Products Liability Law Daily MDL court declines to vacate default judgments against Chinese drywall manufacturers
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Thursday, January 4, 2018

MDL court declines to vacate default judgments against Chinese drywall manufacturers

By Kathleen Bianco, J.D.

A motion to vacate four default judgments entered against various manufacturers of Chinese drywall who had failed to participate in the litigation process in a timely manner was denied by a federal district court in Louisiana after the court determined that the manufacturers failed to establish good cause for vacating the default judgments (In re Chinese-Manufactured Drywall Products Liability Litigation, January 2, 2018, Fallon, E.).

Homeowners whose houses had been constructed using drywall manufactured in China and who experienced emissions of smelly gasses, the corrosion and blackening of metal wiring, surfaces, and objects, the breaking down of appliances and electrical devices in their homes, and various physical ailments allegedly caused by the Chinese drywall filed suit in various state and federal courts against homebuilders, developers, installers, realtors, brokers, suppliers, importers, exporters, distributors, and manufacturers involved with the drywall. The cases were consolidated into a multidistrict lawsuit that named as defendants two groups of entities that had manufactured the at-issue materials.

The litigation proceeded along different paths with respect to the two groups, with one of the two eventually reaching a settlement agreement designed to resolve all claims. The second group, which was comprised of several Chinese-based companies, proceeded down a path in which the defendants challenged the U.S. court’s personal jurisdiction over them. Despite rulings by both the Louisiana federal trial court and a panel of the U.S. Court of Appeals for the Fifth Circuit that personal jurisdiction over the Chinese manufacturers was proper, the defendants failed to appear in U.S. court and eventually were deemed liable, designated as judgment debtors, and held in contempt of court for failing to appear at the hearing to be examined as a judgment debtor.

Further disputes ensued concerning the court’s personal jurisdiction, and certain of the Chinese entities were dismissed from the action under the Foreign Sovereign Immunities Act. The remaining defendants continued their jurisdictional challenge to no avail. When their jurisdictional challenges ultimately failed, the manufacturers filed the instant motion to vacate the default judgments issued against them, arguing that good cause existed to set aside the default judgments.

Vacation of default judgments. A default order issued against a party may be set aside by a court for good cause. In making a determination as to good cause, a court should consider whether the default was willful, whether setting aside the default would prejudice the non-moving party, and whether a meritorious defense is presented. Other considerations that can be taken into account are the public interest, significant financial loss to defendant, and whether the defendant acted expeditiously to correct the default.

The manufacturers proffered three reasons to vacate the default judgments as to the four actions. Initially, the manufacturers contended that under two pre-trial orders, they had no duty to respond to any complaint until plaintiffs submitted a notice of completion and filed a Master Complaint, neither of which had occurred prior to the default orders being issued. The manufacturers pointed to this as evidence that their default was not willful. Next, the manufacturers claimed that setting aside the defaults would not prejudice the plaintiffs. Finally, the manufacturers asserted that they had meritorious defenses based on the plaintiffs’ failure to establish the required causation between the plaintiffs’ injuries and the manufacturers’ conduct. The manufacturers also unsuccessfully reasserted their claims that personal jurisdiction was lacking in light of Bristol–Myers Squibb Co. v. Superior Court of California, San Francisco County, 137 S. Ct. 1773 (2017), which the manufacturers contended defeated the court’s authority to grant defaults over non-Louisiana property claimants [see Products Liability Law Daily’s December 4, 2017, analysis].

In response to the manufacturers’ claims, the plaintiffs asserted that good cause did not exist because: (1) the manufacturers were aware of the litigation and made a calculated decision not to participate; (2) further delay of the proceedings would prejudice the plaintiffs; and (3) all of the defenses raised by the manufacturers had already been brought and rejected.

After reviewing the arguments put forth by the parties, the court determined that the manufacturers had not established good cause to vacate the default judgments. The court found that the manufacturers’ deliberate avoidance of litigation was willful. The pre-trial orders did not provide the manufacturers with good cause because they had actual notice of the litigation and voluntarily decided not to make an appearance until after the default judgments were entered. Furthermore, the manufacturers’ actions caused the proceeding to move at a glacial pace that had hindered the plaintiffs’ ability to remedy the damages suffered as a result of the installation of the defective drywall. Because jurisdiction and liability had been firmly established, the claim of any meritorious defense now raised by the manufacturers was speculative at best. Finally, the court determined that the manufacturers did not act expeditiously upon receiving service of the complaint and now must take responsibility for causing delay in the litigation. Accordingly, the motion to vacate the default judgments was denied.

The case is No. 2:09-md-02047-EEF-JCW; MDL No. 09-2047.

Attorneys: Russ M. Herman (Herman, Herman & Katz, LLC) for Plaintiff and David Gross. Alan Dean Weinberger (Hangartner, Rydberg, Terrell & Hart, LLC) for Taishan Gypsum Co. Ltd. f/k/a Shandong Taihe Dongxin Co. Ltd. Phillip A. Wittmann (Stone, Pigman, Walther, Wittmann, LLC) for Homebuilders and Installers Steering Committee. Judy Y. Barrasso (Barrasso, Usdin, Kupperman, Freeman & Sarver, LLC) for Insurer Steering Committee.

Companies: Taishan Gypsum Co. Ltd. f/k/a Shandong Taihe Dongxin Co. Ltd.; Homebuilders and Installers Steering Committee; Insurer Steering Committee; Pingyi Baier Building Materials Co., Ltd.

MainStory: TopStory JurisdictionNews ClassActLitigationNews DefensesLiabilityNews BuildingConstructionNews LouisianaNews

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