# Kearney Machinery & Supply Inc v. Shenyang Machine Tool Co LTD

> District Court, N.D. Alabama · October 18, 2021

URL: https://www.frixlaw.com/law-library/cases/9990694

## Case

- **Court:** District Court, N.D. Alabama
- **Decided:** October 18, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9990694

## How later opinions describe it (automated extraction)

- explaining that individuals have a protected liberty interest to be free from judgments of “a forum with which he has established no meaningful contacts, ties, or relations,” such that the non-resident defendant must have “fair warning” that he may be subject to suit in the forum

## Opinion text

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION

KEARNEY MACHINERY & }
SUPPLY, INC., }
}
Plaintiff, }
}
v. } Case No.: 2:19-cv-1828-ACA
}
SHENYANG MACHINE TOOL }
CO., LTD.; SHENYANG MACHINE }
TOOL (GROUP) CO., LTD.; }
SHENYANG MACHINE TOOL }
IMPORT & EXPORT CO., LTD., }
}
Defendants. }

MEMORANDUM OPINION AND ORDER
Plaintiff Kearney Machinery & Supply, Inc. (“Kearney”) filed this lawsuit
against three Chinese companies: Shenyang Machine Tool Co., Ltd.; Shenyang
Machine Tool (Group) Co., Ltd.; and Shenyang Machine Tool Import & Export
Co., Ltd. (collectively “Shenyang Defendants”). (Doc. 1). Kearney seeks to
enforce a $13,000,000 state court judgment that it received against the Shenyang
Defendants’ wholly-owned American subsidiary, SMTCL USA Inc. (“SMTCL
USA”).
Specifically, Kearney asserts two causes of action against the Shenyang
Defendants in this case. First, Kearney seeks a declaration that SMTCL USA is

the alter ego of the Shenyang Defendants such that the Shenyang Defendants
should be liable on the state court default judgment. (Doc. 1 at ¶¶ 49–54). Second,
Kearny asserts a claim under Alabama’s Fraudulent Transfers Act, Ala. Code §§ 8-

9A-1, et seq., seeking to avoid certain alleged fraudulent transfers that SMTCL
USA made to the Shenyang Defendants to prevent Kearney from collecting the
state court default judgment. (Doc. 1 at ¶¶ 55–60).
Currently before the court are three motions: (1) Kearney’s motion for entry

of a default judgment against the Shenyang Defendants pursuant to Federal Rule of
Civil Procedure 55 and the second paragraph of Article 15 of the Hague
Convention (doc. 21); (2) the Shenyang Defendants’ motion to dismiss for lack of

personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2) and
motion to dismiss for insufficient service and insufficient service of process
pursuant to Federal Rules of Civil Procedure 12(b)(4) and 12(b)(5) (doc. 24); and
(3) the Shenyang Defendants’ motion to strike John Charles Kearney’s declaration

(doc. 31).
First, the court DENIES Kearney’s motion for default judgment
WITHOUT PREJUDICE as premature and because the court cannot determine at

this stage whether it has personal jurisdiction over the Shenyang Defendants.
Because resolution of the Shenyang Defendants’ motion to dismiss for insufficient
service and insufficient service of process overlaps with the analysis on the motion

for default judgment, the court also DENIES those motions WITHOUT
PREJUDICE.
Second, because the court cannot make required findings of fact with respect

to jurisdiction without implicating the merits of Kearney’s declaratory judgment
claim, the court DENIES the Shenyang Defendants’ motion to dismiss for lack of
personal jurisdiction WITHOUT PREJUDICE.
Third, because the court has not relied in Mr. Kearney’s declaration for

purposes of this memorandum opinion, the court DENIES as MOOT the
Shenyang Defendants’ motion to strike the declaration.
The court ORDERS a period of limited discovery on the question of

whether SMTCL USA is the alter ego of the Shenyang Defendants, and the
Shenyang Defendants may renew their personal jurisdiction challenge through a
motion for summary judgment.
I. BACKGROUND

Kearney obtained a state court default judgment against the Shenyang
Defendants’ wholly owned American subsidiary, SMTCL USA, in the amount of
$13,067,330.53. (Doc. 1 at 2 ¶ 6; Doc. 1 at 18–20). Kearney then filed this

lawsuit seeking to enforce the judgment against the Shenyang Defendants. (Doc.
1). Kearney asserts one cause of action against the Shenyang Defendants, seeking
a declaratory judgment that SMTCL USA is an alter ego of the Shenyang

Defendants, and therefore, they should be liable on the state court judgment. (Id.
at ¶¶ 49–54). Kearney asserts a second cause of action against the Shenyang
Defendants under Alabama’s fraudulent transfers act, seeking to set aside alleged

fraudulent transfers that SMTCL USA made to the Shenyang Defendants to avoid
paying the state court judgment. (Id. at 50–55).
Kearney has attempted to serve the Shenyang Defendants pursuant to the
Hague Convention. (Doc. 10). To date, Kearney has not received a certificate of

service or otherwise confirmed that the Shenyang Defendants have been served.
(Id.). Kearney has moved for entry of a default judgment pursuant to the second
paragraph of Article 15 of the Hague Convention. (Doc. 21). In turn, the

Shenyang Defendants challenge personal jurisdiction, sufficiency of process, and
sufficiency of service of process. (Doc. 24).
II. DISCUSSION
1. Motion for Default Judgment
Kearney asks the court to enter default judgment against the Shenyang

Defendants pursuant to Federal Rule of Civil Procedure 55 and the second
paragraph of Article 15 of the Hague Convention. (Doc. 21).
Article 15 of the Hague Convention contemplates scenarios where, as in this
case, a plaintiff has not received a certificate of service on a foreign defendant.

Specifically, the court may enter a default judgment when three conditions are
fulfilled: (1) “the [writ of summons or equivalent] document was transmitted by
one of the methods provided for in this Convention”; (2) “a period of time of not

less than six months, considered adequate by the judge in the particular case, has
elapsed since the date of the transmission of the document”; and (3) “no certificate
of any kind has been received, even though every reasonable effort has been made
to obtain it through the competent authorities of the State addressed.” Hague

Convention, art. 15. Here, the court need not determine whether Kearney has
satisfied the Hague Convention requirements because the court could not enter
default judgment pursuant to Federal Rule of Civil Procedure 55.

First, the motion for default judgment is premature because the Clerk has not
entered default against the Shenyang Defendants. Federal Rule of Civil Procedure
55 establishes a two-step procedure for obtaining a default judgment. When a
defendant fails to plead or otherwise defend a lawsuit, the Clerk of Court must

enter the party’s default. Fed. R. Civ. P. 55(a). Then, if the defendant is not an
infant or an incompetent person, the court may enter a default judgment against the
defendant as long as the well-pleaded allegations in the complaint state a claim for
relief. Fed. R. Civ. P. 55(b). Here, the Clerk has not entered default, so the court
cannot proceed to the second step of whether a default judgment is warranted.

Second, as explained below, the Shenyang Defendants have challenged
personal jurisdiction. And because the court cannot satisfy itself that it has
personal jurisdiction over the Shenyang Defendants at this stage in the

proceedings, the court will not risk entering a default judgment that might be void.
See Burke v. Smith, 252 F.3d 1260, 1263 (11th Cir. 2001) (generally, a judgment is
void if the court lacked jurisdiction over the parties).
Accordingly, the court DENIES Kearney’s motion for default judgment

WITHOUT PREJUDICE. Because the Shenyang Defendants’ arguments about
sufficiency of process and service of process overlap with the court’s analysis of
whether Kearney has shown that judgment is appropriate under Article 15 of the

Hague Convention, the court also DENIES the Shenyang Defendants’ motion to
dismiss for insufficient process and insufficient service of process WITHOUT
PREJUDICE.
2. Personal Jurisdiction
The Shenyang Defendants move the court to dismiss this action for lack of

personal jurisdiction. (Doc. 24). To withstand a Rule 12(b)(2) motion, the
plaintiff “bears the initial burden of alleging in the complaint sufficient facts to
make out a prima facie case of jurisdiction.” United Techs. Corp. v. Mazer, 556
F.3d 1260, 1274 (11th Cir. 2009). Where a defendant challenges personal
jurisdiction and submit affidavits in support of its position, the burden shifts back

to the plaintiff to produce evidence supporting jurisdiction. Meier ex rel. Meier v.
Sun Int’l Hotels, Ltd., 288 F.3d 1264, 1269 (11th Cir. 2002). If “the plaintiff’s
complaint and supporting evidence conflict with the defendant’s affidavits, the

court must construe all reasonable inferences in favor of the plaintiff.” Id.
“A federal court sitting in diversity may exercise personal jurisdiction [over
a nonresident defendant] to the extent authorized by the law of the state in which it
sits and to the extent allowed under the Constitution.” Id. Here, the two inquiries

overlap because “Alabama’s long-arm statute permits service of process to the
fullest extent constitutionally permissible.” Sloss Indus. Corp. v. Eurison, 488
F.3d 922, 925 (11th Cir. 2007) (citing Ala. R. Civ. P. 4.2(b)).

The Due Process Clause permits two kinds of personal jurisdiction: general
and specific. Bristol-Myers Squibb Co. v. Superior Court of Cal., San Francisco
Cnty., 137 S. Ct. 1773, 1779–80 (2017). General jurisdiction exists where foreign
defendants’ “affiliations with the State are so ‘continuous and systematic’ as to

render them essentially at home in the forum State.” Goodyear Dunlop Tires
Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011) (quoting Int’l Shoe Co. v.
Washington, 326 U.S. 317 (1945)). Specific personal jurisdiction is jurisdiction

that “aris[es] out of a party’s activities in the forum state that are related to the
cause of action alleged in the complaint.” Sloss Indus. Corp., 488 F.3d at 925
(quotation marks omitted); see Burger King Corp. v. Rudzewicz, 471 U.S. 462,

471–72 (1985) (explaining that individuals have a protected liberty interest to be
free from judgments of “a forum with which he has established no meaningful
contacts, ties, or relations,” such that the non-resident defendant must have “fair

warning” that he may be subject to suit in the forum) (quotation marks omitted).
The court does not have general jurisdiction over the Shenyang Defendants.
The record demonstrates that the Shenyang Defendants—all Chinese corporations
(doc. 24-4 at ¶¶ 2–4) have no affiliations with Alabama. They have no office,

registered agent, employees, tax obligations, or bank accounts in Alabama. (Id. at
¶¶ 17–21). This evidence fails to show that the Shenyang Defendants have any
contacts with Alabama, much less contacts with the forum that essentially render

them “at home” here. Accordingly, the court cannot exercise general jurisdiction
over the Shenyang Defendants.
Neither can the court exercise specific jurisdiction over these Defendants.
The court has specific jurisdiction over a non-resident defendant only if the

defendant’s contacts with the forum state are: (1) “related to the plaintiff’s cause of
action or . . . [gave] rise to it”; (2) “involve some act by which the defendant
purposefully avails itself of the privilege of conducting activities within the

forum”; and (3) are “such that the defendant should reasonably anticipate being
haled into court there.” Sloss Indus. Corp., 488 F.3d at 925. (quotation marks
omitted). If the defendant’s contacts with the forum state satisfy those criteria, the

court must determine whether the exercise of jurisdiction would offend “traditional
notions of fair play and substantial justice.” Id. at 933.
With respect to the first prong, the court examines the “‘affiliation between

the forum and the underlying controversy, principally, [an] activity or an
occurrence that [took] place in the forum State and is therefore subject to the
State’s regulation.’” Bristol-Myers Squibb Co., 137 S. Ct. at 1780 (quoting
Goodyear, 564 U.S. at 919). In other words, the court’s “inquiry must focus on the

direct causal relationship among the defendant, the forum, and the litigation.”
Fraser v. Smith, 594 F.3d 842, 850 (11th Cir. 2010) (quotations omitted).
Importantly, a “plaintiff cannot be the only link between the defendant and the

forum.” Walden v. Fiore, 571 U.S. 277, 285 (2014). Instead, the defendants’
conduct “must form the necessary connection with the forum State that is the basis
for its jurisdiction.” Id.
The second prong requires a plaintiff to demonstrate that the defendant

“‘purposefully availed’ itself of the privilege of conducting activities—that is,
purposefully establishing contacts—in the forum state. . . .” Diamond Crystal
Brands, Inc. v. Food Movers, Intern., Inc., 593 F.3d 1249, 1267 (11th Cir. 2010).

A plaintiff may establish purposeful availment if the facts show that the defendant
“deliberately engaged in significant activities within [the forum state] or created
continuing obligations with residents of that forum.” Id. at 1268.

Construed in the light most favorable to Kearney, the record contains no
evidence showing that the Shenyang Defendants have any contacts with Alabama
that are related to the declaratory judgment and fraudulent transfer causes of action

or that involve any purposeful availment on the part of the Shenyang Defendants
such that they would anticipate being haled into court here. Notably, there is no
allegation in the complaint or other evidence showing that any of the alleged
fraudulent transfers of assets occurred to or from Alabama. And Kearney has not

alleged or presented evidence showing how a declaratory judgment that SMTCL
USA, a California corporation, is the alter ego of the Shenyang Defendants is
connected with any conduct directed at Alabama. Kearney’s claims have no

connection to Alabama other that the fact that Kearney is located here, which is
insufficient to establish specific personal jurisdiction over the Shenyang
Defendants. Accordingly, Kearney has not met its burden of establishing that its
claims arise out of Kearney’s contacts with Alabama or that the Shenyang

Defendants purposefully availed themselves to the benefit of this state’s laws by
conducting any activity in Alabama.
Kearney argues that because the Shenyang Defendants engaged in business

activities in the United States, they are subject to personal jurisdiction in Alabama.
(Doc. 21 at 14, ¶ 40). Specifically, Kearney contends that Shenyang Tool Import
& Export imported SMTCL USA’s machines to the United States; that the

machines identified Shenyang Machine Tool (Group) Co. Ltd. as the manufacturer;
and that Shenyang Machine Tool Co. Ltd. backs the warranties on the machines.
(Doc. 21 at 14, ¶¶ 40, 41; see also doc. 21 at 26–30; doc. 27 at 3–5). Even if true,

“[t]he placement of a product into the stream of commerce, without more, is not an
act of the defendant purposefully directed toward the forum State.” Asahi Metal
Indus. Co., Ltd. v. Superior Court of California, 480 U.S. 102, 112 (1987).
Equally unavailing is Kearney’s argument that because the Shenyang

Defendants filed counterclaims in a lawsuit in Texas and subjected themselves to
personal jurisdiction in that forum, the Shenyang Defendants are somehow subject
to personal jurisdiction in Alabama. (Doc. 1 at ¶ 9; see also Doc. 27 at 5). The

Shenyang Defendants’ purported contacts with Texas are irrelevant to the analysis
of whether they are subject to personal jurisdiction in Alabama.
Because Kearney has not shown that the court may exercise general or
specific jurisdiction over the Shenyang Defendants based on their conduct or

contacts alone, Kearney is left to rely on an alter ego theory to establish personal
jurisdiction. According to Kearney, the court may exercise both general and
specific jurisdiction over the Shenyang Defendants because the court at one time

had general or specific jurisdiction over SMTCL USA, and SMTCL USA is the
alter ego of the Shenyang Defendants. (Doc. 21 at 9–13; Doc. 27 at 5, 11–13).
Setting aside whether Kearney has shown that this court has or could have had

general or specific jurisdiction over SMTCL USA, the court is unable at this stage
to make the required factual findings necessary to decide whether SMTCL USA is
the alter ego of the Shenyang Defendants.

Where an issue like personal jurisdiction “is treated as a matter in abatement
and not an adjudication on the merits, it is proper for a judge to consider facts
outside of the pleadings and to resolve factual disputes so long as the factual
disputes do not decide the merits.” Bryant v. Rich, 530 F.3d 1368, 1376 (11th Cir.

2008). Here, resolution of the factual dispute about whether SMTCL USA is the
alter ego of the Shenyang Defendants would decide the merits of Kearney’s
declaratory judgment claim. The Shenyang Defendants’ challenge to the court’s

personal jurisdiction on an alter ego theory is in essence a denial of the underlying
facts that form the basis of Kearney’s declaratory judgment claim.
In the context of factual attacks on subject matter jurisdiction pursuant to
Federal Rule of Civil Procedure 12(b)(1), the Eleventh Circuit has held that when

the attack also implicates an element of the cause of action, the court must adopt a
summary judgment standard in evaluating the jurisdictional challenge. Lawrence
v. Dunbar, 919 F.2d 1525, 1529–30 (11th Cir. 1990). In Lawrence, a plaintiff filed

an action under the Federal Tort Claims Act against the Immigration and
Naturalization Service (“INS”), claiming that one of the agency’s employees
caused a car accident while operating an unmarked government vehicle. Id. at

1526. The INS moved to dismiss the lawsuit under Federal Rule of Civil
Procedure 12(b)(1) for lack of subject matter jurisdiction, contending that the
employee was not acting in the line and scope of his employment at the time of the

accident. Id. at 1527. The district court granted the motion, and the plaintiff
appealed. Lawrence, 919 F.2d at 1526.
On appeal, the Eleventh Circuit reversed, finding that the district court erred
by resolving a disputed jurisdictional factual matter largely on the basis of an

affidavit submitted by the INS without the benefit of further jurisdictional
discovery or an evidentiary hearing where the pertinent inquiry resolved not only
the question of subject matter jurisdiction but also an element of the plaintiff’s

claim. Id. at 1529–30. The court explained that “[w]hen the jurisdictional basis of
a claim is intertwined with the merits, the district court must apply a Rule 56
summary judgment standard when ruling on a motion to dismiss which asserts a
factual attack on subject matter jurisdiction.” Id. at 1530.

Although the court has not located binding authority extending Lawrence’s
holding to attacks on personal jurisdiction that are intertwined with the merits of a
claim, the court finds that the reasoning applies equally to such challenges,

particularly in light of Bryant’s direction that it is appropriate for the court to
resolve factual disputes in ruling on jurisdictional issues “so long as the factual
disputes do not decide the merits.” Bryant, 530 F.3d at 1376 (emphasis added).

Here, resolution of the jurisdictional factual question about whether
SMTCLA USA is an alter ego of the Shenyang Defendants would decide the
merits of Kearney’s claim for a declaratory judgment that SMTCLA USA is an

alter ego of the Shenyang Defendants. Accordingly, the court finds that the best
course is to defer judgment on the issue of personal jurisdiction to avoid premature
adjudication of the merits of Kearney’s claim. Therefore, the court DENIES the
motion to dismiss for lack of personal jurisdiction WITHOUT PREJUDICE.

The Shenyang Defendants may raise the issue again through a summary
judgment motion after a period of reasonable discovery on the issue of whether
SMTCL USA is the alter ego of the Shenyang Defendants.

III. CONCLUSION
For the reasons explained above, the court DENIES Kearney’s motion for
default judgment WITHOUT PREJUDICE. The court DENIES the Shenyang
Defendants’ motion to dismiss for lack of personal jurisdiction, insufficient

service, and insufficient service of process WITHOUT PREJUDICE. The court
DENIES as MOOT the Shenyang Defendants’ motion to strike Mr. Kearney’s
declaration.
The court ORDERS the parties to engage in a period of limited discovery on
the issue of whether SMTCL USA is the alter ego of the Shenyang Defendants,
after which the Shenyang Defendants may renew their personal jurisdiction
challenge through a motion for summary judgment.
On or before November 1, 2021, counsel shall confer and file a proposed
scheduling order governing the limited discovery described above.
DONE and ORDERED this October 18, 2021.
oa
UNITED STATES DISTRICT JUDGE

15

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9990694. Public record. Not legal advice.