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.