Germano v. Taishan Gypsum Co. (In re Chinese-Manufactured Drywall Prods. Liab. Litig.)

Decision Date28 January 2014
Docket Number12–31017.,Nos. 10–30568,s. 10–30568
Citation742 F.3d 576
PartiesIn 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.
CourtU.S. Court of Appeals — Fifth Circuit


Frederick S. Longer, Arnold Levin (argued), Levin, Fishbein, Sedran & Berman, Philadelphia, PA, Leonard Arthur Davis, Russ M. Herman (argued), Esq., Senior Attorney, Herman Herman & Katz, L.L.C., New Orleans, LA, Robert Gary, Gary, Naegele & Theado, L.L.C., Lorain, OH, Faris Ghareeb, Hausfeld, L.L.P., Washington, DC, Richard James Serpe, Norfolk, VA, Richard W. Stimson, Bradenton, FL, for IntervenorsAppellees.

Frank T. Spano, Courtney Lynne Colligan, Joe Cyr (argued), Eric D. Statman, Joanna F. Wasick, Hogan Lovells US, L.L.P., New York, NY, Thomas Patrick Owen, Jr., Esq., Richard C. Stanley, Esq., Stanley, Reuter, Ross, Thornton & Alford, L.L.C., New Orleans, LA, for DefendantAppellant.

Stephen Richard Mysliwiec, DLA Piper, L.L.P., Washington, DC, for National Association of Home Builders.

Edward Francis Sherman, Tulane University Law School, John Giffen Weinmann Hall, New Orleans, LA, for United States Senators and Congressmen.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before REAVLEY, ELROD, and HAYNES, Circuit Judges.


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.


Venture is a Virginia company that distributed drywall and other building materials to customers in multiple states, includingVirginia. 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 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.

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.

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 PlaintiffIntervenors) 5 to intervene in this action. PlaintiffIntervenors 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 PlaintiffIntervenors. On May 11, 2010, the Court issued a default judgment (“Default Judgement”) against TG awarding PlaintiffIntervenors 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 (...

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