that it met ASTM standards. In the course of the drywall’s transit to Pensacola, Florida, about half of the drywall was damaged, and North Pacific only purchased a fraction of what it original ordered. Devon sold the left over drywall to distributors, wholesalers, and some individuals. Devon sold some drywall to Emerald Coast Building Supply, and Emerald Coast sold 840 boards of drywall to Right-way Drywall, who finally sold it to Mitchell — the named plaintiff. This drywall had the same markings requested by Devon, specifically, the drywall is stamped that it is “made in China” and “Meet[s] or exceeds ASTM C1396 04 standard.” Mitchell then used the drywall to build homes in Florida.

e. Taishan sends Carn Construction samples in Florida.

     Carn Construction Corporation, a Florida corporation, also contacted Taishan to purchase drywall after it discovered Taishan through Alibaba.com. Taishan represents on this website that it exports drywall on Alibaba.com, and when Carn contacted Taishan and informed Taishan that it was a Florida company, Taishan represented that it exported to the United States and said it was willing to “ship their products to [Carn] in Florida.” Taishan sent drywall samples to Carn in Florida. “[F]or marketing purposes,” Taishan would “give [Carn] the option in [the] order to mark a brand” on the drywall.

2. Conducting business within Florida

     Under § 48.193(l)(a)(l) TG is subject to jurisdiction in Florida for “any cause of action arising from ... [Operating, conducting, engaging in, or carrying on a business or business venture in this state or having an office or agency in this state.” In order to satisfy this provision, “[t]he activities of the [defendant] sought to be served ... must be considered collectively and show a general course of business activity in the State for pecuniary benefit.”

     Further, “[i]t is not necessarily the number of transactions, but rather the nature and extent of the transaction(s) that determines whether a person is ‘carrying on a business venture’ within the state.” In Horizon Aggressive Growth, L.P. v. Rothstein-Kass, P.A., 421 F.3d 1162, 1167 (11th Cir.2005), the court highlighted “[factors relevant, but not dispositive” to this analysis. These include: (1) “the presence and operation of an office in Florida,” (2) “the possession and maintenance of a license to do business in Florida,” (3) “the number of Florida clients served,” and (4) “the percentage of overall revenue gleaned from Florida clients.” Id. (citing Florida cases utilizing each factor).

     The third and fourth factors are relevant here. First, Taishan sold 200,000 sheets of drywall for about $800,000 in Florida. Second, Taishan negotiated with Florida companies, and arranged shipping to Florida. See Robert D. Harley Co. v. Global Force (U.K.) Ltd., No. 05-21177-CIV, 2007 WL 196854, at *4 (S.D.Fla. Jan. 23, 2007) (jurisdiction proper under Florida law because, among other reasons, defendant “shipped from [its] factories in Jordan and China directly to VF Corp’s Tampa location”). Third, Taishan granted a Florida company the sole right to purchase a specific brand of its drywall. See Sierra v. A Betterway Rentt-A-Car, Inc., 863 So.2d 358, 360 (Fla.Dist.Ct.App.2003) (finding statute satisfied when defendants “were aware that its vehicles were driven in Florida,” “did not discourage or prohibit its customers from driving in Florida,” and advertised itself as a “global system of rental agencies, available for worldwide rental arrangements”). Fourth, Taishan specifically altered some boards by stamping “Tampa, Florida” and a Florida phone number; shipped samples to Florida; and insured its shipments to Florida.

     These and the other Florida contacts “show a general course of business activity in the state for pecuniary benefits.” Citi-corp Ins., 635 So.2d at 81 (deriving commissions of $600,000 over five years, “sending numerous letters and telefaxes back and forth to negotiate a deal with a Florida insurance broker,” and responding to a request by the Florida Insurance broker to provide coverage for a vessel moored in Florida, all supported long-arm jurisdiction); see Lennar Homes, No. 09-07901 CA 42, at 8 (holding that “Taishan was ‘carrying on business’ in Florida and that the Court may assert jurisdiction over Taishan under Section 48.193(1)(a)(l) of the Florida long-arm statute.”), aff'd sub nom., Taishan Gypsum Co. Ltd., 123 So.3d at 637.

3. “Arise-from” requirement

     Florida’s long-arm statute also requires that plaintiffs cause of action arise from the defendant’s acts. TG argues that the statute is not satisfied because plaintiffs’ causes of action do not arise from its contacts with Florida. As the Court in Lennar Homes recognized: “It is enough under the long-arm statute that the type of Taishan drywall that injured homeowners, and caused the damages sustained by plaintiffs, was otherwise available for purchase in Florida.” The arise-from requirement is met because Mitchell’s complaint alleges that the homebuilders incurred costs because they installed Taishan’s drywall, the profile forms submitted by the parties demonstrate that the drywall at issue in Mitchell is traceable to Taishan, and testimony from Lennar — a Florida homebuilder — identifies 400 homes containing Taishan drywall.

     Additional evidence supports tracing Taishan drywall to the Mitchell plaintiffs: Devon and North Pacific Group, entered a purchase order of 485,044 sheets of drywall to be sent to Pensacola, Florida. Devon requested to purchase drywall from TG to satisfy the North Pacific purchase order. The product was purchased through a trading company, Shanghai Yu Yuan Import & Export Company, and the Devon logo was stamped on each package. Devon sold some drywall to Emerald Coast Building Supply, and Emerald Coast sold 840 boards of drywall to Rightway Drywall, who finally sold it to Mitchell— the named plaintiff. Accordingly, the district court properly found the Florida long-arm statute satisfied.

C. Due Process

     Having satisfied Florida’s long-arm statute, Taishan’s contacts must also support a finding of personal jurisdiction consistent with Due Process. [The Due Process discussion is omitted here but will be provided later in the case book.]

V.

     TG and TTP challenge the district court’s finding of personal jurisdiction in Gross and Wiltz. Although the forum is different, the outcome is the same — specific jurisdiction is proper over TG and TTP in Louisiana.

B. Due Process

     The Louisiana Supreme Court has held that “[t]he limits of the Louisiana Long-arm Statute and the limits of constitutional due process are now coextensive,” accordingly, “the sole inquiry into jurisdiction over a nonresident is a one-step analysis of the constitutional due process requirements.” All parties agree that Gross and Wiltz are governed by Fifth Circuit law.

[The Due Process discussion is omitted here but will be provided later in the case book.]