Chinese Drywall Crisis Presents Builders, Construction Lawyers and Homeowners With Difficult Choices (Construction Lawyers)

Previously, we examined difficult choices and considerations facing builders who have installed or supplied Chinese Drywall.  

Builders, however, are not the only folks at a legal crossroads with respect to the imported drywall crisis.   Construction attorneys – and plaintiff attorneys – too must make important decisions that will alter the course of litigation for their clients.

For those attorneys representing homeowners, the litigation choices they make will not only affect the merits of their client’s case, but also their lifestyle.  

If an attorney chooses to file simply a class action, for example, the client’s home may go unattended to for years, requiring the client to find living quarters elsewhere at great expense and inconvenience.

For attorneys representing builders, they too have decisions with consequences beyond the litigation itself.  

Correcting imported drywall problems could cost a builder thousands, if not over a hundred thousand dollars.   Builders without deep pockets, and with more than one Chinese Drywall claim, could be facing huge liability.   How should an attorney advise a builder to mitigate its losses? To balance the cost of litigation with the cost of repairing drywall problems?

The questions are aplenty. Here are a few frequently discussed issues facing construction attorneys.

The Role of Class Actions

Plaintiff attorneys across the country are signing up Chinese Drywall victims in droves.    The problem: class action suits are largely against foreign manufactures or huge drywall importers.   It looks like class action attorneys are doing little, if anything, to explore other remedies for homeowners.

There are real problems with this, and the problem is only exasperated by the “class action culture” that may result in homeowners signing papers with a class action attorney, and forgetting about the problem.

Here are a few:

1. Homeowners want the drywall out of their homes.   The class action remedy, however, will likely take years to organize and resolve itself, and then it’s not certain how homeowners will be compensated. See Donald Brenner’s argument on Construction Litigation Law Blog: Class Action Suits May Not Help Homeowners for Years If Ever.
    
2. There are problems with collecting judgments against foreign companies, like those named in the class actions.   See Dan Harris’ commentary on his China Law Blog titled “Show Me The Money;”
    
3. Time Ticks against homeowners on all of their other claims (warranty, contract, tort, insurance, etc.).   By signing up with a class action attorney, these other claims may be ignored, and their statute of limitations will approach quickly.

Warranties and The Role of Builders

It doesn’t seem fair that builders would be liable for drywall installed in perfectly good condition, without any way of knowing of the defects.

However, those representing homeowners ought to seriously consider an action against builders, since builders have contractual and warranty obligations to the homeowner, and a clear duty of care.  

Those representing homeowners, consider the action taken by North Carolina attorneys in bringing the Flannigan v. Stafford Custom Homes, Inc. matter. While other parties will likely get involved with this action (suppliers, insurers, etc.), the plaintiffs in that case leave those issues to the builder….which brings me to those representing builders…

Those representing builders ought to consider the role of insurance, and potentially bringing an action against its suppliers, installers and the drywall importers and manufactures.   Be cautious of the Pollution Exclusion clause in CGL policies, but review the actions taken by Lennar Co. in the face of Chinese Drywall claims as an example of how to proceed aggressively for a builder client.

Mitigating Damages

As construction attorneys know, everyone has a duty to mitigate.   Since Chinese Drywall damages appear to be of the type that will get progressively worse with time (i.e. continued decay), the role of the mitigation duty is pronounced.

The duty is a difficult one under these circumstances because of the potential cost of remedying Chinese Drywall damages and defects.  

Whether the homeowner is suing its homeowners insurance or the builder….or the builder is suing its CGL for coverage…talk of the mitigation duty is likely to surface.

Should builders be notifying homeowners of potential contamination?

Should homeowners and builders be tearing out drywall and other contaminants to avoid further decay?

What is the consequence of not doing these things, or simply not being able to afford to do them? Less insurance coverage? More exposure for the builder/homeowner?

Advising your client with respect to its duty to mitigate in the face of a Chinese Drywall claim may be significant advice…but it will certainly be costly.