As of June 4, 2009, SGR has confirmed that at least 169 lawsuits have been filed against a multitude of manufacturers and suppliers of Chinese Drywall, as well as the builders who install the drywall. These suits are pending thus far in Florida, Alabama, Texas, North Carolina, Virginia, Ohio and Louisiana and relate to drywall installed between 2004 and 2008 in single family and multifamily projects. Additionally, as of May 26, 2009, the Florida Department of Health had received 363 complaints about defective drywall. Unconfirmed reports indicate that future litigation could involve in excess of 15,000 different plaintiffs. Investigations are ongoing before the United States Senate and in various states, and at least one criminal investigation has been opened at the state level.

The Issues Facing The Development Community:

While our analysis of the various pleadings is still ongoing, it has been widely alleged in the news media that drywall manufactured in China emits a sulfur odor when exposed to humidity over time, and the drywall has been blamed for corrosion of copper pipes and other metal items in homes throughout the South, with a heavy concentration in Florida.

The Florida Department of Health commissioned a study by a third-party, Unified Engineering, Inc. (UEI). UEI has reportedly discovered “trace levels” of strontium sulfide in the gypsum, which has been cited as a possible source of the odors and corrosive properties. Strontium sulfide is known to react in moist air to form hydrogen sulfide. UEI has also opined that two other “volatile sulfur compounds,” carbonyl sulfide and carbon disulfide, could “potentially contribute to the odor” being reported in homes, and the latter of those compounds has reportedly been detected in samples taken from the homes.

The drywall is alleged to be manufactured in China by German and Chinese companies based on manufacturing markings on the drywall and physical and chemical differences between the suspect drywall and domestically manufactured drywall. The health impacts have yet to be clarified, but Florida’s state toxicologist has reportedly stated that studies will take “several months” to complete relative to the possible health effects. Independent laboratories have opined that a health risk exists.

While some of the property damage claims may have sufficient commonality to warrant a class action approach, personal injury claims do not qualify. Consequently many more suits are anticipated, and will be eligible for, “Multi-District Litigation” (MDL) designation. When a group of lawsuits involves one or more common questions of fact, the Judicial Panel on Multi-District Litigation decides whether to create an MDL and determines the venue for such litigation. A hearing before this panel occurred on May 27, 2009, in Louisville, Kentucky, and sought to place nineteen suits–which were filed in Florida, Ohio and Louisiana–in the Southern District of Florida. As of today, no decision has been reached–but the Court appears to be considering New Orleans and Miami as potential venues. South Florida is a very favorable jurisdiction from a plaintiff’s standpoint. Last year it was noted as a location in which “legally excessive awards and plaintiff-biased rulings…make it a launching pad for class actions, dubious claims and novel legal theories creating new types of lawsuits.”

To defend such litigation, SGR has formed a Drywall Defense Team composed of experts in MDL defense, class action suits and products liability. SGR is uniquely poised to perform this work given its background and offices in Georgia, Florida, and Germany. Should the drywall problem expand north, its New York office is also prepared to participate. The team is composed of a range of attorneys from mid-level associate to senior partner, and has already identified a number of potential defenses.
Totally independent of their numerous successes relative to MDL designations and class decertification, the following appear to be potential viable issues that should be considered by you:

1. Availability of insurance coverage
   a. In general
   b. Damage exclusions
   c. Pollution exclusions
   d. Declaratory judgment results
2. Possible inability to identify the source of product
3. Inherent uncertainty of alleged health impacts:
   a. Insufficient evidence of concentration or duration of exposure;
   b. Lack of scientifically supportable evidence of causation between product and claimed disease;
   c. No scientific tests available.
4. Proof that product was fit for intended use and complied with applicable technical standards (e.g., ASTM C22/C22M, C1396/C1396M, C11, C471M and C472)
5. Other causes of sulfur:
   a. Fumigation by carriers;
   b. Water;
   c. General pollution in community.
6. UCC rules regarding liability limitations and waivers
7. Possible statute of limitations defenses
8. Limitations of liability due to the “economic loss rule”;
9. Plaintiffs’ failure to comply with state-level construction defect laws prior to initiating suit
10. The overall need for early identification of experts needed for the defense efforts, as well as preclusion of experts used by the plaintiffs
11. Implementation of an overall plan and process for cost-effective discovery and swift resolution of claims
12. Internet-based, confidential case management for client convenience
13. Possible state-level and Congressional investigations and pursuit of penalties