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Chinese drywall hits the fan in ruling against manufacturer p2

Tue Mar 4th, 2014 on     Insurance Claims,    

We are continuing our discussion of the Fifth U.S. Circuit Court of Appeals decision in a class action case against one of the manufacturers of Chinese drywall. The court has ordered that the company pay damages to the homeowners who were the named plaintiffs in the class action. The plaintiffs are not from Florida, but the decision clears the way for Florida homeowners to pursue the manufacturer for damages as well.

The case was unusual on a number of fronts. The manufacturer did not cooperate with plaintiffs’ attorneys and failed to appear in court. The district court entered a default judgment against the manufacturer when it missed the court date. The manufacturer appealed, arguing, among other things, that it didn’t understand the complaint.

According to the decision, the company claimed it did not respond to the complaint because it was “wholly unsophisticated and unfamiliar with U.S. litigation practice, and failed to understand the significance of the complaint.” When the default judgment was entered, the company said, it “promptly retained counsel in China and the United States” and, from that point forward, has fully cooperated with the court and the plaintiffs.

For the court, the argument was without merit. If the company did not understand the original complaint, the opinion says, it should have hired an attorney. And the court will not overturn the district court’s decision based on the company’s post-default conduct.

The company also said that the U.S. did not have jurisdiction over the case. A clause in its contracts with its U.S. distributor requires that disputes go to arbitration in China, the company said.

Again, the appellate panel did not agree. The company made enough money in the U.S. and had “sufficient contacts” with the U.S. to give our courts jurisdiction in the matter. The company’s drywall contracts were worth more than $700,000. (Law students spend weeks on personal jurisdiction and the minimum contacts rule, and a full explanation is well beyond the scope of this blog.)

The decision does not put the drywall issue to rest, of course. There are hundreds of claims still pending. The decision is still good news for those homeowners, if only because the court confirms that the company has been cooperating with plaintiffs and the court since the default judgment.

Sources: 

Insurance Journal, “Federal Appeals Court: U.S. Has Jurisdiction in Chinese Drywall Suits,” Janet McConnaughey, Feb. 13, 2014

In re Chinese Manufactured Drywall Products Liability Litigation, — F.3d —-, 2014 WL 321844 (C.A.5 (La.),2014)

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