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From Products Liability Law Daily, September 29, 2014

Class certification granted to resolve damage claims against Chinese drywall makers

By John W. Scanlan, J.D.

Individuals who had filed six lawsuits against Chinese drywall manufacturers were granted class certification by the U.S. District Court for the Eastern District of Louisiana to resolve the issue of remediated damages. The class includes over 4,000 members who had experienced property damages after installing defective Chinese drywall. Because the Chinese companies had been held in default due to their failure to appear in the litigation, the issue of their liability had been conclusively established and did not need to be decided (In re: Chinese-Manufactured Drywall Products Liability Litigation, September 26, 2014, Fallon, E.).

Background. Drywall manufactured in China was imported into the United States as a result of shortages due to the housing boom in the last decade and to rebuilding efforts following the destruction caused by Hurricane Katrina and Hurricane Rita. This drywall was used to construct and refurbish homes primarily in the eastern coastal and Gulf south regions of the country. However, property owners began to complain that the drywall was emitting unpleasant smelling gases; corroding metal wiring, surfaces, and objects; and causing appliances and electrical devices to break down. A number of lawsuits were brought; in June 2009, all federal civil actions related to Chinese drywall were transferred to the Eastern District of Louisiana as part of multi-district litigation for pre-trial proceedings.

This case involves six cases brought against the Taishan Gypsum Co. Ltd. ("Taishan"); Beijing New Building Materials Limited Co. ( "BNBM"); Beijing New Building Materials Group Co., Ltd. ( "BNBM Group"); China National Building Materials Co., Ltd. ( "CNBM"); China National Building Materials Group Corporation ("CNBM Group"); and Tai’an Taishan Plasterboard Co., Ltd. ("TTP"). The court referred to these entities as the "Taishan Defendants." BNBM, BNBM Group, CNBM Group, and TTP are the so-called "Taishan Affiliates." None of these companies defended themselves, and default judgments were obtained against these defendants in those six cases from 2009 to 2014.

After judgment was entered in 2009 in the bellwether case of Germano v. Taishan Gypsum Co., Ltd., Taishan entered a limited appearance for the purpose of contesting personal jurisdiction. The court issued several jurisdictional rulings against Taishan that were affirmed by the U.S. Court of Appeals for the Fifth Circuit; the court noted that because no petitions to the U.S. Supreme Court were filed, these rulings are now final and jurisdiction over Taishan and TTP was conclusively established. In its jurisdictional rulings, the court found that Taishan and TTP were the same entity under an alter ego and/or agency theory. CNBM, CNBM Group, BNBM, and BNBM Group are affiliates of Taishan, and BNBM and CNBM had and have control over Taishan and all its subsidiaries.

The MDL court held an evidentiary hearing to determine the scope and cost of remediation and the cost of other property damages, and issued findings of fact and conclusions of law in Germano. The court determined that homeowners would have to be out of their homes for 4-6 months during remediation and would be entitled to alternate living expenses during that time. It also determined that the average costs of repairing the homes would be calculated on a formulaic, square footage basis.

Alter ego/piercing the corporate veil. The Taishan Affiliates were liable to the class members, as affiliates of Taishan or under the theory of alter ego/piercing the corporate veil, because they constituted a single business enterprise for those purposes. Applying the test from Green v. Champion Ins. Co., 577 So.2d 249 (La.Ct.App. 1st Cir.1991), for determining whether a group of affiliated entities constituted a single business enterprise, the court found that the Taishan entities had met 17 of the 18 factors in the Green court's non-exhaustive list. Although this analysis applied Louisiana law, the court found that the same result would be reached under the laws of Virginia, Florida, Mississippi, and Alabama.

Class certification. The plaintiffs were entitled to class certification for their claims. The MDL court noted that because liability had been conclusively established as a result of the default judgments, it needed only to decide whether class certification was appropriate to determine class-wide damages. Other courts considering class certification in cases involving default judgments have ruled that Rule 23 imposes an independent duty upon a district court to determine whether its requirements have been met, even though factual allegations in the complaint have been deemed admitted by the defendant upon default. Engaging in a "rigorous" analysis, the court determined that the plaintiffs had established the requirements of 23(a) and had also shown that the common questions identified in Rule 23 predominated and that the class action was the superior method of litigating the claims.

The plaintiffs proved that the class consisted of about 4,150 members; the Fifth Circuit has generally set the threshold level at 100 to 150 people as the point where joinder becomes impractical. The factual determination of class-wide property damages was common to all class members, and resolving this issue would generate common answers to move the litigation forward; the court found that it was appropriate to give preclusive effect in this proceeding to theGermano findings of fact and conclusions of law. The property damage claims of the class representatives were typical of the class members because the damage determination depended on the same factual bases, including product identification, the mechanism of damage, the need and scope for remediation, the square footage costs of remediation, and alternate living expenses during remediation. Finally, these representatives had the same interest as class members in obtaining property damage relief from the Taishan Defendants and the same interest in enforcement of a class judgment and the collection of the judgment. The court found that the representatives had demonstrated their commitment to the litigation and that the proposed class counsel were respected, competent, and experienced in class action practice.

Because liability had already been established in the default judgments, the court was only required to assess damages. The plaintiffs had established a mechanical methodology to calculate class-wide damages on a square-footage basis that was consistent with precedent; class-wide damages can be established efficiently without the need for a trial. The court could also determine the costs of remediation generally through affidavits, expert evidence, and data. The class action would be a superior method to resolve the issue due to the narrow scope of factual determinations remaining to be made, and a class action would streamline the process for affected residents.

Accordingly, the court established the class as: "All owners of real properties in the United States, who are named Plaintiffs on the complaints in Amorin,GermanoGross, and/or Wiltz (i.e., not an absent class member), asserting claims for remediated damages arising from, or otherwise related to Chinese Drywall manufactured, sold, distributed, supplied, marketed, inspected, imported or delivered by the Taishan Defendants."

The MDL no. is 2047; this case relates to case nos. 09-6687, 09-6690, 10-361, 11-1672, 11-1395, and 11-1673.

Attorneys: Richard James Serpe (Law Offices of Richard J. Serpe) for Michelle Germano. Russ M. Herman (Herman, Herman, Katz & Cotlar, LLP) for David Gross, and Kenneth Wiltz. Patrick S. Montoya (Colson, Hicks & Eidson) for Eduardo Amorin. J. Brian Slaughter(McKenry, Dancigers, Dawson & Lake, PC) for Atlantic Homes Development Corp. Christopher A. D'Amour (Adams & Reese, LLP) for Bass Homes, Inc. Charles A. Wachter (Holland & Knight LLP) for FHBF Partners, LLP. Kieran F. O’Connor (Ogden, Sullivan & O'Connor, PA) for Governors Pointe, LLC. Tim Gray (Forman, Perry, Watkins, Krutz & Tardy, LLP) for Gulf Sales & Import Company, Inc. Chris S. Coutroulis (Carlton Fields Jorden Burt, PA) for K & B Homes, Inc. Abbey L. Kaplan (Kluger Kaplan Silverman Katzen & Levine PL) for Mariner Village Townhomes, Inc. Sharon B. Kyle (Sharon B. Kyle, APLC) for Millennium Builders, Inc. Richard C. Stanley (Stanley, Reuter, Ross, Thornton & Alford, LLC) for Taishan Gypsum Company Ltd.

Companies: Atlantic Homes Development Corp.; Bass Homes, Inc.; FHBF Partners, LLP; Governors Pointe, LLC; Gulf Sales & Import Company, Inc.; K & B Homes, Inc.; Mariner Village Townhomes, Inc.; Millennium Builders, Inc.; Taishan Gypsum Company Ltd.

MainStory: TopStory ClassActLitigationNews SCLIssuesNews BuildingConstructionNews LouisianaNews

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