Recently in Chinese Drywall legal news is Judge Eldon Fallon’s goal to try the first Chinese Drywall case by the end of 2009.   While I applaud Judge Fallon for his ambition, and do believe that the issues are time-sensitive and should be litigated quickly and aggressively, I think the promise is an empty one.

Trying a Chinese Drywall class action case in 6 months is frankly impossible, and homeowners should not let this news get their hopes up.

A class action specialist in Florida, Ervin Gonzalez, was quoted in an article about Judge Fallon’s intentions saying the following:

Fast-tracking is an understatement. It’s a rocket docket. And he means business.   He wants the first case tried by the end of the year, and he wants an inspection of every home. He wants to be able to get to the bottom of the problem.

Here’s the obvious problem:  He can’t get to the bottom of the problem in the next 5 or 6 months.

The problem is complicated, and the science is in its infancy.   Leading scientist are unsure of whether the problem can be remediated, or whether full replacement of sheetrock is required.   Leading scientist are also unsure about what is actually causing the problem, and whether even replacement of the contaminated sheetrock will be enough to solve the problems.

This is not to mention some serious legal hurdles:  (1) Discovery; (2) Getting all the Defendants on the same page; (3) Identifying all the Defendants; (4) Dragging foreign manufacturers into Judge Fallon’s court.

Judge Fallon’s recent statement is sensational news, but it is false hope for the homeowners, builders and suppliers who are struggling to resolve their Chinese Drywall problems.   The only thing that has happened in his court is the allocation of attorneys fees and attorney leadership – which has nothing to do with the substantive matters.

Deadlines to file suit against builders, subcontractors and insurers are ticking away.  Homeowners, Builders and Subcontractors are all affected by these deadlines, and it’s important that they all make their claims as immediately as possible to avoid the expiration of these claims.

There are problems with class action litigation as it relates to Chinese Drywall damages.  Judge Fallon’s impossible 6-month deadline only underlines those problems.

Post-Katrina New Orleans drastically increased the demand for drywall in Louisiana, but as fate would have it, this was precisely the wrong time to buy drywall in America.  As far as the volume of imported and installed defective Chinese Drywall goes, Louisiana is second only to Florida.

In the past year, class action suits have been filed in multiple states on behalf of property owners with Chinese Drywall.

On June 15, 2009, the United States Panel on Multidistrict Litigation ordered that all class actions be transferred to New Orleans, LA, and handled by the Louisiana Eastern District Court.

In the transfer order, the Panel on ML explained the selection of Louisiana’s Eastern District with the following:

No district is a clear focal point of this litigation…On balance, we are persuaded that the Eastern District of Louisiana is a preferable transferee forum for this litigation. Centralization in this district permits the Panel to effect the Section 1407 assignment to a judge who has extensive experience in multidistrict litigation as well as the ability and temperament to steer this complex litigation on a steady and expeditious course.

[read the transfer order].

The Eastern District website has already published a web page to administer the litigation.

Kean Miller’s Louisiana Law Blog has a great explanation of the Panel for Multidistrict Litigation, and the technical aspects of the transfer.   As explained on that blog, only ten total actions have been transferred to the Louisiana district court…but more are likely to follow suit.

Order does not affect cases filed in State Courts

While the transfer order will affect all of the federally filed class actions, and later tag-along cases, it will not affect cases that are filed in state courts.   The order exclusively governs those actions that are filed in federal jurisdictions.

Cases filed against contractors or suppliers directly, in local courts, will not be consolidated with the multidistrict litigation, and accordingly, will not be subject to any delays caused by the ever-growing action.

Perhaps another reason why we’ve questioned whether a local action directly against builders would be more beneificial to homeowners.

Centerline Homes (@FLNewHomes) – a Florida “Neighborhood Home Builder” is the latest contractor to face litigation related to Chinese Drywall.

The suit was filed as a class action, but is unlike other class actions in that it seeks recovery from the builder.

In a comment made to the press, Centerline Homes seems to feel a bit jaded by the Chinese Drywall situation in Floriday, blaming “plaintiff attorneys and the media” for fueling a “hysteria” over Chinese Drywall.

The lawsuit against Centerline Homes will likely be among the 10-15 class action suits set for hearing on May 27th before a U.S. Judicial Panel on Multidistrict Litigation.  According to the TC Palm, the suit requests the following from builders:

• Replace all Chinese Drywall, as well as all wiring, pipes, building materials, furniture, appliances and household items ‘affected by sulfur emissions’;
• Have houses tested to make sure they are “sulfur free;”
• Pay homeowners for the loss in the value of their home;
• Give homeowners a lifetime, transferable warrantee on the homes;
• Compensate residents for all current and future health problems resulting from the emissions.

Clearly, tall orders for any builder, and cause for concern for any builders, installers or suppliers out there who supplied or installed Chinese Drywall.

Concerned and wondering what to do?  Check out this how-to here.

A few posts here at the Chinese Drywall Blog has hinted to this post – now, though, we’re going to lay it out there.

Lately, the class action legal community has been abuzz about Chinese Drywall, and class action suits have been lodged in at least three states.   As this situation unfolds, however, some attorneys are beginning to question whether class action litigation is the best vehicle for homeowners to bring these claims.

Here are the top 3 reasons why Chinese Drywall class action suits are bad for homeowners:

It Won’t Replace Drywall…Or Resolve Itself For Years

The class action suits have mostly named huge foreign manufacturing companies responsible for creating or exporting the defective drywall.  It’s virtually guaranteed that these large-scale suits won’t resolve themselves – much less get properly organized – for years.

Moreover, during the interim period homeowners will not receive any help in getting the defective (and potentially dangerous) drywall out of their homes.

Read more about this problem on Stark & Stark’s Construction Litigation Law Blog, under the article captioned: “Chinese Drywall Class Action Suit May Not Help Homeowners For Years If Ever.”

There Are Collection Problems

Just this morning at the China Law Blog, Dan Harris asked those involved with the class actions suits to “Show [Him] The Money.“   And based on his experience with foreign judgments, here is what he had to say about the potential recovery by Chinese Drywall class plaintiffs:

The US plaintiffs are not likely going to be able to collect anything from the Chinese defendants by suing in them in the United States and collecting from the German defendants is likely to prove difficult as well.

After all the legal complexities and procedural hurdles are dealt with (read: time and money), if the class action plaintiffs are then able to persuade a court that these foreign manufacturers are liable…it might simply be downright difficult to enforce those civil judgments.

Time Is Ticking

Finally, time is now ticking on Chinese Drywall claims.   The class action suits may be giving builders, suppliers and homeowners a bit of false security that all will be well with respect to these claims, allowing the statute of limitations on potential claims and defenses to steadily approach a closing date.

For homeowners, signing up with a class action attorney may give them a false sense of security that their claim is being properly asserted and handled.

However, is the class action attorney sending certified letters to the builders under the New Home Warranty Act?  Is the class action attorney asserting a claim under a tort or contract theory against the builder / installer?  Are homeowners mitigating their damages?

For builders, installers and subcontractors, no news feels like good news.

However, since they are not named in a class action, and suit is not brought against them, they are not mitigating their own damages, asserting necessary defenses, or bringing claims they may have against suppliers and manufacturers.

The shoe has dropped for one builder who has been working hard to avoid entanglement in the Chinese Drywall defective drywall class actions.    According to reports all over the web, Lennar Co. has been officially named in a Florida class action suit over defective drywall.

The significance of Lennar Co.’s involvement with the class action is fairly great, as it begs the question of what exactly distinguishes it from smaller builders who may have also installed Chinese Drywall in homes.   Will these smaller builders soon be named in class actions as well?

It also begs the question of whether class action suits are the answer to homeowner’s woes in the Chinese Drywall crisis.   The question has been hinted here, and written about by Donald Brenner at the Construction Litigation Law Blog.

With regard to the class action suit, Lennar Co. said it had “already established reserves for the estimated cost of replacing the drywall” it has confirmed to be defective Chinese product “to the extent such costs are not covered by insurance.”

As the risk and exposure of builders opens up, the role of a company’s GL insurance will be examined.   More on this later…

Across the county, each state has some type of statute or jurisprudential rule stating that every party to a dispute is burdened with the duty to “mitigate its losses.”   In addition to the legal requirements, this duty shows up contractually as well, and most famously in insurance contracts.

Here is what the Louisiana Civil Code says about mitigation in article 2002:

An obligee must make reasonable efforts to mitigate the damage caused by the obligor’s failure to perform.  When an obligee fails to make these efforts, the obligor may demand that the damages be accordingly reduced.

Earlier this week, we discussed whether builders were getting a “free pass” on the Chinese Drywall defect claims since most affected homeowners have thus far sought remedies through class-action litigation.   In essence, we were alluding to a question clearly posed by Donald Brenner at the Construction Litigation Law Blog:  How does a class action suit help me get the defective material out of my home?

Insofar as the Duty to Mitigate is concerned, how builders, suppliers and homeowners act now is important to how they will remedy this situation.

Sooner or later, insurance companies are going to get involved with these claims, and individual actions are going to be filed against builders and suppliers.   When this happens, there will be questions of whether each party has fulfilled their duty to mitigate.

Here are some example issues:

•  If the imported drywall causes health problems, and a builder / supplier knows it installed the drywall in certain homes.  Do they have a duty to notify the homeowner of the danger, to avoid the homeowner from getting sick or sicker?

•  If defective drywall has ruined approximately 10% of electrical wiring and 25% of the building studs as of today, who is liable for additional damage if the drywall stays in the home is allowed to continue damaging building elements?  In 2 years, if 75% of electrical wiring and 75% of building studs are ruined, is it the homeowners fault for not fixing the drywall problem when it arose?

•  Under the same scenario, will a homeowner be responsible for increased damage if they fail to report the problem to their builder to allow the builder to fix it at that time?

Contact A Construction Litigator

As Mr. Brenner discusses on the Construction Litigation Law Blog, class action suits may not help homeowners for years….or ever.   The simple phone call to a class-action attorney puts your name on their list, but those class action attorneys will not work to get your home repaired in the immediate future…and its likely that they will not help you take precautions as per your duty to mitigate.

Homeowners and condominium associations, contact your builder and exercise your rights under warranty and redhibitation laws while you still have time.

Builders and contractors, investigate your duties under warranty and defective construction laws, contact your insurer, and consider making claims against your suppliers and installers.

All in all, contact an experienced construction litigation attorney to get advice on how to deal with this volatile issue.

Gulfport’s Sun Herald reports that the first Chinese Drywall class action suit has been filed in the state of Mississippi, formally adding another Gulf Coast state to the Chinese Drywall crisis.

Like the suits in Louisiana and Florida, Knauf Gips and Knauf Tianjin are named as Defendants.   The Mississippi suit goes on to name “Taishan and possibly other unknown Chinese manufacturers.”

While builders and local supply-houses are still caught up in litigation, the class actions in LA, MS and FL provide these smaller outfits with cautious optimism as the large-scale class actions suits have not been lodged against all parties in the chain.

Just last week, the Construction Law Monitor posted that the Chinese Drywall situation could possibly broaden in scope, and effect the states of Louisiana and Washington.

This evening, New Orleans’ WVUE reported on the first confirmed case of Chinese Drywall contamination in Louisiana, occurring in Pearl River, Louisiana, at the home of John Oertling and Jill Donaldson.

Louisiana’s Becnel Law Firm has already filed suit on behalf of the homeowners, a proposed class action, and the federal suit is now pending before the Honorable Zainey in the United States Eastern District Court of Louisiana (09-2981).

Discouraging news for contractors about the new suit, is Mr. Becnel’s (the plaintiff’s attorney) comments during his interview with the New Orleans new-station when asked who is being sued:

It’s against anybody who had a hand in it.

Encouraging news for contractors, however, is that Mr. Becnel may not mean precisely what he says, as the home in controversy was built by David Stewart Custom Homes…who are not named in the action.

We’ll update the Construction Law Monitor with updates on the Chinese Drywall situation, and this particular case, as news unfolds.  Further, we’ll soon post about what your company can do in the event it is named in one of these lawsuits.

For those interested, the case is officially captioned:

Jill M. Donaldson, wife of/and John “Jared” Oertling, on behalf of themselves and all others similarly situated v. Knauf Gips KG, Knauf Plasterboard Tianjin Co., Ltd., Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd., USG Corporation, L&W Supply Corporation d/b/a Seacoast Supply, Interior Exterior Building Supply, Independent Builders Supply Association, Inc. and Rothchilt International Limited.

You can download a copy of the 55-page complaint here.