Viahart v. GangPeng ( 2022 )


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  • Case: 21-40166     Document: 00516201716          Page: 1    Date Filed: 02/14/2022
    United States Court of Appeals
    for the Fifth Circuit                             United States Court of Appeals
    Fifth Circuit
    FILED
    February 14, 2022
    No. 21-40166
    Lyle W. Cayce
    Clerk
    Viahart, L.L.C.,
    Plaintiff—Appellee,
    versus
    He GangPeng; Che Haixing; Aszune,
    Defendants—Appellants.
    Appeal from the United States District Court
    for the Eastern District of Texas
    USDC No. 6:18-CV-604
    Before Wiener, Graves, and Ho, Circuit Judges.
    James E. Graves, Jr., Circuit Judge:*
    Viahart, L.L.C. sued approximately 50 defendants for selling
    counterfeit products bearing its trademark on several online marketplaces.
    After receiving the defendants’ addresses and emails from the online
    marketplaces, Viahart attempted to serve each defendant. When that proved
    unsuccessful, the district court permitted Viahart to serve the defendants by
    *
    Pursuant to 5th Circuit Rule 47.5, the court has determined that this
    opinion should not be published and is not precedent except under the limited
    circumstances set forth in 5th Circuit Rule 47.5.4.
    Case: 21-40166        Document: 00516201716          Page: 2     Date Filed: 02/14/2022
    No. 21-40166
    email. Still, none appeared. The district court entered default judgment and
    awarded Viahart damages for trademark infringement. Three of the
    defendants appeal the judgment and challenge the service by email, their
    joinder with the 50 other defendants, and the factual basis of the trademark
    infringement claims. Because we conclude default judgment was appropriate
    in all respects, we AFFIRM.
    I. BACKGROUND
    Viahart manufactures, distributes, and retails toys and educational
    products under registered trademarks; relevant here, its Goodminton and
    Brain Flakes marks. In 2018, Viahart identified its marks being used on
    counterfeit products sold through online marketplaces. 1 Viahart then sued
    Appellants, He GangPeng, Che Haixing, and Aszune, along with many
    others, for counterfeiting and unfair competition and false designation of
    origin.
    In November 2018, Viahart filed its initial complaint and moved to
    serve all of the defendants by email. The district court denied the motion but
    permitted Viahart to conduct discovery to determine the identities and
    addresses of the defendants through the online marketplaces. In September
    2019, Viahart filed a status report stating it had served the online
    marketplaces and obtained contact information for the defendants. The data
    obtained was unverified but showed both domestic and foreign defendants.
    In May 2020, Viahart again moved to serve the defendants by email.
    In that motion, Viahart contended it received physical addresses from the
    online marketplaces, but in attempting to serve the defendants, the addresses
    were “proven to be false or deficient in some way.” Viahart stated it
    1
    Viahart identified multiple host marketplace websites where Appellants sold
    counterfeit products including Amazon, Wish, eBay, Ali Express, and Alibaba.
    2
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    No. 21-40166
    diligently attempted to confirm the addresses and serve the defendants.
    Viahart also created a table listing each defendant, the information provided
    from the online marketplaces, how contact or service was attempted, and the
    status of any email communication with the defendants.
    For GangPeng, Viahart attached a proof of service affidavit detailing
    the process server’s attempt to serve. On March 11, 2020, the process server
    traveled to the domestic address GangPeng provided to the online
    marketplace. The address led him to a mobile home community in Red Oak,
    Texas. He spoke with the current homeowner who stated she had never
    heard of “He GangPeng.” She also stated she had lived at the address since
    1980. The process server received no other information to locate GangPeng.
    For Haixing, whose address was in China, Viahart attached a FedEx
    receipt of nondelivery. For Aszune, Viahart did not provide any information
    regarding its attempt to serve at a physical address. Viahart has only noted
    that it emailed Aszune, and that the email did not “bounce back.”
    The magistrate judge granted Viahart’s motion. The magistrate judge
    determined service by email was reasonably calculated to notify the
    defendants of the case because they (1) used email to operate their online
    marketplace storefronts, (2) test emails did not “bounce back,” and (3) the
    email addresses were obtained from the online marketplaces that used the
    email addresses to communicate with the defendants.
    Viahart had shown it attempted to serve the domestic defendants,
    including GangPeng, but was unsuccessful. Relying on Texas law, which
    permits substitute service when service attempts are unsuccessful, the
    magistrate judge concluded again that email service was reasonably
    calculated to provide the defendants with notice of this case. Summonses
    were issued and Viahart served the defendants on or about June 25, 2020.
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    On August 5, 2020, Viahart moved for entry of default because the
    defendants, including GangPeng, Haixing, and Aszune, failed to appear.
    Default was entered and Viahart moved for default judgment. The magistrate
    judge held a hearing on the motion and issued a report and recommendation
    that the district court grant the motion for default judgment. The magistrate
    judge also recommended awarding Viahart damages in the amount of
    $250,000 for each trademark (Goodminton and Brain Flakes) per defendant.
    The district court adopted the report and recommendation and
    granted the motion for default judgment. The district court entered judgment
    against the defaulting defendants, including GangPeng, Haixing, and Aszune.
    Each defaulting defendant was liable for $500,000 each plus attorneys’ fees,
    and costs. The judgment permanently enjoined defendants from using
    Viahart’s trademarks, competing with Viahart unfairly, and withdrawing any
    funds from the online marketplaces or payment processors.
    GangPeng, Haixing, and Aszune appeal the judgment on several
    grounds. GangPeng asserts substitute service was inappropriate under Texas
    law because Viahart had only made one attempt at personal service. Haixing
    and Aszune argue service was improper because it failed to comply with the
    Hague Convention. They all argue the default judgment is invalid because
    they were improperly joined with the 50 other defendants and because “there
    was no trademark infringement.”
    II. DISCUSSION
    We find no error in the district court’s entry of default judgment. We
    review the entry of default judgment for an abuse of discretion. See Stelly v.
    Duriso, 
    982 F.3d 403
    , 406 (5th Cir. 2020). Underlying factual
    determinations, however, are reviewed for clear error. See 
    id.
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    A. Service of GangPeng
    Pursuant to Federal Rule of Civil Procedure 4(e)(1), a party may be
    served by “following state law for serving a summons.” In this case, Texas
    law applies and permits service by personal service or certified mail. Tex.
    R. Civ. P. 106(a). But Rule 106 also authorizes a court to order substituted
    methods of service. Only after service by one of the two methods provided in
    Rule 106(a) fails, may a court, upon motion supported by proper affidavit,
    authorize substitute service. See State Farm Fire & Cas. Co. v. Costley, 
    868 S.W.2d 298
    , 298–99 (Tex. 1993).
    Upon motion of the plaintiff with a sworn statement listing the
    location a defendant can be found, and the facts of the attempted, yet
    unsuccessful service, a court may authorize service “in any other manner,
    including electronically by social media, email, or other technology, that . . .
    evidence shows will be reasonably effective to give the defendant notice of
    suit.” Tex. R. Civ. P. 106(b)(2). “[S]ubstitute service is not authorized
    . . . without an affidavit which meets the requirements of the rule
    demonstrating the necessity for other than personal service.” Wilson v.
    Dunn, 
    800 S.W.2d 833
    , 836 (Tex. 1990).
    Viahart complied with this rule. After Viahart obtained GangPeng’s
    address from the online marketplace, it attempted personal service at that
    address. The process server was unsuccessful because he discovered that
    GangPeng did not reside at the address or anywhere nearby. Viahart’s motion
    attached the required affidavit pointing to the address provided by the online
    marketplace as the location GangPeng could probably be found. Viahart also
    attached an unexecuted summons and proof of service affidavit describing
    the process server’s attempt to personally serve GangPeng at the given
    address pursuant to Rule 106(a)(1). This satisfies Rule 106(b), and substitute
    service was permitted. See Costley, 868 S.W.2d at 299 (“Upon receipt of an
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    affidavit satisfying Rule 106(b), the trial court may authorize substituted
    service . . . .” (footnote omitted)).
    We also disagree with GangPeng’s contention that Rule 106(b)
    requires multiple failed attempts at service before substitute service can be
    authorized. The rule itself does not require a specific number of attempts. See
    Tex. R. Civ. P. 106(b). GangPeng points to no authority, and we find
    none, explicitly stating that multiple failed attempts are required before
    authorizing substitute service. GangPeng also makes no argument that a
    second, third, or fourth attempt would have resulted in GangPeng being
    personally served. Because Rule 106(b) does not require multiple failed
    attempts, Viahart complied with the rule. Service was proper. See Costley,
    868 S.W.2d at 299.
    B. Service of Haixing and Aszune
    Federal Rule of Civil Procedure 4(f) governs the service of parties in
    foreign countries. Pursuant to Rule 4, an individual may be served in a foreign
    country by any internationally agreed means of service that is reasonably
    calculated to give notice, such as those authorized by the Hague Convention.
    Fed. R. Civ. P. 4(f)(1). Rule 4(f) also permits service “by other means not
    prohibited by international agreement, as the court orders.” Fed. R.
    Civ. P. 4(f)(3). Service pursuant to the Hague Convention listed in
    subsection (f)(1), does not displace subsection (f)(3), which permits service
    by other means. See Nagravision SA v. Gotech Int’l Tech. Ltd., 
    882 F.3d 494
    ,
    498 (5th Cir. 2018). Service on a foreign defendant is therefore proper when
    it is a court ordered method that is not prohibited by international agreement
    and is reasonably calculated, under the circumstances, to notify the
    defendant of the case and afford them an opportunity to present objections.
    See id.; Mullane v. Cent. Hanover Bank & Tr. Co., 
    339 U.S. 306
    , 314 (1950).
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    Serving Haixing and Aszune by email was appropriate because it was
    court ordered, reasonably calculated to notify them, and was not prohibited
    by an international agreement. The magistrate judge ordered email service
    because the email addresses were procured from the online marketplaces and
    were designated means of contact for business and notification purposes.
    And the magistrate judge considered that Haixing and Aszune’s alleged
    conduct occurred on the same online marketplaces that provided the email
    addresses. Viahart sent test emails to the email addresses and none “bounced
    back” as undeliverable. We also note that Haixing and Aszune make no
    argument that email service was not reasonably calculated to provide them
    with notice. They also make no showing that email service is prohibited by
    international agreement. Accordingly, email service pursuant to Rule 4(f)(3)
    was proper. See Nagravision SA, 882 F.3d at 498 (concluding court-ordered
    email service pursuant to Rule 4(f)(3) was proper when defendant made no
    showing it was prohibited by international agreement).
    Haixing and Aszune only argue that service did not comply with the
    Hague Convention. But we need not address that argument because service
    was made pursuant to subsection (f)(3), not subsection (f)(1) or the Hague
    Convention. The Hague Convention “does not displace [subsection] (f)(3).”
    Id. at 498 (citing United States v. 200 Acres of Land Near FM 2686 Rio Grande
    City, 
    773 F.3d 654
    , 659 (5th Cir. 2014)); see also Rio Properties, Inc. v. Rio Int’l
    Interlink, 
    284 F.3d 1007
    , 1015 (9th Cir. 2002) (noting the construction of
    Rule 4(f) shows service under subsection (f)(3) “is as favored as service
    available under [subsections (f)(1) or (f)(2)]”). Because the magistrate judge
    ordered email service through subsection (f)(3), and that was reasonably
    calculated to notify Haixing and Aszune, service was proper.
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    C. Joinder
    Federal Rule of Civil Procedure 21 provides the remedy for misjoinder
    and states “[o]n motion or on its own, the court may at any time, on just
    terms, add or drop a party. The court may also sever any claim against a
    party.” Because there are no standards to determine whether parties are
    misjoined, courts look to Rule 20 on permissive joinder for guidance. See
    Acevedo v. Allsup’s Convenience Stores, Inc., 
    600 F.3d 516
    , 521 (5th Cir. 2010).
    Pursuant to Rule 20, persons may be joined in one action as defendants if
    (1) any right is asserted against them jointly, severally, or in the alternative
    with respect to or arising out of the same transaction, occurrence or series of
    occurrences, and (2) any question of law or fact common to all defendants
    will arise in the action.
    There is no basis to find misjoinder here. 2 Viahart alleged that each
    defendant sold counterfeit products bearing its protected trademarks for
    Goodminton or Brain Flakes. Viahart alleged the defendants all worked
    together as an “interrelated group” to knowingly sell the counterfeit
    products. In Viahart’s third amended complaint, it also alleged it still did not
    know the full identities of the defendants because they operated to conceal
    their identities and the network in which they operated.
    These allegations sufficiently allege a series of occurrences within the
    meaning of Rule 20. The case arises from the defendants allegedly working
    2
    Rulings on joinder of parties are reviewed for abuse of discretion. See Acevedo v.
    Allsup’s Convenience Stores, Inc., 
    600 F.3d 516
    , 520 (5th Cir. 2010) (citing Jolley v. Welch,
    
    904 F.2d 988
    , 994 (5th Cir. 1990)). In this case, however, neither the magistrate judge nor
    the district court made a ruling on joinder—no defendant appeared to raise the issue in a
    motion to quash or motion to sever. Rule 21 permits severance when misjoinder has
    occurred, but the rule is permissive and may occur upon motion or sua sponte. Without a
    motion or ruling on this issue in the record, Appellants effectively challenge the magistrate
    judge and district court’s decision not to raise misjoinder or severance sua sponte.
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    together to sell counterfeit products on numerous occasions and across
    different marketplaces. Cf. In re EMC Corp., 
    677 F.3d 1351
    , 1359 (Fed. Cir.
    2012) (stating claims against independent defendants cannot be joined if the
    defendants are not acting in concert); Digital Sin, Inc. v. Does 1-176, 
    279 F.R.D. 239
    , 244 (S.D.N.Y. 2012) (concluding joinder was proper where
    plaintiff alleged defendants traded the same copyrighted work as a group).
    Because Viahart alleged the defendants were all working together, it
    sufficiently alleged their conduct arose out of the same transaction,
    occurrence or series of occurrences. We therefore conclude joinder was
    appropriate.
    D. Trademark Infringement
    Appellants’     final    argument—“there           is     no    trademark
    infringement”—cannot be considered. They assert Viahart’s Brain Flakes
    mark is “generic” and thus not protected and that they are entitled to the fair
    use defense. But Appellants did not appear before the district court to
    challenge Viahart’s claims or raise defenses.
    Factual questions and unpled affirmative defenses cannot be raised on
    appeal of a default judgment when they were not presented to the district
    court. See Stelly, 982 F.3d at 407. Viahart attached its registered trademarks
    to its complaints. Those trademarks are presumed valid absent evidence to
    the contrary. See Amazing Spaces, Inc. v. Metro Mini Storage, 
    608 F.3d 225
    ,
    237–39 (5th Cir. 2010) (discussing presumption of validity with registered
    trademark is rebuttable with evidence showing mark is not sufficiently
    distinctive). And the fair use defense is an affirmative defense. See KP
    Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 
    543 U.S. 111
    , 117–18
    (2004) (discussing statutory affirmative defense of fair use under Lanham
    Act). Because Appellants are defaulting parties challenging a default
    judgment, we cannot consider these arguments for the first time on appeal.
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    See Stelly, 982 F.3d at 407 (stating defaulting parties are not able to raise fact
    questions or unpled affirmative defenses on appeal of a default judgment).
    III. CONCLUSION
    There is no basis for vacating the entry of default judgment. Service
    was proper. Joinder was appropriate. And defaulting parties cannot raise
    factual issues or unpled affirmative defenses on appeal. We AFFIRM.
    10