IDS Property Casualty Insurance Company v. Gree USA, Inc. et al

Filing 46

ORDER granting 36 Motion to Vacate Order; Set aside 35 Clerk's Entry of Default (Written Opinion) Signed by Senior Judge David S. Doty on 12/17/2018. (DLO)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No.: 18-1313 (DSD/ECW)

IDS Property Casualty
Insurance Company as subrogee
of Chad and Andrea Murphy,
Plaintiff,
v.

ORDER

Gree USA, Inc., MJC America,
LTD., Gree Electric Appliances,
Inc. of Zhuhai, and Hong Kong
Gree Electric Appliance Sales, LTD.,
Defendants.
Marisa L. Saber, Esq. and Cozen O’Connor, 123 North Wacker
Drive, Suite 1800, Chicago, IL 60606, counsel for plaintiff.
Mark A. Fredrickson, Esq. and Lind Jensen Sullivan & Peterson,
PA, 901 Marquette Avenue S., Suite 1300, Minneapolis, MN
55402, counsel for defendants.
This matter is before the court upon defendants Gree Electric
Appliances, Inc. of Zhuhai’s (Gree China) and Hong Kong Gree
Electric Appliance Sales, Ltd.’s (Gree Hong Kong) motion to vacate
the clerk’s entry of default pursuant to Federal Rule of Civil
Procedure 60(b) and to dismiss plaintiffs’ complaint pursuant to
Federal Rule of Civil Procedure 12(b)(5). Based on a review of the
file,

record,

and

proceedings

herein,

and

for

the

following

reasons, the court grants the motion.

BACKGROUND
This

product

liability

case

arises

out

of

defendants’

manufacture and distribution of an allegedly defective household

dehumidifier. Defendants Gree China and Gree Hong Kong are Chinese
corporations.

Compl. ¶¶ 5-6.

Defendants Gree USA, Inc. and MJC

America, Ltd. are California corporations.

Id. ¶¶ 3-4.

Gree Hong

Kong is the wholly owned subsidiary of Gree China and the majority
owner

of

Gree

USA.1

Id.

¶

47.

Gree

China

manufactures

dehumidifiers and, through Gree Hong Kong, sells the dehumidifiers
under assorted brand-names to Gree USA and MJC America. Id. ¶¶ 1618.

Gree USA and MJC America, in turn, sell the dehumidifiers to

retailers in the United States.

Id. ¶ 19.

Plaintiff IDS Property

Casualty Insurance Company (IDS) is a Wisconsin corporation, and
plaintiffs Chad Murphy and Andrea Murphy are Minnesota residents.
Id. ¶ 2.

The Murphys insured their home through IDS.

Id. ¶ 29.

On September 12, 2013, the United States Consumer Product
Safety

Commission

(USCPSC)

recalled

2.2

million

Gree

China

manufactured dehumidifiers because of a suspected fire-causing
defect.

Id. ¶ 64.

In January 2014, USCPSC expanded the recall to

an additional 300,000 dehumidifiers. Id. ¶ 66. On March 25, 2016,
Gree China, Gree Hong Kong, and Gree USA collectively paid a
$15,450,000 civil penalty to settle a product safety investigation
initiated by USCPSC.

Id. ¶ 73.

The Murphys owned a Gree China manufactured dehumidifier. Id.
¶ 24.

1

On April 15, 2016, their dehumidifier allegedly failed,

MJC America is the minority owner of Gree USA.

2

Id. ¶ 15.

causing a fire.

Id. ¶ 27.

IDS compensated the Murphys for smoke,

water, and other property damage.

Id. ¶ 29.

On May 11, 2018, plaintiffs commenced this diversity action,
raising negligence and strict liability-product liability claims.
On May 16, 2018, defendants were served copies of the summons and
complaint.

See ECF Nos. 13–16.

Gree China and Gree Hong Kong do

not have authorized service of process agents in the United States.
See ECF Nos. 15–16.

To perfect service, plaintiffs delivered the

summons and complaint to “Richard, the person in charge of 4195
Chino Hills Avenue #1026, Chino Hills, CA to be given to Ming Chu
Dong President of [Gree China and Gree Hong Kong] and Director of
Gree USA ... business and mailing address 4195 Chino Hills Avenue
#1026, Chino Hills, CA.”

ECF No. 16.

On the same day, plaintiffs

mailed first-class copies of the summons and complaint to Ms. Dong
on Gree China’s and Gree Hong Kong’s behalf to Gree USA’s Chino
Hills, California, business location.

Id.

On August 21, 2018, Gree USA and MJC America answered the
complaint; Gree China and Gree Hong Kong did not.

ECF No. 17.

On

October 19, 2018, plaintiffs filed an application for entry of
default against Gree China and Gree Hong Kong.

ECF No. 33.

On

October 22, 2018, the clerk of court entered the requested default.
ECF No. 34.
instant

The next day, Gree China and Gree Hong Kong filed the

motion

to

dismiss

the

complaint

against

them,

or

alternatively to quash, for failure to perfect service and to

3

vacate the clerk’s entry of default.

They argue that as foreign

corporations, plaintiffs were required to serve them under the
Hague

Convention

on

the

Service

Abroad

of

Judicial

and

Extrajudicial Documents in Civil or Commercial Matters (Hague
Convention).
service

on

They also argue that plaintiffs failed to perfect
them

under

either

California

or

Minnesota

law.

Plaintiffs argue that they properly served Gree China and Gree Hong
Kong under the Federal and California Rules of Civil Procedure and
that the Hague Convention does not apply.

DISCUSSION
I.

Standard of Review
A case may be dismissed for insufficient service of process.

Fed. R. Civ. P. 12(b)(5); Marshall v. Warwick, 155 F.3d 1027, 1030
(8th Cir. 1998).

However, dismissal is not always required when

service has been deemed improper.

See Haley v. Simmons, 529 F.2d

78, 79 (8th Cir. 1976). “[A] federal court is without jurisdiction
to render personal judgment against a defendant if service of
process is not made in accordance with applicable federal or state
statutory requirements.”

Sieg v. Karnes, 693 F.2d 803, 807 (8th

Cir. 1982).
“When a party against whom a judgment for affirmative relief
is sought has failed to plead or otherwise defend, and that failure
is shown by affidavit or otherwise, the clerk must enter the
4

party’s default.”

Fed. R. Civ. P. 55(a).

an entry of default for good cause ....”
II.

“The court may set aside
Fed. R. Civ. P. 55©.

The Hague Convention
“By virtue of the Supremacy Clause ... the [Hague] Convention

pre-empts inconsistent methods of service prescribed by state law
in

all

cases

to

which

it

applies.”

Volkswagenwerk

Aktiengesellshaft v. Schlunk, 486 U.S. 694, 699 (1988).

The Hague

Convention requires that foreign entities sued in a domestic court
be

served

with

process

abroad

“‘in

all

cases,

in

civil

or

commercial matters, where there is occasion to transmit a judicial
or extrajudicial document for service abroad.’”2 Froland v. Yahama
Motor Co. Ltd., 296 F. Supp. 2d 1004, 1007 (D. Minn. 2003) (quoting
the Hague Convention art. 1).

“The [Hague] Convention does not

specify the circumstances in which there is ‘occasion to transmit’
a complaint ‘for service abroad.’”

Schlunk, 486 U.S. at 700

(quoting the Hague Convention art. 1).

Specifically, “the [Hague]

Convention does not prescribe a [service of process] standard, so
[the court] almost necessarily must refer to the internal law of
the forum state.”

Id.

“If the internal law of the forum state

defines the applicable method of serving process as requiring the
transmittal of documents abroad, then the Hague Service Convention
applies.”

Id.

2

The United States and the People’s Republic of China are
Hague Convention signatories. See ECF No. 37 at 6.
5

There is no dispute that plaintiffs did not serve Gree China
and Gree Hong Kong abroad in conformity with the Hague Convention.
Plaintiffs argue that the Hague Convention does not apply because
California law does not require transmittal of service documents
abroad.

In support, plaintiffs rely on language in Schlunk,

stating that “‘[w]here service on a domestic agent is valid and
complete under state law and the Due Process Clause, [a court’s]
inquiry

ends

implications.’”
707).

and

the

[Hague]

Convention

has

no

further

ECF No. 42 at 4 (quoting Schlunk, 486 U.S. at

The court is not persuaded that Schlunk stands for the

proposition that the question of whether the Hague Convention
applies is resolved by looking to state law in the abstract or the
state law where service was purportedly perfected. Rather, Schlunk
plainly states that a court must look to the “forum state’s”
internal law to determine whether foreign document transmittal
abroad is required under the Hague Convention.

486 U.S. at 700.

Here, the forum state is Minnesota, not California.

Therefore,

under Schlunk, whether the Hague Convention applies turns on the
application of Minnesota service of process law and due process
principles.3
3

This decision is bolstered by the fact that in both cases
plaintiffs rely on, Schlunk and Yamaha Motor Co., Ltd. v. Super.
Ct., 94 Cal. Rptr. 3d 495, 498 (Cal. Ct. App. 2009), the courts
there applied the law of the forum state, Illinois and California
respectively, in determining the Hague Convention’s applicability.
In addition, to the extent the Hague Convention’s applicability has
been litigated within the Eighth Circuit, district courts appear to
6

Under Minnesota law, service of process may be effected:
[u]pon a domestic or foreign corporation, by delivering
a copy to an officer or managing agent, or to any other
agent authorized expressly or impliedly or designated by
statute to receive service of summons, and if the agent
is one authorized or designated under statute to receive
service any statutory provision for the manner of such
service shall be complied with.
Minn. R. Civ. P. 4.03(c). A foreign corporation may also be served
in Minnesota by statue as follows:
Subd. 4. Service on foreign corporation. (a) Service of
a process, notice, or demand may be made on a foreign
corporation authorized to transact business in this state
by delivering to and leaving with the secretary of state,
or with an authorized deputy or clerk in the secretary of
state’s office, one copy of it and a fee of $50 in the
following circumstances: (1) if the foreign corporation
fails to appoint or maintain in this state a registered
agent upon whom service of process may be had ....
Minn. Stat. § 5.25, subd. 4
Duties of the Secretary of State. In the case of service
of process according to subdivision ... 4, the secretary
of state shall immediately cause a copy of a service of
process to be forwarded by certified mail addressed to
the business entity:
Minn. Stat. § 5.25, subd. 6.
Gree China and Gree Hong Kong do not maintain a domestic agent
for service of process purposes.
service

of

process

through

As a result, they are subject to

the

Minnesota

pursuant to Minn. Stat. § 5.25, subd. 6.

Secretary

of

State

The court has previously

have applied the forum state’s internal service of process law.
See, e.g., Thach v. Tiger Corp., No. 07-4165, 2009 WL 2058872, at
*2-3 (D. S.D. July 13, 2009); Dunakey v. Am. Honda Motor Co., Inc.,
124 F.R.D. 638, 639 (E.D. Mo. 1989).
7

found that service of process on a foreign corporation under Minn.
Stat. § 5.25, subd. 6 “is not fully effected until the [Minnesota]
Secretary

of

corporation.”

State

transmits

the

documents

to

Froland, 296 F. Supp. 2d at 1007.

the

foreign

Consequently,

because “Minnesota law requires transmittal of documents abroad to
effect international service via the [Minnesota] Secretary of
State, the Hague Convention applies” in this case.
citations

omitted).

Considering

that

it

is

Id. (internal

undisputed

that

plaintiffs failed to do so, service on Gree China and Gree Hong
Kong was, therefore, ineffective.
III. Quashing Service
“Dismissal [is not] invariably required where service is
ineffective: under such circumstances, the court has discretion to
either dismiss the action, or quash service but retain the case.”
Haley, 529 F.2d at 79.

Because it is not certain that plaintiffs

will be unable to effect proper service under the Hague Convention,
the court finds it appropriate to quash the purported service of
process without dismissing the action against Gree China and Gree
Hong Kong.
IV.

See Froland, 296 F. Supp. at 1009.

Vacating the Clerk’s Entry of Default
Gree China and Gree Hong Kong also move to vacate the clerk’s

entry

of

default

under

Rule

60(b).

However,

Rule

60(b)

is

implicated only when a party seeks to vacate the entry of default
judgment, which “requires a stronger showing of excuse than relief

8

from a mere default order.”

Johnson v. Dayton Elec. Mfg. Co., 140

F.3d 781, 783 (8th Cir. 1998).

In assessing good cause to set

aside a default under Rule 55(c), courts “generally consider
whether the conduct of the defaulting party was blameworthy or
culpable, whether the defaulting party has a meritorious defense,
and whether the other party would be prejudiced if the default
Blytheville, Ark., 841 F.3d 767,

[was] excused.” Grant v. City of

772 (8th Cir. 2016) (internal citations omitted).

“Setting aside

a default must prejudice plaintiff in a ... concrete way, such as
loss of evidence, increased difficulties in discovery, or greater
opportunities for fraud and collusion.”
(internal citations omitted).

Johnson, 140 F.3d at 784

“There is a judicial preference for

adjudication on the merits ... and it is likely that a party who
promptly attacks an entry of default, rather than waiting for [a]
grant of a default judgment, was guilty of an oversight and wishes
to defend the case on the merits.”

Id. at 785 (internal citation

omitted).
The court concludes that setting aside the clerk’s entry of
default against Gree China and Gree Hong Kong is warranted.

As to

prejudice, plaintiffs still have to prosecute their claims against
Gree USA and MJC America and because Gree USA, Gree China, and Gree
Hong Kong are closely connected corporate entities, discovery will
not be complicated nor access to evidence hindered. Moreover, Gree
China and Gree Hong Kong have raised a meritorious defense that

9

they were required to be served under the Hague Convention.
record also does not show that they acted in bad faith.

The

Finally,

Gree China and Gree Hong Kong diligently moved to vacate the
clerk’s entry of default the day after it was entered, signaling
their wish to defend against plaintiffs’ allegations. Finding good
cause and noting the Eighth Circuit’s preference for adjudication
on the merits, the court sets aside the clerk’s entry of default
against Gree China and Gree Hong Kong.

CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that:
1.

The motion to vacate and to dismiss [ECF No. 36] is

granted as set forth above;
2.

The clerk of court is ordered to set aside its entry of

default [ECF No. 35]; and
3.

Plaintiffs purported service upon Defendants Gree China

and Gree Hong Kong is quashed.
Dated: December 17, 2018
s/David S. Doty
David S. Doty, Judge
United States District Court

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