Header graphic for print
China Law Blog China Law for Business

Suing Chinese Drywall Manufacturers. Why All The Bother?

Posted in Legal News

Someone just emailed me an article on Chinese Drywall, with the question, “why do you think these lawyers are spending so much to serve the Chinese defendants.” My short answer is that I have no clue.
I will backtrack a bit first.
The article is entitled, “Chinese-Made Drywall: A Multi-Defendant, Multi-Claim, Multi-District Litigation Has Litigators Multi-Tasking,” and it is more a pitch for a bunch of money making seminars than an article designed to impart real information. With that caveat now in place, here are the “offending portions.”

[Ervin] Gonzalez dug in to the potential defendants, starting with a primer on how the product is made. Gypsum is mined from a quarry, heated to dry, then rehydrated to form a slurry, a paste that is then sandwiched between materials. The mining process raises questions as to whether the contaminants are natural or whether pollutants migrated from, say, a nearby farm where pesticides were used. The ingredients are supposed to be inert, he said, but there is a high level of active ingredients that, when hit with water or humidity, release sulfur gas.
“So manufacturers are on the front line,” he said, naming Knauf companies, which are German-based with subsidiaries in China. Knauf Plasterboard Tianjin Co. Ltd. and Knauf Tianjin have been sued. Taishan Gypsum, a China company, is another defendant.
Other potential defendants listed on the call included builders, developers, subcontractors, shipping companies, importers, distributors, architects, directors & officers, and others – with a great deal of liability shifting expected.
* * * *
Types of claims raised or anticipated include strict liability, negligence, nuisance, extension of privity through warranty, medical monitoring, and requests for injunctive relief. Gonzalez said most states are still following the Restatement of Torts, while others are looking at the Third Restatement which, he said, requires analysis of a safer product.
The international aspect of this litigation further complicates matters, especially in dealing with companies based in China and Germany. Levin noted the high cost of simply serving these foreign defendants, saying it cost his firm $15,000 to serve a complaint, a process that took weeks. He warned anyone serving a defendant in China NOT to make reference to the Republic of China or Taiwan. Simply state that the defendant is a “foreign corporation,” otherwise the ministry there will not accept service – the government only recognizes one China. Mullen questioned whether non-U.S. insurers also will be brought in as claims are filed.

Now for the analysis.
I am not sure whether the person who wrote me the email was asking about the $15,000 cost or why the service was being done at all, so I will answer both questions.
If the $15,000 was for service of the complaint alone, it is way out of line. Serving a foreign complaint in China is not all that difficult and it should not be nearly that expensive. China is party to the Hague Convention on Service Abroad of Judicial and Extra-Judicial Documents in Civil and Commercial Matters and it accepts service of process made through its Central Authority. There are a few tricks to making sure the forms are filled out properly and payment also must be paid a certain way, but once you have done this a few times, it becomes pretty much rote. But what probably pushed the costs so high is the requirement that the pleadings served be in Chinese. Good legal translations cost real money. So far so good.
Now the big question and the one that nobody seems to want to answer is why even bother suing the Chinese defendants at all? I have twice been interviewed by legal publications on this and both times I said I thought it unlikely that anyone would collect money from the Chinese companies involved in this. I also asked both of them to ask the other lawyers they were interviewing how they actually planned to collect from the Chinese companies. I specifically asked these reporters to get back to me with the answers and they both said that they would. They never did, and near as I can tell, I was never quoted in either article.
During the tainted pet food litigation, I called up a plaintiff’s lawyer who had sued one of the Chinese companies and I asked him how he was going to try to collect on that judgment. His response was simply that he was going to worry about that only after he got it. I strongly suspect a lot of that is going on here as well. I can only tell you that my firm gets calls nearly every month from lawyers thinking they are coming to us with great propositions by offering us a percentage of whatever we can collect on their US judgment against a Chinese company. If the Chinese company does not have assets outside China, we always politely decline, no matter what the percentage.
Now it is always possible to sue the Chinese drywall manufacturers in China and even to win. But the big problem with that is that the damages are not likely to be nearly as high as they would be in the United States.
And there are times where it makes sense to sue a Chinese manufacturer for insurance purposes or just to let the US jury know that you tried. Is that what is going on in the drywall cases?
The bottom line is that China does not enforce US judgments, so unless you have some way to use that judgment to get at the assets of a Chinese company in some country other than China, a US judgment will simply not do you any good. And since the Chinese manufacturers of this drywall presumably are no longer doing business in the US, there is likely to be no way to get at those companies’ assets in the US. We have written on this previously (in a non-drywall context) in the following posts:
– “Enforcing Foreign Judgments in China — Let’s Sue Twice
– “Taking Judgments To China (And Korea), Let’s Not Sue Twice
– “Will Your US Judgment Be Enforced Abroad? Not China, But Maybe.
And if you want to read more how this is likely to play out in the context of Chinese drywall, check out the following posts as well:
– “Chinese Drywall. If You Think That Is Bad…..Just Wait
– “China Law. What’s Insurance Got To Do With It?
– “Chinese Drywall Cases. Show Me The Money!
So I ask again, why even bother suing the Chinese drywall companies in the United States?

  • http://twofish.wordpress.com/ Twofish

    Not to be too cynical but….
    Could these suits have something to do with the fact that the lawyers are going to get paid, even if the plantiffs don’t see a cent?

  • Mac

    No offense, but Class Action suits mean the lawyers don’t get a cent to pay for the huge volumes of work they have done on Chinese drywall cases if they don’t win. It’s a contingency plan. Look it up.

  • Gerald

    So I came across this bill (S. 1606: Foreign Manufacturers Legal Accountability Act of 2009) while reading a recent article on the Chinese drywall issue:
    http://www.govtrack.us/congress/bill.xpd?bill=s111-1606&tab=summary
    The gist of this bill is it would require all foreign manufacturers of products imported into the US to sign an agreement which would make them liable for product issues.
    I was wondering the following:
    1) What is the likelihood of this bill passing?
    2) Even if it does pass, will it really make a difference? Would such an agreement hold any weight in a Chinese court?

  • http://www.chinalawblog.com/2010/04/chinese_drywall_plaintiffs_get.html China Law Blog

    Chinese Drywall Plaintiffs Get US Court Judgment Against Chinese Company. Yawn

    New Orleans federal judge Eldon Fallon recently awarded seven families $2.6 million against a Chinese drywall manufacturer for damages arising from their homes having been “ruined by sulfur-emitting drywall made in China.” This ruling dealt only with p…

  • http://www.wholesalepages.co.uk/ukmanufacturers/ Tomsmith

    You have a great blog.China has advantages when it comes to manufacturing over other Asian countries. One reason for this is the experience and education the country has in delivering products that adhere to the rigorous standards that are required by both western legislation and consumers. Chinese labor is also significantly cheaper than Indian markets for example, where rapid inflation is making it harder for Indian companies to compete on price alone.