Court Opinion

ID: 6221657
Source: CourtListenerOpinion
Date Created: 2022-02-15 01:00:24.991664+00
Date Added: 2024-06-11T08:57:23.302561
License: Public Domain

Case: 21-40166     Document: 00516201716          Page: 1    Date Filed: 02/14/2022

              United States Court of Appeals
                   for the Fifth Circuit                             United States Court of Appeals
                                                                              Fifth Circuit

                                                                            FILED
                                                                     February 14, 2022
                                   No. 21-40166
                                                                       Lyle W. Cayce
                                                                            Clerk
   Viahart, L.L.C.,

                                                             Plaintiff—Appellee,

                                       versus

   He GangPeng; Che Haixing; Aszune,

                                                        Defendants—Appellants.

                  Appeal from the United States District Court
                       for the Eastern District of Texas
                            USDC No. 6:18-CV-604

   Before Wiener, Graves, and Ho, Circuit Judges.
   James E. Graves, Jr., Circuit Judge:*
          Viahart, L.L.C. sued approximately 50 defendants for selling
   counterfeit products bearing its trademark on several online marketplaces.
   After receiving the defendants’ addresses and emails from the online
   marketplaces, Viahart attempted to serve each defendant. When that proved
   unsuccessful, the district court permitted Viahart to serve the defendants by

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 21-40166        Document: 00516201716          Page: 2     Date Filed: 02/14/2022

                                      No. 21-40166

   email. Still, none appeared. The district court entered default judgment and
   awarded Viahart damages for trademark infringement. Three of the
   defendants appeal the judgment and challenge the service by email, their
   joinder with the 50 other defendants, and the factual basis of the trademark
   infringement claims. Because we conclude default judgment was appropriate
   in all respects, we AFFIRM.
                               I. BACKGROUND
             Viahart manufactures, distributes, and retails toys and educational
   products under registered trademarks; relevant here, its Goodminton and
   Brain Flakes marks. In 2018, Viahart identified its marks being used on
   counterfeit products sold through online marketplaces. 1 Viahart then sued
   Appellants, He GangPeng, Che Haixing, and Aszune, along with many
   others, for counterfeiting and unfair competition and false designation of
   origin.
             In November 2018, Viahart filed its initial complaint and moved to
   serve all of the defendants by email. The district court denied the motion but
   permitted Viahart to conduct discovery to determine the identities and
   addresses of the defendants through the online marketplaces. In September
   2019, Viahart filed a status report stating it had served the online
   marketplaces and obtained contact information for the defendants. The data
   obtained was unverified but showed both domestic and foreign defendants.
             In May 2020, Viahart again moved to serve the defendants by email.
   In that motion, Viahart contended it received physical addresses from the
   online marketplaces, but in attempting to serve the defendants, the addresses
   were “proven to be false or deficient in some way.” Viahart stated it

             1
            Viahart identified multiple host marketplace websites where Appellants sold
   counterfeit products including Amazon, Wish, eBay, Ali Express, and Alibaba.

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   diligently attempted to confirm the addresses and serve the defendants.
   Viahart also created a table listing each defendant, the information provided
   from the online marketplaces, how contact or service was attempted, and the
   status of any email communication with the defendants.
          For GangPeng, Viahart attached a proof of service affidavit detailing
   the process server’s attempt to serve. On March 11, 2020, the process server
   traveled to the domestic address GangPeng provided to the online
   marketplace. The address led him to a mobile home community in Red Oak,
   Texas. He spoke with the current homeowner who stated she had never
   heard of “He GangPeng.” She also stated she had lived at the address since
   1980. The process server received no other information to locate GangPeng.
          For Haixing, whose address was in China, Viahart attached a FedEx
   receipt of nondelivery. For Aszune, Viahart did not provide any information
   regarding its attempt to serve at a physical address. Viahart has only noted
   that it emailed Aszune, and that the email did not “bounce back.”
          The magistrate judge granted Viahart’s motion. The magistrate judge
   determined service by email was reasonably calculated to notify the
   defendants of the case because they (1) used email to operate their online
   marketplace storefronts, (2) test emails did not “bounce back,” and (3) the
   email addresses were obtained from the online marketplaces that used the
   email addresses to communicate with the defendants.
          Viahart had shown it attempted to serve the domestic defendants,
   including GangPeng, but was unsuccessful. Relying on Texas law, which
   permits substitute service when service attempts are unsuccessful, the
   magistrate judge concluded again that email service was reasonably
   calculated to provide the defendants with notice of this case. Summonses
   were issued and Viahart served the defendants on or about June 25, 2020.

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          On August 5, 2020, Viahart moved for entry of default because the
   defendants, including GangPeng, Haixing, and Aszune, failed to appear.
   Default was entered and Viahart moved for default judgment. The magistrate
   judge held a hearing on the motion and issued a report and recommendation
   that the district court grant the motion for default judgment. The magistrate
   judge also recommended awarding Viahart damages in the amount of
   $250,000 for each trademark (Goodminton and Brain Flakes) per defendant.
          The district court adopted the report and recommendation and
   granted the motion for default judgment. The district court entered judgment
   against the defaulting defendants, including GangPeng, Haixing, and Aszune.
   Each defaulting defendant was liable for $500,000 each plus attorneys’ fees,
   and costs. The judgment permanently enjoined defendants from using
   Viahart’s trademarks, competing with Viahart unfairly, and withdrawing any
   funds from the online marketplaces or payment processors.
          GangPeng, Haixing, and Aszune appeal the judgment on several
   grounds. GangPeng asserts substitute service was inappropriate under Texas
   law because Viahart had only made one attempt at personal service. Haixing
   and Aszune argue service was improper because it failed to comply with the
   Hague Convention. They all argue the default judgment is invalid because
   they were improperly joined with the 50 other defendants and because “there
   was no trademark infringement.”
                               II. DISCUSSION
          We find no error in the district court’s entry of default judgment. We
   review the entry of default judgment for an abuse of discretion. See Stelly v.
   Duriso, 982 F.3d 403, 406 (5th Cir. 2020). Underlying factual
   determinations, however, are reviewed for clear error. See id.

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                              A. Service of GangPeng
          Pursuant to Federal Rule of Civil Procedure 4(e)(1), a party may be
   served by “following state law for serving a summons.” In this case, Texas
   law applies and permits service by personal service or certified mail. Tex.
   R. Civ. P. 106(a). But Rule 106 also authorizes a court to order substituted
   methods of service. Only after service by one of the two methods provided in
   Rule 106(a) fails, may a court, upon motion supported by proper affidavit,
   authorize substitute service. See State Farm Fire & Cas. Co. v. Costley, 868
   S.W.2d 298, 298–99 (Tex. 1993).
          Upon motion of the plaintiff with a sworn statement listing the
   location a defendant can be found, and the facts of the attempted, yet
   unsuccessful service, a court may authorize service “in any other manner,
   including electronically by social media, email, or other technology, that . . .
   evidence shows will be reasonably effective to give the defendant notice of
   suit.” Tex. R. Civ. P. 106(b)(2). “[S]ubstitute service is not authorized
   . . . without an affidavit which meets the requirements of the rule
   demonstrating the necessity for other than personal service.” Wilson v.
   Dunn, 800 S.W.2d 833, 836 (Tex. 1990).
          Viahart complied with this rule. After Viahart obtained GangPeng’s
   address from the online marketplace, it attempted personal service at that
   address. The process server was unsuccessful because he discovered that
   GangPeng did not reside at the address or anywhere nearby. Viahart’s motion
   attached the required affidavit pointing to the address provided by the online
   marketplace as the location GangPeng could probably be found. Viahart also
   attached an unexecuted summons and proof of service affidavit describing
   the process server’s attempt to personally serve GangPeng at the given
   address pursuant to Rule 106(a)(1). This satisfies Rule 106(b), and substitute
   service was permitted. See Costley, 868 S.W.2d at 299 (“Upon receipt of an

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   affidavit satisfying Rule 106(b), the trial court may authorize substituted
   service . . . .” (footnote omitted)).
          We also disagree with GangPeng’s contention that Rule 106(b)
   requires multiple failed attempts at service before substitute service can be
   authorized. The rule itself does not require a specific number of attempts. See
   Tex. R. Civ. P. 106(b). GangPeng points to no authority, and we find
   none, explicitly stating that multiple failed attempts are required before
   authorizing substitute service. GangPeng also makes no argument that a
   second, third, or fourth attempt would have resulted in GangPeng being
   personally served. Because Rule 106(b) does not require multiple failed
   attempts, Viahart complied with the rule. Service was proper. See Costley,
   868 S.W.2d at 299.
                          B. Service of Haixing and Aszune
          Federal Rule of Civil Procedure 4(f) governs the service of parties in
   foreign countries. Pursuant to Rule 4, an individual may be served in a foreign
   country by any internationally agreed means of service that is reasonably
   calculated to give notice, such as those authorized by the Hague Convention.
   Fed. R. Civ. P. 4(f)(1). Rule 4(f) also permits service “by other means not
   prohibited by international agreement, as the court orders.” Fed. R.
   Civ. P. 4(f)(3). Service pursuant to the Hague Convention listed in
   subsection (f)(1), does not displace subsection (f)(3), which permits service
   by other means. See Nagravision SA v. Gotech Int’l Tech. Ltd., 882 F.3d 494,
   498 (5th Cir. 2018). Service on a foreign defendant is therefore proper when
   it is a court ordered method that is not prohibited by international agreement
   and is reasonably calculated, under the circumstances, to notify the
   defendant of the case and afford them an opportunity to present objections.
   See id.; Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314 (1950).

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          Serving Haixing and Aszune by email was appropriate because it was
   court ordered, reasonably calculated to notify them, and was not prohibited
   by an international agreement. The magistrate judge ordered email service
   because the email addresses were procured from the online marketplaces and
   were designated means of contact for business and notification purposes.
   And the magistrate judge considered that Haixing and Aszune’s alleged
   conduct occurred on the same online marketplaces that provided the email
   addresses. Viahart sent test emails to the email addresses and none “bounced
   back” as undeliverable. We also note that Haixing and Aszune make no
   argument that email service was not reasonably calculated to provide them
   with notice. They also make no showing that email service is prohibited by
   international agreement. Accordingly, email service pursuant to Rule 4(f)(3)
   was proper. See Nagravision SA, 882 F.3d at 498 (concluding court-ordered
   email service pursuant to Rule 4(f)(3) was proper when defendant made no
   showing it was prohibited by international agreement).
          Haixing and Aszune only argue that service did not comply with the
   Hague Convention. But we need not address that argument because service
   was made pursuant to subsection (f)(3), not subsection (f)(1) or the Hague
   Convention. The Hague Convention “does not displace [subsection] (f)(3).”
   Id. at 498 (citing United States v. 200 Acres of Land Near FM 2686 Rio Grande
   City, 773 F.3d 654, 659 (5th Cir. 2014)); see also Rio Properties, Inc. v. Rio Int’l
   Interlink, 284 F.3d 1007, 1015 (9th Cir. 2002) (noting the construction of
   Rule 4(f) shows service under subsection (f)(3) “is as favored as service
   available under [subsections (f)(1) or (f)(2)]”). Because the magistrate judge
   ordered email service through subsection (f)(3), and that was reasonably
   calculated to notify Haixing and Aszune, service was proper.

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                                           C. Joinder
           Federal Rule of Civil Procedure 21 provides the remedy for misjoinder
   and states “[o]n motion or on its own, the court may at any time, on just
   terms, add or drop a party. The court may also sever any claim against a
   party.” Because there are no standards to determine whether parties are
   misjoined, courts look to Rule 20 on permissive joinder for guidance. See
   Acevedo v. Allsup’s Convenience Stores, Inc., 600 F.3d 516, 521 (5th Cir. 2010).
   Pursuant to Rule 20, persons may be joined in one action as defendants if
   (1) any right is asserted against them jointly, severally, or in the alternative
   with respect to or arising out of the same transaction, occurrence or series of
   occurrences, and (2) any question of law or fact common to all defendants
   will arise in the action.
           There is no basis to find misjoinder here. 2 Viahart alleged that each
   defendant sold counterfeit products bearing its protected trademarks for
   Goodminton or Brain Flakes. Viahart alleged the defendants all worked
   together as an “interrelated group” to knowingly sell the counterfeit
   products. In Viahart’s third amended complaint, it also alleged it still did not
   know the full identities of the defendants because they operated to conceal
   their identities and the network in which they operated.
           These allegations sufficiently allege a series of occurrences within the
   meaning of Rule 20. The case arises from the defendants allegedly working

           2
             Rulings on joinder of parties are reviewed for abuse of discretion. See Acevedo v.
   Allsup’s Convenience Stores, Inc., 600 F.3d 516, 520 (5th Cir. 2010) (citing Jolley v. Welch,
   904 F.2d 988, 994 (5th Cir. 1990)). In this case, however, neither the magistrate judge nor
   the district court made a ruling on joinder—no defendant appeared to raise the issue in a
   motion to quash or motion to sever. Rule 21 permits severance when misjoinder has
   occurred, but the rule is permissive and may occur upon motion or sua sponte. Without a
   motion or ruling on this issue in the record, Appellants effectively challenge the magistrate
   judge and district court’s decision not to raise misjoinder or severance sua sponte.

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   together to sell counterfeit products on numerous occasions and across
   different marketplaces. Cf. In re EMC Corp., 677 F.3d 1351, 1359 (Fed. Cir.
   2012) (stating claims against independent defendants cannot be joined if the
   defendants are not acting in concert); Digital Sin, Inc. v. Does 1-176, 279
   F.R.D. 239, 244 (S.D.N.Y. 2012) (concluding joinder was proper where
   plaintiff alleged defendants traded the same copyrighted work as a group).
   Because Viahart alleged the defendants were all working together, it
   sufficiently alleged their conduct arose out of the same transaction,
   occurrence or series of occurrences. We therefore conclude joinder was
   appropriate.
                           D. Trademark Infringement
          Appellants’     final    argument—“there           is     no    trademark
   infringement”—cannot be considered. They assert Viahart’s Brain Flakes
   mark is “generic” and thus not protected and that they are entitled to the fair
   use defense. But Appellants did not appear before the district court to
   challenge Viahart’s claims or raise defenses.
          Factual questions and unpled affirmative defenses cannot be raised on
   appeal of a default judgment when they were not presented to the district
   court. See Stelly, 982 F.3d at 407. Viahart attached its registered trademarks
   to its complaints. Those trademarks are presumed valid absent evidence to
   the contrary. See Amazing Spaces, Inc. v. Metro Mini Storage, 608 F.3d 225,
   237–39 (5th Cir. 2010) (discussing presumption of validity with registered
   trademark is rebuttable with evidence showing mark is not sufficiently
   distinctive). And the fair use defense is an affirmative defense. See KP
   Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111, 117–18
   (2004) (discussing statutory affirmative defense of fair use under Lanham
   Act). Because Appellants are defaulting parties challenging a default
   judgment, we cannot consider these arguments for the first time on appeal.

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   See Stelly, 982 F.3d at 407 (stating defaulting parties are not able to raise fact
   questions or unpled affirmative defenses on appeal of a default judgment).
                               III. CONCLUSION
          There is no basis for vacating the entry of default judgment. Service
   was proper. Joinder was appropriate. And defaulting parties cannot raise
   factual issues or unpled affirmative defenses on appeal. We AFFIRM.

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