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     Apr 10, 2010
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.

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.

(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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