Documents Shift Attention to Manufacturer in Drywall Case


Wall Street Journal

By ROBBIE WHELAN

Documents released late last week in ongoing litigation related to defective Chinese drywall is shifting more attention to the role played by one Chinese manufacturer, Knauf Plasterboard Tianjin Co., and its German affiliate.

The documents came to light during the pre-trial phase of a class action suit brought by 152 Florida homeowners against builders, installers and suppliers of Chinese-made drywall. KPT is one of several companies in China that exported millions of square feet of drywall to the U.S. during the housing boom, and have since been flooded with complaints that the drywall emits sulfurous odors, corrodes electrical wiring and causes respiratory problems.

Although KPT isn’t specifically named as a defendant in the suit, one of its suppliers, Banner Supply Co., is named. On Friday, a Miami-Dade circuit court judge unsealed a 2007 confidential settlement agreement where KPT agreed to pay Banner $557,000 to replace defective drywall with the condition that Banner “not make statements regarding any perceived or actual smell or health risks relating to Knauf Tianjin plasterboard,” to any firm, person, or news media outlet.

Attorney Victor Diaz, who represents the 153 Florida homeowners, says the disclosure shows that KPT was aware of the problem and concerned about the potential fallout. “We can demonstrate a concerted effort to conceal knowledge of this defect from the general public,” he said.

Donald J. Hayden, a partner with Baker & McKenzie LLC, a firm that represents KPT, declined to comment about the agreement except to say “the document speaks for itself, and we have not objected to its release.”

Other documents released earlier in the week appear to establish a closer link between KPT and its German affiliate than the two companies have contended. In a series of 17 email messages from 2006, released by Mr. Diaz, an employee at Knauf Gips KG in Germany, KPT in China and several U.S.-based customers discuss the mounting complaints about the drywall.

In one email, a KPT employee in China worries that “the situation … is out of [the distributor’s] control, it will be a big problem not only in Miami but all over the USA market, maybe cover thousand [sic] of houses.”

In response, Hans-Ulrich Hummel, head of research and development for Knauf in Germany, writes to an employee at Banner Supply, “Of course I am aware of big problems with Knauf boards from China,” and describes measures he has taken to investigate the reports of odors being emitted by KPT boards using gas chromatography.

The emails are important because KPT and Knauf Gips have long maintained that they are independent companies and therefore Knauf Germany couldn’t be held legally liable for defective products made by the Chinese company. But if the German company controls the Chinese company, as plaintiffs lawyers argue, that could make it easier for plaintiffs to collect on a judgment against the drywall maker.

Alan M. Dunn, an international trade lawyer and former Assistant Secretary of Commerce, said it would be difficult for U.S. homeowners to win compensation in a Chinese court. “But it’s conceivable that aggrieved parties, aggrieved by the manufacturers of the Chinese drywall, might find it to be the best route to go after the German parent,” Mr. Dunn said.

The U.S. Consumer Product Safety Commission has received nearly 3,300 complaints about defective Chinese drywall. So far, studies produced by state and federal agencies have found no link between the drywall and serious health problems.

Nonetheless, KPT has faced a raft of lawsuits in Florida and Louisiana from homeowners and builders seeking damages to cover removing and replacing the Chinese wallboards—which are used to build ceilings and interior walls.

One federal lawsuit in the Eastern District of Louisiana includes more than 7,000 claims from homeowners and builders, and on the other side of it are more than 800 defendants, including KPT. The scope of the replacement of drywall is also at issue in the federal court. Drywall manufacturers have argued that minimal replacements are necessary, while a judge ordered the homes be gutted, and all the drywall replaced.

Last month, KPT reached a small cash settlement with builder Beazer Homes USA over a handful of homes with tainted drywall in Florida.

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