Appeals Court Affirms $2.6 Million Judgment Against China Drywall Co. Over Jurisdiction Challenge
The U.S. Court of Appeals for the 5th Circuit on Jan. 28 affirmed a $2.6 million class action judgment against a Chinese drywall manufacturer. The Eastern Louisiana U.S. District Court had awarded the judgment, plus another $150,000 in interest, after finding Taishan Gypsum Co. Ltd. sold defective drywall to a distributor in Virginia that was later bought by seven Virginia families.
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The case was heard by the Eastern Louisiana U.S. District Court because, even though the case was originally filed in Virginia, it had been consolidated with other related class action claims against different Chinese drywall manufacturers (see 09050515). The District Court had concluded that it should apply the state law of Virginia, but the federal law of its own 5th Circuit, which covers Louisiana, Mississippi, and Texas. That meant it applied the 5th Circuit’s interpretation of Supreme Court cases on jurisdiction over outside entities like Taishan Gypsum in China. Finding that Taishan Gypsum knew that its drywall could have ended up in Virginia when it sold the drywall to the distributor, it found the Chinese company could be held subject to Virginia product liability laws.
On appeal, Taishan Gypsum challenged whether the lower court had jurisdiction over the Chinese company. The District Court should have instead applied the stricter interpretation of the 4th Circuit, which covers Virginia, Maryland, West Virginia, North Carolina, and South Carolina, because that’s where the case originated, said Taishan Gypsum. Citing the opinions of different Supreme Court justices, the 4th Circuit has generally held that it is not enough to be aware that merchandise could end up in a state in order to be subjected to that state’s laws. Instead, a foreign company has to “purposefully avail itself” of the state.
The 5th Circuit denied Taishan Gypsum’s appeal, finding the question of which circuit governed was irrelevant. Under either test, Taishan Gypsum was subject to Virginia law. The sales and shipping contracts related to the drywall both prominently featured Virginia addresses. Taishan Gypsum also marked the drywall with the name and phone number of its Virginia-based distributor, including the Virginia area code. Because Taishan Gypsum purposely availed itself of the state of Virginia to sell drywall, it satisfied even the 4th Circuit’s stricter jurisdiction requirements, said the 5th Circuit.
(In Re: Chinese-Manufactured Drywall Products Liability Litigation; 5th Cir. Nos. 10-30568 and 12-31017; dated 01/28/14)