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Hoffman v. MJC America, Ltd.

United States District Court, D. South Dakota, Southern Division

October 7, 2019





         This matter is pending before the court on plaintiffs Scott and Lynda Hoffmans' (“the Hoffmans”) amended complaint [Docket No. 12] alleging strict products liability and negligent infliction of emotional distress against defendants, MJC America, Ltd. and Gree, USA, Inc. (“MJC and Gree USA.”) The Hoffmans filed a motion to compel MJC and Gree USA to produce their Rule 26(a) initial disclosures, Docket No. 23, and the district court, the Honorable Lawrence L. Piersol, referred that motion to this magistrate judge for determination pursuant to 28 U.S.C. § 636(b)(1)(A). See Docket No. 26. The time for the MJC and Gree USA to respond to the Hoffmans' motion has passed, and MJC and Gree USA have not responded. The Hoffmans now ask the court to grant their motion, and for the court to order sanctions against MJC and Gree USA under Fed.R.Civ.P. 37(a)(3)(A) and an award of expenses and attorney's fees incurred by the Hoffmans in bringing the motion under Fed.R.Civ.P. 37(a)(5)(A).


         The Hoffmans filed their complaint on December 14, 2018, based on events that occurred on November 8, 2018. The following recitation of facts is a summary from the Hoffmans' amended complaint [Docket 12], which was filed on January 29, 2019. It is not meant to lend the court's imprimatur as to the verity of those facts, but merely to provide context for discussion of the instant dispute.

         This case arises out of product defects alleged by the Hoffmans in a dehumidifier designed and manufactured by Gree Electrical Appliances, Inc. of Zhuhai (“Gree China”), a Chinese corporation, and imported into the United States by its wholly owned subsidiary, Hong Kong Gree Electrical Appliance Sales, LTD (“Gree Hong Kong”), also a Chinese Entity, and sold by the MJC and Gree USA in the United States.

         Starting in 2010, Gree China and MJC branded and sold Gree products under the name “Soleus Air powered by Gree” to United States retailers doing business in South Dakota such as Home Depot, Lowes, and Menards.

         On or about September, 2010, Gree China and Gree Hong Kong entered into an agreement to form a joint venture between Gree Hong Kong and MJC, whereby Gree Hong Kong would own 51% and MJC would own 49% of a company to be called Gree USA. Gree USA would then market, sell, and distribute products made by Gree China in the United States.

         From 2010 through 2013, Gree China manufactured and sold one million eight hundred forty thousand dehumidifiers, via Gree Hong Kong, to MJC and Gree USA. MJC and Gree USA then sold these dehumidifiers in the United States.

         The Hoffmans assert that at least as early as September, 2012, Gree China knew of defects in the dehumidifiers and attempted to convince Gree USA and MJC not to report these to the United States Consumer Products Safety Commission.

         The Hoffmans also assert Gree China and Gree Hong Kong represented to MJC, Gree USA, South Dakota retailers, and the general public, including residents of South Dakota, that its dehumidifiers were certified by the Underwriters Laboratory (“UL”) and that the design and materials used in the manufacturing of its dehumidifiers complied with UL Standard 474 and Standard 94. The Hoffmans assert the representations by Gree China and Gree Hong Kong regarding the materials used in the manufacturing of the dehumidifiers were knowingly false.

         The Hoffmans further assert that in 2016, as part of a settlement of litigation between MJC, Gree China, and Gree Hong Kong, Gree China and Gree Hong Kong agreed to defend and indemnify MJC for product liability claims relating to the defects with the humidifiers. The Hoffmans assert the dehumidifier purchased by them and made subject of this lawsuit was manufactured by Gree China, and sold by MJC and Gree USA.

         The Hoffmans assert Gree China's knowledge of the UL fraud, and Gree China's knowing sale of its defective and unreasonably dangerous products, is imputed to Gree USA because officers and directors of Gree China were, at all times material to this lawsuit, officers and directors of Gree USA.

         The Hoffmans assert that by July, 2012, after receiving a number of consumer complaints, and after being contacted by the United States Consumer Product Safety Commission to respond to consumer complaints, MJC had actual knowledge that the dehumidifiers manufactured by Gree China were fire hazards.

         The Hoffmans further assert Charlie Loh and Jimmie Loh, the owners of MJC, and as officers and directors of Gree USA, contacted Gree China to express their concerns. The Hoffmans claim that during a September, 2012, meeting, Larry Lam, an employee of Gree Hong Kong, informed the Lohs that Gree China and Gree Hong Kong were aware that plastics used in constructing the dehumidifier were not compliant with UL 94 and 474. Plaintiffs assert that at the conclusion of the meeting, Gree China, Gree USA, MJC, and Gree Hong Kong agreed not to recall their products or to report the defective design and defective materials issues to the United States Consumer Products Safety Commission, its retail customers, or the general public to avoid adverse publicity and loss of sales.

         The Hoffmans assert Gree China, Gree Hong Kong, Gree USA and MJC continued to sell their dehumidifiers. On September 12, 2013, the United States Consumer Products Safety Commission announced that Gree China manufactured dehumidifiers were being recalled because of serious fire and burn hazards. The initial recall included dehumidifiers manufactured between January, 2005, and August, 2013.

         The Hoffmans assert that on or about March 25, 2016, Gree China, Gree Hong Kong, and Gree USA entered a settlement agreement with the Consumer Products Safety Commission in which they admitted knowingly manufacturing and distributing defective dehumidifiers as outlined above. They ultimately agreed to pay a civil penalty of fifteen million, four hundred fifty thousand dollars ($15, 450, 000.00) to settle the charges against them.

         The Hoffmans purchased the dehumidifier which is the subject of this lawsuit in Sioux Falls, South Dakota. On November 8, 2018, the Hoffmans' dehumidifier started a fire and caused damage to real and personal property owned by the Hoffmans. As a result of the fire, the Hoffmans incurred property damage and other losses from the loss of their home. As a result of the fire, plaintiff Scott Hoffman claims to have suffered emotional distress.

         The Hoffmans' counsel has outlined the facts pertinent to the pending motion in the affidavit of their counsel. Docket No. 25. The following facts are gleaned from that affidavit and from the court's own docket. On January 25, 2019, Gree USA and MJC filed an answer. Docket No. 9. Other foreign entities originally named by the Hoffmans in this lawsuit filed a motion to dismiss. Docket No. 10. On January 29, 2019, the Hoffmans filed an amended complaint. Docket No. 12. On April 2, 2019, the district court entered an order denying as moot the motion to dismiss [Docket No. 15] because the parties who made the motion (Gree Electrical Appliances, Inc. and Hong Kong Gree Electric Appliance Sales, Ltd.) had been omitted from the plaintiffs' amended complaint. Docket No. 12.

         On April 29, 2019, the district court entered an order for a discovery report and scheduling information. Docket No. 16. That order required the parties to, within thirty days following the appearance of a defendant, or sixty days after the service of the complaint upon a defendant, hold a Rule 26(f) meeting. Id. The parties were instructed to file a report of their meeting, on what had previously been referred to as the Form 52 Report of Parties' Planning Meeting. Id. The district court carefully outlined all the information which was to be included in the report. Id.

         The parties held their Rule 26(f) planning meeting telephonically on May 21, 2019, and their discovery report was filed on June 5, 2019. Docket No. 17. In their discovery report, the parties agreed to produce their Rule 26(a)(1) initial disclosures by June 21, 2019. See Docket No. 17, Item D.10.[1] The Hoffmans' counsel then reminded MJC and Gree USA they had never filed an answer to the amended complaint. Docket No. 25-3. MJC and Gree USA filed their answer to the amended complaint on July 3, 2019. Docket No. 19.

         On July 31, 2019, the Hoffmans' counsel emailed counsel for MJC and Gree USA. Counsel for MJC and Gree USA stated their Rule 26 disclosures (which were by then at least a month overdue pursuant to the parties' discovery report) (Docket 17) “should be filed soon.” See Docket No. 25-4. By August 7, 2019, MJC and Gree USA had not yet provided the Rule 26 initial disclosures. Docket No. 25-5. The Hoffmans' counsel again emailed defense counsel, asking for the Rule 26 initial disclosures by August 16, 2019. Id. In response, on August 8, 2019, MJC and Gree USA filed their Rule 26 initial disclosures on the court's CM/ECF system.[2]

         On August 12, 2019, the Hoffmans' counsel again emailed a letter to counsel for MJC and Gree USA regarding their Rule 26 initial disclosures. Docket No. 25-6. The subject of this communication was the sufficiency of the disclosures. Id. The Hoffmans' counsel asserted MJC and Gree USA's initial disclosures were deficient in the following ways: (1) they failed to identify any non-experts as individuals likely to have discoverable information; (2) they failed to provide any documents or information to support the affirmative defenses pled in the amended answer; and (3) they failed to provide a declarations page to the insurance agreement they produced.[3] The Hoffmans' counsel asked that the initial disclosures be supplemented by August 19, 2019. Id.

         On August 16, 2019, MJC and Gree USA's counsel contacted the Hoffmans' counsel by telephone, requesting an extension of time to refile the defendants' Rule 26 initial disclosures. Docket No. 25, ¶ 11. The Hoffmans' counsel agreed to an extension of time until August 26, 2019. Id. As of the date the Hoffmans filed their motion to compel, MJC and Gree USA ...

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