U.S. Federal Court Reaches Across the Pacific to Assess Damages to Chinese Drywall Manufacturer

Posted on June 12th, 2015 by sutteroconnell

After a hearing on Tuesday, June 9th, 2015, the United States District Court for the Eastern District of Louisiana may do what many legal experts have said for years was impossible—assess damages to Chinese drywall manufacturer Taishan Gypsum Company (Taishan), a company that has attempted to avoid US jurisdiction.  Taishan is an ISO certified manufacturer of building materials that has limited contacts within the United States, but exports its products worldwide.  Taishan has recently been faced with the prospect of paying for damages allegedly caused by its drywall or being ousted from doing business in the United States.

Taishan has been accused of exporting drywall to the United States that releases dangerously high levels of sulfur gases.  Plaintiffs argue these gases are irritating to the human body, corrosive to metals, and cause damage to electrical and mechanical devices.  If the Plaintiffs get their way, the court may hold Taishan liable for over one billion dollars in damages, and chart a course for pursuing foreign manufacturers in United States courts.  The Plaintiff class is comprised of approximately four thousand homeowners across the Southeastern United States, many of whom rebuilt after the devastating effects of Hurricane Katrina.  Tuesday’s hearing was focused only on the class members who still own their homes—approximately three fourths of the class.  The court heard from expert witnesses on the topic of damages, but did not hear from any individual homeowners.

What is remarkable about this litigation is not so much the allegations regarding Taishan’s drywall, but rather the precedent being set for forcing a foreign manufacturer to participate in litigation in the United States.  Products liability litigants on both sides of the V have likely experienced the frustration of dealing with an elusive foreign entity in the manufacturing chain that refuses to participate.  The process of identifying and serving such an entity is often difficult in itself, to say nothing for the jurisdictional hurdles that must be overcome at the outset of the litigation.  In this case, Taishan initially employed those jurisdictional defenses, arguing it could not be hauled into a United States forum.  Federal Judge Fallon disagreed, and Taishan was unsuccessful in appealing that decision.  But after those decisions, Taishan essentially disappeared from the litigation, and Judge Fallon entered a contempt order, enjoining Taishan and its affiliates from doing any business in the United States.  Judge Fallon also ordered 25% of Taishan’s profits be placed into escrow.  It appears that this decision brought Taishan back to the bargaining table, as it returned to court and agreed to pay a $3.2 million bellwether judgment to seven Virginia families in March.  But the $3.2 million judgment may just be the tip of the iceberg, depending on the result of Tuesday’s hearing.  Unless the parties reach a settlement, the court will likely issue a decision within the next two weeks.

So what does all this mean for the future of products liability defense?  For one, there is a possibility that other courts will follow Judge Fallon’s lead and enjoin a manufacturer or its subsidiaries from doing business in the United States after entry of a default judgment.  Defendants who want to avoid that result will need to participate in litigation beyond simply contesting jurisdiction and retain counsel to present a strong, merits-based defense.  In addition, domestic co-defendants in the manufacturing chain, such as packagers, distributors, and retailers, may be shouldering less of the costs associated with products liability litigation.

Sutter O’Connell represents companies who are experiencing products liability claims, including design defect, manufacturing defect, and inadequate warnings or instructions claims.  Our experienced attorneys work diligently to explore every avenue of defense to achieve the best results for our clients.