U.S. Court Certifies Class In Drywall Action Against Chinese Companies And "Pierces The Veil" Between Them

NEW ORLEANS, Oct. 6, 2014 /PRNewswire/ -- The U.S. District Court for the Eastern District of Louisiana has issued an order certifying a class estimated to include over 4,000 people in a series of cases that plaintiffs in Louisiana, Virginia, Florida, and Mississippi¹ filed against Chinese government-owned companies for manufacturing and distributing defective drywall, according to Arnold Levin of Levin Fishbein Sedran & Berman. The defendants are known as the "Taishan Defendants."²

The Court certified the Class defined as "all owners of real properties in the United States, who are named Plaintiffs on the complaints" in those cases³ and appointed five sets of plaintiffs to act as class representatives.⁴

It also found that the defendants constitute a single business enterprise and that each is liable for the conduct of the other.

Levin stated that "the class action seeks justice in a single proceeding for thousands of innocent victims to whom Chinese government-owned companies sold defective drywall. The drywall created foul odors, corroded appliances, and forced people from their dream homes, ruined lives."

Levin said the litigation "is historic and goes to the heart of whether the U.S. and China can have stable commercial ties. Will the Chinese government own up to its legal responsibility? Or will it thumb its nose at us and flee U.S. courts when they know they're liable? Every company who does business with the Chinese government must ask themselves: can they afford the risk of doing business with a Chinese government when it refuses to honor or respect our judicial processes? China eagerly uses our courts when it benefits them. It'll do anything to escape justice when they know they'll lose a lawsuit."

The Class Certification

The Germano judgment that was ruled upon by the United States Fifth Circuit Court of Appeals is now in a position to be expanded to a class of homeowners that also have Taishan Chinese drywall in their properties.  Judge Eldon Fallon issued Findings of Fact and Conclusions of Law on June 26, 2014 in connection with class certification under Federal Rule of Civil Procedure 23.   Leonard Davis, co-counsel for the plaintiffs, stated: "This  class action enables the Court to set the stage to monetize the claims made by large numbers of plaintiffs in a single proceeding.  It saves everybody time and money.  Otherwise over 4,000 claims would clog courts with separate suits involving the same issues of law and similar claims for damages."

The Court certified the class after plaintiffs proved there were a sufficient number of members in the class who had claims against Taishan and there were common issues of fact and law for each class member's claims.

Because the Court has already found that the costs of remediation can be calculated on a square footage basis and the Court has determined what other property damages are recoverable, which include among other things, the move-in/move-out cost for a property owner, the Court held that "class wide damages can be established in an efficient manner without the need for a trial." 

Arnold Levin said that in line with the Court's order, "the plaintiffs intend to prove the cost of remediation from evidence that already exists which has been developed during the course of the Chinese Drywall MDL litigation so that 'a formulaic method to determine class-wide property damage as required by the Rule 23(b)(3) predominance requirement' can be established.  This will mean that 'damages are simply calculated by using a mathematical formula,' which is based upon the price per square foot to remediate multiplied by the number of square feet in the class member's home, equaling the damages."

Piercing the Veil

The Court found that each Taishan Defendant is liable for one another's conduct. That's because although they operate through different names and companies, in reality they form a single business enterprise. The Court also found that the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) is the Government of China and that the Chinese government supervises and manages the Taishan Defendants and their affiliates.

Co-counsel Leonard Davis stated: "The Court closely examined the relationship between the companies. It found they only pretended to be separate.  They are each legally responsible for the conduct of one another. In what's called 'piercing the corporate veil,' the Court said no to the Chinese government's shell game."

^1. The plaintiffs are active litigants (either in the original action or in complaints in intervention) named in Germano, et al. v. Taishan Gypsum Co., Ltd., f/k/a Shandong Taihe Dongxin Co. Ltd., et al., Case No. 09-6687 (E.D.La.); Gross, et al. v. Knauf Gips, KG, et al., Case No. 09-6690 (E.D.La.); Wiltz, et al. v. Beijing New Building Materials Public Limited Co., et al., Civ. Action No. 10-361 (E.D.La); Abel, et al. v. Taishan Gypsum Co., Ltd., f/k/a Shandong Taihe Dongxin Co., Ltd., et al., Civ. Action No. 11-080 (E.D.La); Haya, et al. v. Taishan Gypsum Corp. Ltd., et al., Civ. Action No. 11-1077 (E.D.La.); Almeroth, et al. v. Taishan Gypsum Co., Ltd., et al., Civ. Action. 12-0498 (E.D.La.); Amorin, et al. v. Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd., et al., Civ. Action No. 11-1672 (E.D.La.); Amorin, et al. v. Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd., et al., Civ. Action No. 11-1395 (E.D.La.); and/or Amorin, et al. v. Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd., et al., Civ. Action No. 11-1673 (E.D.La.).

² Taishan Defendants include: Taishan Gypsum Co. Ltd. ("Taishan"); Beijing New Building Materials Limited Co. (hereafter "BNBM"); Beijing New Building Materials Group Co., Ltd. ("BNBM Group"); China National Building Materials Co., Ltd. "CNBM"); China National Building Materials Group Corporation ("CNBM Group"); and Tai'an Taishan Plasterboard Co., Ltd. ("TTP"). The Court also found that BNBM, BNBM Group, CNBM, CNBM Group, and TTP are affiliates of Taishan.

³ The cases are identified in Footnote 1, above.

⁴ Eduardo and Carmen Amorin; Albert and Betsy Butzer; Jack and Anna McGinn; Thomas and Virginia Spencer; and Elliot and Angelina Everard.

SOURCE Levin Fishbein Sedran & Berman