Rulings keep Chinese drywall cases in U.S. courts

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October 4, 2012

Rulings keep Chinese drywall cases in U.S. courts 

Steven M. Sellers

A Chinese drywall manufacturer must answer to U.S. courts for defective drywall sold for use in American homes, judges ruled in two separate cases. The decisions rejected arguments by Taishan Gypsum Co., the world’s largest drywall manufacturer, and its wholly-owned subsidiary, that U.S. courts lacked personal jurisdiction. Attorney Russ Herman of New Orleans, liaison counsel for plaintiffs in the Chinese drywall MDL, called the decisions “monumental” and a welcome development “for the more than 3,000 innocent residential owners whose properties have been needlessly damaged by imported drywall.”

Two judges ruled in separate cases that a Chinese drywall manufacturer will answer to U.S. courts for the defective plasterboard it sold for use in thousands of American homes. Both decisions rejected arguments by Taishan Gypsum Co. (TG), the world’s largest drywall manufacturer, and its wholly-owned subsidiary, Taian Taishan Plasterboard Co. (TTP), that U.S. courts lacked personal jurisdiction. The state and federal judges also denied motions to vacate default judgments imposed for the defendants’ failure to respond to the complaints that were filed against them.

A 142-page decision issued by Judge Eldon Fallon of the Eastern District of Louisiana affected four class actions in an MDL involving millions of square feet of Chinese gypsum wallboard that were exported to the U.S. from 2005 to 2008, primarily for use in building homes on the eastern seaboard and the Gulf Coast. Since the MDL’s creation in 2009, hundreds of drywall lawsuits involving thousands of plaintiffs have been consolidated for review. (In re: Chinese Manufactured Drywall Prods. Liab. Litig., No. 2:09-md-02047-EEF-JCW (E.D. La. Sept. 4, 2012).)

“After installation of this drywall, owners and occupants of the properties began noticing unusual odors, blackening of silver and copper items and components, and the failure of appliances, including microwaves, refrigerators, and air conditioning units,” wrote Fallon, who added that some occupants experienced health problems including skin and eye irritation, respiratory issues, nosebleeds, and headaches.

Fallon rejected TG’s jurisdiction objections and detailed its active involvement in the drywall markets of Virginia, Florida, and Louisiana; its active pursuit of business ties with local builders and suppliers; and its knowledge that its products were intended for use in the states’ residential construction efforts in the wake of Hurricane Katrina. “TG boasted about being a worldwide supplier of drywall and cited its business in the United States as an example,” wrote Fallon. “To reap these benefits and now claim hardship is a bit disingenuous.” Emphasizing the interests of the states affected by the defective drywall, Fallon added that “[i]n a ‘flat world’ in which we now live, markets are worldwide and it is now in everyone’s interest to discourage the manufacture and distribution of defective products.”

The state court ruling came in a Florida case in which a home builder sought to recoup the cost of repairing homes constructed with drywall that, according to the complaint, emitted foul odors and caused health problems for occupants. Miami-Dade County Circuit Judge Joseph Farina held that TG and TTP “had sufficient business dealings and contact in Florida to satisfy the exercise of jurisdiction.” Observing that TG and TTP were “intertwined at the level of daily operations,” Farina held that the companies were within the reach of Florida’s long-arm statute because they “actively courted” customers in Florida by inviting Florida business representatives to visit TG’s drywall factory in China, entering into distribution agreements with Florida companies through TTP to sell its products for home construction, and shipping drywall to those companies “with full knowledge of Florida as the ultimate destination.” (Lennar Homes v. Knauf Gips KG, No. 09-07901 (Fla., Miami-Dade Co. Cir. Aug. 31, 2012).)

Farina dismissed TG’s claim that defending the litigation in Florida would be too burdensome. “The evidence relating to damages is located in Florida, as are the parties and many witnesses. The state of Florida also has an interest in adjudicating disputes relating to torts or other wrongful acts either committed within its borders, or committed against its residents,” wrote Farina.

TG failed to persuade either judge that the default judgments entered against it—the result of its failure to answer either complaint—should be vacated. Fallon rejected the company’s defense of excusable neglect: “Whether or not TG’s defense is meritorious is speculative, especially since the court finds personal jurisdiction exists over TG and it has placed voluminous evidence before it indicating that TG manufactured and sold a defective product, placed this product into the stream of commerce, and profited from its sales.”

Farina similarly dismissed the company’s arguments that TG reasonably believed that Florida courts had no jurisdiction, as well as its claim that “it lacked sufficient mastery of the English language” to fully understand the legal documents. He noted that a translated complaint was also served on the company.

Attorney Russ Herman of New Orleans, liaison counsel for plaintiffs in the MDL, called the decisions “monumental” and a welcome development “for the more than 3,000 innocent residential owners whose properties have been needlessly damaged by imported drywall.” Herman said Taishan could appeal Fallon’s ruling to the Fifth Circuit, but suggested that the company could “come to the table while the appeal is pending and balance the scales” in a manner consistent with a previous drywall settlement approved in 2011. Fallon oversaw a settlement in that case with another defendant in the MDL, Germany’s Knauf International, for the manufacture of defective drywall by its Chinese subsidiary. The settlement was reported to be worth as much as $1 billion.

As a final option, Herman said, “[Taishan Gypsum] can walk away, go home to China and say arrogantly ‘you can’t touch us here, we’re protected by the government.’” In that event, Herman added, “we intend to pursue these cases until we have exhausted all remedies, including seizing Chinese assets in the United States.”


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