Court Denies Non-U.S. Company’s Attempt To Avoid Default, Citing Agency Relationship Between Parent and Sub Justifying Earlier Exercise of Jurisdiction Over Non-U.S. Parent

by Cadwalader, Wickersham & Taft LLP
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The drywall litigation, arising from the installation into U.S. homes of allegedly defective drywall from China, has included a great many noteworthy international practice issues.  Many companies have settled.  Others have continued to litigate.  In Lennar Homes, LLC, et al. v. Knauf Gips, et al.,, Case no. 09-07901 CA 42 (Cir. Ct. 11th Jud. Dist. 2012), the Court addressed the situation of a defaulting defendant trying to undue the consequences of default. 

The company involved is Taishan Gypsum Co.  Taishan argued that it lacked the minimum contacts necessary to be hailed into a U.S. court.  The plaintiffs argued that Taishan had the requisite contacts through an agency relationship with an allegedly controlled and dominated wholly owned subsidiary.

We have discussed on this blog the many different ways for securing jurisdiction over a non-U.S. parent or subsidiary.  In this decision, the Court determines that the relationship between parent and subsidiary was so close and dominating that the U.S. entity was in fact the agent of the absent non-U.S. parent.  Such an agency relationship would be sufficient for jurisdiction under any or almost any U.S. law. 

In this case, the analysis was made under Florida state law, which requires a “high level of control” to trigger the agency determination.  Here, the Court further found that the subsidiary’s “separate corporate status was a formality” and that the subsidiary “was merely a vehicle through which [the parent] exported its products to the United States”.  The Court credited evidence that the only reason the subsidiary was established was to enable customers to take advantage of VAT tax offsets, and the Court found that the Company ignored the formalities and acted without any apparent need to request or provide corporate authorizations.

After finding the parent subject to U.S. law, it reviewed the parent’s arguments for why the default judgment should be lifted.  The Court rejected all of these arguments and maintained the default.

[View source.]

 

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