Construction Law Monitor : Construction Lawyer & Attorney : Wolfe Law Group : New Orleans & Seattle Law Firm : Construction Law Monitor Blog

November 18, 2009- Scott Wolfe, Jr., founder and member of Wolfe Law Group, LLC was invited to speak at the Louisiana Engineering Society: New Orleans Chapter's Monthly Meeting.  Scott would like to extend his thanks to the LES for the invitation to speak and the opportunity to meet several people in the engineering industry.

The LES has three main chapters in the state of Louisiana and is dedicated to the advancement of the engineering profession by pursing an active leadership role through various resources. 

For LES' full mission and vision statements, click here.  Incorporating speakers during the monthly meetings is just one of the many ways the LES provides its members with resources and information relevant to the field of engineering.

As a construction lawyer, Scott Wolfe consults with engineers as experts on various cases. Since the discovery of Chinese Drywall in completed construction projects across the state, he has become familiar with the basic problems of Chinese Drywall, how it effects individuals and contractors and how to proceed in the case that Chinese Drywall is detected.

The issue of Chinese Drywall is not only relevant to contractors and home/property owners, it extends to architects, engineers and attorneys.  Engineers in particular are being contracted to perform inspections of homes and businesses suspected of harboring Chinese Drywall.

Scott focused his presentation on the pertinent issue of Chinese Drywall in the state of Louisiana. Below is the slide presentation that was used during the meeting yesterday.

• Email This
• Print
• Comments
• Trackbacks

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

Today, we are going to comment on the most injured party to the imported drywall crisis:  the Homeowner.

Homeowners with Chinese Drywall in their homes are faced with a terrible situation.  Is it safe to live in the home?  How pronounced is the problem?  Who is going to pay to fix it?  When?

While attorneys and construction industry professionals have debated how these disputes should be handled and litigated...the homeowner's life and property is left in the balance.  Here are a few important and difficult choices facing homeowners with Chinese Drywall installed.

Finding A Remedy:  Class Action v. Insurance v. Builder

In one corner, weighing in as a monster, is the class action lawsuit.   There are already television commercials, internet keyword ads and news reports suggesting that if your home has Chinese Drywall installed...you should contact an attorney and join the filed class action suits.

In the other corner is a lawsuit directly against your builder, a contractor who is quite possibly a victim in itself...and who may not have the pockets or wherewithal to handle the scope of imported drywall claims.

And finally, we have insurance.  Insurance of the builder, of the supplier and even homeowners insurance.   They have all been implicated in imported drywall claims already...and the consensus is that the pollution exclusion will provide room for insurance companies to deny claims.

What is the homeowner to do?

Unfortunately, the answer here is not easy. 

As debated across the blogosphere, there are pros and cons to each remedy.  Class action suits can take years, and may not result in a real remedy for claims unrelated to personal injury.   Suits against the builder may have practical collection problems.  Insurance companies are denying coverage based on pollution exclusions...

The best answer for homeowners is to get educated about Chinese Drywall, and to consider all of the available remedies.   It isn't prudent to contact a class action attorney, provide them with your name and number, and flip off your mental switch about taking legal action related to tainted drywall.

Homeowners should explore all available remedies, and seek counsel about how to best proceed against responsible parties for damages caused by Chinese Drywall.

The Long Road of Litigation:  Fixing Yourself

Let's just talk about a homeowner's practical problem:  getting the drywall out of their property.

Assuming they have contacted a class action attorney and are hoping to be a member of the class...what does a homeowner do to get the drywall out of their quarters while they wait years for the litigation to resolve itself?

Well, unfortunately, homeowners may be forced to do the work themselves, and not just because they want the drywall removed...but also because they have a duty to mitigate their damages.

Clearly, this is one of the most prominent critiques of Chinese Drywall class action suits.

Conclusion

Perhaps more so than builders, suppliers, construction attorneys and other involved parties...homeowners are faced with difficult and consequential decisions about how to proceed with Chinese Drywall claims.  

There is already much debate as to how they should proceed...and only time will tell which remedies will be successful in this complicated search for liability.

• Email This
• Print
• Comments (1)
• Trackbacks

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.

• Email This
• Print
• Comments (5)
• Trackbacks (1)

In Florida, Louisiana and other Southern states, the Chinese Drywall situation is causing concern in the construction industry and among homeowners.  

A few months ago, we began posting about the Chinese Drywall problem and how it may affect builders on the Construction Law Monitor (tag: Chinese Drywall). As the situation grew in scope, however, we decided to launch an entire blog on the subject: The Chinese Drywall Blog.

While most news reports about the imported drywall problem has focused on filed class actions in Louisiana and Florida, the problem is a bit more complex.   Notably, because the Chinese Drywall claims present an interesting distinction to other class actions.  

The difference presents builders, construction attorneys and homeowners with complex and difficult decisions about who will be ultimately liable for the damages, and how to pursue liability.

Over the next few days, we’ll examine the decisions facing Builders, Homeowners and Construction Attorneys.   Today, we’re looking at the decisions facing Builders.

The Builder

Builders who have installed or supplied Chinese Drywall to a home or business face possible breach of contract and warranty claims, and even claims based on negligence or tort.

When examining whether its GL policy will indemnify it from imported drywall caused damages, builders worry about the applicability of policy pollution exclusions.    

With these issues in mind, the builder is now faced with the following questions:

• Making Insurance Claims: If the builder knows that it has installed Chinese Drywall, is it required to put its insurer on notice of the potential liability?   Many have suggested that they are required to do this, regardless of whether a claim has been made against the builder.   And even if they are not required by the terms of an insurance policy, perhaps they should.
  
  Many insurance policies have strict requirements that an insured notify the company of any claims or potential claims within a short timeframe.   Builders who choose not to do this, decide to roll the dice, or simply forget about the obligation, may later have their claim denied on this basis.
   
• Remedying the problem. Are builders responsible to replace the defective drywall, and compensate homeowners for damages?  
  
  Unfortunately, under contractual and warranty theories, the answer is likely YES.    And as builders may imagine, remedying a Chinese Drywall problem is substantially more involved than remedying something like a broken faucet. 
  
  Contaminated drywall is causing problems to the drywall itself, building contents, electrical wiring, HVAC systems and even the building elements.   A “call-back” could require a builder to virtually rebuild a property.
  
  With the requirement to remedy the problem persisting…what does a builder do?
   
• Builder Options:   Builders faced with Chinese Drywall claims can (a) file insurance claims against their insurer; (b) file suit against their suppliers and installers; and (c) file suit against drywall manufacturers.
  
  Lennar Co. – a nationwide homebuilder – is perhaps the most prominent builder caught installing Chinese Drywall.   They have done all of the above with respect to Chinese Drywall claims received, and have even  offered to replace any defective drywall and compensate customers for time away from home.
  
  The next and final question for builders is…what if they can’t and don’t repair the problem immediately? Will this affect their position?
   
• The Duty to Mitigate.   Builders, like everyone else, have the duty to mitigate their losses.  The question is, therefore, how does this duty apply to Chinese Drywall claims?
  
  Well, let's look from two perspectives.
  
  First, Chinese Drywall damages could (and likely will) get progressively worse if left unattended to. Therefore, if a builder receives a ‘call-back’ or complaint related to Chinese Drywall, will his insurer hold it liable if the builder fails to take steps to prevent the problem from getting worse (i.e. tear out the drywall)?
  
  Second, what if the builder doesn’t get a complaint…but knows it installed Chinese Drywall in a home. Since the drywall may cause health problems, is the builder liable for not mitigating losses if it fails to inform the homeowner that their home may be contaminated? What if the drywall does cause serious health effects with prolonged exposure and the builder keeps quiet?

Next post:  Choices for Construction Lawyers.

• Email This
• Print
• Comments
• Trackbacks (2)

New Orleans' Fox 8 has been reporting on the Chinese Drywall crisis as it's appearing in Louisiana.   They recently turned the tables on the story, asking not about problems faced by homeowners, but those problems faced by builders, contractors, suppliers and other participants in the construction industry.

This has been a focus of Wolfe Law Group, who recently launched a practice group to advise and represent contractors and suppliers with regard to the Chinese Drywall crisis.   Fox's Nancy Parker interviewed Scott Wolfe, Jr., partner at Wolfe Law Group, with respect to how contractors and suppliers are affected by the Chinese Drywall problem.

The story itself is here.  Here is a video from the newscast:

• Email This
• Print
• Comments
• Trackbacks (1)

Lennar Co. used Chinese Drywall in the construction of some of its Florida homes. Now that the drywall is earmarked contaminated, and causing problems across the country, the nationwide builder has dealt with the problem with a one-two punch.

First, it is working to rebuild the affected homes. That's right, rebuild them.  According to press releases, Lennar Company is removing and replacing contaminated drywall, and even paying the relocation expenses for customers while they are out of the home.

Second, to protect itself from future legal liability and to recover the expenses of its first move (above), it has filed suit against its suppliers and installers for the damages caused to them.

This proactive approach is perhaps one of the most aggressive responses to the Chinese Drywall situation from builders or suppliers.   And, arguably, it may be the best approach a company with Chinese Drywall exposure can take.

Lennar's approach seemingly has the following positive affects for its company:

1. By repairing the contaminated homes, Lennar has fulfilled any of its warranty obligations;
    
2. The pro-active approach resulted in positive press for the company';
    
3. By filing a lawsuit against its suppliers and installers, Lennar preserved its legal rights against those parties (read the 105 page complaint here);
    
4. Lennar has proof that it mitigated its damages after exposure to contamination liability.  The mitigation efforts will pay off in Lennar's claims against its insurers, suppliers and installers.
    
5. Lennar has homeowners whose homes are repaired sign waivers to limit the company's future exposure.

Of course, Lennar's efforts are not without its critics.  

InjuryBoard.com reported that some homeowners regret signing Lennar's waiver because they were not completely compensated for damages.   Further, in response to Lennar's suit against Knauf, the supplier released a statement complaining that it only supplied approximately 20% of the drywall at controversy - yet is the only company sued.

The Chinese Drywall situation is clearly a bad situation...and any company involved must simply perform damage control.   Lennar Company is one of the first to aggressively protect themselves - legally, publicly, and practically.   It serves as a very fair example of how some companies involved with the contamination may approach the controversy.

As part of Lennar's PR campaign, they recently spoke out about their response to finding Chinese Drywall contamination.  The video is reproduced below.

• Email This
• Print
• Comments (1)
• Trackbacks

As feared, recent reports confirm that Chinese Drywall was imported and installed throughout homes in Louisiana.  According to WWLTV.com, as much as 60 millions pounds of contaminated drywall may have been unloaded at Louisiana docks - which, unfortunately, is enough to build 7,000 homes.

As the region grows concerned about how the situation may displace and effect homeowners and property owners, there are other victims:  The contractors and suppliers.

Ultimately, its local contractors and suppliers who unloaded the Chinese Drywall and installed them into homes and businesses across the state.   As complaints and lawsuits surface, these local business could be facing long, expensive legal battles.

The Chinese Drywall situation is mature news in Florida, and so Louisiana victims (homeowners and contractors alike) can look to the experience in that state for an understanding of what's to come.

The Naple Daily News reported just a few weeks ago that there is no quick fix for Chinese Drywall problems, and addressed how the situation is affecting builders and suppliers:

Mark Boyle and Geoffrey Gentile of Boyle & Gentile advised builders in the audience of steps to take should customers contact them with a claim of Chinese drywall.

They should put their insurance companies, all of them dating back several years, on notice so they can be involved in the process, Boyle said.

Gentile added that builders should get their documents together, such as contracts, master agreements with subcontractors, insurance policies, warranties and builders risk policies to understand their involvement.

They also can review warranty calls to see if any homes they built have had recurring problems indicative of Chinese drywall, including air conditioning unit failures.

“Everyone thinks about fault,” Boyle said. “No contractor in this community knew or had any reason to believe there was anything wrong with this drywall.”

But the law isn’t just about fault, he said. If your product is defective, you’re responsible.

The advice is good.  

For construction companies and suppliers who has encountered Chinese Drywall, it's only a matter of time before a complaint affects your business.  

The expense for your company will be two-fold: 

1. You may have the expense of fulfilling your warranty to the homeowner, which could mean extensive property repairs; and
    
2. You may have legal expenses associated with the property owner's health concerns, loss of use of the property, and more.

What do you do?

As mentioned in the Naples Daily News article, businesses should quickly report the exposure to their insurance carriers (all of them), work with the property owner to "mitigate its damages," have the property inspected and tested to confirm the suspicion, and retain counsel to discuss its rights.  

Wolfe Law Group has recently launched a new practice area related specifically to Chinese Drywall defense, where the firm can help advise contractors, subcontractors and suppliers on how to best protect themselves in light of the Chinese Drywall contamination problem, and if necessary, defend them in suit.

In some instances, it may be prudent for your company to file suits against your suppliers and installers.   Lennar Co. did exactly this in Florida as reported by Builder Online when they sued 8 drywall suppliers and 12 installers, charging them with breach of contract and breach of express and implied warranties.

The long and short of the matter is this:  Chinese Drywall is here in Louisiana to stay, and if your business was involved with the supply or installation of the materials, you'll likely encounter related legal and economic challenges.  

Businesses should be aware of the problem and prepare to limit its exposure as best as possible

• Email This
• Print
• Comments
• Trackbacks

Last week, we posted on the Construction Law Monitor that the Chinese Drywall situation in Florida could possibly spread across the country...and particularly to Louisiana and Washington.   Just a few days later, local New Orleans news-station WVUE broke a story about the first confirmed Chinese Drywall case (and lawsuit) in LA.

It didn't take long at all for the news to spread.   WVUE ran another segment on the drywall contamination concerns, and plans another story tomorrow.   They characterized the response and concern from its viewers as "tremendous."

Here is a video of the segment:

When America's Watchdog announced that the Chinese Drywall situation could have effects beyond Florida, those familiar with the volume of construction in post-Katrina New Orleans immediately worried about its impact in Louisiana.  While America's Watchdog reports a case of Chinese Drywall in Washington state, the degree is not yet significant.

While the drywall situation is clearly problematic...no one is quite sure who is to blame.  Only one manufacturer has been implicated (Knauf Plasterboard), but they admit to only supplying 20% of the contaminated plasterboard.  During the interview with New Orleans' Fox 8 news this evening, the New Orleans Home Builders Association echoed a familiar cry:  It's just too early to know who is involved.

If you're a builder or drywall supplier in Louisiana or Washington, you should keep an eye on the Chinese Drywall lawsuits.  You can monitor our coverage of the issue on the Construction Law Monitor under the tag: Chinese Drywall.

If your company may have installed or supplied Chinese Drywall, Wolfe Law Group can help you understand some of the legal complexities of being involved with a class action lawsuit, and can also advise your company how to prepare for future legal battles, how to make the most of your insurance under the circumstances, and whether any preemptive action is required or prudent.  Contact our Louisiana or Washington offices today.

• Email This
• Print
• Comments
• Trackbacks

Just last week, the Construction Law Monitor posted that the Chinese Drywall situation could possibly broaden in scope, and effect the states of Louisiana and Washington.

This evening, New Orleans' WVUE reported on the first confirmed case of Chinese Drywall contamination in Louisiana, occurring in Pearl River, Louisiana, at the home of John Oertling and Jill Donaldson.

Louisiana's Becnel Law Firm has already filed suit on behalf of the homeowners, a proposed class action, and the federal suit is now pending before the Honorable Zainey in the United States Eastern District Court of Louisiana (09-2981).

Discouraging news for contractors about the new suit, is Mr. Becnel's (the plaintiff's attorney) comments during his interview with the New Orleans new-station when asked who is being sued:

It's against anybody who had a hand in it.

Encouraging news for contractors, however, is that Mr. Becnel may not mean precisely what he says, as the home in controversy was built by David Stewart Custom Homes...who are not named in the action.

We'll update the Construction Law Monitor with updates on the Chinese Drywall situation, and this particular case, as news unfolds.  Further, we'll soon post about what your company can do in the event it is named in one of these lawsuits.

For those interested, the case is officially captioned:

Jill M. Donaldson, wife of/and John "Jared" Oertling, on behalf of themselves and all others similarly situated v. Knauf Gips KG, Knauf Plasterboard Tianjin Co., Ltd., Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd., USG Corporation, L&W Supply Corporation d/b/a Seacoast Supply, Interior Exterior Building Supply, Independent Builders Supply Association, Inc. and Rothchilt International Limited.

You can download a copy of the 55-page complaint here.

• Email This
• Print
• Comments (2)
• Trackbacks (1)

There is a problem with defective Chinese drywall that was imported into the United States between 2004 and 2006, and while the problem was initially thought to mostly affect homes built in Florida, further investigation reveals that the scope is wider. 

Much wider.

The Scope

Washington D.C.-based America’s Watchdog, a consumer advocacy group, has conducted an investigation of its own and has found defective drywall in fifteen different states – including Louisiana and Washington.  

Shipping records reportedly show that 550 million pounds of Chinese drywall has been imported since 2006, which is enough to build 60,000 average-size homes.

Most of the drywall was used between 2004 and 2007, which as most people in Louisiana know, is precisely when homes were being rebuilt in post-Katrina New Orleans.  

In fact, the Construction Litigation Law Blog reports that the reason for the importing of Chinese drywall may be related to “shortage of construction materials in the Gulf Coast” following Hurricane Katrina.”

The Problem

So, what exactly is “defective drywall?”

According to the sources like the Herald Tribune and America’s Watchdog, it’s “toxic” drywall, or drywall that is contaminated with certain chemicals.   

The drywall emits a rotten egg or sulphur type smell, and can cause pretty severe damage to a home – including corrosion and blackening of pipes and ruining air conditioning coils.

Aside from the effects on inhabits health, remedying the problem may require the replacement of the drywall itself, studs, wiring, pipes and more….clearly, an expensive endeavor.

With drywall manufactured in Chinese, delivered to the United States, imported through our ports, transported through the country, sold wholesale by domestic manufacturers, purchased by supply houses, and used by contractors….the problematic question is obvious…

Who pays for the damages?

How It Can Affect Your Company

The class action lawsuits have already started to appear, and plaintiff attorneys are trying to connect the dots in determining who can and should pay for the damages.  

Unfortunately, if your company was anywhere along the chain of installing drywall between 2001 and 2008, and that drywall happened to be “Chinese drywall,” you could be named as a defendant in a very expensive and lengthy litigation.

Some builders who have been identified as using Chinese Drywall include Taylor Morrison, WCI Communities, Meritage Homes, Ryland Homes, Standard Pacific Homes and Aubuchon Homes.  Knauf Tianjin Plasterboard Co., Ltd is one of the problematic manufactures of Chinese Drywall identified thus far.

If your company is not named in the action and is not related to the problems, some have suggested a “silver lining” for the depressed construction industry to do repair work on the affected homes.

A lot of information has yet to reveal itself, and the issue is still in its infancy.    So, stay tuned.

See also, Wall Street Journal Article, "Chinese Drywall Cited in Building Woes"

• Email This
• Print
• Comments
• Trackbacks (2)