Eliminating Chinese Drywall

A first step in eliminating Chinese drywall - In pilot program, Chinese firm will pay for repairs to up to 300 homes in 4 states

Aaron Kessler
October 15, 2010

Nearly two years after problems associated with contaminated Chinese drywall first surfaced -- and 15 months since a federal judge began overseeing massive litigation involving the material -- the first true sign that victims nationwide could get relief came Thursday.

Knauf Plasterboard Tianjin, the manufacturer at the center of many of the complaints, agreed to a pilot repair program for up to 300 homes in four states, including Florida. The goal, all sides said, was to expand the program into a full-blown global settlement for all U.S. homes built with Knauf Tianjin board.

Still absent, however, is any settlement from the second-largest manufacturer in the case: Taishan Gypsum Co., a business controlled by the Chinese government.

U.S. District Court Eldon E. Fallon's New Orleans courtroom was packed Thursday morning, with several hundred people crowding into an overflow room down the hall, and even more listening in by phone.

The judge cut to the chase: "At my suggestion, as well as the state court judges, the parties have tried to look at this matter globally," Fallon said. "We have the first step in that global resolution being reported today."

Signatures on the deal had only been put on paper around 4 p.m. on Wednesday, but the process marked the culmination of months of intense behind-the-scenes negotiations in New Orleans, New York and Philadelphia.

The arrangement calls for complete repairs of the homes, getting approvals from an environmental firm, and also paying homeowners a lump sum to cover relocation expenses and personal property damage.

But the most important single element of the pilot program might be the fact that it runs lockstep with remediation guidelines established by Fallon in a series of decisions handed down this year. They call for essentially gutting the home and rebuilding it to its former condition: replacing all drywall, wiring, copper pipes, the air-conditioning system, fire safety equipment and all damaged fixtures.

Until now, Knauf had argued against that level of treatment. One of its former attorneys even referred to Fallon's protocol as "unreasonable."

As the litigation has unfolded, Knauf has attempted to come up with a series of less-involved fixes -- from air-filtration systems to selective drywall removal to leaving behind electrical systems, insulation and other components.

But on Thursday, Knauf representatives appeared to accept once and for all that this would be the approach to fixing the tainted homes.

Knauf's attorney, Gregory J. Wallance, said in a conference call following the court proceedings that the company "is prepared to expand the remediation" to other affected homes, which could number in the thousands.

Plaintiffs' attorneys estimated that up to 3,000 U.S. homes could contain Knauf Tianjin drywall. Wallance said Knauf thought that number "needs to be refined."

But if the number holds and the average remediation comes in at $100,000, Knauf and the other defendants participating in a global settlement could face at least $300 million in repair costs alone.

The relocation and personal property payment is $8.50 per square foot, or $17,000 for a 2,000-square-foot home. That could be another $51 million if expanded to 3,000 similarly sized homes.

The 300 homes chosen for the pilot will have to include all or "substantially" all Knauf drywall -- defined as 95 percent or more in the agreement. Knauf is given the sole power to waive that requirement for a home.

Both sides already have identified dozens of homes that are "pre-qualified" -- meaning they have already been inspected by both sides -- and at least 40 already have been chosen to be included. The process to fix those 40 could start as soon as Monday.

It remains unclear what will happen to drywall victims who have already paid for repairs. Under the current agreement, those situations will be negotiated at a future time. But the ultimate goal is to "balance the books of every homeowner whose property has been damaged," said Russ Herman, the plaintiffs' liaison counsel.

Cassandra Youmans, whose home in New Orleans has tainted Knauf drywall, told the Herald-Tribune Thursday that she could use the help. She is making repairs herself, which has required nearly all her savings.

Youmans thinks any global settlement also should make her whole.

"I'm hoping it will, because then I can restore the money I had to borrow out of retirement and my children's college fund," she said. "My cash reserves are gone. I need some relief and soon."

A number of the "pre-qualified" homes are in Florida, mainly in the Miami and Fort Myers area. None of the homes appear to be in Sarasota or Manatee counties.

Meanwhile, attorneys for Taishan, the Chinese-controlled drywall maker, showed no willingness to follow along in Knauf's footsteps.

The company's attorney told Judge Fallon during the Thursday hearing that Taishan officials are not even convinced their drywall is a problem.

"They absolutely do not understand why their high-quality drywall allegedly emitted excessive amounts of hydrogen sulfide," attorney Joe Cyr said. "We're not right behind Knauf in any kind of settlement negotiations."

http://www.heraldtribune.com/article/20101015/ARTICLE/10151032