Defective Drywall: Chinese Maker Questions Ruling

By | October 11, 2013

A Chinese drywall manufacturer asked a federal appeals court on Oct. 9 to overturn a judge’s ruling that U.S. courts have jurisdiction over claims that its defective product wrecked thousands of homes.

A three-judge panel from the 5th U.S. Circuit Court of Appeals in New Orleans didn’t indicate how soon it would rule. It heard arguments from lawyers for Taishan Gypsum Co. Ltd. and a group of Virginia homeowners who sued the foreign company.

Plaintiffs’ attorneys argue Taishan can be held accountable in the United States for selling more than $8.5 million worth of its drywall in the U.S. between 2005 and 2008, with much of it going to Virginia-based distributor Venture Supply Inc.

Chinese drywall was used in the construction of an estimated 12,000 to 20,000 homes and businesses, mainly in the South, after a series of destructive hurricanes in 2005 and before the housing bubble burst. The problems caused by defective drywall ranged from a foul odor to corrosion of pipes and wiring – problems that were expensive to fix and, in some cases, drove people from their homes.

Taishan attorney Joe Cyr argued there is no evidence that Taishan knew its drywall would be used in Virginia or that it supplied Venture with a custom-made product.

“Venture Supply never said it was going to distribute the goods in Virginia,” Cyr said.

But two of the judges on the panel sounded skeptical, noting that Venture’s name and telephone number were printed on the boards.

“It was packaged and labeled for the Virginia market. Isn’t that correct?” asked Judge Jennifer Walker Elrod.

“It’s the client’s unilateral decision to put whatever they want on it,” Cyr responded.

Judge Catharina Haynes said it appears Taishan wanted to make money in the U.S. without having to be accountable for any harm its product caused.

“Our client has not said that it doesn’t want to be accountable for its drywall,” Cry said, adding that the company’s contracts called for resolving disputes through arbitration in China.

Plaintiffs’ lawyers Russ Herman and Arnold Levin urged the 5th Circuit panel to uphold the jurisdiction ruling by U.S. District Judge Eldon Fallon, who has overseen tens of thousands of drywall-related claims against a host of other companies.

Fallon also entered a $2.6 million default judgment against Taishan last year after it initially refused to respond to the suits. Haynes asked Herman if the homeowners have any hope of recovering money from the company.

“Absolutely,” he said.

Fallon recently gave his final approval to five class-action settlements with other companies, including Chinese drywall maker Knauf Plasterboard Tianjin Co. The settlements call for the companies to pay hundreds of millions of dollars to repair damaged homes.

The appeal heard in Louisiana – where all the federal cases involving Chinese drywall were consolidated – only applies to Virginia homeowners’ claims, but a favorable ruling could benefit plaintiffs in other states whose homes had drywall made by Taishan.

Plaintiffs’ attorneys claim Taishan purposefully targeted the U.S. market to meet an increased demand for drywall following Hurricane Katrina in 2005 and a housing construction boom.

“Taishan’s practice of deliberately looking the other way should not insulate it from this litigation,” they wrote in a court filing. “Taishan has admitted that as long as there is money to be made, the customer’s domicile is irrelevant to Taishan.”

Taishan’s lawyers say two transactions with Venture were its only sales to a U.S. customer and aren’t enough to establish jurisdiction in U.S. courts.

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