U.S. Settlement Reached in Chinese Drywall Case

Owners of thousands of U.S. homes tainted with foul-smelling Chinese drywall agreed to a legal settlement on Thursday with a German manufacturer.

An attorney for the plaintiffs, Russ Herman, said the settlement reached with Knauf International was worth $800 million to $1 billion, but a lawyer for the company said the final amount would likely be much lower.

Knauf International’s Chinese subsidiary made the tainted product, which has been blamed for producing a stench and fumes that damage air conditioning, wiring and fixtures.

Plaintiffs say the settlement, which requires court approval, could provide for repairs on as many as 4,500 properties containing drywall made by Knauf Plasterboard Tianjin, or KPT.

But the final number of homes found to contain KPT drywall may be fewer than 2,700 once they have been inspected, said KPT attorney Greg Wallance.

The settlement was an “excellent deal” for property owners, said Wallance, of law firm Kaye Scholer LLP.

The cost will depend on the number of homeowners who provide evidence of tainted drywall. Costs will also be controlled through bidding on repair work, and some homeowners may opt for a discounted cash payment, Wallance said.

The agreement would resolve all litigation over the tainted drywall supplied by KPT. About 5,200 plaintiffs have alleged their homes contain the KPT product, which is used to construct walls and ceilings.

Thousands of homeowners have filed lawsuits against other makers of tainted Chinese drywall and those companies are not covered by the settlement.

Homeowners can opt out of the Knauf settlement and pursue a lawsuit on their own.

One attorney who has represented clients who opted out of an earlier settlement with Banner Supply Co called the deal a significant step but would not commit to supporting it until he reviewed the details.

“Whether this will be a perfect solution for every one of my clients, I can’t say,” said David Durkee of the Florida law firm of Roberts & Durkee. He said hundreds of his clients are potentially covered by the Knauf settlement.

Many of the affected homes were built in 2006 and 2007 at the end of a U.S. housing boom and during a burst of rebuilding after several hurricanes in the U.S. Southeast.

The drywall was tainted by sulfur from a gypsum mine in Northern China, according to a KPT attorney.

The settlement would create two funds. A remediation fund, which is not capped in value, would allow homeowners to hire a contractor to remove the tainted product or reimburse homeowners for prior repairs.

A second fund, which is capped in value, would allow plaintiffs to file claims for bodily harm and for economic losses, such as a foreclosure on the home.

The settlement is subject to the approval of U.S. District Judge Eldon Fallon, who has been overseeing the litigation.

A court hearing to approve the deal is likely in mid-2012, Wallance said.

Knauf Group, parent of Knauf International, is one of the world’s largest makers of building materials. It employs 23,000 worldwide and had 2008 sales of 5.6 billion euros, according to its website.

The consolidated cases are In Re: Chinese-Manufactured Drywall Products Liability Litigation, U.S. District Court for the Eastern District of Louisiana, No. 09-md-2047.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Steve Orlofsky, Bernard Orr, Gary Hill)