United States: Deliberately Ignoring Lawsuit Earns A $100 Million Consequence

Addressing whether a defendant could obtain relief from a $100 million default judgment in a lawsuit it deliberately ignored, the US Court of Appeals for the Fifth Circuit affirmed a district court's refusal to find the judgment "void" for lack of standing, federal question jurisdiction, personal jurisdiction or improper service. Nagravision SA v. Gotech Int'l Tech. Ltd., Case No. 16-20817 (5th Cir., Feb. 7, 2018) (Reavley, J).

Nagravision SA, a Swedish company, filed suit against Gotech International Technology Ltd. and Zhuhai Gotech Intelligent Technology Co. Ltd., both Chinese companies (collectively, Gotech), alleging violations of the Digital Millennium Copyright Act (DMCA) and the Federal Communications Act. Gotech deliberately ignored the lawsuit, resulting in a $100 million default judgment in favor of Nagravision. After Nagravision initiated enforcement proceedings in a Hong Kong court and successfully froze Gotech's assets, Gotech filed a motion under Rule 60(b) for relief from the default judgment. After the district court denied the motion, Gotech appealed.

The Fifth Circuit affirmed, rejecting all of Gotech's purported grounds for relief. The Court summarily rejected Gotech's request for relief under Rule 60(b)(1) because Gotech's willful default precluded relief on grounds of "mistake, inadvertence, surprise, or excusable neglect." Thus, the court reasoned that Gotech's only remaining possibility for relief was Rule 60(b)(4)'s narrow provision for relief from a judgment that is "void."

The Fifth Circuit rejected Gotech's argument that Nagravision lacked standing to bring its claims. The Court agreed with Nagravision that it had an injury traceable to Gotech's misdeeds in the form of Gotech's software and hardware that misappropriated Nagravision technology and defeated Nagravision security, and that therefore Article III standing existed. The Court also rejected Gotech's statutory standing arguments because a lack of statutory standing does not render a judgment void.

Next, the Fifth Circuit rejected Gotech's argument regarding lack of federal question jurisdiction because the DMCA does not apply to violations of foreign intellectual property rights. The Court held that Gotech's argument improperly conflated a failure to state a claim with subject matter jurisdiction, finding that the assertion of the claim gave rise to federal question jurisdiction.

The Fifth Circuit also rejected Gotech's argument that Nagravision failed to effect proper service because Nagravision did not serve Gotech through the Hague Convention. The Court found that Nagravision properly served Gotech by court-ordered email under Rule 4(f)(3)—a court-ordered service not prohibited by international agreement—rather than Rule 4(f)(1).

Finally, the Fifth Circuit rejected Gotech's argument that the district court lacked personal jurisdiction under Rule 4(k)(2) because Nagravision had not shown that Gotech was "not subject to jurisdiction in any state's court of general jurisdiction." The Court recognized the tension between the plaintiff's burden to establish personal jurisdiction and the burden on the party seeking relief from a default judgment. It held that, on this particular question, Gotech bore the burden of establishing that it was subject to some other state's jurisdiction, which it did not do.

Practice Note: The grounds for relief available under Rule 60(b) are narrow, especially when a party has actual notice of a lawsuit pending against it and chooses not to respond. Standing and jurisdictional issues are fact specific and often have unclear answers. In the defendant's absence, the court, aided only by the plaintiff, must decide these difficult issues. A defendant that has actual notice of a pending lawsuit can instead assert these defenses through a Rule 12(b) motion—improving its chances to persuade the court while avoiding waiver of other available defenses.

Deliberately Ignoring Lawsuit Earns a $100 Million Consequence

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