Chinese Drywall Cases Make U.S. Lawyers Angry. I Want My Lex Americana!
I will be speaking at a Chinese drywall seminar in New Orleans next month and that means I am on an email list that I think consists of others who will also be speaking at this seminar. Seeing as how this email list consists of around 100 people, I do not believe I am violating any expectations of confidentiality by publishing what transpired on it today.
I get an email from Gary Rosen, who has a PhD in biochemistry, proclaiming the "Chinese manufacturers are NOT the ones to blame for problem drywall." According to Rosen, there is"good quality drywall manufactured in China at International Organization for Standardization (ISO) qualified factories that have US recognized quality control approvals such as UL and ASTM" and this stuff is, "by definition, NOT problematic." But China also makes drywall for local consumption that is not made at ISO qualified factories and is does not have UL and ASTM approval. According to Rosen, it was this drywall that was imported in the US and it is this drywall that is causing the problems.
Rosen goes on to lay blame right at the feet of the US companies that brought the bad drywall into the United States:
The problem is that US distributors purchased and then imported the domestic quality Chinese drywall rather than much better quality drywall made for the export market. If US distributors would have all purchased the good export stuff there would not be any problems at all.So why blame the Chinese? They certainly have the right to made lower quality less expensive product for their local consumption. Investigative reporters should be focusing on why US drywall distributors chose to purchase the lower quality Chinese domestic product rather than purchase export quality product. The answer will certainly turn out to be - they saved money by buying junk Chinese domestic board. Investigative reporters should be focusing on why builders actually used this nasty smelly stuff rather than rejecting it.
Rosen then attacks US builders' quality control systems:
What about the US builder's quality control systems? Surely products used in the construction of homes have to be evaluated prior to use when not purchased from a well known US manufacturer and not approved/ certified by well known quality control bodies like UL, ISO, and ASTM? Again, where were our quality control systems?
Rosen was actually responding to a Miami Herald, quoting a number of US lawyers on the difficulties in suing Chinese companies for drywall problems. Seems these American lawyers are getting pretty testy.
The article talks about the 300 drywall lawsuits currently pending in New Orleans Federal Court and asks "who's going to be on the hook for any damages courts might award?" The article then outlines some of the tactics the plaintiffs' lawyers are considering for trying to collect and guess what? None make any sense.
The lawyers are "considering" suing "U.S. investment bankers who financed the Chinese companies, and seizing ships that brought the drywall to the United States." With all due respect, the odds of either of these tactics generating any cash are pretty much zero. First off, it would surprise me if any of the Chinese drywall manufacturers were financed by "US investment bankers." Does anyone disagree with me on this? Second, I also doubt very much that any US court is going to set aside 200 years of US (and a couple more hundred years of British) jurisprudence and find the investors liable. I certainly hope not as I own shares in drug and tobacco companies and by this logic, I could be held liable for injuries caused by those companies.
The arresting ships idea is probably even more ludicrous. What these lawyers are proposing is to do something that has, as far as I know, never been done anywhere in the world or at any time in the long history of shipping, and that is to find the shipper liable for having shipped a perfectly legal product. Not only has this never been done, but if it were done, it would probably destroy the shipping industry as we know it and, at minimum, raise the price of pretty much every single product worldwide. Can you even imagine a system where shipping companies are forced to guarantee the quality of every single item they ship? I can't and if any of my law firm's shipping companies get their vessels arrested over this, you can bet we will be counterclaiming for wrongful arrest.
And it is not just plaintiffs' lawyers who are getting mad. U.S. District Judge Eldon Fallon found one Chinese company, Taishan Gypsum Co., in contempt of court for ignoring the suits. And though I am on record in this post ("China Tooling/China Consulting -- I Told You So") for stressing the importance of abiding by Federal Court orders, I do not for a minute believe the Taishan Gypsum is going to care one whit about what some U.S. judge has to say. If Taishan Gypsum conducts no business in the United States or in any of the very few countries that typically enforce U.S. money judgments (I very much doubt any country enforces U.S. contempt orders) U.S. court orders almost certainly mean little to nothing to it. Most US judgments against Chinese companies have no value beyond the Chinese company owner's belief that it will preclude his/her son or daughter from attending UCLA.
The article then states how US lawyers "said Chinese companies are virtually insulated against liability in U.S. suits because suing them through international court is costly and time-consuming and civil judgments in U.S. courts are not enforced in China." I agree with the part about US court judgments not being enforced in China, but I do not know what they mean by an "international court." International courts are not going to take a drywall case so I am going to assume that Chinese courts was meant here. Again, these lawyers are wrong. Suing in Chinese courts is way cheaper and way faster than suing in US courts. The problem with suing in a Chinese court in a case like this is not the time or the cost, it is the damages. Chinese courts are incredibly stingy (by US standards) with damages for pain and suffering and lost profits. A win in a Chinese court might mean no more than a full refund for the cost of the drywall.
But at least one lawyer believes the future for plaintiffs' lawyers in these drywall cases looks bright because....well....because he really really wants it to:
Herman said plaintiffs' lawyers were up to the challenge. "I think we can bust the dam in this case," he said. "You're talking about billions of dollars" at stake, Herman said. "We're going to find some ways to make them responsive."
The next email came from Ervin Gonzalez, a plaintiff's lawyer out of Miami, who has this to say:
The Chinese are to blame because they sold defective dry wall, damaged thousands of homes, hurt consumers and caused billions of dollars in damages to be sustained by American homeowners and businesses. The Chinese Companies do business in the United States and should be responsible for the damage they have caused to American home owners and businesses. If the Chinese Companies are not willing to be accountable and responsible for their acts and omissions they should not do business in the United States. If any American Company provides a defective product, that Company would be responsible and accountable in a court of law in the United States as well as in the Country where the defective product was sold. Your comments blaming only the American companies, who certainly are legally responsible for this dry wall debacle, ignore the basic principles of justice, equity, accountability and responsibility that our civil justice system is built on. While I have enjoyed reading your scientific reports, I must say that your editorial supporting the Chinese makers of defective dry wall lacks any basis in law, equity, fairness and common sense.
I was interviewed yesterday by the Center on the Global Legal Profession and was asked what has surprised me in my practice of international law. Among my answers was how how so many American lawyers still refuse to recognize that foreign country's laws tend to be very different from ours and that U.S. law does not cover the entire world. As much as we U.S. lawyers (myself included) wish it would, it just doesn't and it never will.
So what of the Chinese drywall? Who is responsible and who should be liable and who will be found liable and who will need to pay? I have no idea who is responsible and I said that in my email to the group:
As someone who devotes the bulk of his law practice to China (representing mostly Western companies, but a few Chinese companies as well), I find this whole discussion bizarre and a little bit scary. There are good Chinese manufacturers and there are bad Chinese manufacturers. There are Chinese manufacturers that manufacture to spec and there are Chinese manufacturers that do not manufacture to spec. And there are American companies that get bad product from China because they do not know how to get good product from China or because they simply do not care whether they get good products or not. And there are American companies that get bad product from China even though they did pretty much everything one can do to prevent getting bad product.Unless one has had really close involvement with what transpired between the Western companies and the Chinese companies involved in the drywall mess, I do not see how one can confidently assess blame either way between the Chinese and the Western companies. I am not speaking to legal responsibility here, I am talking about blame. My experience in these situations is that most of the time, there is plenty of blame to go around.
Who should be liable? Whomever is responsible.
Who will be found liable in the US courts? Whomever is responsible.
Who will need to pay? See above.
For more on these issues, check out the following:
-- Who Needs International/Foreign Law? Not Us, We're Americans
-- Suing Chinese Drywall Manufacturers. Why All The Bother?
-- Will Your US Judgment Be Enforced Abroad? Not China, But Maybe.
-- Enforcing Foreign Judgments in China -- Let's Sue Twice
-- Taking Judgments To China (And Korea), Let's Not Sue Twice
-- Chinese Drywall. If You Think That Is Bad.....Just Wait
Comments (27)
Read through and enter the discussion by using the form at the endJim - October 4, 2009 12:47 AM
Good luck with the NO seminar. I very much look forward to the follow-up. This drywall mess looks to me to be staying a mess for long, long time. Unfortunately, it looks as if the homeowners will be the ones to "eat it." It does not appear that they are being served well by those who are telling them that China is responsible and needs to pony up, which, no matter which way you turn it, looks to be a highly unlikely outcome.
Kai - October 4, 2009 1:04 AM
Great post, Dan. Was Ervin Gonzalez taking himself seriously?
uk visa lawyer - October 4, 2009 3:03 AM
'Seems these American lawyers are getting pretty testy.' - Having a client with a problem that can't be billed for will do that to some lawyers!
I think you're going to have a fascinating seminar...
Michael - October 4, 2009 12:22 PM
This guy, Ervin Gonzalez, is emblematic of what's wrong with a significant number of lawyers in the U.S., and a large reason why the profession is held in such low regard by those outside of it. Such lawyers are loud, overreaching, full of hubris, and refuse to exhibit professionalism and self-control and stop clogging our legal system/process with baseless cases in the pursuit of the billable hour.
Let’s examine the statements made by Gonzales:
"The Chinese are to blame because they sold defective dry wall, damaged thousands of homes, hurt consumers and caused billions of dollars in damages to be sustained by American homeowners and businesses."
Wrong. The Chinese didn’t sell the defective drywall, the companies who imported the drywall from China sold the product to distributors who then sold the product to builders who then installed the product in the homes they constructed.
"The Chinese Companies do business in the United States and should be responsible for the damage they have caused to American home owners and businesses."
Wrong, again. The Chinese companies who manufactured the drywall DON’T do business in the United States. The Chinese companies have no presence whatsoever in the U.S. From his comments, it would seem that Mr. Gonzalez has a problem with understanding some of the basic concepts taught in Civil Procedure.
"If the Chinese Companies are not willing to be accountable and responsible for their acts and omissions they should not do business in the United States."
Again, the Chinese companies in question don’t do business in the U.S.
"If any American Company provides a defective product, that Company would be responsible and accountable in a court of law in the United States as well as in the Country where the defective product was sold."
Bingo! So, Mr. Gonzales, why don’t you direct your ire and your professional efforts towards going after the importer of the product, the distributor of the product and the installer of the product, all of whom, it seems, were asleep at the wheel and failed to institute and carry out simple, basic quality control procedures.
"Your comments blaming only the American companies, who certainly are legally responsible for this dry wall debacle, ignore the basic principles of justice, equity, accountability and responsibility that our civil justice system is built on."
No they don’t. The comments blaming the American companies are grounded in solid, irrefutable logic and the basic elements of Civil Procedure.
"While I have enjoyed reading your scientific reports, I must say that your editorial supporting the Chinese makers of defective dry wall lacks any basis in law, equity, fairness and common sense."
Unbelievable. While Mr. Gonzalez attended and graduated from law school and passed the bar, he seems to be very confused when it comes to understanding even the most basic concepts of Civil Procedure.
As an attorney who deals daily with the economic dynamism taking place between China and the United States, I find it repugnant that the Chinese are repeatedly blamed in these scenarios, when, for the most part, it is the greed on the part of companies in the U.S. that is at the root of these problems.
Thanks for the post(s) and good luck converting the confused.
Twofish - October 4, 2009 1:25 PM
One thing that should be pointed out is that by international standards, Chinese law and damages for product liability tend to be rather standard. It's the US that has laws in this area that tend to be at variance with international practice, and most countries think that the US is nutty when it comes to these sorts of things.
Twofish - October 4, 2009 1:57 PM
Dan Harris: First off, it would surprise me if any of the Chinese drywall manufacturers were financed by "US investment bankers." Does anyone disagree with me on this?
I'm pretty sure that you could find some manufacturer that was financed by some investment bank. On the other hand, you chances of collecting any sort of money from an investment bank on this is nil. Investment banks have huge legal staffs whose job it is to deal with nuisance lawsuits. I once read an interview with the chief counsel at an investment bank that mentioned that at any given moment, they were dealing with several *hundred* pending lawsuits.
Dan Harris: Second, I also doubt very much that any US court is going to set aside 200 years of US (and a couple more hundreds of years of British) jurisprudence and find the investors liable.
Joint-stock corporations have only been around from about 150 years, and there are ***lots*** of ways to try to establish investor liability. One obvious way that I can think of is to try to set this up as some sort of class action securities fraud case. However, because there are lots and lots of ways of trying to establish investor liability, investment banks hire lots of highly trained, highly paid lawyers to manage legal risk.
The idea that you can recover money from either an investment bank or shipping company sounds like "let's invade Russia!!!!"
Shishinden - October 4, 2009 7:50 PM
You own shares in tobacco companies and Chinese drywall is top of your shit list? God forbid RJ Reynolds or BAT should take a hit for their DECADES of corporate malfeasance. You guys really do operate in a diff'rent world, huh?
ling - October 4, 2009 10:19 PM
I am not sure why anyone today still buys stuff from china... everyone knows how greedy people are here.They have no standards, they don't care. Other than maybe a pair of jeans, what do you want to buy from here, your children's toys? Please can I have some more lead/bizarre chemicals.
Easy, stop buying stuff from China. Pay a slightly higher price, but stop buying stuff from China.
Chris - October 4, 2009 11:40 PM
To me it is pretty simple. All importers are responsible to ensure that the products they are importing into the United States meet all local and national regulations regarding the use of those products. If they are uncertain about the quality of the product they are purchasing overseas, it is THIER responsibility to take all necessary actions to ensure the quality and standard of the product they are purchasing.
And from my experience, that is how the law reads. Sue the American importers, and the construction companies. These are the ones who failed to ensure the quality of the product they were using. They are the ones who, by law, are 100% responsible for ensuring the quality and standards of the products imported into the USA, not the overseas company that sold them the product.
Justaguy - October 5, 2009 12:16 PM
My father is in house counsel for a construction firm that uses a lot of drywall. I asked him if he got caught up in this mess, and his response was that no they only buy domestic drywall. And then he added, as if it were so obvious as to not need mentioning, "And we test it before we use it."
To pretend that this is only a Chinese problem, and not about American businesses cutting corners or falling down on quality control is as silly as it is predictable.
Twofish - October 5, 2009 2:23 PM
ting: I am not sure why anyone today still buys stuff from china...
It's because you can get quality product if you are willing to pay for it. I remember an interview with a Chinese manufacturer about christmas tree decorations, and he was showing the cheap low-quality stuff, and the expensive high-quality stuff.
Joe - October 5, 2009 3:04 PM
This is besides the point, but are most Chinese houses made of this drywall? Does this mean that most of them live in houses where the walls smell like rotten eggs and drywall leads to the corrosion of wiring? How many of them suffer health issues from the smell and chemicals? I'm upset for the American homeowners who somehow got roped into this, but something will be done about their problems. What about all the millions of Chinese?
Jerome Cole - October 5, 2009 8:03 PM
Joe: In China drywall is generally only used in office buildings.
Chris - October 6, 2009 5:23 AM
Joe: your argument is beside the point. The buyers of drywall in China probably do their own quality and standards check before they buy the drywall. They did not cut corners and just trust that the factory made what they asked for.
And yes, in China, some (many) companies try to cut corners and have probably used substandard product (see Milk scandal).
So the lesson here is that if you are purchasing product from China, you, not anyone else, needs to do all the quality and standard testing independently. If not, you run the risk of importing substandard quality and thus law suits. Its the old "you can pay me now, or you could pay me later" scenario.
Louis Brands Savage - October 6, 2009 8:09 AM
I don't know much about the drywall apart from the fact that plaintiff's lawyers have an uphill battle. But I take issue with one of your underlying complaints: that the American legal system is insular. It is kind of a theme here at China Law Blog: see the links at the bottom of your post. But there is one important way in which American law is resoundingly international. This being the doctrine of comity now articulated in the Uniform Foreign Money Judgments Act.
America is one of the easiest places in the world to get your foreign judgment enforced. All you have to do is show up in an American court with a few copies of your foreign judgment and some showing of the personal jurisdiction of the foreign court. The defendant has only the limited options of challenging jurisdiction and the fairness and due process of the foreign court. I am only aware of two country's legal systems which have been found to be unfair: Libya and Iran.
Most countries either won't enforce most foreign judgments without a treaty between the two countries, or reciprocity of recognition.
All of this leaves American companies with significantly less protection against global liability than companies from countries like China.
Enforcement of Chinese judgments in America has not been attempted often. But I have read the cases, and my belief is that if this whole drywall situation were reversed, and it had been American-made drywall that made Chinese people sick, those plaintiffs would have no trouble suing in China and then getting a lawyer in America to quickly and cheaply enforce that judgment against the offending American company.
We need to consider just how much liability the doctrine of comity exposes American companies to before we indict the American legal system as being an island unto itself. It is one of the most accessible systems in the world, and one of the most respectful of other country's systems.
asf - October 6, 2009 9:57 AM
What this whole debacle shows is the American media's bias of the day. Western media is 99% percent anti-china, and China presents an easy target for a blame game that fits in with the rest of the media and cultural bias. "They" are sending us poisonous goods, they are poisoning our kids, etc. etc. While there are isolated cases, the vast percentage of goods shipped here are good products. But when there is anything amiss, the media and politicians are whipped up in a frenzy to play to the popular bias and stereotype of the day against the most convenient target.
pug_ster - October 6, 2009 1:49 PM
Just like the Drywall incident the whole thing is about price. Americans want the best bang for the buck, which goes back to the manufacturer.
When American companies want to contract something out from Chinese manufacturer, they go to every company asking the best price for the same product. Of course, it almost always goes to the company who provide the lowest price, of course, the manufacturer does this by cutting corners and produce stuff which damages the environment. If American companies start contracting out companies with a little more money who has strict QC procedures, they will get better products.
Chris - October 7, 2009 2:30 AM
Asf,
The difference between China and USA is that perhaps the USA media is biased (as you see it), but everyone with a point of view has the right to express it. You have the right to say that the USA media is bias. You also have the ability, if you feel so inclined and can find others who agree with you, to start your own media outlet to counter what you perceive as bias.
In China, that is simply not possible and that is why no one in the USA trusts China. Surely we make mistakes, but we have a system that allows for accountability. China does not and until it does, the USA will not trust China, because absolute power corrupts absolutely.
Matthew Slack - October 8, 2009 9:51 PM
Let's say for example the American importers have documentation from the Chinese factory that the drywall is of good quality and does not contain any hazardous material, but in actuality the factory faked the documents and/or had samples tested that were not the same as the production.
In this instance, if the American importer can prove they had no way of knowing the documents were faked, nor did they pay a discounted price, isn't the end-consumer simply 'screwed' assuming the Chinese factory has no assets in the US?
Twofish - October 11, 2009 12:31 PM
Slack: In this instance, if the American importer can prove they had no way of knowing the documents were faked, nor did they pay a discounted price, isn't the end-consumer simply 'screwed' assuming the Chinese factory has no assets in the US?
If you buy a product there are standard warranties (warranties of fitness and warranties of use for a particular purpose) and you can't get out of those warranties by showing that you gotten the right documentation. However, when you buy a product for most manufacturers, there is this little piece of paper that disclaims warranties for consequential and incidental damage.
The logical person to sue is that person that installed the drywall. The trouble is that they often don't have deep pockets. Plantiff's lawyers like suing big companies because they have money.
Greg - October 13, 2009 8:50 PM
Here in Colorado, the housing industry has managed to get itself nearly immune from lawsuits for building shoddy homes. It doesn't matter whether ground settling was not taken into account, shoddy practices or shoddy materials. This immunity does not apply to the commercial side, only the residential and the higher end of the market isn't very safe unless you are getting a custom home.
So it is not surprising that US developers and contractors are scraping the bottom of the barrel. I would love to see the look on the Chinese manufacturers' faces when they went to the trouble and expense of developing a high end product line for export only for the Americans to show up and buy the lowest end stuff. Probably a combination dumbstruck, disbelief, and a bit of anger when they try to figure out how to recover the cost of the high end drywall investment.
And the home buyer sees their 5 year old put their foot through brand new drywall.
The US real estate industry is absolute crap from development to sales to finance and played a big part in our economic downturn and yet they continue to pull off this garbage.
Greg - October 15, 2009 5:54 PM
Dan, the stuff is hitting the fan:
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