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In re Chinese-Manufactured Drywall Products Liability Litigation

United States District Court, E.D. Louisiana

May 7, 2018


         SECTION “L” (5)



         On January 31, 2018, the Court issued its opinion setting common benefit fees involving the Knauf portion of the Chinese-Manufactured Drywall Products Liability multidistrict litigation. Rec. Doc. 21168. After conducting an independent review of the hours logged by common benefit counsel and squaring it with the lodestar method and Johnson factors, see Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974), the Court determined a 52-48 division of available funds for attorneys' fees between common benefit counsel and individually retained contract attorneys, respectively.

         Following the common benefit fees order, certain plaintiffs' attorneys (“Movants, ” “contract counsel, ” or “objectors”) have filed the following motions: (1) motion for certification of order for interlocutory appeal under 28 U.S.C. § 1292(b), or in the alternative, entry of final judgment under Federal Rule of Civil Procedure 54(b); and (2) motion for interim disbursement of attorneys' fees. Because the Court is well versed on this case and the common benefit doctrine, these motions were taken under submission without oral argument.

         Having considered the parties' briefs and applicable law, the Court now issues this Order and Reasons.

         I. BACKGROUND

         A. Procedural History

         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 in the United States, 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 foul-smelling gasses, the corrosion and blackening of metal wiring, surfaces, and objects, and the breaking down of appliances and electrical devices in their homes. See In re Chinese-Manufactured Drywall Prods. 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 report various physical afflictions allegedly caused by the Chinese drywall.

         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 June 15, 2009 transfer order from the United States Judicial Panel on Multidistrict Litigation, all federal cases involving Chinese-manufactured drywall were consolidated for pretrial proceedings in MDL 2047 in the United States District Court for the 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. Because the Taishan entities contested jurisdiction at the outset and refused to accept service of process, it was necessary to conduct this litigation along two tracks. The first track involved the Knauf entities.

         The Knauf entities (“Knauf”) 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 as well as litigation in state courts. The Knauf entities did not contest jurisdiction and first entered their appearance in the MDL litigation on July 2, 2009. See Rec. Doc. 18. On November 2, 2009, in Pretrial Order No. 17, KPT agreed to a limited waiver of service. See Rec. Doc. 401. After a period of intense discovery, the court set various bellwether trials. From March 15-19, 2010, the Court presided over a bellwether trial in Hernandez v. Knauf Gips KG, No. 09-6050, involving a homeowner's claims against KPT for defective drywall. See Rec. Doc. 2713. For purposes of the trial, Knauf stipulated that KPT Chinese drywall “emits certain reduced sulfur gases and the drywall emits an odor.” Id. The Court, based on the evidence presented, found the KPT Drywall was a defective product and issued a detailed Findings of Fact and Conclusions of Law in favor of Plaintiff Hernandez (“Hernandez FOF /COL”), see id., 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 Rec. Doc. 3012.

         On October 14, 2010, Knauf agreed to participate in a pilot program to remediate a number of homes using the remediation protocol formulated by the Court in the Hernandez case. The Knauf pilot remediation program has, at present, remediated over 2, 800 homes containing KPT Chinese drywall using essentially the same protocol. At the Court's urging, after a number of homes had been remediated, the parties began working together to monetize this program and make it available to a broader class of plaintiffs.

         Thereafter, the PSC and Knauf entered into settlement discussions, and on December 20, 2011, some two years after the formation of this MDL. The PSC reached a global remediation settlement with Knauf, which is designed to resolve all Knauf-related Chinese drywall claims.

         After a bellwether trial involving the downstream Knauf distributor, North River, numerous other settlement agreements were reached with other downstream entities in the chain of commerce with the Knauf. These entities included various distributers, builders, and installers (and their insurers) of the Knauf-manufactured Chinese drywall.

         Under the terms of the settlements, the claimants with KPT Chinese drywall (drywall manufactured by Knauf's Chinese subsidiary) were offered several options. Under Option 1, the claimants were offered the opportunity to receive a complete, environmentally certified remediation of their properties. Under Option 2, the claimants were offered cash reimbursement in the event the home was already remediated. Finally, under Option 3, claimants were offered a cash payment instead of remediation as well as the opportunity to receive monetary benefits from the Knauf downstream chain of commerce entities to compensate them for other specifically designated losses.

         B. Attorneys' Fees

         As part of the Knauf remediation settlement, Knauf also agreed to pay reasonable costs, including the cost of administering the program, and an additional amount for attorneys' fees, which includes both the fees for contract counsel and those for common benefit counsel. The total for both attorneys' fees and costs is $233, 078, 270.33, in which $197, 803, 738.17 is used for attorneys' fees and $35, 274, 532.16 has been used for costs. This payment of fees and costs relieves each and every claimant of all contingency fee and cost reimbursement obligations to both retained contract counsel and common benefit counsel (with exception of the Virginia litigants), and thus represents an amount which otherwise would have been payable by the claimants out of their settlement recovery. The claimants have now all ...

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