Chinese Drywall

Chinese Drywall Defendant Manufacturers Tell a Different Story

miltstafford — Mon, 31 Jan 2011 14:28:00 GMT

The two largest Chinese Drywall MDL defendants are behaving as if they are addressing different cases entirely. Knauf, a German company whose Chinese subsidiary (a fact they disputed earlier in the litigation) manufactured some of the defective Chinese Drywall which made its way into the United States, and into the homes of hundreds of plaintiffs, has taken what can only be called a conciliatory tone. At the January monthly status conference in the Federal District Court for the Eastern District of Louisiana, Knauf's attorneys pointed out that even though it's pilot remediation program, targeted at 300 homes, has only identified 175 homes to participate in the program to date, it's plan is to expand the scope of the program to the point where the "substantial critical mass" of the homes affected by its product could be identified for remediation by the end of the year. The implication left by Knauf is that their goal is to exit the litigation as soon as possible.

The second, and largest, defendant in the federal MDL litigation is Taishan, a Chinese government-owned company which has been communicating a distinctly confusing message to the court as well as the American public. For months Taishan ignored attempts to secure its cooperation towards discussion of the defective drywall traced to its factories which ultimately ended up being installed in American homes. In statements issued by those speaking directly or indirectly for the Chinese government, denials of any such thing as defective drywall were mixed with bizarre accusations of conspiracies to shake the company down with frivolous lawsuits. At the January status conference attorneys representing Taishan were present, and spoke in defense of their client, but had still not formally entered an appearance in the litigation. They claimed that "there is no factual basis" to even sue Taishan, and that Taishan would be "vindicated of any wrongdoing" when the facts become known. Judge Fallon was left in the unenviable position of granting Taishan's attorneys the time to speak, in spite of their not having entered an appearance, but showed his obvious frustration at Taishan's lack of cooperation by cutting off one of their attorneys by asking him if he had made an apperance in the case yet. When addressing a motion against Taishan for default, Judge Fallon warned their attorneys that the motion would be granted in one week unless they formally entered the litigation by entering their appearance.

The facts surrounding the defective Chinese Drywall litigation are not generally disputed. The drywall has been found to be defective, the origin of the drywall has been established, and the remediation required to address the damage caused by the drywall has been laid out in carefully considered opinions in more than one case. One of the largest defendants in the litigation, Knauf, has reluctantly moved, in small steps, toward a pilot remediation program which could act as a template for a global settlement. Their attorneys have now, apparently, resigned themselves to exiting the litigation via a remediation program which will evolve into a global settlement. On the other hand the largest defendant, Taishan, has continued its unpredictable maneuvering towards an apparent goal of demonstrating its innocence without allowing its attorneys to formally enter the litigation. What can Taishan's strategy be, and is it being hatched in China or by its US attorneys? All eyes will be on next week's showdown, where Taishan attorneys will either appear formally, having entered their appearance, or will suffer another legal setback via a preliminary default judgment. Watch this space for the next chapter.

If Knauf Tianjin Loses Will Knauf Gips Pay?

miltstafford — Mon, 30 Aug 2010 23:12:00 GMT

In an article posted by Pro Publica some interesting observations about one of the largest Chinese Drywall MDL defendants has come to light. Knauf Tianjin, a Chinese subsidiary of Knauf Gips, a German company, is widely thought to be the source of millions of pounds of defective drywall exported to the United States and now the subject of hundreds of lawsuits. Since it has been admitted that the Knauf Tianjin subsidiary was indeed the source of vast amounts of defective drywall the question becomes “If Knauf Tianjin is found to be liable for the defective drywall, will Knauf Gips, its German parent, be held financially responsible?” Two of the major issues associated with whether a parent company is liable for the acts of a subsidiary are whether it owns a controlling interest in that subsidiary and whether it was exercising oversight of the subsidiary when the acts in question were committed.

First, does Knauf Gips own controlling interest in Knauf Tianjin? The Pro Publica article is based upon research which seemed to uncover information provided by Knauf Gips itself which may provide the answer: On websites for Czech and Swiss subsidiaries it is said that “Knauf bought a Thai company’s stake of the Tianjin plant in 1999. The company that sold the plant to Knauf (Gips) filed a statement with the Thai stock exchange indicating that the stake was 70.93 percent.” Knauf Gips has maintained that its Chinese subsidiary will be solely responsible for the sale of defective Chinese drywall. Apparently anticipating the possibility that its Chinese subsidiary will be found liable, Knauf Gips attorney Steven Glickstein is quoted as saying that “Each corporation is a separate legal entity, responsible only for its own sales and its own products.” Separating the companies from a legal standpoint makes more sense when the numbers are considered: The Asian, African and Middle Eastern Knauf subsidiaries combined for revenues of $369 million in 2008, a nominal sum compared to Knauf Gips revenues of $6.6 billion for the same year. Further, Knauf Tianjin stopped doing business in the US once the defective drywall became an issue, presumably removing the option of seizing any US assets in order to satisfy an unfavourable judgment. In what could be a preview of one Knauf Gips approach to US judgments against it, Pro Publica notes that a member of its executive board, also the company’s general counsel, told a German newspaper that “whoever says the products are causing sickness claims something wrong or imagines it.” In February of this year the same company official reportedly told a German business magazine “that Knauf KG is only mentioned in the complaint because of its financial power”. Based on its own actions as well as statements and admissions previously made, it appears that Knauf Gips does indeed “own” Knauf Tianjin. Whether ownership entails financial responsibility in this situation will be a question for the court, unless of course a settlement comes first.

Next, did Knauf Gips “control” or “manage” Knauf Tianjin to the extent that it should be responsible for the defective drywall manufactured by the Chinese subsidiary? Once again Knauf Gips seems to have paved a road to its doorstep with actions that will make it difficult if not impossible to escape the notion that they were maintaining control over Knauf Tianjin. Some examples uncovered by Pro Publica include:

1. In a price-fixing controversy in 2002, a European court heard arguments from Knauf Gips similar to arguments it appears to be putting forth today, ie that the parent company cannot be held liable for the actions of its subsidiaries. The European court disagreed, finding that the Knauf companies were owned and operated as an “economic unit”, finding Knauf Gips financially responsible.

2. At a 2007 conference in Tianjin, a company representative visiting from Germany made it clear where decisions were being made. In a press release printed in Chinese, she is quoted as having said that “Quality in all Knauf manufacturing facilities in Asia will be rigorously controlled according to the strictest standards set up by our HQ in Germany.”

3. During an investigation conducted by Knauf Gips into the Chinese drywall defects before they became widely known , the German parent sent representatives to visit homes in Florida which contained the drywall in question, and according to witnesses and emails uncovered subsequently, it was clear that Knauf Gips was in charge of the investigation.

4. In 2006 an outgoing Knauf Gips manager communicated with colleagues that his role with respect to managing the company’s Asian operations was changing. He wrote that “As you know the new structure involves the overall responsibility for our gypsum activities in Asia passing from myself to Isabel Knauf.” Isabel Knauf is a descendant of the company’s founders and is based in Germany at Knauf Gips headquarters.

Ultimately the ownership and control issues will be factors in Judge Eldon Fallon’s decision whether to hold Knauf Gips liable for the defective drywall manufactured by Knauf Tianjin. Will the evidence of ownership and control outlined in the Pro Publica article contribute to a finding that the German parent must pay for the acts of its Chinese subsidiary? Will Knauf Gips continue to insist that any unfavourable judgment in the US cannot be enforced in Germany? Perhaps the evidence of ownership and control will help to prompt a global settlement that Judge Fallon has ordered the parties to explore. The first mediation mandated by Judge Fallon has already taken place, and time will tell if the parties are finding enough common ground to make progress.

Will Lowe's be allowed to settle?

miltstafford — Wed, 18 Aug 2010 22:12:00 GMT

Among the many defendants named in the federal Chinese Drywall lawsuits consolidated into the MDL 2047 proceedings in New Orleans, is Lowe's, the nation's second largest home improvement company. Like other defendants, Lowe's is also named in state court lawsuits, including a class action in Muscogee County, Georgia. Recently, Lowe's and attorneys representing about 40 plaintiffs in the Georgia class action against it negotiated a settlement that has become quite controversial. Objections to the settlement can be grouped into two types, discussed below.

First, the terms of the settlement itself. Critics point out that the settlement, among other things:

1. Offers plaintiff class members a combination of cash and gift cards totaling a maximum of $4,500. Based upon verdicts already handed down and settlements already reached in Chinese drywall cases to date, such an amount represents a tiny fraction of the costs associated with remediation required in homes affected by the drywall.

2. Includes a payout for the plaintiff attorneys which ranges anywhere from generous to outrageous, depending upon how many claimants show up. While the attorneys representing the plaintiffs insist that their potential payout represents only 23% of the total, a closer examination of the settlement terms reveals that it includes a $1million fee to "administer" the settlement, and, more curiously, it states that if the claimants who participate do not require at least $2.5million in payouts, Lowe's will keep the remaining $4million set aside for the settlement. Even if that scenario materializes, the attorneys' fee of $2.1million would remain in place, meaning that the attorney fee would nearly equal the payout for the plaintiffs.

3. Does not notify class members directly by mail. Instead, a combination of techniques including ads taken out in magazines and a website set up to advise potential claimants will be the only notification available. The deadline to opt out of the settlement is November 9. Those failing to notice the ads and who fail to opt out in time are prevented from suing the company in the future, while those taking advantage of the settlement will be required to forego any future suits against Lowe's for property damages or personal injuries. When several current plaintiffs in the MDL were notified that their attorneys had dropped their suits against Lowe's without their knowledge or consent, apparently in anticipation of a settlement, their reactions were not positive, and one even commented that he "wants a new attorney."

Second, the proposed settlement has been attacked as being an "end run" around the federal MDL consolidated actions being heard in New Orleans. In a move to enjoin the state court proceedings in Georgia, the Plaintiff Steering Committee said

"In direct contravention of the painstaking and coordinated efforts of this MDL Court, (the Georgia plaintiff attorneys) have filed a competing and conflicting...settlement with defendant Lowe's...This class includes and overlaps with all the putative class members in the...actions already pending before this court and it interferes with the court's jurisdiction...The state court class settlement...was filed in Muscogee County, Georgia as an end run around this MDL Court's jurisdiction and supervision over the Chinese Drywall litigation."

The Memorandum of Law attacks the proposed Georgia settlement on both procedural and substantive grounds. Partial terms of the settlement, some of which are outlined above, are set out in detail and rebuked as unfair and insufficient. To support it's procedural argument, the Memorandum suggests that there is ample precedent that federal courts have the authority to (1) prevent state court actions from interfering with it's own efforts, (2) prevent duplicative state court actions, and (3) enjoin those appearing before it from undermining its efforts to resolve litigation it is supervising.

The stage is set. In the Federal MDL proceedings, Judge Fallon is considering the motion from the Plaintiff Steering Committee to enjoin the state court proceedings in Georgia, which would include the next step in the Lowe's class action, a hearing to determine the fairness of the proposed settlement. Judge Fallon, chances are, will be heard first, and my guess is that it will be standing-room only if he summons the attorneys involved in the Georgia proceedings before him to answer to the charge that their settlement is not only unfair but undermines the MDL authority to oversee the litigation.

Why did Knauf settle?

miltstafford — Wed, 04 Aug 2010 15:12:00 GMT

In June two bellwether trials involving Chinese drywall were to have begun in the federal court in New Orleans which is hearing the cases. On the eve of trial the defendant, Knauf Plasterboard Tianjin, Co., Ltd. settled both cases instead of proceeding to trial. Interestingly, Knauf had picked both cases to proceed to trial with, presumably because the facts in those cases were most favorable to them. After Judge Eldon Fallon had laid out an exhaustive breakdown of how remediation was to be handled in previously decided cases, Knauf's settlement, according to plaintiff's attorneys, includes an agreement to conduct remediation in accordance with Judge Fallon's protocol. Why, then, did Knauf settle the two cases which would have been the first federal jury trials involving Chinese Drywall? Knauf's attorneys have suggested that the decision was made in order to "test" its own approach to the remediation with the properties which were to have been the subject of the trials, which it has stated to be far less comprehensive than the approach adopted by Judge Fallon. Will Knauf be preparing for future trials or settlements by testing its own remediation protocol approaches? Time will tell, but this observer would suggest that another reason Knauf settled could very well involve at least two important variables which, had they continued to trial, could have proven quite costly. The first, and most obvious, is the attorneys' fees which have been part of the awards to date. By settling on the eve of trial Knauf has saved a significant amount on attorneys' fees for both sides, all of which it would probably have been responsible for. Second, the "loss of use and enjoyment" element that has represented a significant portion of the awards granted not only by Judge Fallon but by a jury in Miami. In an earlier bellwether trial involving seven plaintiffs, Judge Fallon awarded six of the seven (the remaining plaintiff's home was only partially affected by Chinese drywall, as it was found in a wine cellar added to the basement) $100,000, a significant percentage of the total award for each. In the first jury trial involving Chinese drywall in a state court, a Miami jury awarded the homeowners in that case $1.7million for loss of use and enjoyment where the total award was $2.4million. Obviously the loss of use and enjoyment element of jury awards can represent a "message" to the plaintiffs from the jury, similar to punitive damage awards, and Knauf may have decided that it did not need or want to pay for one.

Will the prospect of awards composed of significant amounts for attorneys' fees and loss of use and enjoyment prompt the defendants such as Knauf to settle more cases? Another factor bearing on Knauf's strategy going forward may involve the fact that the largest defendant, absent until very recently, has apparently entered the litigation. Taishan Gypsum, owned by the Chinese government, decided to appeal all rulings against it and has retained counsel to appear in Judge Fallon's court. Since awards against it have included attorneys' fees, Judge Fallon has also asked Taishan to appear in proceedings before him to present its arguments on this element of the awards already made. Does Taishan's appearance for purposes of appealing awards against it mean that it will now take up the battle and address each of the remaining claims? Will Knauf and Taishan coordinate their efforts or share strategies for defending the thousands of outstanding claims? Will either or both opt to settle the remaining claims based upon the rulings already made against them? Or will they set out to prove, in a trial setting, that their own remediation protocol, less comprehensive and less expensive, is the one that a jury should adopt?

Stay tuned to this site for future developments. If you are following the Chinese drywall litigation you should be using LexisNexis File & Serve to monitor developments as they occur. Use the "Alerts" feature to monitor cases which your firm is not involved in, and feel free to contact us if you need to register to use the File & Serve system of if you are a user and would benefit from our training.

The First Chinese Drywall Jury Verdict: A Breakdown

miltstafford — Tue, 29 Jun 2010 16:20:00 GMT

On Friday, June 25th, the first Chinese Drywall jury verdict was handed down in a state court in Miami. A total of $2,465,361 was awarded to the plaintiffs, considerably less than their $4.4million demand, but far more than what was offered by the defendants. The components of the award seem to indicate that the jury wanted to send a message to the defendants in this case, namely that even though restitution was demanded and given, a jury has considerable leeway when it comes to something intangible like "loss of enjoyment." Here is how it ended up:

1. $ 494,443 for remediation costs

2. 9,984 for replacement of personal property

3. 169,268 for temporary housing and moving expenses

4. 20,775 for cleaning costs

5. 3,320 for additional utilities costs

6. 920 for storage costs

7. 6,661 for additional interest on credit cards

8. 1,700,000 for loss of enjoyment

9. 60,000 for loss of value of the house

70% of the total award consists of "loss of enjoyment" damages. The defense insisted that it will file a motion to overturn or reduce the jury's verdict, which is unlikely unless a case can be made that the award was clearly excessive. The possibility of an appeal was also brought up by the defense, although overturning jury verdicts is rare absent clear evidence that the jury abused its discretion, or that the judge commtted reversible error during the trial. Was the award of "loss of enjoyment" proper? Will the only defendant in this case, Banner Supply, be forced to pay the entire award, in spite of the fact that the jury apportioned only 55% of the total liability to them? This trial will more than likely set the tone for future litigation, espicially in Florida, so I am expecting all sides to exhaust their remedies before this is over.

First Chinese Drywall Jury Returns a Verdict

miltstafford — Mon, 28 Jun 2010 18:01:00 GMT

In the first jury trial in Chinese Drywall litigation, a Miami jury handed down yet another defeat for defendants on Friday, June 25th. In a case involving a $1.6 million dollar home rendered unlivable by Chinese Drywall, a jury followed in the footsteps of previous federal Chinese Drywall decisions and awarded the homeowner/plaintiffs an amount over three times the $705,000 they will have spent on remediation. The defendant, Banner Supply, had insisted that even though the drywall they had supplied was defective, their liability extended only to the actual costs of remediation. In what amounted to a "smoking gun", however, an agreement between Banner and its Chinese supplier was unsealed by presiding Judge Farina and indicated that by 2006 both Banner and KPT, its supplier, knew that the Chinese-manufactured drywall Banner was selling was defective. KPT apparently suggested that Banner stop using the drywall, and even offered to replace its remaining stock with American-manufactured replacements. Banner claimed that the defects were "latent" and that it could not be found negligent for damages other than the actual damages suffered by the Plaintiffs. The jury disagreed, and found for the Plaintiffs. Although the Plaintiffs had claimed damages of $4.4 million, the final award was $2.5 million. After three trials, it appears that a pattern has begun, which includes the notion that defendants either knew or should have known that the Chinese Drywall they were installing or supplying was defective. Once established, that seems to open the door to damages far beyond "actual" damages, and has led to awards including "consequential" damages such as "loss of use and enjoyment". The tide has prompted two settlements in pending federal suits scheduled to be heard in New Orleans, and reports of settlement offers exceeding $6 million in a class action suit scheduled to begin soon in Miami Dade court. One question still looms over the property damage proceedings, namely whether personal injury damages will be awarded by plaintiffs complaining of damages to their health.

Over 40 in attendance at June 24th File & Serve Training

miltstafford — Mon, 28 Jun 2010 16:37:00 GMT

On Thursday, June 24th the Chinese Drywall MDL status conference was held in Judge Eldon Fallon's courtroom in New Orleans. Shortly afterwards Milt Stafford and Sue Burns conducted a live File & Serve training session in the same courtroom. With over 40 legal professionals in attendance, Milt and Sue signed on to the File & Serve website and led the group through the entire process of uploading and e-serving documents in the federal Chinese Drywall litigation. Emerging from the questions and discussions were several noteworthy points:

1. Use the "Alerts" feature on File & Serve to monitor specific cases or courts.

2. When serving documents, do not click on the radio button next to "all active participants" when selecting parties to serve. Judge Fallon, in a pre-trial order, has required all parties to register for and use the File & Serve system for all service so there is no obligation to serve non-users with U.S. Mail service, which will incur additional charges as well.

3. When entering a "Title" for the document you are about to serve, please note that the court has specified requirements for your document title in Pre-Trial Order Number 6, available from the Resource Center on File & Serve.

4. Contact Customer Service at 888-529-7587 for immediate assistance with File & Serve. If you are interested in attending a training session you may find and register for a session in the Resource Center, which you can link to from the File & Serve Home tab. If you have questions about onsite training, or if you have another case for which you would like to use File & Serve, please contact Milt Stafford at 877-834-7489.

As the Chinese Drywall litigation grows in scope, and spreads to state forums, it is more important than ever to utilize File & Serve to make sure you are serving your client's needs and acting in accordance with the court orders designed to reduce costs and maximize efficiencies for all parties.

Onsite Training: The United States District Court in New Orleans for Chinese Drywall MDL

miltstafford — Wed, 16 Jun 2010 16:19:00 GMT

LexisNexis File & Serve would like to invite you to live training for electronic service in MDL 2047 In Re: Chinese-Manufactured Drywall: Products Liability Litigation. LexisNexis File & Serve representatives will be conducting an introduction to electronic service class. The class is open to attorneys and their staff members involved in the Chinese Drywall litigation. The approximate length is one and a half hours.

Deliver documents in seconds in one or multiple cases
Choose an access type for your documents - public versus sealed
Select specific parties or all parties to serve within a case
Verify other parties were not only served but opened your transaction
Learn how to improve case management with 24/7 access to online case files and service lists
Search & retrieve documents online - in your cases and others
Receive automated alerts on case activity
Review legal citations within documents
View, print or download documents in seconds
Learn how to manage your user preferences
Create your unique user ID and password
Set your notification options to receive one or multiple emails per day
Automatically forward your notifications to others within your own firm
Share your saved transactions with others in your firm for review and completion of transactions

Date: June 24th, 2010
Time: 10:30AM - 12:00PM
Location: United States District Court
Court Room C311
500 Poydras Street
New Orleans, LA 70130

Register: To register for a class, please sign on to www.lexisnexis.com/fileandserve

Click on the Resource Center link (upper right hand corner).
Scroll down to Education & Training and choose Louisiana as the state from the pull-down menu.
Click on the class name to sign up (Onsite MDL 2047 In Re: Chinese-Manufactured Drywall: Products Liability Litigation)

See attachment below for a Quick Reference Guide for Chinese Drywall

Note: attorneys attending the class are eligible to receive CLE credit

Are the Chinese Finally Responding to Drywall Lawsuits?

miltstafford — Thu, 03 Jun 2010 15:30:00 GMT

In an article published May 28 in the SinoCast Daily Business Beat, an unknown author may be giving a hint about how the Chinese government will respond to the litigation involving defective Chinese manufactured drywall. After complaining that "About one hundred of Chinese building material enterprises are troubled in the complaints about the quality of the plasterboards supplied to the United States", the author goes on to lay out the "reason" for the lawsuits: "The hidden reason for the dispute is the trade protectionism of the United States." In defense of the Chinese manufacturers, the article insists that at least one of the companies named as a defendant in the U.S. suits conducted its own tests and that "no quality problem has been detected." To bolster the protectionism argument, the author suggests that the Chinese drywall industry "has threatened the market share of the United States", and that the lawsuits are simply retaliation for the new threat.

The question looming over this article is simple: Is the unknown author speaking for the Chinese government, giving the rest of the world a preview of how the claims against Chinese manufacturers of defective drywall will be responded to? Until now the silence has been deafening when it comes to any hint of an "official" response to the defective drywall litigation. Promises by Chinse officials to "look into" the matter have not produced results of any kind. Was this author acting as a nationalist or as a spokesperson, or both?

Second Chinese Drywall Bellwether Case Summary and Analysis

miltstafford — Thu, 03 Jun 2010 15:21:00 GMT

Chinese Drywall Second Bellwether Trial: Summary and Analysis, By Milt Stafford

In his second Findings of Fact and Conclusions of Law Judge Fallon has handed a second defendant in a Chinese Drywall trial a resounding defeat. In the second bellwether opinion handed down within a few weeks Judge Eldon Fallon from the Federal District Court for the Eastern District of Louisiana restated his earlier conclusions regarding the origin and extent of the extensive damage caused by the defective drywall.

Interestingly, the parties in this suit made stipulations regarding potential theories of recovery and defenses which might surprise some observers. Plaintiffs agreed not to introduce any evidence regarding the diminution of value of their home or the dollar value of the home or their lot. Defendant Knauf stipulated that they manufactured and sold the drywall in the Plaintiff Hernandez home, and that it is defective. Although put forth fairly strenuously weeks ago as a remediation option, Knauf agreed not to put forth their theory regarding the use of an “Environmental Controlled System” in this trial so it was not addressed by the court. Finally, the parties agreed that all of the drywall in the Hernandez home, as well as all insulation, flexible duct work, switches, receptacles, molding and countertops would need to be removed and replaced.

After detailing the problems which the Plaintiffs had with their home before discovering that the source was defective Chinese drywall, Judge Fallon points out that the parties, although agreeing on major issues at hand, had not agreed “on the nature and scope of the remediation necessary to properly restore the Plaintiff’s home and the resulting damages if any.”

Judge Fallon, after incorporating his statements regarding the origin and manufacture of the drywall in question from the Germano case, describes how the defective drywall affects other components of the Plaintiff’s home, especially copper and silver. Here again, although the parties may agree upon the existence of the reduced sulfur gases emanating from the drywall, he notes that “it is disputed as to whether, if the copper sulfide remains in the Hernandez home after all Chinese drywall is removed, corrosion on copper components will continue to develop”. Weighing the arguments on both sides, he concludes that “the science is not sufficiently developed to allow a certain conclusion as to whether the presence of copper sulfide alone results in continued corrosion. However, at this time and in this case, the evidence presented by the Plaintiffs supports the conclusion that there is a substantial risk that the corrosion may continue in the Hernandez home even after the Chinese drywall is removed.” This issue was argued extensively by both sides, since it represents the difference between repairing the wiring in this and perhaps many other homes, versus cleaning the existing wiring and leaving it in place. The costs associated with cleaning instead of repairing the entire electrical system in a home is significant, and the difference can and will be multiplied by hundreds if not thousands of Plaintiffs. In addition, Plaintiff homes, like the Hernandez home, invariably contain HVAC systems, appliances, electrical fixtures and even personal property like audio and video systems which, if the damaging effects of the defective drywall are extensive enough, will also need to be replaced. It is not surprising that extensive and conflicting expert testimony was introduced on this issue.

Since the plumbing in the Plaintiffs’ home contains both copper and silver, Judge Fallon observes that it also must be replaced. Since the home also contains PVC components, admittedly unaffected by the corrosive gases from the drywall in question, they may be “preserved during remediation and reinstalled into the Hernandez home if economically feasible.”

Another component of the Plaintiffs’ home, one which contains electrical as well as plumbing components, and which is found both outside and inside the home, is the HVAC system. Since the electrical and plumbing components are inextricably incorporated into the system, and given the damages observed by Plaintiffs to them, the court decides that the entire HVAC system must be replaced.

As a practical matter, Judge Fallon points out that what is “in front of (the) drywall” will need to be carefully removed, stored and reinstalled as part of the remediation process, but that this would exceed the cost of replacing most of the components of the home in need of such removal, which leads him to the conclusion that they must be replaced as well. These items would include cabinets mounted to the drywall, trim, bathroom fixtures, and the like. Although Judge Fallon has pointed out previously that ceramic and other non-porous flooring may be protected and preserved during the course of remediation, he warns that the Hernandez’s wood flooring must be protected as well, or it too will need to be replaced.

Upon completion of the removal of all necessary items from the Plaintiffs’ home, the court will require that the home be cleaned and prior to the reinstallation or replacement of any of its components, the remediation must be “certified” by an environmental consultant.

In what could be considered “dicta”, Judge Fallon relates that his remediation requirements are consistent with what some builders have already implemented, and he summarizes by insisting that “No reputable contractor would accept the risk of keeping copper and/or silver metal in the home after these materials existed in a corrosive environment…and neither would a reputable environmental consultant approve a remediation of the Hernandez home if the potential of continuation for such a corrosion risk remains”.

The last part of Judge Fallon’s opinion lays out the costs which he assesses for the remediation he has concluded is necessary. The Plaintiffs had suggested that an amount of approximately $200,000.00 would be reasonable, almost four times what the Defendants had proposed. The final amount is closer to the Plaintiffs’ claim, since the remediation ordered is closer in scope to what they requested. The final remediation award was set at $136,940.46. The addition of damages awarded for loss of personal property, alternate living costs, costs of repairs already undertaken, and lost wages brings the total, minus a property tax reduction, to $164,049.64.

The last item of the award is the attorneys’ fees, court costs, and “judicial interest from demand until paid”, which is to be determined at a subsequent hearing.

If you are following, involved in, or researching either or both the state or federal Chinese Drywall litigation, you are missing valuable time and information if you are not a LexisNexis File & Serve subscriber. If you are currently a subscriber and wish to read the full text of Judge Fallon’s Findings of Fact and Conclusions of Law in this case you need only access Transaction ID 30804737.

Summary of Judge Fallon's "Findings of Fact and Conclusion of Law" in Chinese Manufactured Drywall MDL Litigation, Bellwether Trials, by Milt Stafford at LexisNexis File & Serve

miltstafford — Tue, 01 Jun 2010 14:43:00 GMT

In a 108-page Findings of Fact and Conclusions of Law, Judge Eldon Fallon of the Federal District Court for the Eastern District of Louisiana filed a long-anticipated opinion which addresses the nature and extent of the remediation required for the seven representative Virginia plaintiffs selected for this “bellwether” trial. For those interested in how Judge Fallon resolved the many issues before him, and who may not have the time or stamina to withstand over 100 pages of legal reasoning, I have done the “heavy lifting” for you by summarizing the high points! This article will dissect the opinion and summarize Judge Fallon’s remediation conclusions.

In general, the opinion can be divided into three parts: First, the background of the case, and even the background of the Chinese drywall at the heart of the case. Second, the effects that the drywall has on the items found within the Plaintiffs’ homes which are in need of remediation, and the types of remediation called for in light of the damages sustained by the homeowners’ property. Third, Judge Fallon details the remediation required by each of the seven Plaintiffs and assigns a dollar amount to them.

The first part of Judge Fallon’s opinion is essentially a review of the procedural history of the case, along with some background information about drywall. He details the drywall manufacturing process and notes how the elevated levels of sulfur and strontium found in the Chinese drywall are generally accepted as the root cause of the damages suffered by property owners. Judge Fallon makes three important observations with respect to at least one of the drywall importers and their relationship with the Chinese manufacturer:

1. That “The drywall product was never tested pursuant to the United States ASTM standard
2. That this importer of the Chinese Drywall “Relied on a representation that Chinese testing was equivalent to the U.S. testing standards.”
3. That even though “certificates of quality” were issued by the Chinese governmentpresumably for the drywall they exported, “The Certificate of Quality Management System Certification issued predates the production of the drywall shipped to the United States by at least two years.”

The second part of the opinion represents the core of this dispute. In it Judge Fallon addresses each aspect of the remediation and carefully lays out what he has decided needs to be done in order to address the problem drywall as well as the proximate damages it has caused. Those familiar with the case(s) know that the Plaintiffs had requested far more comprehensive remediation than that offered by many on the other side. Below I will list the components of the homes subject to remediation and summarize Judge Fallon’s conclusions as the nature and extent of what his court will require:

Drywall – Upon consideration of the “partial” and “complete” drywall removal approaches, Judge Fallon concludes that all of the drywall in each of the affected homes (with the exception of one home where the drywall was “localized” in a room constructed in the basement as an add-on) must be removed and replaced, whether “CDW” (Chinese Drywall) or non-CDW.

Electrical wiring – Weighing the safety and cost considerations again, Judge Fallon decides that all of the electrical wiring in the homes, again with the exception of the “localized” home, must be replaced.

Copper plumbing – The cleaning and/or selective replacement theory again fails to win Judge Fallon’s approval, and he says that all of the copper pipes in the affected homes must be replaced

HVAC systems – Since the HVAC systems combine electrical and plumbing components, these also must be replaced entirely, although the components found outside the homes can be evaluated on a case-by-case basis. Judge Fallon also includes the ductwork in each home as part of the system which must be replaced in its entirety.

Selective electrical devices and appliances – In this section Judge Fallon observes that most electrical devices found in the Plaintiffs’ homes contain circuit boards, copper, and silver, all of which are susceptible to the same type of damage suffered by the electrical wiring, plumbing and HVAC systems already being replaced. Instead of a blanket statement, however, he notes instead that “Most of the appliances and electronics located in the representative homes need to be replaced.”

Flooring – Judge Fallon notes that the drywall removal process will make it extremely difficult if not impossible to protect hardwood, vinyl and even tile flooring. In addition, the need to “air out” each home as part of the remediation process will have additional damaging effects on flooring. He will require that all hardwood and vinyl flooring be replaced, but allows for tile flooring to be retained if it can be adequately protected.

Items requiring removal in order to remove drywall – Here Judge Fallon observes that many items which may not require removal or replacement on their own will indeed need to be both removed and replaced due to the need to get at the drywall. Examples he provides are kitchen cabinets, molding, countertops and bathroom fixtures. Although it may be possible to carefully remove these items, then store them for later reinstallation, Judge Fallon has decided that it will be more cost effective to remove and replace such items.

Insulation – While the drywall removal is ongoing, the insulation in the homes will suffer from dust and sulfur gas contamination, therefore requiring removal and replacement.

Judge Fallon’s rationale for requiring such an exhaustive treatment often centers around the following criteria:

1. The need to remove all traces of the offending drywall,

2. The cost effectiveness of removing household items which may not have been directly affected, but the careful removal and storage of which would exceed the cost of removal and replacement, e.g. carpeting.

3. The efficiency offered by removal and replacement of items such as wiring and plumbing after the drywall removal has exposed each, providing the ideal opportunity to do so.

4. Safety. Where certain items may have some useful life left, electrical appliances for example, their safe operation, in Judge Fallon’s opinion, has been compromised, requiring replacement.

Other issues before Judge Fallon which are addressed include his conclusion that each affected home must be vacuumed and washed after all of the above items have been removed, his requirement that an engineering company certify that each home is safe upon completion of the remediation, and the need to provide each homeowner with a written guarantee that the home is free from contamination as well as damaged components. He also decides that each family will be provided with alternate living expenses while the remediation is ongoing, but declines to make property devaluation a recoverable item, stating that the homes should be repaired fully via the remediation, and that such an award would be too speculative. Other losses recoverable include damages to personal property and costs from foreclosure or bankruptcy associated with the drywall-affected homes where appropriate. Finally, in order to address the “loss of use and enjoyment” damages element, Judge Fallon awards each of the homeowners, with the exception of the “localized” Plaintiffs, $100,000 each. A smaller award of $30,000 is awarded to the “localized” Plaintiff. The final section of Judge Fallon’s opinion covers each of the Plaintiff’s unique circumstances, the damages suffered by them, and assigns a dollar award to each.

The full text of Judge Fallon’s opinion is available from the LexisNexis File & Serve system. Call our toll free number to register for access (888-529-7587), and for current users the “Transaction ID” for this opinion (30477699) will take you directly to the document.

You can follow all of Milt's updates re: the Chinese Drywall litigation via twitter @milt_stafford.

List of Drywall courts using File & Serve

Kendall Smith — Tue, 18 May 2010 14:17:00 GMT

The courts where e-service has been implemented for Chinese Drywall cases include:

Eastern District of Louisiana - Chinese Drywall MDL
Miami-Dade County, FL
Palm Beach County, FL
Broward County, FL
Norfolk, VA

Courts are added monthly. Check back for updates.

Follow Drywall Tweets!

Kendall Smith — Tue, 13 Apr 2010 16:17:00 GMT

As the Chinese Drywall litigation continues to expand into courts and states, more and more people are tweeting with their personal stories, updates from the courts, CPSC and other news making this litigation a hot topic.

Follow the twitter feed!

Getting Started with File & Serve for the Chinese Drywall Litigation

File and Serve Community Manager — Fri, 05 Mar 2010 09:06:00 GMT

Involved in the Chinese Drywall MDL or in state court drywall cases?

This page provides File & Serve getting started information to parties in the Chinese Drywall MDL currently consolidated in the Eastern District of Louisiana (MDL 2047) and also in the following state courts:

Miami-Dade County, FL
Palm Beach County, FL
Broward County, FL
Norwalk, VA (effective date May 17, 2010)

If your court is not listed above and you are involved in Drywall cases, contact 800.869.1910 to find out how to get your cases added to File & Serve.

If you are not a party to the litigation, but want access to the case files to monitor the proceedings, click here to register as a General Access account.

All attorneys to this litigation must register for File & Serve in order to access documents issued from the Courts and other law firms in the litigation and to serve documents on all other counsel to the litigation.

Getting Started Links:

Registration (already have a File & Serve ID? no need to register again)
Training Information
24/7 Customer Support: 1-888-529-7587 see also: Customer Support
Pricing Information: Transactional Pricing and Optional Services Pricing

Quick Reference Links:

Important reminders:

E-Filing with the EDLA court must be done electronically via CM/ECF (also see the FAQs posted to the court's website)
After e-filing with CM/ECF, logon to File & Serve and upload your files to cases in File & Serve so that all parties will be served. If you do not put your documents on File & Serve, you have not served any other counsel in the litigation
Use Alerts to customize notifications of documents in your specific cases (see YouTube demo on setting up Alerts)

MDL Court website, with current FAQs related to procedures in the MDL

http://www.laed.uscourts.gov/drywall/drywall.htm