Taishan Gypsum Co. v. Gross (In re Chinese-Manufactured Drywall Prods. Liab. Litig.), No. 12-31213 (5th Cir. May 20, 2014) [click for opinion]

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”). TG is a Chinese corporation with its principal place of business in Ta’in City, Shandong Province, China. In 2006, TG formed a wholly-owned subsidiary, TTP, which operated until 2008.

Plaintiffs-Appellees are American homebuilders and property owners in three separate class action lawsuits in Florida and Louisiana who claim to have been damaged by faulty drywall supplied by Defendants. The three cases were combined in the Eastern District of Louisiana (the “MDL” court).

On March 20, 2014, the United States Court of Appeals for the Fifth Circuit issued an opinion ruling on appeals from the three cases arising out of the MDL court’s omnibus order allowing personal jurisdiction over Defendants in all three cases and refusing to vacate the preliminary default judgment entered against Defendants in the case originating in Florida.

In all three cases, Defendants’ appeals centered on the arguments that the MDL court improperly denied the motions to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2) because (1) TTP’s contacts with the forum state may not be imputed to TG for purposes of personal jurisdiction and (2) that the MDL court erred in finding specific jurisdiction over it.

In determining whether it was appropriate to impute the actions of TTP to its parent TG, the MDL court applied Florida state law for the case originating in Florida and Louisiana state law for the two cases originating in Louisiana. Under Florida law, imputation is allowed if the subsidiary is acting as the parent company’s agent. The court found that TTP’s actions showed that TG was allowing TTP to act on TG’s behalf and acted as TG’s agent when it executed its Florida contracts. Therefore, imputation was proper.

The court specifically noted that: TG created TTP as a wholly-owned subsidiary and allowed several of its employees to sit on TTP’s Board of Directors, some of whom had offices at both companies or were only compensated by TG and not by TTP; TG authorized TTP to use TG’s trademark in producing drywall but did not charge TTP for this authorization; TG’s financial reports did not accurately account for transactions between TG and TTP; and importantly, TTP also consistently held itself out as being synonymous with TG in its dealings with two American companies.

Under Louisiana law, courts may impute contacts between two entities under either an alter-ego or agency theory. The court found that Taishan’s corporate relationship established alter-ego imputation under Louisiana law because of the following acts: TG authorized TTP to use TG’s trademark in producing drywall but did not charge TTP for this authorization; TG and TTP did not accurately report their dealings with each other in their financial reports; and some of TTP’s board members did not receive compensation from TTP. The court stated that because an alter-ego relationship had been established, it did not need to address the MDL court’s alternate finding of an agency relationship.

After determining that the MDL court properly allowed TTP’s contacts to be imputed to TG, the court addressed whether Taishan had sufficient contacts with the forum states to allow personal jurisdiction over it. 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. Here, the court held that Taishan had purposely availed itself of the markets in Florida and Louisiana, and that Taishan’s contacts with these forums satisfied the requirements of both tests.

Accordingly, the court did not perceive any statutory or constitutional impediment to TG and TTP now defending suit in either Florida or Louisiana, and affirmed the MDL court in all three cases.