Products Liability Law Daily Chinese drywall MDL extends remediation damages formula to former property owners
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Wednesday, May 8, 2019

Chinese drywall MDL extends remediation damages formula to former property owners

By Pamela C. Maloney, J.D.

The remediation damages formula developed by the MDL court to calculate damages sustained by current owners of property affected by defective Chinese-manufactured drywall applied to former property owners who had remediated their homes prior to relinquishing ownership and established a rebuttable presumption for determining the diminution damages incurred by former property owners.

The remediation damages formula used to determine damages incurred by current owners of property affected by the installation of Chinese-manufactured drywall was extended by the U.S. District Court for the Eastern District of Louisiana to the claims of former property owners who had remediated their homes prior to relinquishing ownership. In addition, the court found that the remediation damages formula established a rebuttable presumption for determining the diminution damages incurred by former property owners (In re: Chinese-Manufactured Drywall Products Liability Litigation, May 3, 2019, Fallon, E.).

Homeowners whose houses had been constructed using drywall manufactured in China and who experienced emissions of smelly gasses, the corrosion and blackening of metal wiring, surfaces, and objects, the breaking down of appliances and electrical devices in their homes, and various physical ailments allegedly caused by the Chinese drywall filed suit in various state and federal courts against homebuilders, developers, installers, realtors, brokers, suppliers, importers, exporters, distributors, and manufacturers involved with the drywall. The cases were consolidated into a multidistrict lawsuit that named as defendants two groups of entities (the German-based Knauf Entities and the China-based Taishan Entities) that had manufactured the allegedly defective drywall.

Remediation damages. In April 2017, the MDL adopted a remediation damages formula based on the findings issued following a June 2015 damages hearing. Before the district court was a motion by the Plaintiffs' Steering Committee (PSC) to extend the remediation damages formula to the damage claims of former property owners affected by the defective drywall. The Taishan Entities opposed the motion, arguing that the district court had properly limited the 2015 damages hearing to current property owners only because the type of damages incurred differed as to prior owners of damaged property.

Applicability to former property owners. In adopting the remediation damages formula, the district court affirmed its finding in the Germano Chinese drywall litigation (Case No. 09-6687) that remediating a Chinese drywall property required complete remediation and cleaning, concluding that the total remediation damages to be awarded to current property owners was to be calculated by multiplying the under air square footage of the affected properties by $105.9110 as adjusted by the RS Means location factor. In asking the district court to extend its 2017 damages findings to former property owners, the PSC pointed out that these “former” owners had been “current” owners when the property damage was sustained and when they filed their lawsuits. Furthermore, many of the property owners had been forced to sell their properties during the decade-long, protracted Chinese-manufactured drywall proceedings because of the Taishan Entities' dilatory litigation tactics. Thus, the PSC contended, any plaintiff who had been a current owner when suit was brought and when the first defaults were entered against Taishan in 2009 should be considered a current owner for purposes of calculating damages in these default proceedings.

Calculation question. The district court agreed with the PCS insofar its arguments involved a subgroup of former owners who had remediated their properties prior to relinquishing ownership of their homes, finding that those homeowners unquestionably were entitled to recoup remediation damages. However, a question remained as to how to calculate damages sustained by those property owners who had owned their property at the time the damage was sustained and at the time their lawsuits were filed, but who did not remediate their properties prior to losing possession.

Under Louisiana's subsequent purchaser rule, a former owner retains the right to sue a tortfeasor for damages previously inflicted absent an assignment or subrogation of that right to the purchaser. If a former owner sued a tortfeasor, the former owner can recover damages resulting from diminution in value of the home, which is measured by determining the difference in the value of the property immediately prior to the damage and the value just after the damage occurred. Thus, the former owners in this case retained the same right as the current owners to sue the Taishan Entities for damages. However, because the district court's damage calculation was based on the cost of remediation and because the former owners did not and could not remediate their homes, the court agreed with the Taishan Entities that the former and current owners did not stand in the same position with respect to proving the actual damages incurred.

Dilatory tactics. According to the district court, that finding did not end its analysis as to whether the remediation damages calculation could be applied to claims by former owners. Instead, it was relevant to the court's consideration of how to properly calculate the diminution in value of the properties in question, especially in light of the delay tactics employed by the Chinese defendants which, in many cases, had caused the property owners to lose their property, thus making them former owners. Noting that all the parties had agreed that the remediation damages calculation was based on the finding that all affected properties had to be totally remediated—meaning rebuilt from the studs up—the court concluded that there would be no diminution in the value had the former owners been able to remediate their homes prior to sale or foreclosure. Thus, with respect to homes that were sold without having been remediated, the district court found that the remediation damages calculation, when introduced into evidence, created a rebuttable presumption of a former owner's diminution damage calculation.

Attorneys: Russ M. Herman (Herman, Herman & Katz, LLC) for Amorin Plaintiffs. Kerry James Miller (Fishman Haygood, LLP) for Defendant. Harry Rosenberg (Phelps Dunbar, LLP) Liaison Counsel for Taishan, BNMB entities, and CNBM entities.

Companies: Taishan Gypsum Co. Ltd.; New Building Materials Group; China New Building Materials Co.; CNBMIT Co. Ltd.; CNBM USA Corp.; United Suntech Craft, Inc.; Beijing New Building Materials Public Limited Co.; Beijing New Building Material Group.

The case is MDL No. 2047.

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