Court Finds Personal Jurisdiction Over Chinese Drywall Manufacturer Due to Repeated Sales of Made-To-Order Products To U.S. Distributor

The World in U.S. Courts: Spring 2014 - Personal Jurisdiction

In re Chinese-Manufactured Drywall Products Liability Lit., U.S. Court of Appeals, Fifth Circuit, Jan. 28, 2014

In a suit filed by Virginia homeowners, Defendant Taishan Gypsum Co., a Chinese drywall manufacturer, moved to dismiss claims that it manufactured defective drywall causing property damage and health problems on grounds that the court lacked personal jurisdiction over it. Although Taishan did not maintain any operations in the U.S., it did contract to provide drywall to an American corporation for distribution in the U.S., including Virginia.

Different courts of appeals apply different standards for assessing personal jurisdiction, and because the case had been transferred from a state in a different judicial circuit, a preliminary issue was which law to apply. The Fourth Circuit, where the case was filed, applies the "stream-of-commerce-plus" test when assessing minimum contacts with a jurisdiction, which requires conduct in addition to merely placing the product into the "stream of commerce" in order to exercise jurisdiction. The Fifth Circuit, to which the case was transferred, finds personal jurisdiction merely upon a party’s placing an article into the stream of commerce. The Court of Appeals for the Fifth Circuit, in deciding the question, found that both tests had been satisfied.

Under the "stream-of-commerce-plus" test, a plaintiff must show (1) "the extent to which the defendant purposefully availed itself of the privilege of conducting activities in the State;" (2) "whether the plaintiff[s]’ claims arise out of those activities directed at the State;" and (3) "whether the exercise of personal jurisdiction would be constitutionally reasonable." The court found all three factors satisfied. It held that Taishan’s knowing sale of the products to a Virginia distributor was a significant contact with the forum, satisfying the first and second factors. Moreover, Taishan designed its product for sale in Virginia on a made-to-order basis and made repeated sales, which satisfied the "additional conduct" requirement. Finally, the court held that exercising jurisdiction would be constitutionally reasonable due to the size and magnitude of Taishan’s operations and Virginia’s interest in allowing its citizens to litigate the issue.

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