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In re Chinese-Manufactured Drywall Products Liability Litigation

United States District Court, E.D. Louisiana

January 3, 2019


         SECTION L (5)

          ORDER & REASONS

          Eldon E. Fallon U.S. District Court Judge

         Before the Court is a Motion to Reconsider the Court's October 15, 2018 Order adopting Special Master Dan Balhoff's Written Reasons Concerning Requests for Discovery. R. Doc. 21860. The Fee Committee has filed a response, recommending the Court deny the motion. R. Doc. 21896. Having considered the record, the parties' arguments, and the applicable law, the Court is ready to rule.

         I. BACKGROUND

         From 2004 through 2006, a housing boom in parts of the United States and rebuilding efforts necessitated by Hurricanes Rita and Katrina in the Gulf South led to a shortage of construction materials, including drywall. As a result, drywall manufactured in China was brought into the United States and used to construct and refurbish homes in coastal areas of the country, notably the Gulf and East Coasts. Sometime after the Chinese drywall was installed, homeowners began to complain of foul-smelling odors, 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, 829-30 (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 have been caused by the Chinese drywall.

         These homeowners began filing 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 a multidistrict litigation. Pursuant to a Transfer Order from the United States Judicial Panel on Multidistrict Litigation (the “JPML”) on June 15, 2009, all federal cases involving Chinese drywall were consolidated for pretrial proceedings in MDL 09-2047 before this Court.

         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 on these two entities and their downstream associates and has proceeded on strikingly different tracks for the claims against each group. Relevant to this Order are the Knauf Defendants.[1] 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 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 R. Doc. 18. On November 2, 2009, in Pretrial Order No. 17, KPT agreed to a limited waiver of service. See R. 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 R. 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 Hernendez (“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 R. 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 Hernandez. 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. R. Doc. 16407-3. This agreement (the “Knauf Class Settlement Agreement”) applied to all claimants who filed suit against Knauf on or before December 9, 2011.

         On August 12, 2013, Plaintiffs' and Defendants' Liaison counsel entered into a second settlement agreement addressing claims filed after December 9, 2011 (the “New Claims Settlement Agreement”). R. Doc.16978-1. Under the New Claims Settlement Agreement, Claimants who gave notice prior to October 25, 2013 and qualified under the terms of the New Claims Agreement were eligible to seek benefits under the Knauf Class Settlement Agreement, subject to the requirements set forth in both agreements. R. Doc. 16978-1.

         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. The total amount of the Knauf Settlement is approximately $1.1 billion.


         To assist in the adjudication of this MDL, and pursuant to the settlement agreements' terms, the Court appointed Dan Balhoff to serve as Special Master. Relevant to this motion, at the direction of the Court, the Special Master was tasked with “conduct[ing] limited discovery regarding time and expense submission, procedures, . . . and . . . mak[ing] appropriate recommendations” concerning the division of the global fee and cost award between individually-retained counsel and common benefit counsel. R. Doc. 20410. As a part of this process, the Special Master solicited input from the various interested parties, ordered document production, and allowed the attorneys to take depositions. On May 31 and June 1, 2017, the Special Master conducted an evidentiary hearing. The attorneys submitted approximately 750 exhibits and offered the testimony of several witnesses. On September 12, 2017, the Special Master filed his report and recommendation into the record. R. Doc. 20950. On January 31, 2018, the Court issued its order and reasons, ordering that common benefit counsel be awarded fifty-two percent of the total attorneys' fees from the Knauf settlements and that contract counsel receive forty-eight percent of the total attorneys' fees. R. Doc. 21168. Having determined the amount of fees available to the two categories of counsel, the Court began the process of allotting the funds to the various attorneys.

         On July 3, 2018, the Fee Committee made its recommendation regarding the allocation of the common benefit fee award, to which several parties objected. R. Doc. 21455. On September 11, 2018, pursuant to Federal Rule of Civil Procedure 53(B), the Court appointed the Special Master “to conduct limited discovery regarding time and expense submissions, procedures, and the relevant work of Philip Garrett, CPA, to make appropriate recommendations regarding these motions and objections.” R. Doc. 21777. Pursuant to this appointment, the Special Master solicited input from the parties regarding ...

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