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June 2010

Chinese Drywall Causes Huge Mess

Liability Could Take Years to Resolve

The current controversy in Chinese drywall involves allegations that the United States imported toxic drywall from China during the construction boom between 2004 and 2007. Drywall is a common building material typically made of a layer of gypsum-based plaster pressed between two thick sheets of paper, then dried in a kiln. Homes with the defective drywall produce a hydrogen sulfide (rotten-egg) smell that grows worse with heat and humidity. Copper surfaces such as pipes, wiring, jewelry, and air conditioner coils corrode or turn black and powdery, a chemical process indicative of reaction with hydrogen sulfide.

The government estimates that more than 550 million pounds of Chinese drywall and associated building materials, enough to build approximately 64,000 homes, were imported from China to the United States between 2006 and late 2007. More than half of the Chinese drywall was used in Florida because the hurricanes that hit Florida from 2004 to 2005 created a high demand for construction and a shortage of American-made drywall. Most complaints have come from states in the Southeast, where a warm and humid climate seems to encourage the emissions. The Florida Department of Health has received more than 150 complaints statewide.

Florida homeowners have filed class action lawsuits against home builders, drywall suppliers, and a Chinese drywall manufacturer claiming respiratory tract infections, sinus problems, nosebleeds, and headaches. Scientists attribute these respiratory problems to the use of fly ash in the drywall, which degrades in the presence of heat and moisture. Laboratory tests of samples for volatile chemicals have identified emissions of carbon disulfide, carbonyl sulfide, and hydrogen sulfide in the Chinese drywall. Lab comparisons of Chinese and American-made drywall show significantly higher levels of pyrite, a sulfide mineral, in the Chinese drywall. This suggests that pyrite oxidation may be the source of the sulfur compounds released by Chinese drywall.

Florida legislators introduced a resolution to provide assistance to homeowners who moved out of their contaminated homes and into alternative housing. In addition, some homeowners are calling for the governor to declare a formal state of emergency to obtain federal funding from the Federal Emergency Management Administration. Even Florida's lieutenant governor is seeking damages in a private lawsuit of more than $75,000, interest, punitive damages, attorney's fees and reimbursement for repair and replacement costs. Many experts have provided remediation estimates as high as $100,000 for a single house.

The Federal Emergency Management Agency ("FEMA") has declined to get involved in the drywall crisis because the degradation of imported drywall does not constitute an emergency or major disaster incident. Instead, FEMA has requested the U.S. Consumer Product Safety Commission ("CPSC") and its partner agencies to develop a solution. The CPSC has received nearly 3,300 complaints about defective Chinese drywall. In early 2009, the CPSC launched a formal investigation of whether the Chinese drywall is toxic and to determine the extent of damage to homes. Warnings from government agencies note that the presence of defective drywall cannot be determined by testing a home's air or corrected by chemical sprays or ozone generators. So far, the CPSC has found no link between the drywall and serious health problems.

In May 2009, the U.S. House of Representatives passed an amendment to the Mortgage Reform and Predatory Lending Act that requires the Department of Housing and Urban Development ("HUD") to study the effects of tainted Chinese drywall on foreclosures and the availability of property insurance. On November 23, 2009, the federal government released a report that stated a "strong association" between problematic imported Chinese drywall and corrosion of pipes and wires.

Legal battles are currently being waged to determine the nature of repairs necessary to remediate the defective drywall and the liability of those involved in manufacturing, distributing and installing the drywall. In America's first jury trial, a Florida couple was awarded $2.4 million in damages for defective wallboard that included damages for loss of enjoyment of their new $1.6 million dream house. New home sellers, American businesses that distribute Chinese drywall, contractors and real estate agents may consider whether they need to disclose the presence of Chinese drywall in the products they sell. Chinese drywall manufacturers may be out of harm's way because plaintiffs would have to serve the Chinese company via the Hague Convention, then establish that the Chinese company had sufficient minimum contacts with the forum state to support a court's personal jurisdiction over the foreign company. Meanwhile, plaintiffs' lawyers say they are considering action against U.S. investment bankers who financed the Chinese companies. However, a determination and allocation of liability and damages will not occur overnight. It could take years before the legal system resolves the myriad scientific, legal and health issues raised by the allegedly toxic Chinese drywall.

Environmental/Toxic Tort

Environmental/Toxic Tort