Drywall Makers Can’t Use Top Court Ruling to Duck Class Suit

December 5, 2017

By Martina Barash

A recent U.S. Supreme Court opinion limiting where corporations can be sued doesn’t apply to a nationwide class action in consolidated federal litigation over damage to homes from Chinese-made drywall, the federal court overseeing the litigation said.

The decision, Bristol-Myers Squibb v. Superior Court of California , doesn’t address class actions, Judge Eldon E. Fallon of the U.S. District Court for the Eastern District of Louisiana said.

The effect of Bristol-Myers Squibb, also called BMS, on class actions has preoccupied class-action attorneys since the high court’s decision came down in June. Fallon’s new decision is one of only a few so far to address the relationship, and adds the voice of a prominent jurist overseeing a high-profile set of cases.

“Defendants have been aggressively citing BMS as a sword against all sorts of cases well outside the express narrow scope of its holding,” plaintiffs’ attorney Jonathan Selbin of Lieff Cabraser Heimann & Bernstein LLP in New York told Bloomberg Law in an email Dec. 4.

Selbin represents home builders who are suing drywall manufacturers in one of the class actions that Fallon discussed in the opinion.

“It is heartening to see a serious judge conduct a careful analysis and reach the right result,” Selbin said.

Harry Rosenberg, liaison counsel for Taishan Gypsum and related companies, told Bloomberg Law that the defendants don’t believe it’s appropriate to comment about the opinion. He’s with Phelps Dunbar LLP in New Orleans.

Homes Needed to Be Rebuilt

The contaminated drywall cases arose from a shortage of building supplies during the reconstruction following Hurricanes Rita and Katrina in 2005, which also coincided with a housing boom, according to the multidistrict litigation court. Builders turned to Chinese sources for the product.

Later, however, homeowners began to complain of foul smells, property damage, and health problems. Many homes required significant rebuilding.

Homeowners sued various defendants, including two main sets of manufacturers. One set includes Knauf Plasterboard (Taijin) Co., the subsidiary of a German company, and related companies. The other is Taishan Gypsum and related companies, including Taian Taishan Plasterboard Co., which are allegedly controlled by large Chinese state-owned building materials corporations.

The Knauf companies entered into a global class settlement in December 2011. Taishan Gypsum and TTP, however, largely avoided appearing in court, except to contest jurisdiction.

The consolidated litigation came to include two class actions brought by Louisiana class representatives on behalf of home buyers across the U.S., a class action in Florida on behalf of home builders in four states, and a class action in Virginia on behalf of Virginia homeowners, later expanded to a nationwide class, according to the court.

The MDL court oversaw extensive jurisdictional discovery and, in prior rulings, found it could exercise case-linked, or “specific,” personal jurisdiction over Taishan in each case due to the state-specific contacts Taishan had with Louisiana, Florida, and Virginia. The Fifth Circuit affirmed the jurisdictional ruling.

Judge Fallon certified a nationwide class of homeowners. The class includes plaintiffs in several of the cases, according to the court.

Meanwhile, the court entered default judgments against Taishan as to liability.

Dismissal Requested

After the Bristol-Myers ruling came down in June, the four Taishan defendants asked for dismissal on the basis of jurisdiction .

But the Supreme Court only applied established law in that case , Fallon said. And that’s what Fallon said he did here in finding jurisdiction in the drywall class litigation.

Further, Bristol-Myers is inapplicable to the drywall cases because it didn’t address class actions, the MDL judge said. Class actions are different from the mass torts discussed in the top court case in several ways, Fallon said.

The defendants also argued that Bristol-Myers affected agency relationships that may allow a subsidiary’s activities to be attributed to a parent corporation. But the MDL judge said the ruling didn’t create such a change in the law.

Selbin, the plaintiffs’ attorney, said that Bristol-Myers involved a mass action in state court and that the justices didn’t address the ruling’s application to suits in federal court.

Nonetheless, he said, defendants have pushed to extend the ruling to class actions in federal court, and to suits in multidistrict litigation, “where there is a specific grant of jurisdiction” from Congress.

Further, Selbin said, defendants are using the ruling in ways that are “inconsistent with both the basic test of personal jurisdiction,” which is fundamental fairness, and the efficiency principles in the Federal Rules of Civil Procedure.

Herman, Herman & Katz LLC and others represented the plaintiffs.

Baker Donelson Bearman Caldwell & Berkowitz, Phelps Dunbar and others represented the defendants.

The case is In re Chinese-Manufactured Drywall Prods. Liab. Litig. , 2017 BL 429967, E.D. La., No. SECTION L (5), 11/28/17 .

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editor responsible for this story: Steven Patrick at spatrick@bloomberglaw.com

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