Taishan Gypsum Co. v. Gross

Court of Appeals for the Fifth Circuit
2014 WL 2111672, 753 F.3d 521 (2014)

ELI5:

Sections

Rule of Law:

A foreign parent corporation is subject to specific personal jurisdiction in a forum state based on the contacts of its subsidiary if an agency or alter-ego relationship exists. Furthermore, a foreign manufacturer satisfies the "stream of commerce plus" test for jurisdiction when it purposefully avails itself of the forum market by designing products to meet local standards and arranging shipping to the forum.

Facts:

Between 2005 and 2008, a U.S. housing boom and hurricane recovery efforts created a high demand for construction materials in the Gulf South and East Coast.
Taishan Gypsum Company (TG), a Chinese manufacturer, produced gypsum wallboard ('Chinese drywall') and sold it to U.S. companies.
TG created a wholly-owned subsidiary, TTP, to handle sales involving VAT invoices; TG effectively controlled TTP, sharing directors, office locations, and failing to observe strict corporate financial formalities.
TTP and TG marketed themselves as a single entity ('Taihe') to U.S. customers and customized their drywall to meet American ASTM safety standards and size specifications.
The companies sold drywall to distributors in Florida and Louisiana, specifically arranging shipping to ports in Miami and New Orleans.
Homeowners and builders installed the drywall, which was subsequently found to be defective, emitting sulfide gases that damaged property and caused noxious odors.
In the 'Mitchell' case, defective drywall was traced through a chain of distribution from the manufacturers to the plaintiff homebuilder in Florida.

Procedural Posture:

Plaintiff Mitchell sued TG in the U.S. District Court for the Northern District of Florida.
The Judicial Panel on Multidistrict Litigation transferred the Mitchell case to the U.S. District Court for the Eastern District of Louisiana (MDL Court).
The MDL Court Clerk entered a preliminary default against TG in Mitchell after TG failed to appear.
Gross and Wiltz plaintiffs filed class actions directly in the MDL Court (Eastern District of Louisiana) against TG and TTP.
TG appeared and moved to vacate the default in Mitchell and moved to dismiss all cases for lack of personal jurisdiction.
The MDL District Court denied the motions to dismiss and the motion to vacate default.

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Issue:

Does the Due Process Clause permit the exercise of specific personal jurisdiction over a Chinese parent corporation and its subsidiary where the entities manufactured defective drywall specifically for the U.S. market, and can the subsidiary's contacts be imputed to the parent corporation based on their corporate relationship?

Opinions:

Majority - Judge Higginson

Yes, personal jurisdiction is proper because the defendants purposefully availed themselves of the forum states, and the subsidiary's contacts are imputable to the parent. The court first determined that TTP's contacts could be imputed to TG. Under Florida law, an agency relationship existed because TG exercised 'high and very significant' control over TTP, which functioned solely to serve TG. Under Louisiana law, the entities were 'alter egos' due to commingled funds, common directors, and unified control. regarding jurisdiction, the court applied the 'stream of commerce plus' test derived from 'Asahi' and 'McIntyre'. The defendants did more than merely place products in the stream of commerce; they engaged in 'additional conduct' by designing the product for the U.S. market (ASTM certification), branding products for specific customers, and arranging shipping to Florida and Louisiana ports. These actions demonstrated an intent to serve the markets in the forum states. Consequently, exercising jurisdiction comported with fair play and substantial justice.

Analysis:

This decision is significant because it clarifies the application of personal jurisdiction over foreign manufacturers in the Fifth Circuit following the fractured Supreme Court decision in 'J. McIntyre Machinery, Ltd. v. Nicastro'. The court affirms that the 'stream of commerce plus' test remains the standard, allowing jurisdiction when a manufacturer does something more than just sell to a distributor—such as customizing products for the local market or managing shipping logistics. Additionally, the case provides a robust framework for 'piercing the corporate veil' for jurisdictional purposes, establishing that foreign parent companies cannot use shell subsidiaries to insulate themselves from liability when they exercise total control over the subsidiary's operations.

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