In re Chinese-Manufactured Drywall Prods. Liab. Litig., CIVIL ACTION NO. 09–02047

• Decision Date: 09 March 2016
• Docket Number: CIVIL ACTION NO. 09–02047
• Citation: 168 F.Supp.3d 918
• Parties: In re: Chinese-Manufactured Drywall Products Liability Litigation This Document Relates To: All Cases
• Court: U.S. District Court — Eastern District of Louisiana

168 F.Supp.3d 918

In re: Chinese-Manufactured Drywall Products Liability Litigation

This Document Relates To: All Cases

CIVIL ACTION NO. 09–02047

United States District Court, E.D. Louisiana.

Signed March 9, 2016

Filed March 10, 2016

SECTION “L” (5)

ORDER & REASONS

ELDON E. FALLON

, UNITED STATES DISTRICT JUDGE

Before this Court is Defendant China New Building Materials Group's (“CNBM Group”) Motion to Dismiss for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act (“FSIA”) (R. Doc. 19527). Having read the parties' briefs, reviewed the applicable law, and heard the parties on oral argument, the Court now issues this Order and Reasons.

I. INTRODUCTION

The present litigation arises from alleged property damage and personal injuries sustained as a result of the presence of Chinese-manufactured drywall in homes and other buildings in a number of states. During approximately 2005 to 2008, hundreds-of-millions of square feet of gypsum wallboard manufactured in China (“Chinese drywall”) were exported to the United States, primarily along the East Coast and Gulf South, as a result of an exceptionally high demand for building supplies in the aftermaths of Hurricanes Rita and Katrina, as well as a general new-housing boom. The Chinese drywall was then installed in newly-constructed and reconstructed properties. After installation of this drywall, owners and occupants of the properties began noticing unusual odors, blackening of silver and copper

items and components, and the failure of appliances, including microwaves, refrigerators, and air-conditioning units. Some also experienced health problems, such as skin and eye irritation, respiratory issues, nose bleeds, and headaches. As a result, these property owners began filing suit in both state and federal courts against those involved with Chinese drywall, including the installers, homebuilders, suppliers, importers, exporters, and manufacturers, as well as their insurers and sureties. One of the defendants is CNBM Group.

In the instant motion, CNBM Groups contends that it is not properly a part of this litigation because it is in an “agency or instrumentality of a foreign state” within the meaning of FSIA. 28 U.S.C. § 1603(b)

. FSIA provides the “sole basis” for obtaining jurisdiction over a foreign state or its agency or instrumentality. Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 611, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992). A foreign state and its agencies and instrumentalities are “presumptively immune” from suit under the Act “unless a specified exception applies.” Saudi Arabia v. Nelson, 507 U.S. 349, 355, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993) ; see 28 U.S.C. § 1604. According to the Plaintiffs, both the commercial activity exception and the tortious activity exception apply.

However, CNBM Group argues that the Plaintiffs have not overcome CNBM Group's presumptive immunity from suit as they have not sufficiently shown that CNBM Group's actions fall within the Act's exceptions to immunity, including the commercial activity and tort exceptions to immunity. CNBM Group asserts that it played no role in the manufacture or distribution of the drywall at issue in this litigation, and its status as an indirect shareholder of other companies that allegedly engaged in such activity is insufficient to bring it within any FSIA exception. CNBM Group argues further that other companies' actions cannot be attributed to CNBM Group for purposes of FSIA because CNBM Group did not exercise extensive control over those companies. Against these contentions, Plaintiffs argue that CNBM Group's control over BNBM Group, CNBM, BNBM and Taishan renders these entities a single business enterprise and alter egos of each other under applicable law. Plaintiffs argue further that due to the commercial activity and tortious conduct of BNBM and Taishan in manufacturing and selling defective Chinese Drywall to customers in the United States, CNBM Group is not entitled to sovereign immunity. To address these arguments, this Order and Reasons proceeds as follows. First, the Court describes the relevant procedural and factual background. Then, the Court analyzes whether either the commercial activity exception or the tortious activity exception to the presumption of immunity under FSIA applies to CNBM Group itself. Finally, the Court considers whether CNBM Group's control over Taishan and BNBM is sufficient to render them alter egos of one another so that Taishan's conduct can be attributed to CNBM Group.

II. PROCEDURAL BACKGROUND

From 2004 through 2006, the housing boom in Florida and rebuilding efforts necessitated by Hurricanes Rita and Katrina led to a shortage of construction materials, including drywall. As a result, drywall manufactured in China was brought into the United States and used in the construction and refurbishing of homes in coastal areas of the country, notably the Gulf Coast and East Coast. Sometime after the installation of the Chinese drywall, homeowners began to complain of emissions of smelly gasses, the corrosion and blackening of metal wiring, surfaces, and objects, and the breaking down of appliances and electrical devices in their homes. In re Chinese Manufactured Drywall Prod. Liab. Litig., 894 F.Supp.2d 819, 829 (E.D.La.2012)

, aff'd, 742 F.3d 576 (5th Cir.2014). Many of these homeowners also began to complain of various physical afflictions believed to be caused by the Chinese drywall. Accordingly, these homeowners began to file suit in various state and federal courts against homebuilders, developers, installers, realtors, brokers, suppliers, importers, exporters, distributors, and manufacturers who were involved with the Chinese drywall. Because of the commonality of facts in the various cases, this litigation was designated as multidistrict litigation. Pursuant to a Transfer Order from the United States Judicial Panel on Multidistrict Litigation on June 15, 2009, all federal cases involving Chinese drywall were consolidated for pretrial proceedings in MDL 2047 in the U.S. District Court, Eastern District of Louisiana.

The Chinese drywall at issue was largely manufactured by two groups of defendants: (1) the Knauf Entities, and (2) the Taishan Entities. The litigation has focused upon these two entities and their downstream associates, and has proceeded on strikingly different tracks for the claims against each group as described below.

The Knauf Entities are German-based, international manufacturers of building products, including drywall, whose Chinese subsidiary, Knauf Plasterboard (Tianjin) Co., Ltd. (“KPT”), advertised and sold its Chinese drywall in the United States. The Knauf Entities are named defendants in numerous cases consolidated with the MDL litigation and litigation in state courts. The Knauf Entities first entered their appearance in the MDL litigation on July 2, 2009. See (R. Doc. 18). Thereafter, the Court presided over a bellwether trial in Hernandez v. Knauf Gips KG, Case No. 09–6050, involving a homeowner's claims against KPT for defective drywall. See (R. Doc. 2713). The Court found in favor of the plaintiff family in Hernandez, issued a detailed Findings of Fact and Conclusions of Law and entered a Judgment in the amount of $164,049.64, including remediation damages in the amount of $136,940.46, which represented a cost of $81.13 per square foot based on the footprint square footage of the house. See (R. Doc. 3012).

Subsequently, the Knauf Entities entered into a pilot remediation program with the Plaintiffs' Steering Committee (“PSC”) in the MDL. This program was largely based upon the remediation protocol formulated by the Court in Hernandez . The Knauf pilot remediation program is ongoing and has, at present, remediated over 2,000 homes containing KPT Chinese drywall using the same protocol. At the Court's urging, the parties began working together to monetize this program and make it available to a broader class of plaintiffs.

On December 20, 2011, the Knauf Entities and the PSC entered into a global, class Settlement Agreement (“Knauf Settlement Agreement”), which is designed to resolve all Knauf-related, Chinese drywall claims. See (R. Doc. 12061–5). In addition to the Knauf Settlement Agreement, numerous defendants in the chain-of-commerce with the Knauf Entities have entered into class settlement agreements, the effect of which settles almost all of the Knauf Entities' chain-of-commerce litigation. Although the Court occasionally must deal with settlement administration and enforcement issues, the Knauf portion of this litigation is largely resolved.

In stark contrast to the straightforwardness with which the MDL litigation proceeded against the Knauf Defendants, the litigation against the Chinese entities has taken a different course. The Chinese Defendants in the litigation, include the principal Chinese-based Defendant Taishan, namely, Taishan Gypsum Co. Ltd. (“TG”) and its wholly-owned subsidiary, Taian Taishan Plasterboard Co., Ltd. (“TTP”) (collectively “Taishan” or “Taishan Entities”). Other Chinese-based Defendants include the CNBM and BNBM Entities.

The Court's initial inquiry regarding Taishan involved four cases in this MDL: (1) Germano v. Taishan Gypsum Co., Ltd., Case No. 09–6687; (2) The Mitchell Co., Inc. v. Knauf Gips KG, Case No. 094115; (3) Gross v. Knauf Gips KG, Case No. 096690; and (4) Wiltz v. Beijing New Building Materials Public Ltd., Co., Case No. 10–361. The first issues involving Taishan arose when Taishan failed to timely answer or otherwise enter an appearance in Mitchell and Germano, despite the fact that it had been properly served in each case. See (R. Doc. 52); (R. Doc. 1–7) (Case No. 09–6687). Thus, after an extended period of time, the Court entered preliminary defaults against Taishan in both of these cases. See (R. Docs.277, 487).

Thereafter, the Court moved forward with an evidentiary hearing in furtherance of the Preliminary Default in Germano on the Plaintiffs' claimed damages....