US lawsuits may flood China drywalls
By Peter J Brown
United States federal judge Eldon Fallon dropped a bombshell on the Chinese
drywall sector in a ruling that could require intervention of the Chinese and
United States governments as the repair bill for homes damaged by the presence
of the building material may reach billions of dollars.
In a 108-page ruling issued on April 8 on behalf of seven homeowners in
Virginia, Judge Fallon awarded more than US$481,000 to one family alone. The
judge has been presiding in New Orleans over a consolidated class action
lawsuit known as the "Chinese-Manufactured Drywall Products Liability
Litigation" which combines several lawsuits from different US states.
The ruling could lead to a flood of lawsuits in US state courts
around the country involving builders and suppliers after all sorts of problems
surfaced in thousands of homes where drywall - gypsum plaster panels used to
construct interior walls and ceilings - made in China was installed early in
the past decade. An arm of the Chinese government, and a drywall company
controlled by that entity are named in the lawsuit, Germano, et al v Taishan
Gypsum Co. Ltd. [1]
"There are cases set for trial in June in Florida against builders; and, in
September, there are seven cases set to go against the homeowners' builders,
installers and distributors of the Chinese drywall," said Julie Quinn, a state
senator from Louisiana, where many of the damaged homes are located.
The judge's decision focused on drywall made by one company, Shandong Taihe
Dongxin, which on September 10, 2007, changed its name to Taishan Gypsum. Yet,
it is another Chinese drywall company, state-owned Beijing New Building
Material PLC (BNBM), that stands out because of its ties via the China National
Building Material Company, Limited (CNBM Co., Ltd) and China National Building
Material Group Corporation (AS CNBM Group) on up to the State-owned Assets
Supervision and Administration Commission of the State Council of the People's
Republic of China (SASAC). BNBM holds a controlling interest in Shandong Taihe
Dongxin.
Judge Fallon's ruling clearly defines the role of the SASAC, which is directly
controlled by the State Council, the central government's cabinet. A long
passage in the ruling (edited and abbreviated in the notes) explains how the
companies are connected to the SASAC. [2] While Asia Times Online was unable to
verify the connection, this could be the first time where a class action
lawsuit filed by US citizens has touched the State Council in this manner.
Regardless, the BNBM-CNBM-SASAC connection here leaps out.
In his ruling the judge made it clear that, "by any recognized standard, high
levels of corrosive gases are present in the representative homes. This
condition is clearly irritating and harmful to residents and destructive to
property. It has to be remediated. The challenge for the Court is to determine
the scope of this remediation."
He then proceeded to order that all drywall, all electrical wires, all copper
pipes, and all air conditioning units in the damaged homes "be replaced". Also
on his list are selective electrical devices and appliances, flooring - in
certain instances - carpets, cabinets, trim, and bathroom fixtures, among other
things.
"Accordingly, all Chinese drywall must be removed from the
Plaintiff-intervenors' homes. There seems to be little or no dispute on this
issue. There is dispute, however, over the scope of remediation where the home
contains both Chinese drywall and non-Chinese drywall. The issue is whether all
drywall should be removed or only the problematic drywall in this case. The
overwhelming evidence reveals that in such mixed structures it is necessary to
remove all the drywall, both Chinese and other," Judge Fallon said.
The lawsuit could mushroom into an urgent matter for the governments of China
and the US to resolve because billions of dollars may be needed to repair all
the damaged homes.
"As publicity has become more frequent, more homeowners have had the
opportunity to question whether their home may have been affected,'' said Quinn
in Louisiana. ''It is believed, based upon the invoices we have from suppliers
and distributors, as well as from the manufacturers themselves, that there are
thousands more homeowners across the US who have Chinese drywall in their homes
and are unaware of it. We know for a fact that tonnes of drywall has been
installed in far more homes than are participants in the litigation.''
Besides the US Consumer Product Safety Commission (CPSC), which has been named
as the lead US federal agency for this investigation, the US Environmental
Protection Agency (EPA) and the US Centers for Disease Control and Prevention's
Agency for Toxic Substances and Disease Registry (CDC-ATSDR) are tracking the
situation closely. [3]
In early April, just days before Judge Fallon issued his ruling, the US
Department of Housing and Urban Development (HUD) and the CPSC issued "interim
remediation guidance" so that affected homeowners would know how to best
effectively eliminate the Chinese drywall-related problems.
"This guidance, based on the CPSC's ongoing scientific research, is critical to
ensuring that homeowners and contractors have confidence that they are making
the appropriate repairs to rid their homes of problem drywall," said Jon Gant,
Director of HUD's Office of Healthy Homes and Lead Hazard Control. "The
remediation guidance issued today is the latest step in an ongoing process that
the Intergovernmental Task Force on Problem Drywall has undertaken to address
this problem directly. We will continue to work with our Congressional, State
and local partners as they seek policy solutions based on our guidance and the
CPSC's scientific findings."
"Our investigations now show a clear path forward," said CPSC Chairman Inez
Tenenbaum. "We have shared with affected families that hydrogen sulfide is
causing the corrosion. Based on the scientific work to date, removing the
problem drywall is the best solution currently available to homeowners. Our
scientific investigation now provides a strong foundation for Congress as they
consider their policy options and explore relief for affected homeowners."
CPSC said that, "the top 10 reactive sulfur-emitting drywall samples were all
produced in China. Certain Chinese samples had emission rates of hydrogen
sulfide 100 times greater than non-Chinese drywall samples. The patterns of
reactive sulfur compounds emitted from drywall samples show a clear distinction
between the certain Chinese drywall samples manufactured in 2005/2006 and
non-Chinese drywall samples. Some Chinese drywall samples were similar to
non-Chinese samples. Finally, several Chinese samples manufactured in 2009
demonstrate a marked decrease in sulfur emissions as compared to the 2005/2006
Chinese samples." [4]
The CPSC and China's General Administration for Quality Supervision, Inspection
and Quarantine (AQSIQ) have been exchanging information for months about what
is happening.
In his ruling, Judge Fallon agreed and disagreed with some of these CPSC
findings. However, in the CPSC remediation protocol if a portion of drywall can
be reasonably identified as non-problematic, the CPSC allows for leaving it in
place. Judge Fallon goes much further and orders that all drywall must be
removed from those homes. "This is necessary in order to remove and replace
wires, pipes, and insulation, and to adequately clean the home," he wrote.
Last year, Jack Landskroner, a managing partner of the Cleveland law firm
Landskroner Grieco Madden, which is representing one of the plaintiffs, told
Asia Times Online that some builders, "are estimating that a minimum
remediation effort will cost at least $75,000 per home with an approximate
square footage of 2,000. The cost will go up from there based on square footage
and the adequacy of the remediation being suggested." [5]
In his ruling, Judge Fallon awarded a total of US$2.6 million to the seven
Virginia families. The lowest amount awarded to one homeowner was just under
US$89,000 and the highest amount awarded was over US$481,000. The others were
between US$ 350,000 to US$ 450,00 per household.
"The evidence supports the conclusion that the average cost per square foot to
repair (these 7 homes) is $86," he wrote.
Although the cost per square foot to repair includes "demolition and disposal
of all damaged and affected building components in the homes ... the cost per
square foot to repair does not include the replacement of the exterior shell of
the house, including windows, exterior doors, structural members, exterior
siding, roof trusses, the roof, concrete, and nails."
Reimbursing families for the expenses they incur to vacate their homes during
the estimated four to six months for the repair work to be completed is another
matter entirely. And then there are the health issues.
"The health perspective has not been litigated yet. However, there has been a
finding by the CPSC of common health complaints," said Quinn.
Despite all the publicity and the flood of lawsuits, American homeowners remain
vulnerable to foreclosure. Those in Virginia, for example, have little to no
financial protection from being foreclosed upon by their lenders when living in
their homes is no longer an option.
"They have little to no protection from their homeowner insurance carriers who
are consistently denying all the claims - again, leaving the homeowner without
any financial means to remediate a home," said Quinn. "And they have little to
no relief in some states against builders who are insulated from liability due
to home builder warranty acts - which essentially shield builders from any
liability in installing a product that renders a home unliveable."
There is also a very good chance that no matter what any US court may decide,
the owners of these damaged homes will not see a single dollar coming their
way.
Notes
1. Click here.
2. "On March 19, 2005, BNBM became the largest shareholder of Taihe Dongxin by
purchasing sixty-five percent (65%) of the equity of Taishan Dongxin. SASAC
controls the 'plasterboard' manufacturing, exportation and certification
industry. The SASAC supervises and manages the State-owned assets of the
enterprises engaged in drywall production, including Taishan. The degree of
control SASAC (Government of China) exerts and influences is extensive. For
example, SASAC assumes the responsibility as the investor on behalf of the
state; it supervises and manages the state-owned assets and enterprises (SOEs);
controls the value preservation and increment of the state-owned assets; guides
and pushes forward the reform and restructuring of SOEs; appoints and removes
top executives of SOEs; is responsible for organizing SOEs to turn gains over
to the state; is responsible for urging SOEs to carry out laws and regulations
for safety production; directs and supervises the management work of local
state-owned assets; and undertakes other tasks assigned by the State Council.
Furthermore, SASAC oversees and controls 150 large central state-owned
enterprises (SOEs), including China National Building Material Group
Corporation (AS CNBM Group). SASAC has a presence in the United States through
CNBM USA Corporation, located at 17800 Castleton Street, City of Industry,
California 91748. SASAC owns 100% of the CNBM Group. Id. CNBM Group, in turn,
owns 56.4% of the China National Building Material Company, Limited (CNBM Co.,
Ltd); 75% of BNBM; 100% of CNBM Import and Export Co. and 100% of CNBM Academy.
CNBM Co., Ltd. Owns 52.40% of Beijing New Building Material Co., Ltd. (BNBM).
CNBM Group, in turn, owns 56.4% of the China National Building Material. Id.
CNBM USA was established in 2006 the same year that Taihe (Taishan) sold
Chinese-manufactured drywall to Venture Supply Inc. Id. CNBM (USA) Corporation
has the announced mission to provide all kinds of building materials and
services in the national market." (pp. 10-11)
3. See Drywall Information
Center.
4. HUD and CPSC Issue
Guidance on Repairing Homes With Problem Drywall
5. US senators
call for Chinese drywall probe
Peter J Brown is a freelance writer from the US state of Maine.
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