In Re: Chinese-Manufactured ( 2014 )

Case: 10-30568 Document: 00512513792 Page: 1 Date Filed: 01/28/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 28, 2014
No. 10-30568 Lyle W. Cayce
c/w No. 12-31017 Clerk
IN RE: CHINESE-MANUFACTURED DRYWALL PRODUCTS LIABILITY
LITIGATION
MICHELLE GERMANO, Individually and on behalf of all others similarly
situated; et al,
Plaintiffs,
JERRY BALDWIN; INEZ BALDWIN; STEVEN HEISCHOBER; ELIZABETH
HEISCHOBER; JOSEPH LEACH; KATHY LEACH; PRESTON MCKELLAR;
RACHAEL MCKELLAR; J. FREDERICK MICHAUX; VANNESSA MICHAUX;
WILLIAM MORGAN; DEBORAH MORGAN; ROBERT ORLANDO; LEA
ORLANDO,
Intervenors - Appellees,
v.
TAISHAN GYPSUM COMPANY, LIMITED, formerly known as Shandong Taihe
Dongxin Company, Limited,
Defendant - Appellant.
Appeals from the United States District Court
for the Eastern District of Louisiana
Before REAVLEY, ELROD, and HAYNES, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
Case: 10-30568 Document: 00512513792 Page: 2 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
This is a products liability case arising from the sale of allegedly defective
drywall from a Chinese manufacturer (Taishan Gypsum Co. Ltd., or “TG”),
through a Virginia distributor (Venture Supply, Inc., or “Venture”), to Virginia
homeowners (“Plaintiffs”).1 TG contests the district court’s determination that
it had personal jurisdiction over TG. TG further asserts that, even if the district
court does have jurisdiction, it abused its discretion in refusing to vacate the
default judgment against TG. We disagree, and accordingly AFFIRM the
district court on both issues.
I.
Venture is a Virginia company that distributed drywall and other building
materials to customers in multiple states, including Virginia.2 In November
2005, a Venture agent contacted TG—a Chinese corporation with its principal
place of business in Tai’an City, Shandong Province, China—to inquire about
purchasing TG’s drywall.3 This call initiated a business relationship that lasted
approximately two years. Shortly after the initial phone call, a Venture agent
traveled to China where he negotiated a contract to purchase drywall from TG.
The first contract between TG and Venture was executed on November 17,
2005. Venture signed the contract in Virginia and faxed its signature to TG in
China. The first contract provided that TG would manufacture and sell 100,000
1
This case involves both a group of “Original Plaintiffs,” and “Plaintiff-Intervenors.”
Where the distinction matters, we refer to the groups by these names. Where it does not, we
refer to them collectively as “Plaintiffs.”
2
The district court made a number of factual findings about the contacts between TG
and Venture, some of which TG contests on appeal. To the extent that any of the facts
included here are contested, we hold that these findings are supported by the extensive record
before us, and were not clearly erroneous.
3
It is undisputed that TG does not have any physical presence in Virginia and that the
vast majority of TG’s drywall is sold and used within the domestic Chinese market. All of TG’s
contacts with the State of Virginia relevant to this case involve its business relationship with
Venture.
2
Case: 10-30568 Document: 00512513792 Page: 3 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
sheets of TG drywall to Venture for $358,000.00. The contract specified that
delivery would occur at a Chinese port, and that Venture was responsible for
arranging and paying for transportation to Virginia from that port. All disputes
under the contract were to be settled by negotiation, or submitted to the Foreign
Trade Arbitration Commission of the China Council for the Promotion of
International Trade. The contract noted Venture’s address in Virginia.
Following this first contract, the two companies had extensive discussions
regarding future business. During these discussions TG offered to lower the
price of the drywall for Venture and to give Venture priority in purchasing
drywall. TG sought to increase its business with Venture and to make Venture
the exclusive distributor of its drywall in the United States. TG also sought
Venture’s assistance in providing a third-party with shipping information for its
drywall. TG’s representative communicated in English during these discussions
and used an Americanized version of his name. TG also considered sending one
of its employees to visit the United States. Based on these discussions, the
district court found that TG and Venture both sought to expand future drywall
sales in the United States through Venture.
In December 2005, Venture’s agent returned to China to inspect the
drywall it purchased under the first contract, and entered into a second contract
with TG on behalf of Venture. The terms of the second contract were nearly
identical to the first, with TG agreeing to sell an additional 100,000 sheets of
drywall for $366,800.00. TG imprinted the drywall that is sold to Venture under
these contracts with the following marks: “VENTURE SUPPLY INC. MFG:
SHANDONG TAIHE, CHINA” and placed sealing tape around the edges of the
drywall marked “GYPSUM BOARD DISTRIBUTED BY VENTURE SUPPLY
INC. 757-855-5433 VENTURESUPPLY.COM.” The drywall was also cut to
Venture’s specifications.
3
Case: 10-30568 Document: 00512513792 Page: 4 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
Venture retained a shipping agent that TG recommended to deliver the
drywall from the Chinese port to Virginia for the first shipment, and to New
Jersey for the second shipment. The second shipment was then taken by rail to
Virginia. TG received invoices from the shipping agent, which noted Venture’s
address in Virginia and that the drywall was shipped to Virginia. Venture
shipped and sold TG’s drywall to customers in at least three states other than
Virginia, including New York, Georgia, Florida, and possibly Alabama. Venture
sold a substantial amount of the TG drywall to Porter-Blaine Corp., which in
turn sold the drywall to subcontractors, who allegedly used it to build homes in
Virginia.
Plaintiffs Michelle Germano, Dennis and Sharon Jackson, and Jason and
Lisa Dunaway (collectively “Original Plaintiffs”) commenced a putative class
action against TG on May 1, 2009, in the Eastern District of Virginia. Original
Plaintiffs are all Virginia homeowners who allege that they suffered property
damage due to the presence of TG’s defective drywall in their homes.
Specifically, they assert claims against TG for negligence, negligence per se,
breach of express and/or implied warranties, private nuisance, unjust
enrichment, and violation of the Virginia Consumer Protection Act. They also
seek equitable and injunctive relief and medical monitoring to prevent health
problems as a result of exposure to the allegedly defective drywall. In their
First Amended Complaint, Original Plaintiffs asserted claims against TG as
individuals, and also in their capacity as proposed representatives of a class of
Virginia property owners similarly affected. Original Plaintiffs served TG with
the First Amended Complaint on August 3, 2009, in Chinese and in accordance
with the Hague Convention. It is undisputed that TG was properly served with
the First Amended Complaint.
4
Case: 10-30568 Document: 00512513792 Page: 5 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
Contractors installed hundreds of millions of square feet of drywall
imported from China in homes across the United States between 2005 and
2008. A number of the owners and occupiers of these homes filed suit in state
and federal courts against those involved in the drywall chain of distribution.
Like Plaintiffs, these homeowners also allege that this drywall caused them
property damage and health problems. Beginning in the summer of 2009, the
Panel on Multi-district Litigation began transferring drywall-related lawsuits
to the Eastern District of Louisiana as part of a multi-district litigation
captioned In re Chinese Manufactured Drywall Products Liability Litigation,
No. 09-MD-2047 (E.D. La.) (“MDL”), to oversee and manage pre-trial
proceedings. This case was transferred to the MDL in October 2009. As part
of this MDL, the district court is also overseeing claims raised against TG’s
wholly-owned subsidiary, Taian Taishan Plasterboard Co, Ltd. (“TTP”), which
are not relevant to the case here.4
On November 18, 2009, the district court granted Original Plaintiffs’
motion to file a default judgment against TG pursuant to Federal Rule of Civil
Procedure 55 for TG’s failure to appear or otherwise defend the action and
issued a preliminary default judgment. That same day, the district court also
granted Original Plaintiffs’ motion to file a Second Amended Complaint. The
Second Amended Complaint did not assert any new claims, but did expand the
plaintiff class to a nationwide class. On December 21, 2009, the district court
granted the motion of seven couples (collectively “Plaintiff-Intervenors”)5 to
4
The district court frequently referred to TG and TTP collectively as “Taishan” or
“Taishan Entities.” As explained below, the district court found that TTP had no contacts with
Virginia during the relevant time period. As a result, only TG’s actions are relevant to this
case.
5
Plaintiff-Intervenors are Jerry and Inez Baldwin, Steven and Elizabeth Heischober,
Joseph and Kathy Leach, Preston and Rachel McKellar, J. Frederick and Vanessa Michaux,
William and Deborah Morgan, and Robert and Lea Orlando.
5
Case: 10-30568 Document: 00512513792 Page: 6 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
intervene in this action. Plaintiff-Intervenors allege that they are also Virginia
homeowners who suffered losses due to TG and other defendants’ allegedly
defective drywall.
In February 2010, the district court held a two-day hearing on damages
allegedly suffered by Plaintiff-Intervenors. On May 11, 2010, the Court issued
a default judgment (“Default Judgement”) against TG awarding Plaintiff-
Intervenors damages, pre-judgment interest, post-judgment interest, and costs.6
TG waited until June 10, 2010, to file an appearance in this action. That same
day, TG filed a notice of appeal seeking to have the Default Judgment vacated
for (1) lack of personal jurisdiction, and (2) because the service of process was
procedurally defective. This court remanded TG’s appeal to the district court
for the limited purpose of permitting it to rule on TG’s motion to vacate the
Default Judgment.
The parties spent more than a year and a half engaged in extensive
discovery regarding personal jurisdiction over TG. Discovery was closely
monitored by the district court. On June 29, 2012, the district court presided
over a hearing on TG’s motions, after which it ruled that Plaintiffs had
established that there was personal jurisdiction over TG by a preponderance of
the evidence (“Order & Reasons”).7 The district court concluded that, as the
MDL transferee court, it should apply the substantive state law of the transferor
court (Virginia) and the federal law of its own circuit (the Fifth Circuit). The
6
According to TG, it owes a total of $2,758,356.20 to Plaintiff-Intervenors under the
Default Judgment. As counsel for TG confirmed at oral argument, only the Plaintiff-
Intervenors are parties to the Default Judgment against TG. Original Plaintiffs only have a
preliminary default judgment against TG, and the district court has not yet held a hearing on
damages for these claims.
7
The district court determined that it had held an evidentiary hearing on discovery
because it relied on discovery evidence, including depositions. As a result, Plaintiffs had to
prove that there was personal jurisdiction over TG by a preponderance of the evidence. See
Walk Haydel & Assocs., Inc. v. Coastal Power Prod. Co., 517 F.3d 235, 241–42 (5th Cir. 2008).
6
Case: 10-30568 Document: 00512513792 Page: 7 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
district court applied Virginia’s long-arm statute, and found that subsections
(A)(4) and (A)(5) of § 8.01-328.1 of the Virginia Code applied to TG because it had
obtained substantial revenue from Virginia.8
The district court acknowledged the disparate approaches to the personal
jurisdiction minimum contacts analysis that have followed the Supreme Court’s
plurality opinions in both Asahi Metal Industry Co., Ltd. v. Superior Court of
California, 480 U.S. 102 (1987), and J. McIntyre Machinery, Ltd. v. Nicastro, 131
S. Ct. 2780 (2011). Following Fifth Circuit precedent, the district court applied
the stream-of-commerce test from Justice Brennan’s concurrence in Asahi. See
Ainsworth v. Moffett Eng’g, Ltd., 716 F.3d 174, 178 (5th Cir. 2013), cert. denied,
134 S. Ct. 644 (2013). The district court concluded that it had specific
jurisdiction over TG for this suit because “TG placed its drywall into the stream
of commerce with the knowledge that its drywall would end up in and be used
in Virginia.” The district court then concluded that the Plaintiffs’ claims “relate
to” or “arise out of” TG’s contacts with Virginia because the presence of TG’s
drywall in Virginia properties was the alleged cause of their injuries. The
district court declined to impute the contacts of TG’s wholly-owned subsidiary,
TTP, onto TG for the purposes of determining personal jurisdiction, noting that
“the present evidence demonstrates that TTP had no contacts with Virginia
during the relevant time period, leaving no forum contacts to impute to TG.”
The district court also determined that exercising jurisdiction over TG
comported with “traditional notions of fair play and substantial justice.”
8
The parties appear to agree that the relevant question is whether TG established
minimum contacts with Virginia, rather than the MDL court, necessary to give rise to personal
jurisdiction. We agree that the analysis properly focuses on TG’s contact with Virginia, rather
than Louisiana. See Charles Alan Wright et. al., 4 Federal Practice & Procedure Civil § 1067.3
(3d ed.) (“It also seems clear that the minimum contacts requirement does not apply to a
plaintiff’s contacts with the transferee forum in a case transferred pursuant to the
multidistrict litigation (MDL) statute.”).
7
Case: 10-30568 Document: 00512513792 Page: 8 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
TG also argued that the Default Judgment was invalid because it had not
been properly served with the Second Amended Complaint or motion to
intervene prior to the entry of the Default Judgment. The district court denied
TG’s motion to vacate the Default Judgment in its Order & Reasons. As the
district court explained, TG was properly served with the First Amended
Complaint, and the Second Amended Complaint
only amended the First Amended Complaint insofar as expanding
the class definition against [TG] to a national class and expanding
the Virginia consumer protection claims to consumer protection
claims for each state involved. None of these amendments would
have affected Intervening Plaintiffs’ claims. Thus, the Court finds
that whether or not the Second Amended Complaint was properly
served upon [TG], the Court has sufficient jurisdiction . . . as a
result of the proper service of the First Amended Complaint since
Intervening Plaintiffs’ claims were properly within the First
Amended Complaint.
TG timely filed separate notices of appeal contesting both the Default
Judgment and the Order & Reasons. We consolidated the two appeals. Because
the Default Judgment is only proper if the district court had personal
jurisdiction over TG, we begin with that issue.
II.
A district court’s denial of a motion to vacate a default judgment made on
the ground that the judgment is void for lack of personal jurisdiction is subject
to de novo review. Jackson v. FIE Corp., 302 F.3d 515, 521 (5th Cir. 2002).
Absent any dispute as to the relevant facts, whether personal jurisdiction can
be exercised over a defendant is a question of law and subject to de novo review.
Dickson Marine Inc. v. Panalpina, Inc., 179 F.3d 331, 335 (5th Cir. 1999);
Ruston Gas Turbines, Inc. v. Donaldson Co., Inc., 9 F.3d 415, 418 (5th Cir.
1993). A district court’s determination of the legal significance of the facts is
also subject to de novo review. Martinez–Aguero v. Gonzalez, 459 F.3d 618, 621
(5th Cir. 2006). A district court’s findings of fact are subject to review based on
8
Case: 10-30568 Document: 00512513792 Page: 9 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
a “clearly erroneous” standard. See Fed. R. Civ. P. 52(a)(6); Anderson v. City of
Bessemer City, N.C., 470 U.S. 564, 572 (1985). A finding is “clearly erroneous”
when there is no evidence to support it, or if the reviewing court, after assessing
all of the evidence, is left with the definite and firm conviction that a mistake
has been committed. See Anderson, 470 U.S. at 573 (quoting United States v.
U.S. Gypsum Co., 333 U.S. 364, 395 (1948)).9
The plaintiff bears the ultimate burden of establishing jurisdiction over
a non-resident defendant. Caldwell v. Palmetto State Sav. Bank of S.C., 811
F.2d 916, 917 (5th Cir. 1987). Because the district court held an evidentiary
hearing on the issue of personal jurisdiction, Plaintiffs must establish personal
jurisdiction by a preponderance of the admissible evidence. See Walk Haydel
& Assocs., Inc., 517 F.3d at 241–42.10 Once Plaintiffs establish minimum
contacts, the burden shifts to TG to show that the assertion of personal
jurisdiction in the forum would be unfair or unreasonable. Seiferth v.
Helicopteros Atuneros, Inc., 472 F.3d 266, 271 (5th Cir. 2006) (citations omitted);
see also ESAB Grp., Inc. v. Zurich Ins. PLC, 685 F.3d 376, 392–93 (4th Cir.
2012).
III.
TG argues that had the district court applied Fourth Circuit precedent
rather than our circuit’s precedent then it would have concluded that there was
no personal jurisdiction over TG. According to TG, the Fourth Circuit requires
a stronger showing to establish minimum contacts over a foreign defendant than
we do. This difference in approaches stems from how our circuit and the Fourth
Circuit have interpreted the Supreme Court’s most recent personal jurisdiction
decisions, which have not produced a majority for any one rationale regarding
9
The Fourth Circuit applies the same standard of review. See Consulting Eng’rs Corp.
v. Geometric Ltd., 561 F.3d 273, 276 (4th Cir. 2009).
10
See also Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 59–60 (4th Cir. 1993).
9
Case: 10-30568 Document: 00512513792 Page: 10 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
when an out of state defendant has “purposefully availed” itself of the forum
state. In Asahi, the Supreme Court split on whether the foreign defendant had
sufficient minimum contacts with the forum to satisfy specific personal
jurisdiction, but it agreed that exercising personal jurisdiction over the
defendant in that case violated Due Process on fairness and reasonableness
grounds. 480 U.S. 102. Justice Brennan’s concurring opinion held that when a
manufacturer places a product in the stream of commerce, the defendant has
purposefully availed itself of the forum so long as it is foreseeable that the
product would end up in the forum state. Id. at 116. (Brennan, J., concurring).
In contrast, Justice O’Connor’s opinion for the plurality would require
“additional conduct” beyond merely placing the product in the stream of
commerce in order to exercise jurisdiction over a defendant. Id. at 112. The
approach advocated by Justice Brennan has become known as the stream-of-
commerce test, and Justice O’Connor’s approach is referred to as the stream-of-
commerce-plus test.
Following Asahi, the Supreme Court addressed minimum contacts in
another plurality decision. McIntyre, 131 S.Ct. 2780. In McIntyre, the majority
of the Supreme Court agreed that New Jersey did not have personal jurisdiction
over a foreign defendant who had never marketed or directly sold its products
into the forum state. Id. at 2785, 2791. Justice Kennedy’s plurality opinion
emphasized that the defendant must purposefully avail itself of the forum state,
explaining that “as a general rule, it is not enough that the defendant might
have predicted that its goods will reach the forum State. . . . This Court’s
precedents make clear that it is the defendant’s actions, not his expectations,
that empower a State’s courts to subject him to judgment.” Id. at 2788–89. In
his concurrence, Justice Breyer explained that, “on the record present here,
resolving this case requires no more than adhering to our precedents.” Id. at
2792 (Breyer, J., concurring). He emphasized that “[n]one of our precedents
10
Case: 10-30568 Document: 00512513792 Page: 11 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
finds that a single isolated sale, even if accompanied by the kind of sales effort
indicated here, is sufficient” and noted that “the Court, in separate opinions, has
strongly suggested that a single sale of a product in a State does not constitute
an adequate basis for asserting jurisdiction over an out-of-state defendant, even
if that defendant places his goods in the stream of commerce, fully aware (and
hoping) that such a sale will take place.” Id. at 2792.
In assessing minimum contacts, the Fourth Circuit has repeatedly applied
the stream-of-commerce-plus test from Justice O’Connor’s opinion in Asahi and
cited Justice Kennedy’s plurality opinion in McIntyre. See, e.g., Unspam
Technologies, 716 F.3d at 328; ESAB Grp., 685 F.3d at 392; Lesnick v.
Hollingsworth & Vose Co., 35 F.3d 939, 946–47 (4th Cir. 1994). In contrast, we
apply the stream-of-commerce test from Justice Brennan’s concurrence in Asahi,
and Justice Breyer’s concurrence in McIntyre. See Ainsworth, 716 F.3d at 178.
TG argues that the district court should have applied Fourth Circuit law
based on our decision in In re Ford Motor, 591 F.3d 406, 413 n.15 (5th Cir. 2009).
In Ford Motor we held that the transferee court should apply the transferor
court’s interpretation of federal law when addressing issues of
forum-availability. Id. Ford Motor addressed which circuit’s law should apply
to a forum non conveniens, rather than personal jurisdiction, question in an
MDL transfer case. TG argues that the language in Ford Motor suggests that
its result should apply here as well. Specifically, in Ford Motor we said that
“because forum-availability law is ‘geographically non-uniform,’ a tranferee court
should use the rule of the transferor forum.” Id. TG argues that personal
jurisdiction is also a question of forum-availability. In response, Plaintiffs argue
that personal jurisdiction is not a question of “forum-availability” or
“geographically non-uniform” federal law. They argue that instead we should
apply the law of our own forum because “it is logically inconsistent to require one
judge to apply simultaneously different and conflicting interpretations of what
11
Case: 10-30568 Document: 00512513792 Page: 12 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
is supposed to be a unitary federal law.” In re Korean Air Lines Disaster of Sept.
1, 1983, 829 F.2d 1171, 1175–76 (D.C. Cir. 1987), aff’d sub nom. Chan v. Korean
Air Lines, Ltd., 490 U.S. 122 (1989).
We disagree with TG’s assessment. First, Ford Motor is not
determinative of which circuit’s precedent applies here, as it dealt with the
separate issue of forum non conveniens. See Ford Motor, 591 F.3d at 411.
Moreover, we need not reach the issue of which circuit’s law should apply
because regardless of which circuit’s approach we use, the outcome is the same.
See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 839 n.20 (1985) (“[F]alse
conflict really means no conflict of laws. If the laws of both states relevant to
the set of facts are the same, or would produce the same decision in the lawsuit,
there is no real conflict between them.” (internal quotation marks omitted)
(citing R. Leflar, American Conflicts Law § 93 (3d ed. 1977); E. Scoles & P. Hay,
Conflict of Laws § 2.6 (1982)).
We now analyze TG’s forum contacts under the Fourth Circuit’s more
stringent approach and consider only TG’s contacts with Virginia.11 “In general,
federal district court may only exercise personal jurisdiction over a foreign
corporation if such jurisdiction is authorized by the long-arm statute of the state
in which it sits and application of the long-arm statute is consistent with the due
process clause of the Fourteenth Amendment.” ESAB Grp., Inc. v. Zurich Ins.
11
In McIntyre both the plurality and concurring opinions emphasized that the
defendant must have an intent to serve a market in the particular forum state, rather than
simply the “U.S. market.” 131 S.Ct. at 2790. Thus, the proper inquiry focuses exclusively on
forum-specific, rather than nationwide contacts. Id. at 2790; id. at 2793 (Breyer, J.,
concurring). Given the Supreme Court’s directive in McIntyre, our analysis focuses exclusively
on TG’s potential contacts with Virginia, rather than “U.S. contacts.” Plaintiffs frequently cite
facts regarding the nationwide contacts of TG and its wholly owned subsidiary, TTP, which
Plaintiffs collectively refer to as “Taishan.” The district court found that TTP did not have any
contacts with Virginia during the relevant time period and did not impute TTP’s contacts onto
TG. Defendants have not contested this finding on appeal. As a result, we consider only TG’s
contacts with Virginia. See Windsor v. Spinner Indus. Co., Ltd., 825 F. Supp. 2d 632, 638 (D.
Md. 2011), as amended (Dec. 15, 2011).
12
Case: 10-30568 Document: 00512513792 Page: 13 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
PLC, 685 F.3d 376, 391 (4th Cir. 2012) (internal quotation marks and citations
omitted). Because the scope of Virginia’s long-arm statute is coextensive with
the Due Process Clause, we proceed directly to the constitutional analysis.12 See
Danville Plywood Corp. v. Plain & Fancy Kitchens, Inc., 238 S.E. 800, 801 (Va.
1977) (citing Carmichael v. Snyder, 164 S.E.2d 703, 707 (Va. 1968)).
“Since International Shoe [Co. v. Washington, 326 U.S. 310 (1945)],
specific jurisdiction has become the centerpiece of modern jurisdiction theory,
while general jurisdiction [has played] a reduced role.” Daimler AG v. Bauman,
No. 11-965, slip op. at 9 (U.S. Jan. 14, 2014) (internal quotation marks and
citations omitted).13 The Fourth Circuit employs a three-part inquiry to
determine whether the exercise of specific jurisdiction over a party comports
with Due Process. ESAB Grp., 685 F.3d at 391–92 (citing Consulting Eng’rs
Corp. v. Geometric Ltd., 561 F.3d 273, 278 (4th Cir. 2009)). Under this test, the
Fourth Circuit considers “(1) the extent to which the defendant purposefully
availed itself of the privilege of conducting activities in the State; (2) whether
the plaintiff[’s] claims arise out of those activities directed at the State; and (3)
whether the exercise of personal jurisdiction would be constitutionally
reasonable.” Id. (internal quotation marks and citations omitted). We address
each prong in turn.
12
The district court applied Virginia’s long-arm statute, and found that subsections
(A)(4) and (A)(5) of § 8.01-328.1 of the Virginia Code applied to TG because it had obtained
substantial revenue from Virginia. We agree.
13
In Daimler the Supreme Court determined that there was no general jurisdiction
over the defendant. Here, we hold that there is specific jurisdiction over TG. See Daimler, No.
11-965, slip op. at 2 (“In Goodyear Dunlop Tires Operations, S. A. v. Brown, 564 U.S. ___
(2011), we addressed the distinction between general or all-purpose jurisdiction, and specific
or conduct linked jurisdiction.”); id. at 14–15 (noting the differences between the Supreme
Court’s general and specific jurisdiction jurisprudence and stating that “Plaintiffs have never
attempted to fit this case into the specific jurisdiction category”).
13
Case: 10-30568 Document: 00512513792 Page: 14 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
A.
“[T]he Due Process Clause prohibits a court from exercising personal
jurisdiction over a defendant unless that defendant has certain minimum
contacts . . . such that the maintenance of the suit does not offend traditional
notions of fair play and substantial justice.” Unspam Technologies, Inc. v.
Chernuk, 716 F.3d 322, 328 (4th Cir. 2013) (quoting Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)). “Such contacts exist when a defendant
‘purposely avails itself of the privilege of conducting activities within the forum
State, thus invoking the benefits and protections of its law.’” Id. (quoting
Hanson v. Denckla, 357 U.S. 235, 253 (1958)). “This ‘purposeful availment’
requirement ensures that a defendant will not be haled into a jurisdiction solely
as a result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts.” Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 475 (1985).
Jurisdiction . . . may not be avoided merely because the defendant
did not physically enter the forum State. . . . [I]t is an inescapable
fact of modern commercial life that a substantial amount of
business is transacted solely by mail and wire communications
across state lines, thus obviating the need for physical presence
within a State in which business is conducted. So long as a
commercial actor’s efforts are “purposefully directed” toward
residents of another State, we have consistently rejected the notion
that an absence of physical contacts can defeat personal jurisdiction
there.
Id. at 476 (citation omitted); see also Daimler, No. 11-965, slip op. at 9
(“International Shoe[] . . . unleashed a rapid expansion of tribunals’ ability to
hear claims against out-of-state defendants when the episode in-suit occurred
in the forum or the defendant purposefully availed itself of the forum.”).
It does not appear that the Fourth Circuit has addressed the precise
situation at issue here, where an out-of-state defendant sold an allegedly
defective product to a forum-resident distributor. Instead, most cases address
contacts when a product only reaches the forum state after an out-of-state
14
Case: 10-30568 Document: 00512513792 Page: 15 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
distributor sells the out-of-state defendant’s product into the forum. See, e.g.,
Lesnick, 35 F.3d at 946–47. The fact that TG knowingly sold its products
directly to Venture—a Virginia resident—is, on its own, a significant contact
with the forum. We need not decide whether this contact alone would suffice
to meet the first prong of the minimum contacts test because TG also designed
its product for market in Virginia, and because it was not an isolated sale.
The Fourth Circuit uses the “stream-of-commerce-plus” framework
developed in Asahi and its progeny when assessing whether or not the out-of-
state manufacturer of an allegedly defective product has established minimum
contacts with the forum state where the end-user of the product resides. See,
e.g., Lesnick, 35 F.3d at 946–47. The stream-of-commerce-plus test is premised
on the notion that once a manufacturer has placed its product into distribution
channels, it is foreseeable that the stream will eventually sweep the product
into the forum state. Asahi, 480 U.S. at 110. In addition to this “mere
foreseeablity,” the stream-of-commerce-plus test requires “[a]dditional conduct
of the defendant” that “may indicate an intent or purpose to serve the market
in the forum State.” Asahi, 480 U.S. at 112. In Asahi, Justice O’Connor
provided several explicit examples of such conduct, including “designing the
product for the market in the forum State, advertising in the forum State,
establishing channels for providing regular advice to customers in the forum
State, or marketing the product through a distributor who has agreed to serve
as the sales agent in the forum State.” Id; see also Daimler, No. 11-965, slip op.
at n.7 (“[S]pecific jurisdiction may lie over a foreign defendant that places a
product into the ‘stream of commerce’ while also ‘designing the product for the
market in the forum State, advertising in the forum State, establishing
channels for providing regular advice to customers in the forum State, or
marketing the product through a distributor who has agreed to serve as the
15
Case: 10-30568 Document: 00512513792 Page: 16 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
sales agent in the forum State.’”) (quoting Asahi, 480 U. S. at 112 (opinion of
O’Connor, J.)).
Here, TG designed its product and packaging for Venture, a Virginia
resident. TG manufactured its drywall to Venture’s requested dimensions on
a made-to-order basis. It also imprinted the drywall with the following marks:
“VENTURE SUPPLY INC. MFG: SHANDONG TAIHE, CHINA” and placed
sealing tape on its edges that read “GYPSUM BOARD DISTRIBUTED BY
VENTURE SUPPLY INC. 757-855-5433 VENTURESUPPLY.COM.” These were
active steps, specifically taken by TG, to purposefully direct its product toward
Virginia. TG not only included the name of a Virginia company on its product,
it also included a phone number with a Virginia area code. Through its own
acts, TG connected its product to Virginia, and ensured that the product’s end-
users would identify its product with a Virginia resident. Thus, by “designing
the product for the market in the forum State” TG engaged in the “additional
conduct” necessary for the district court to exercise personal jurisdiction here.
Asahi, 480 U.S. at 112.
Moreover, TG’s contact with Virginia was neither random nor isolated.
“[E]ven a single contact may be sufficient to create jurisdiction when the cause
of action arises out of that . . . contact, provided that the principle of ‘fair play
and substantial justice’ is not thereby offended.” Carefirst of Md., Inc. v.
Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 397 (4th Cir. 2003); see also
Daimler, No. 11-965, slip op. at n.7 (“[I]f the sale of a product of a manufacturer
or distributor such as Audi or Volkswagen is not simply an isolated occurrence,
but arises from the efforts of the manufacturer or distributor to serve, directly
or indirectly, the market for its product in other States, it is not unreasonable
to subject it to suit in one of those States if its allegedly defective merchandise
has there been the source of injury to its owner or to others.”) (quoting
World-Wide Volkswagen Corp. v. Woodson, 444 U. S. 286, 297 (1980)); Chung v.
16
Case: 10-30568 Document: 00512513792 Page: 17 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
NANA Dev. Corp., 783 F.2d 1124, 1129 (4th Cir. 1986). TG entered into not just
one, but two contracts to sell a substantial amount of drywall to a company that
it knew to be a Virginia resident. Each sale was for 100,000 made-to-order
sheets of drywall, and in each case TG was to receive more than $350,000.00
from its sale into Virginia. Nor is this a case where the defendant was unaware
that it was selling to a forum resident. TG dealt directly with Venture during
the negotiations and contracting. Venture representatives made several trips
to China to meet with TG, and TG was involved in ongoing communications
with Venture regarding these two sales over multiple months. Both the
contracts and shipping receipts clearly stated TG’s address in Virginia, as did
the markings on the drywall tape. Unlike cases where the manufacturer sells
its product through an out-of-state intermediary, TG knowingly sold its product
directly to a Virginia resident. As the district court noted, the communications
between TG and Venture were regular and relatively extensive.14 For example,
TG sought to increase its business with Venture and discussed making Venture
the exclusive distributor of its drywall in the United States. TG also sought
Venture’s assistance in providing a third-party with shipping information for its
drywall. As the district court noted, TG sought to expand its future drywall
sales in the United States through Venture. Given these facts, TG’s contacts
were not “of an isolated or unsolicited character.” See Chung, 783 F.2d at1128–29 (“The factors considered in determining whether the defendant
14
Although TG contests the extent of these communications, the district court cited a
number of employee affidavits, declarations, depositions, and emails that support its finding.
In particular, the district court cited and quoted from several e-mails that a TG employee
wrote to Venture emphasizing TG’s desire to continue to work with Venture in the future, and
to use TG as a point from which it might expand its market. The district court was actively
involved in overseeing the discovery process, and even attended a number of depositions. The
Order & Reasons demonstrates that the district court was intimately familiar with the
extensive record in this case. While TG points to other information in the record that could
support a contrary conclusion, the district court’s conclusions here are well-supported. TG has
not met its burden to show that these findings were clearly erroneous.
17
Case: 10-30568 Document: 00512513792 Page: 18 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
purposefully established minimum contacts with the forum include “prior
negotiations and contemplated future consequences, along with the terms of the
contract and the parties’ actual course of dealing.” (citing Burger King, 471 U.S.
at 479)).
This case is thus distinguishable from cases in which there was “no
evidence that [the defendant] designed the products for the market in Virginia,
advertised in Virginia, established channels for providing regular advice to
customers in Virginia, or marketed the product through a distributor who
agreed to serve as the sales agent in Virginia.” St. Jarre v. Heidelberger
Druckmaschinen, A.G., No. 93-1848, 1994 WL 95944, at *3 (4th Cir. Mar. 25,
1994) (quoting Asahi, 480 U.S. at 112) (unpublished but persuasive). Here, TG
did market its product to a forum resident. By contracting with Venture, TG
did benefit legally from the laws of the forum and economically from indirect
sales to forum residents. Cf. Fed. Ins. Co. v. Lake Shore Inc., 886 F.2d 654, 659
(4th Cir. 1989) (finding no personal jurisdiction and explaining that “[this] case
is therefore distinguishable from those ‘stream of commerce’ cases where a
manufacturer employs an intermediary or distributor in the forum state and
thereby benefits legally from the protection provided by the laws of the forum
and economically from indirect sales to forum residents.” (emphasis added)
(citing Nelson v. Park Indus., Inc., 717 F.2d 1120, 1125–26 (7th Cir. 1983);
Oswalt v. Scripto, Inc., 616 F.2d 191, 199–200 (5th Cir. 1980)).
In addition, TG did design its product for the Virginia market. Cf.
Lesnick, 35 F.3d at 946–47 (finding no purposeful availment but acknowledging
that “the result might be different if Hollingsworth & Vose had changed
production to comply with Maryland regulations”). By designing its product in
this way, TG sought to directly benefit from Venture’s distribution system into
Virginia. Cf. Fed. Ins. Co, 886 F.2d at 659. Following the sales, TG continued
to deal with Venture to discuss both shipping arrangements and the possibility
18
Case: 10-30568 Document: 00512513792 Page: 19 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
of future business. See Cancun Adventure Tours, Inc. v. Underwater Designer
Co., 862 F.2d 1044, 1046–47 (4th Cir. 1988) (“[A]ppellants subsequently
negotiated and undertook a contractual obligation with a Virginia resident.
UDC mailed purchase orders to Cancun Adventure Tours in Virginia and
accepted payment from Virginia. After sale of the air compressor, UDC and
Califano continued to deal with Cancun Adventure Tours in Virginia by
telephone and through the mails. These contacts were such that litigation in
Virginia was reasonably foreseeable.”). TG accepted payment from Virginia for
these sales. Indeed, TG showed a desire to use Venture as a gateway for future
sales in the U.S. market, including in Virginia.
This case is also very different from the situation in McIntyre, where the
manufacturer sold to an out-of-state distributor, and a few products happened
to make their way into the forum state as a result of the distribution chain.
McIntyre, 131 S.Ct. at 2786. Here, TG directly contracted to sell a significant
amount of drywall to a forum resident through multiple sales, and personally
designed its product in a way that identified it with the forum resident. TG
purposesfully availed itself of Virginia. The first prong is therefore met.15
B.
While the first prong of the personal jurisdiction test assesses the
connection between the defendant and the forum, the second prong looks at the
relationship between the defendant’s forum contacts and the plaintiffs’ claims.
Under Fourth Circuit precedent, the second prong “requires that the defendant’s
contacts with the forum state form the basis of the suit.” Consulting Eng’rs
15
TG argues that because the two contracts with Venture specified that any disputes
would be settled by arbitration in China that it was not reasonably foreseeable that it would
be haled into court in Virginia. Plaintiffs were not party to these contracts, and their products
liability claims are not governed by the arbitration clauses. TG knew that Venture was a
drywall distributor, and that it would sell TG’s drywall on to end-users. Given that TG made
two large sales to a Virginia distributor, and designed the product in a way that identified the
product with that Virginia distributor, was reasonably foreseeable that Virginia residents
might bring suit against TG as a result of these sales.
19
Case: 10-30568 Document: 00512513792 Page: 20 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
Corp., 561 F.3d at 278–79. “Where activity in the forum state is ‘the genesis of
[the] dispute,’ this prong is easily satisfied.” See Tire Eng’g & Distribution, LLC
v. Shandong Linglong Rubber Co., Ltd., 682 F.3d 292, 303 (4th Cir. 2012), cert.
denied, 133 S. Ct. 846 (2013) (citing CFA Inst. v. Inst. of Chartered Fin. Analysts
of India, 551 F.3d 285, 295 (4th Cir. 2009)). Here, TG’s contacts with Virginia
stem from its sales to Venture, and the basis of the suit is that Plaintiffs’
Virginia homes were allegedly injured by TG’s drywall. TG’s allegedly defective
drywall only ended up in Plaintiffs’ Virginia homes as a result of TG’s sales to
Venture. TG’s contacts with Virginia thus form the basis for this suit.
Accordingly, we agree with the district court that the second prong is met.
C.
The third prong, constitutional reasonableness, protects a party from
litigation “so gravely difficult and inconvenient that [the] party unfairly is at a
severe disadvantage in comparison to [its] opponent.” ESAB Grp., Inc., 685 F.3d
at 392 (citing Burger King, 471 U.S. at 478). The burden is on the defendant to
establish a “compelling case that the presence of some other considerations
would render jurisdiction unreasonable.” Id. at 393 (internal quotation marks
and citations omitted). In assessing this prong, the Fourth Circuit considers
additional factors including: “(1) the burden on the defendant of litigating in the
forum; (2) the interest of the forum state in adjudicating the dispute; (3) the
plaintiff’s interest in obtaining convenient and effective relief; (4) the shared
interest of the states in obtaining efficient resolution of disputes; and (5) the
interests of the states in furthering substantive social policies.” Consulting
Eng’rs Corp., 561 F.3d at 279 (citing Burger King, 471 U.S. at 477).
The first factor addresses the burden on the defendant. “The unique
burdens placed upon one who must defend oneself in a foreign legal system
should have significant weight in assessing the reasonableness of stretching the
long arm of personal jurisdiction over national borders.” Asahi, 480 U.S. at 114.
20
Case: 10-30568 Document: 00512513792 Page: 21 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
Once minimum contacts have been established, however, “often the interests of
the plaintiff and the forum in the exercise of jurisdiction will justify even the
serious burdens placed on the alien defendant.” Id. TG is a foreign defendant,
and the district court determined that this first factor was “undeniably the
strongest in opposition to personal jurisdiction.” The district court found that
TG “will face burdens if it is subjected to personal jurisdiction in Virginia.” The
district court noted, however, that this burden was somewhat offset by TG’s size
and the magnitude of TG’s operations.16 See CFA, 551 F.3d at 296 (personal
jurisdiction over foreign defendant appropriate because “[a]s shown by these
proceedings, [the defendant] has been able to secure counsel to represent its
interests, and its litigation burden is thus no more substantial than that
encountered by other entities that choose to transact business in Virginia. More
simply, [the defendant] is not shielded from civil liability in Virginia because it
is headquartered in India.”).
Regarding the second and third factors, the district court found that
Virginia has a great interest in its citizens being able to litigate against TG for
the alleged damages caused to their homes, and that Plaintiffs likewise had a
strong interest in obtaining efficient relief against TG. See also CFA Inst., 551
F.3d at 297 (citing Lee v. Walworth Valve Co., 482 F.2d 297, 299 (4th Cir. 1973)
(recognizing forum state’s “paternal interest in the recovery by one of its
16
As the district court noted, this case is different from the scenario presented in
Asahi, where the Supreme Court found that it was not fair and reasonable to exercise
jurisdiction over the foreign plaintiff:
In Asahi, the Court concluded that the exercise of personal jurisdiction over a
foreign defendant was unreasonable and unfair because of the burden placed on
the foreign defendant to litigate in the United States, the argument raised by
[TG], but also on the basis that the only remaining claims against the foreign
defendant were by another foreign defendant, diminishing the forum’s interest
in these entirely foreign claims. See 480 U.S. at 114. Here, the claims against
[TG] are made by forum plaintiffs who were injured by [TG’s] products in the
forum, maximizing the interest of the forum state, the forum plaintiffs, the
shared states, and the judicial system.
21
Case: 10-30568 Document: 00512513792 Page: 22 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
citizens of appropriate compensation, if there is a substantive cause of action”)).
The district court determined that the fourth factor also weighed in favor of
jurisdiction because the judicial system has a strong interest in resolving
related, consolidated claims against TG in the MDL. TG argues that the
second, third, and fourth factors do not weigh in favor of jurisdiction because
Venture has already agreed to settle with all Plaintiffs, and Venture can seek
indemnification from TG in the Chinese arbitration. TG did not, however, cite
any record facts or cases supporting this argument. As a result, it did not meet
its burden in proving that these factors weigh in its favor.
Finally, the district court determined that the fifth factor also indicated
that the assertion of personal jurisdiction here comports with traditional
notions of fair play and substantial justice. Although it recognized that China
may not favor personal jurisdiction over its manufacturers, it concluded that
given the global nature of the economy, “it is in everyone’s interest to discourage
the manufacture and distribution of defective products.” The district court
determined that in their totality, these factors weigh in favor of exercising
jurisdiction. Based on the record before this court, we agree that TG has not
met its burden to prove that these factors weigh against exercising jurisdiction.
For essentially the same reasons as given by the district court, we hold that this
third and final prong of the Due Process analysis is met here.17 The district
court therefore has personal jurisdiction over TG with regard to Plaintiff-
Intervenors, and all Original Plaintiffs who have met their burden in proving
that their claims arise out of TG’s contacts with Virginia.
17
Although the district court considered this question under Fifth Circuit law, the
Fourth Circuit considers the same factors for this part of the analysis, and both circuits place
the burden of proof on the defendant.
22
Case: 10-30568 Document: 00512513792 Page: 23 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
IV.
Because the district court had personal jurisdiction over TG, we now turn
to whether it erred by refusing to vacate the Default Judgment against TG.18
We hold that it did not. Denial of a motion for relief from judgment under Rule
60(b), unless the judgment is otherwise void, is reviewed for abuse of discretion.
See Behringer v. Johnson, 75 F.3d 189, 190 (5th Cir. 1996); Fackelman v. Bell,
564 F.2d 734, 736 (5th Cir. 1977). TG argues that the Default Judgment was
void because TG was not properly served with the Second Amended Complaint
or the motion to intervene.19 We disagree. TG was already in default when the
district court granted Plaintiffs’ motion to file the Second Amended Complaint
and motion to intervene. As a result, Federal Rule of Civil Procedure 5(a)(2)
governs the service requirements for these two pleadings. Rule 5(a)(2) does not
require a party in default be served with a pleading unless that pleading that
asserts a new claim for relief. Because Rule 24(c) provides that, “[a] motion to
intervene must be served on the parties as provided in Rule 5,” Plaintiff-
Intervenors only needed to serve TG with the Second Amended Complaint and
motion to intervene if either pleading raised new claims.
The district court concluded that the Second Amended Complaint did not
assert any new claims against TG, but “only amended the First Amended
Complaint insofar as expanding the class definition against [TG] to a national
18
As we noted in footnote 7, only TG and Plaintiff-Intervenors were parties to the
Default Judgment; at present the Original Plaintiffs only have a preliminary default judgment
against TG. As we hold that there is personal jurisdiction over TG, it naturally follows that
TG’s argument that the Default Judgment is void for lack of personal jurisdiction is
unavailing. We now consider TG’s other arguments for vacating the order.
19
The district court addressed this argument under Rule 60(b)(6), which allows a
district court to vacate a default judgment for “any other reason that justifies relief.” Fed. R.
Civ. P. 60(b)(6). Rule 60(b)(6) “is a catch-all provision, meant to encompass circumstances not
covered by Rule 60(b)’s other enumerated provisions. Rule 60(b)(6) motions will be granted
only if extraordinary circumstances are present.” Hess v. Cockrell, 281 F.3d 212, 216 (5th Cir.
2002) (citations omitted).
23
Case: 10-30568 Document: 00512513792 Page: 24 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
class and expanding the Virginia consumer protection claims to consumer
protection claims for each state involved. None of these amendments would
have affected Intervening Plaintiffs’ claims.”20 We agree. Plaintiff-Intervenors
are all Virginia homeowners within the class covered by the First Amended
Complaint. They raise identical claims as those in the First Amended
Complaint. TG was properly served with the First Amended Complaint, and
was thus on notice that a class action of Virginia homeowners with these claims
had been filed against it. Likewise, the motion to intervene did not raise any
new claims. Accordingly, the Default Judgment was not void.
We now review TG’s remaining arguments for vacating the Default
Judgment under the abuse of discretion standard. See Behringer, 75 F.3d at
190. “Because of the seriousness of a default judgment, and although the
standard of review is abuse of discretion, even a slight abuse of discretion may
justify reversal.” Lacy v. Sitel Corp., 227 F.3d 290, 292 (5th Cir. 2000). Any
factual determinations underlying that decision are reviewed for clear error. Id.We have adopted a policy in favor of resolving cases on their merits and against
the use of default judgments. Rogers v. Hartford Life & Accident Ins. Co., 167
F.3d 933, 936 (5th Cir. 1999). “This policy, however, is counterbalanced by
considerations of social goals, justice and expediency, a weighing process [that]
lies largely within the domain of the trial judge’s discretion.” Id. (internal
quotation marks and citations omitted). Rule 60(b) provides several statutory
bases for vacating a default judgment, including mistake, inadvertence, surprise,
or excusable neglect. Fed. R. Civ. P. 60(b). As we have previously explained,
Rules 55(c) and 60(b) allow a district court to set aside an entry of default or
default judgment for “good cause.” Lacy, 227 F.3d at 291–92. To determine
20
The district court did not decide whether or not TG was properly served with the
Second Amended Complaint, because it determined that no new claims were raised in the
Second Amended Complaint.
24
Case: 10-30568 Document: 00512513792 Page: 25 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
whether or not good cause is present, we consider three factors: (1) whether the
default was willful; (2) whether setting aside the default judgment would
prejudice Plaintiffs; and (3) whether TG presented a meritorious defense. Id. at
292. We may also consider other factors, including whether TG acted
expeditiously to correct the default. Id.“A finding of willful default ends the inquiry, for when the court finds an
intentional failure of responsive pleadings there need be no other finding.” Id.(internal quotation marks and citations omitted). The district court did not
decide whether TG’s failure to respond was willful. TG claims that it was not;
instead, it explains that it was “wholly unsophisticated and unfamiliar with U.S.
litigation practice, and failed to understand the significance of the complaint.”
When, as here, a defendant’s neglect is at least a partial cause of its failure to
respond, the defendant has the burden to convince the court that its neglect was
excusable, rather than willful, by a preponderance of the evidence. See Rogers,
167 F.3d at 939 (citation omitted); In re OCA, Inc., 551 F.3d 359, 372 (5th Cir.
2008). TG did not meet that burden here.
TG cites our decision Lacy and argues that its default was not willful, but
rather an excusable neglect, because it promptly retained counsel in China and
the United States after the district court issued the Default Judgment, and has
since fully cooperated in this litigation. TG would thus have us consider its
conduct after the district court issued the Default Judgment. In making this
argument, TG misunderstands the relevant time period. Our inquiry properly
focuses on whether TG willfully failed to respond to the First Amended
Complaint within the allotted time period, and not how it responded once it was
already in default. Based on our assessment of TG’s conduct following service
of the First Amended Complaint, we conclude that TG has not demonstrated
that its default was excusable. In Lacy, we found that the defendant’s default
was not willful when the defendant “concede[d] that it mistakenly assumed that
25
Case: 10-30568 Document: 00512513792 Page: 26 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
the April 27-ordered mailing was redundant and wrongly failed to realize that
service was validly effected with that mailing.” Lacy, 227 F.3d at 292. In Lacy,
we noted that the defendant was not choosing to “play games” with the court:
Quite to the contrary, counsel for Sitel made repeated contacts with
Lacy in an attempt to resolve the suit. During those contacts,
which began within two weeks of Sitel’s first receipt of the petition,
counsel requested written confirmation that Lacy was representing
himself in the litigation so that they could begin discussing
potential resolutions of the matter.
Id. at 292–93.
In contrast, TG waited nearly a year after it was served with the First
Amended Complaint to file a notice of appearance. See In re Chinese-
Manufactured Drywall Products Liab. Litig., 706 F. Supp. 2d 655, 659 (E.D. La.
2010) (noting that “[o]n August 3, 2009, Plaintiffs received notice that service
of process of the First Amended Complaint was perfected on Defendant [TG]”).
Moreover, unlike the defendant in Lacy, TG has not offered any evidence that
it made similar efforts to engage with opposing counsel before the district court
entered the Default Judgment.
TG’s argument that its default was not willful because it was unfamiliar
with U.S. litigation practice likewise fails. We have already rejected this
argument in Matter of Dierschke, 975 F.2d 181, 184 (5th Cir. 1992). In that
case, the defendant admitted that he had received the complaint, but explained
that he had failed to respond because he was involved in another suit and did
not understand that he was being served in a new case. Id. Based on those
facts, the district court found, and we affirmed, that the defendant willfully
failed to respond. Id. (“Dierschke chose to make a decision that he hadn’t been
served when, in fact, he had.”). Here, TG presents a very similar argument that
it did not understand the legal implications of the First Amended Complaint.
TG does not contest that it was served with the First Amended Complaint,
which was translated into Chinese. If TG did not fully understand the
26
Case: 10-30568 Document: 00512513792 Page: 27 Date Filed: 01/28/2014
No. 10-30568 & 12-31017
significance of the First Amended Complaint, it should have sought legal advice.
Based on these facts, TG has not met its burden to prove that its neglect was
excusable. When pressed at oral argument, TG was again unable to provide any
justification acceptable under our case law for its failure to make a timely
response. See Lacy, 227 F.3d at 292. While the district court did not determine
whether TG’s default was willful, it did conclude that the default was not the
result of excusable neglect. Even assuming arguendo that TG’s default was not
willful, TG has not demonstrated that the district court abused its discretion in
declining to vacate the Default Judgment. The district court weighed several
relevant factors, including the merit of TG’s asserted defense, before concluding
that vacatur was unwarranted. Accordingly, the district court did not abuse its
discretion by refusing to vacate the Default Judgment.
V.
For the reasons stated above, we AFFIRM.
27