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In re Chinese-Manufactured Drywall Products Liability Litigation

United States District Court, E.D. Louisiana

July 17, 2018


         SECTION: L



         William and Kelly Wayne owned the property located at 576 Huseman Lane, Covington, Louisiana, and Regions Bank held a mortgage on the property. Regions foreclosed and, in September 2011, sold the property at auction. Thus, the Waynes no longer own the property, and they admit that “it is impossible to determine the percentage of Knauf drywall in the home.”[1]

         On June 13, 2017, the Waynes moved for an award of a Lump Sum Payment pursuant to the Knauf Settlement Agreement.[2] On November 30, 2017, Knauf filed an opposition to the motion.[3]On January 3, 2017, the Waynes filed a response to Knauf's opposition.[4]

         On January 2, 2017, the Court referred the matter to the Special Master.[5] That same day, the Special Master sent an email to the parties stating:

As you may know, I am serving as the Special Master in this matter. Judge Fallon has referred the attached motion to me so that I can make a recommendation concerning its disposition.
It appears that the parties have fully briefed the motion. Please let me know (by noon on Friday, January 5) if there is anything more that you wish to submit before I make my recommendation.
Thank you.
Dan Balhoff[6]

         Later that same day, Mr. Wayne responded that he would like to formally submit a video of a walkthrough of his property as evidence.[7] The Special Master allowed the submission, and Mr. Wayne provided an internet link.[8] The video was not dated, but appeared to show the videographer's (presumably Mr. Wayne's) observations of the home while it was under construction, i.e., before the drywall was initially installed. The video shows glimpses of drywall stacks in passing (the video's purpose obviously is something other than recording the drywall[9]), but the fronts and backs of the drywall sheets are not visible (i.e., the markings are not readable). The next day, Mr. Wayne submitted a still shot from the video showing the stacks of drywall.[10] The edges of the stacked drywall are visible, and some of the drywall appears to have blue and gold edge tape which is used by some of the Knauf companies. But not all Knauf drywall is KPT drywall, and claimants against the Knauf Settlement Agreement can only recover if they used KPT drywall. The settlement specifies that blue and gold edge tape is not sufficient proof of KPT.[11]

         On January 25, 2018, the Special Master issued his Opinion and Decree in this matter.[12] T h a t same day, Mr. Wayne sent an email to the Special Master requesting a telephone call to discuss the Opinion and Decree.[13] The Special Master called Mr. Wayne later that afternoon.[14] During the course of the conversation, the Special Master informed Mr. Wayne that he could ask the Court to review the Special Master's decision.

         On February 14, 2018, the Waynes filed an objection to the Special Master's decree.[15] On March 13, 2018, Knauf filed an opposition to the Waynes' objection.[16] The Court has now asked the Special Master to address additional arguments that the Waynes have made in their objection.

         The Knauf Defendants have entered into a settlement agreement[17] which provides benefits to members of three subclasses: the Residential Owner Subclass, the Commercial Owner Subclass, and the Tenant Subclass.[18] Collectively, the Residential Owner Subclass and the Commercial Owner Subclass are known as the Owner Subclasses.[19] The Waynes seek benefits as Owner Subclass members.

         The settlement gives an Owner Subclass member three options for remediation benefits: Option 1 (Section 4.3.1), pursuant to which Knauf (through its Lead Contractor, Moss) will remediate the property, pay a Lump Sum Payment to the owner, and pay a Delay Period Payment to the owner; Option 2 (Section 4.3.2), pursuant to which Knauf will reimburse the owner part of the cost for remediating the property; and Option 3 (Section 4.3.3), pursuant to which Knauf will pay a cash sum to the owner, whether or not the property is remediated.

         By their own terms, all three options (set forth in Sections 4.3.1, 4.3.2, and 4.3.3, respectively) are available to KPT Property Owners, defined as owners of “Affected Property in which the KPT Drywall Percentage exceeds 90%.” However, the next paragraph of the settlement agreement (Section 4.3.4) extends the right to claim benefits to Mixed Property Owners (defined as those who own “Affected Properties in which the KPT Drywall Percentage is less than or equal to 90%”), but only for Option 2 and Option 3 benefits - not Option 1 benefits: “Mixed Property Owners may select only the Self-Remediation Option (as set forth in Section 4.3.2) or the Cash-Out Option (as set forth in Section 4.3.3).”

         Of course, the purpose of the settlement is to offer benefits to claimants to the extent that they have KPT drywall. To this end, the settlement adopts protocols which are designed to prove whether the property has KPT drywall and, if so, what percentage of the property's drywall is KPT drywall. In other words, these protocols represent part of a claimant's burden of proof.

         If an Owner Subclass member chooses Option 1 or Option 3 (i.e., the property has not already been remediated), he must satisfy the Inspection Protocol.[20] Both Option 1 (whereby the Owner Subclass member will turn the property over to Moss for remediation) and Option 3 (whereby the Owner Subclass member will accept a discounted Lump Sum Payment irrespective of remediation) presuppose that the Owner still has control over the property, and that the drywall is still in place. The settlement agreement and the Inspection Protocol ensure that Court-approved inspectors[21] determine the presence and percentage of KPT drywall before an Owner Subclass member can recover any Option 1 or Option 3 benefits.

         Unlike Option 1 and Option 3 claimants, Option 2 claimants own properties where the drywall in question is no longer in place. In other words, the key evidence that supports the claim - the drywall itself - has been moved. Recognizing that a post-remediation inspection cannot provide the same level of confidence as a pre-remediation inspection, the settlement requires alternative proof. The Option 2 claimant must satisfy the Already Remediated Properties Protocol, [22] which incorporates, among other things, the rules for preservation of physical evidence outlined in PTO ...

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