CPSC and CDC Release Report on Alleged Drywall Deaths

The Consumer Product Safety Commission released a report of an investigation it had requested be performed by the CDC's National Center for Environmental Health regarding deaths allegedly associated with exposure to imported drywall.  The report concludes that the drywall was not a contributing factor in the deaths of the people who had previously lived in or visited homes reported to contain problem drywall.

The investigation included reviews of the pertinent medical records,  interviews of witnesses, and available information from state public health authorities.   The CDC review confirms the results of previous reviews conducted by CPSC itself.  The cause of death in each case was clearly a primary, and often secondary, pre-existing chronic health condition.  Subjects typically had multiple long-term, severe, pre-existing conditions.  

We have posted about the drywall issues here and here


 

Drywall Litigation Update

The Georgia Superior Court has preliminarily approved a $6.5 million settlement between the Lowe's home improvement stores and a nationwide proposed class of drywall purchasers. Vereen v. Lowe's Home Centers Inc., SU10-CV-2267B (Ga. Super. Ct., Muscogee Cty.).

The proposed resolution of this piece of the drywall litigation would provide Lowe's gift certificates ranging from $50 to $2,000 to any consumer who purchased drywall (not just from China), as well as cash awards of up to $2,500, if the claimant can provide documentation of damages and proof of purchase. That is, plaintiffs who provide proof of purchase of drywall from Lowe's but have no proof of actual damages would receive gift cards valued up to $250. Class members unable to provide a proof of purchase would receive $50 gift cards.

Under the settlement, Lowe's also agreed to pay attorneys' fees and expenses up to 30% of the class fund, as well as $1 million to the plaintiff attorneys for administration of claims. The settlement purports to release Lowe's from all drywall claims.The Georgia court conditionally certified a settlement class and set a final fairness hearing for November 19th.

But the proposed settlement has apparently drawn objections from participants in the federal Chinese drywall multidistrict litigation, who are arguing that the settlement fund is too small and that the settlement would interfere with federal jurisdiction.  The plaintiffs' steering committee for the Chinese drywall multidistrict litigation in the Eastern District of Louisiana went so far as to move to enjoin the state court from moving ahead with the settlement, arguing that the benefit to the class is too small, and the attorneys' fees too large. Ironically, these plaintiff attorneys assert that the form of the class benefit, i.e.,  a gift card, is also improper.

The MDL lawyers assert that the parties involved in the MDL have been negotiating towards a global settlement, and allowing the state court, one-defendant settlement to go forward would simply undermine those efforts.  They called on the federal court, pursuant to the Anti-Injunction Act, to enjoin state court proceedings where, as here, it is allegedly necessary in aid of its jurisdiction or to protect or effectuate its judgments.

Readers will recall that after Hurricanes Katrina and Rita in 2005, drywall was imported from China to address a shortage of drywall required for repairs and new construction. After the drywall was installed, homeowners began to complain of smells, gas emanations, corrosion of appliances and electrical fixtures, and other alleged property damage. The lawsuits typically allege that sulfur compound levels in the drywall are too high, causing issues with air conditioning systems, electrical appliances, internal wiring, and other electrical systems in homes. Plaintiffs also allege the drywall produces a rotten egg-like stench and causes a variety of respiratory and other health problems for those who live in the affected homes.

So far, a few bench or jury bellwether trials have been completed, with mixed results.
 
 

Update on Foreign Manufacturers Liability Act

We have posted before about legislative efforts to make it easier for U.S. consumers to sue foreign product manufacturers.

Last week the the House Subcommittee on Commerce, Trade, and Consumer Protection held a legislative hearing on H.R. 4678, the “Foreign Manufacturers Legal Accountability Act.”  The House bill  was introduced last February. The Senate's version, S. 1606, was introduced in August, 2009.

Witnesses included a representative of the Consumer Product Safety Commission, the Consumers Union,  American Association of Exporters and Importers, and a Professor from American University College of Law.

The Act would require foreign manufacturers and producers of several kinds of products to establish registered agents for service of process and to consent to jurisdiction here.  It appears to have bipartisan support, but raises a number of constitutional issues, and may not address the key issue of the enforceability of judgments handed down by U.S. courts.

Supporters of the bill note that the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters – of which the United States and many of its major trading partners, including China, are parties – provides a means of serving process on foreign manufacturers in their home countries.  However, this method can be time consuming and costly, because all the legal documents must be translated into the foreign manufacturer’s native language and then provided to a governmental central authority, which in turn attempts to serve the documents on the manufacturer. It can take many months for the central authority to serve the documents on the manufacturer.   In addition, even if a plaintiff successfully serves process on a foreign manufacturer, argue the supporters, the manufacturer will likely challenge the exercise of personal jurisdiction over it by a U.S. court. Before a U.S. court can exercise personal jurisdiction over a defendant it must consider: 1) the defendant’s purposeful minimum contacts with the state in which the court sits, and 2) fairness to the defendant of being subjected to jurisdiction in that state’s courts.  Foreign manufacturers have increasingly turned to litigating this issue to avoid being hauled into U.S. courts.

The Act would require foreign manufacturers and producers that import products into the United States to designate a registered agent who is authorized to accept service of process here in the United States. The agent would have to be registered in a state with a substantial connection to the importation, distribution, or sale of products of the foreign manufacturer or producer. CPSC, the Food and Drug Administration, and the Environmental Protection Agency would each be required to determine, based on the value or quantity of goods manufactured or produced, which foreign manufacturers and producers under their respective authority would be required to designate a registered agent. Registering an agent consistent with the Act constitutes acceptance by the manufacturer of personal jurisdiction of the state and federal courts of the state in which the agent is located.

AAEI, on the other hand, is particularly concerned about the impact H.R. 4678 would have on U.S. exporters if this bill is enacted by Congress. If the United States enacts H.R. 4678 requiring foreign manufacturers to appoint a registered agent to receive service of process, they anticipate that our trading partners will enact similar measures. It will be difficult and expensive for American exporters to maintain registered agents in all the foreign markets to which it exports. Moreover, having a registered agent in foreign markets increase the likelihood that these companies will be
subject to litigation before foreign courts in countries with legal proceedings which are less
transparent than the United States, argued AAEI.

Update on Chinese Drywall Litigation

The Consumer Product Safety Commission last week announced the results of testing performed by the Lawrence Berkeley National Laboratory on allegedly defective drywall samples.  Among the findings, most of the drywall that has allegedly caused personal injury and corroded electrical components in various homes throughout the U.S. was indeed manufactured in China;  specifically,  the most reactive sulfur-emitting drywall samples were all produced in China, according to the CPSC.  The worst-testing samples of the Chinese drywall showed emission rates of hydrogen sulfide 100 times greater than non-Chinese drywall samples.

CPSC released the names of the 10 worst-performing samples, including those of Knauf Plasterboard (Tianjin) Co. Ltd. for drywall manufactured in 2005, Taian Taishan Plasterboard Co. Ltd. for drywall manufactured in 2006, Shandong Taihe Dongxin Co. for drywall manufactured in 2005, Beijing New Building Materials for drywall manufactured in 2009.  Drywall samples manufactured in the United States in the same period contained low or no detectable emissions of hydrogen sulfide, according to the agency. 

At the U.S.-China Strategic and Economic Dialogue meetings in Beijing May 24-25, U.S. officials reportedly pressed the Chinese government to facilitate a meeting between CPSC and the Chinese drywall companies whose products were used in U.S. homes, and which exhibit the emissions identified during the testing procedures. The Strategic and Economic Dialogue represents the highest-level bilateral forum to discuss a broad range of issues between the two nations.

Federal cases concerning the drywall products are coordinated in multidistrict litigation pending in the U.S. District Court for the Eastern District of Louisiana. More than 7,000 plaintiffs have claimed that Chinese-made drywall in their homes emits sulfide gases that corrode electrical wiring and/or cause personal injury such as nasal damage and other respiratory problems.  In the first trial, the court ordered Taishan Gypsum to pay $2.6 million to seven plaintiffs last April. In the second trial, the court ordered Knauf Plasterboard to pay a plaintiff family $164,000.  In re: Chinese-Manufactured Drywall Products Liability Litigation, MDL No. 2047 (E.D. La.).

Cases are also pending in state court, and a state trial court in Miami recently certified a class in this litigation. Harrell v. South Kendall Construction Corp. et al., No. 09-008401 (11th Judicial Circuit, Fla.). Following a hearing last Thursday, Judge Farina granted class certification, the first Chinese drywall case to be certified. The class consists of approximately 150 claimants who were purchasers of homes in three subdivisions of the Keys Gate community there. The class alleged that those homes were built using Chinese drywall. Defendants are home builder Kendall Construction Corp., Palm Isles Holdings LLC, broker Keys Gates Realty Inc, and supplier Banner Supply Co.

The court found that a predominating common issue in each class member's case is whether the drywall installed in his or her house was defective. The trial court found that the alleged defect, the potential to emit sulfur gases that can cause damage, is inherent in the physical characteristics of the product and thus has a uniform nature. With one supplier and one builder allegedly involved, the court distinguished the case from other product defect cases in which individual issues are typically found to predominate.

The opinion noted that differences among proof of damages has typically not defeated class certification. The court stressed that if individual class member homeowners were to file their own separate actions, the court would be confronted with a multiplicity of lawsuits that would unnecessarily burden the court system and create the risk of inconsistent rulings and contradictory judgments.

While the court was clearly influenced by the belief that the issues surrounding the allegedly defective product were "unaffected by outside variables," like the way the product was used, its analysis of predominance is quite questionable.  For example, it concluded that a common issue was whether the defective drywall damaged the homes of the putative class members, and thus that the issue of injury (whether the drywall damaged all the homes) could be proved with class-wide evidence.  The fact is that enough of the drywall was imported to damage more than 50,000 homes; yet only a small percentage of that has been observed. Thus, it may be that any number of factors may be impacting the damage drywall is or is not causing in a particular house. Moreover, it is far too simplistic to talk about the injury or "damage" being caused, when there are hotly debated issues about whether there is injury to, or the need for remediation of, non-problem drywall, insulation, flex duct, molding, encapsulated wiring, counter tops, and a whole host of house components. Similar issues will relate to the causation of corrosion of a home’s electrical wiring or AC system.  

Federal Court Sends Melamine Contamination Claims To China

A federal court recently sent back to China various Chinese families' product liability cases stemming from alleged melamine contamination of infant formula. See Tang v. Synutra International Inc., 2010 WL 1375373 (D. Md.).

Plaintiffs, one hundred Chinese citizens residing in China, brought suit on their own behalf as parents and on behalf of fifty-three minor children who allegedly suffered adverse health
conditions, predominantly the development of kidney stones, as a result of ingesting contaminated milk products produced by Defendants’ Chinese subsidiaries.  The principal place of business of both defendants, Synutra International, Inc., and Synutra, Inc., is in Maryland. Plaintiffs sought compensatory damages of at least $5.5 million for each child and $1.5 million for each parent, as well as a collective punitive damages award of $500 million. Defendants filed their motion to
dismiss on, inter alia,  the grounds of forum non conveniens.

In September 2008, the Chinese Administration of Quality Supervision, Inspection and
Quarantine (“AQSIQ”) initiated an emergency testing program of the country’s dairy supplies. Later that month, AQSIQ announced that certain lots of infant formula were found to have contained melamine, a chemical commonly used as an industrial component in plastics, adhesives, countertops, etc.  Melamine is not a food additive. It is not approved for human consumption.

By December 2008, approximately 300,000 Chinese infants were found to have ingested dairy products contaminated with melamine. Allegedly as a result, at least six infants have died and scores of others have required medical treatment for maladies associated with kidney damage. AQSIQ found varying amounts of melamine in sixty-nine batches of infant milk powder produced by several companies, including defendants' subs. In response to this crisis, the Chinese government, in conjunction with the China Dairy Industry Association, established a compensation program, funded by the dairy companies, that produced the contaminated milk products and totals approximately $160 million. It offered a lump-sum payment to the families of affected children, according to the extent of injury. To date, the families of approximately ninety-five percent of the injured children have reportedly accepted the remedies provided by the plan. Of those who have not, some have opted instead to bring suits in Chinese or U.S. courts.

The adequacy of the Chinese courts to adjudicate these suits was a significant point of contention between the parties; indeed, it was the critical factor of the forum non conveniens analysis in this case.

At the outset of any forum non conveniens inquiry, the court must determine whether there exists an alternative forum. The defendant bears the burden of establishing that the alternative forum is
available to all parties and that an adequate remedy is available to the plaintiff.  Although some courts conflate these issues, the availability and adequacy of the supposed forum are better seen as raising independent issues that warrant separate consideration by the court.

Ordinarily, a defendant can satisfy the availability element by showing that it is “amenable to process” in the alternative forum. Where the remedy offered by the alternative forum is so clearly inadequate or unsatisfactory that it is no remedy at all, however, the court may conclude that dismissal would not be in the interests of justice. Many courts have presumed the adequacy of the alternative forum and placed at least the burden of production on the plaintiff to establish otherwise.

Although plaintiffs here challenged both the availability and adequacy of the alternative forum to adjudicate their claims, there was no question in the court's mind that the Chinese forum was
available, since the defendant showed that it is “amenable to process” in the alternative forum.

Whether China constitutes an adequate forum was the primary issue in dispute. The dispute as to the adequacy of the Chinese forum boiled down to the competing declarations of the parties' China law experts. Defendants’ declarant opined that Chinese courts are adequate to resolve plaintiffs’ dispute and described that Chinese law provides causes of action for personal injury and products liability, a right to present evidence and argument in court, the power to compel witness testimony, and a right to appeal. Plaintiffs would be entitled to recover compensatory damages for expenses such as loss of income, related travel expenses, food subsidies, living expenses for dependents, as well as compensation for emotional damages, but not punitive damages.

Plaintiffs' experts claimed that “several volunteer milk attorneys” were summoned to a meeting held at the Beijing Bureau of Justice, a government entity, where an official demanded all attorneys to withdraw from representation on tainted-milk cases. The experts also asserted that the Chinese courts have denied litigants access to the courts, as well as the right to appeal an adverse ruling, because none of the complaints filed by contaminated-milk victims has been “either accepted or formally denied,”  resulting in the cases remaining perpetually in limbo. They also asserted that families of “seriously sickened children” receive $4,400, and “those suffering from other kidney problems” receive $292 under the government compensation scheme, and this is not “a legal remedy,” but rather “a settlement offer" made by the dairy companies,  In essence, plaintiffs asserted that the Chinese courts were deviating from normal process with respect to melamine claims and pressuring lawyers to withdraw representation of these claimants, thereby forcing the
unfortunate victims into a Hobson’s choice between pursuing futile litigation or accepting the "meager remedy" provided by the compensation program.

The court granted the motion, finding China an adequate forum.  The guiding principles included that the prospect of delay presented by the alternative forum does not typically render the alternative forum inadequate. The complaints had not yet been rejected in China. The court was not wiling to make the value judgment, on the basis of what it called limited evidence presented, that corruption in the Chinese judiciary would systematically deny access to a legal remedy there.  Courts have traditionally been reluctant to cast such aspersions on foreign judicial systems absent a substantial showing of a lack of procedural safeguards.

Second, even if the Chinese courts were not open to plaintiffs, another remedy was indisputably available to them, namely, the compensation program. While the plaintiffs characterized the
program as a “government-sanctioned settlement plan” from the companies that produced the contaminated milk products, as opposed to a legal remedy , they cited no authority for the proposition that the available remedy need be purely “legal” in nature. Regardless of whether it was enacted by the Chinese legislature or sanctioned by the judiciary, it is undisputed that the compensation program developed in China in the wake of the melamine contamination crisis was organized and sanctioned by government entities working in conjunction with the dairy industry and administered through an insurance provider.

Third, although the remedy offered by the compensation program was far less lucrative than what plaintiffs sought in the U.S., the courts have made clear, that the test is not to compare the rights, remedies, and procedures available under the law that would be applied in each forum to determine whether the law applied by the alternative forum is as favorable. 

Update on Chinese Drywall MDL

A quick update on the Chinese Drywall MDL.  With the recent filing of an omnibus complaint, approximately 3,000 plaintiffs are now involved in the product liability litigation over Chinese-made drywall, against approximately 600 defendants. In re: Chinese-Manufactured Drywall Products Liability Litigation, MDL No, 2047 (E.D. La.).  Plaintiffs allege generally that sulfur levels in the Chinese-made products are abnormally high, causing problems with air conditioning systems, appliances, internal wiring and other electrical systems, as well as personal injuries.  

The drywall imported from China could have been used throughout the United States in as many as an estimated 300,000 recently built or renovated homes. The U.S. Consumer Product Safety Commission reported on studies linking Chinese drywall installed in homes to elevated levels of hydrogen sulfide and the potential corrosion of metals.

Recently, the MDL court appointed Michael K. Rozen of Feinberg Rozen, LLP as a Special Master in this proceeding under Federal Rule of Civil Procedure 53. Pursuant to the order of the Court, Special Master Rozen shall carry out those tasks he deems appropriate to fully explore opportunities for an ultimate resolution between the various parties. 

At the December status conference, the court explored issues relating to the various profile forms: Plaintiff Profile Form, a Defendant Manufacturers’ Profile Form, a Contractor/Installer Profile Form, a Builder Defendant Profile Form and a Defendant Distributor Profile Form, and the Importer/Exporter/Broker Profile Form. And how to handle a party's failure to complete the required form. Another agenda item was prioritizing the many pending motions. The parties addressed some discovery disputes, including ESI.

An important issue also discussed was the the Court's general plan to establish initial  “bellwether” trials. The Court has further advised the parties that any such trials will be limited to property damage only. The parties have been discussing the protocol and procedure for selecting bellwether trial candidates. The Plaintiff Steering Committee has suggested a sufficient representative sample of cases be selected with regard to geography, concentration of properties, distinctive facts and certain legal issues. The defendants suggest that the selection of bellwether plaintiffs must be limited to the plaintiffs that have submitted profile forms where personal injuries are not claimed. A list of these plaintiff properties has been made available to the PSC and the Court. The parties were directed to continue to discuss the selection of bellwether trials.

It is already clear that the drywall litigation will be complicated. Homeowners are suing builders, installers, distributors and manufacturers. There are multiple levels of insurance litigation, as in some states plaintiffs may also bring direct actions against the insurers for any of those categories of defendants; some homeowners are also in dispute with their carriers as to coverage. Several defendants have sued their carriers. In some cases, insurance companies have already filed declaratory judgment actions on these issues. Moreover, there are cross-claims among categories of defendants, as builders are suing distributors, manufacturers, and their insurers.

As noted here before , a major issue is product identification, i.e., the identification of the maker and seller of the drywall in each plaintiff's building. Plaintiffs in the MDL have already identified 28 foreign labels that they allege may be involved.  Class action motions remain pending, among the difficult case management issues.  Indeed, some of the cases may end up being resolved as part of bankruptcy proceedings.

CPSC Releases Study of Chinese Drywall

To date, CPSC has received more than 2000 reports from 32 states, the District of Columbia and Puerto Rico, from consumers and homeowners concerned about alleged problem drywall from China in their homes. The majority of consumer complaints on allegedly defective drywall have come from Florida and Louisiana.

The CPSC last week released a study of Hydrogen Sulfide Gas in connection with its Chinese drywall investigation.  Specifically, CPSC released results from a major indoor air study of 51 homes, and initial reports from two studies of alleged corrosion in homes with Chinese drywall. The 51 home study was actually contracted by CPSC and done by Environmental Health & Engineering (EH&E). The  two preliminary reports on corrosion safety issues are from the Sandia National Laboratories’ (SNL) Materials and Engineering Center concerning the long-term electrical safety hazards of conductor metal components, and the National Institute of Standards and Technology (NIST), studying the corrosion effects on fire safety components taken from complaint homes.

EH&E compared 41 “complaint” homes in five states selected from CPSC’s consumer
incident report database, with 10 non-complaint homes built around the same time in the
same areas as the complaint homes. Homes were sampled between July and September
2009. The EH&E findings were that hydrogen sulfide gas appears to be the essential component that causes copper and silver sulfide corrosion found in the complaint homes. Other factors,
including air exchange rates, formaldehyde and other air contaminants appear to contribute to the
reported problems.  The reports do not explain how the hydrogen sulfide gas is being created in homes built with Chinese drywall. (Earlier studies found varying amounts of elemental sulfur in the Chinese drywall.)

In terms of method, EH&E exposed copper and silver test strips, known as coupons, in homes for a period of about two weeks. The coupons showed significantly higher rates of corrosion in complaint homes than in the control homes. The dominant species of corrosion on the coupons were copper sulfide and silver sulfide, as determined by additional laboratory tests. Visual inspection and evaluation of ground wire corrosion also revealed statistically significant greater ground wire corrosion in complaint homes compared to non-complaint homes. The EH&E study also found that by using hand-held x-ray fluorescence and Fourier Transform Infrared instruments, they were able to detect markers that could identify Chinese-made dry wall at a sheet-by-sheet level.

The study did not link the corrosion with any long term safety effects, which are still under investigation. The levels reported, however, are well below the amount associated with long term health effects in the literature.

Like the EH&E study, initial reports from SNL and NIST show copper and silver sulfide corrosion on samples of metal taken from homes with problem drywall.

In terms of next steps, CPSC continues to search for homes exhibiting the alleged corrosion and health effects under study. Second, the federal Interagency Task Force has established an Identification and Remediation Protocol Team of scientists and engineers. This Team will try to use the results of the EH&E study and other information to design a screening protocol to identify homes with this problem.  Because professional air sample testing, and destructive testing of drywall both are costly, the Protocol Team is trying to develop quick, cost-efficient evaluation methods to identify homes with these problems. The Protocol Team will also look at remediation protocols, to see what cost-efficiency improvements to current remediation practices, if any, may be available, and what guidance should be issued on doing the work safely.

CPSC believes it has secured the cooperation of the Chinese Government to help identify the sources and causes of this problem. The agency believes that no new Chinese drywall has entered the United States in 2009. CPSC is also working with an ASTM committee that has just initiated discussions on the formulation of a proposed new standard on inspection of drywall for air quality issues.

Developments in Proposed Class Actions in China Drywall MDL

In the Chinese Drywall  MDL, certain plaintiffs recently moved for leave to amend their Class Action Complaint to expand the class definition as to defendant Taishan Gypsum, from a Virginia state-wide class to a national class of all persons allegedly impacted by defective drywall made by that defendant. Plaintiffs assert that there will be no undue delay nor prejudice to defendants from the change; the amendment does not alter the proposed sub-classes as to other defendants who are the builders and installation contractors who allegedly installed the product. The amendment would also include new assertion of a violation of the consumer fraud acts of the various states. In re: Chinese-Manufactured Drywall Products Liability Litigation, No. 09-md-02047 (E.D. La.).

An Omnibus [Proposed] Class Action Complaint is to be filed in the MDL on or before December 9, 2009 by the plaintiffs against another defendant, Knauf Plasterboard (Tianjin) Co., Ltd (“KPT”) and other defendants who were involved in the manufacture, sale, importation, brokerage, distribution, construction and installation of homes containing KPT drywall, and any others who were involved in the stream of commerce for the KPT drywall. In order to assist in the consolidation and efficient handling of claims by affected homeowners, defendant KPT has apparently agreed to accept service of process for homeowner plaintiffs who are to be named in an Omnibus Amended Complaint, and waive its right to demand service of process through the Hague Convention. (We have posted about the issues related to suits against foreign defendants before.) However, to be eligible for inclusion in this Omnibus [Proposed] Class Action Complaint and the service waiver, homeowners must provide, by no later than December 2, 2009, sufficient indicia that the homes in question contain KPT drywall (e.g., photographs, samples, visual inspections or reports identifying KPT markings on drywall in the home), and must also submit by December 14, 2009, a fully completed and executed Plaintiff Profile Form, in accordance with PTO #11. The complaint will not be amended to include additional named plaintiffs after it is filed, the court has indicated.


 

Federal Inter-agency Task Force Releases Preliminary Test Results On Chinese Drywall

The federal inter-agency task force investigating alleged problems with Chinese-made drywall released initial results of three studies last week, which may impact the MDL litigation. The CPSC, the EPA, HUD, the CDC, and the Agency for Toxic Substance and Disease Registry are members of the task force. Health departments in Florida, Louisiana, and Virginia have also participated in the task force. An executive summary of the studies, and the draft studies themselves are available here.


To date, close to 2000 consumers have contacted the CPSC to report alleged problems in their homes. The primary issues reported are: 1) corrosion, or blackening, of indoor metals, such as electrical components and central air conditioning system evaporator coils; and 2) various health symptoms, including persistent cough, bloody and runny noses, headaches, difficulty in breathing and irritated and itchy eyes and skin. Imported drywall from China came into more widespread use after hurricanes in 2004 and 2005 led to a surge in home reconstruction and caused shortages of North American-made drywall.

In sum, the three studies involved:
(1) Elemental and Chemical Testing: The study of the elemental and chemical composition of drywall samples showed higher concentrations of elemental sulfur and strontium in Chinese drywall than in non-Chinese drywall. The elemental and chemical testing of Chinese and non-Chinese drywall samples was undertaken to characterize the specific chemical composition of the drywall. The results were expected to identify differences between the two sets of drywall that might account for the reported corrosion and health issues. While the studies have discovered certain differences between Chinese and non-Chinese drywall, further studies must be completed, said the report, to determine any nexus between the drywall and the reported health and corrosion issues. The analysis was conducted on 17 samples of drywall collected from warehouses, suppliers and manufacturers. These samples were unpainted and uninstalled.

(2) Chamber Studies: Preliminary results of ongoing testing to detect gases emitted from drywall in laboratory chambers showed higher emissions of total volatile sulfur gases from Chinese than from non-Chinese drywall. The chamber studies, conducted by Lawrence Berkeley National Laboratory, were intended to isolate the chemicals emitted from drywall. From these chamber studies, said the task force, it was possible to isolate the drywall emissions from the interferences of other materials or furnishings in a house that might emit or absorb such emissions. No comprehensive exposure and risk assessment has yet been carried out.

(3) Indoor Air Studies: Indoor air testing of 10 homes in Florida and Louisiana was conducted to identify and measure contaminants and to inform a drywall home indoor air testing protocol. The tests did not detect the presence or found only very limited or occasional indications of sulfur compounds of particular interest to the task force – hydrogen sulfide, carbon disulfide, and carbonyl sulfide. Concentrations of two known irritant compounds, acetaldehyde and
formaldehyde, were detected at concentrations that could exacerbate conditions such as asthma in sensitive populations, but were found in both homes with and without Chinese drywall. The levels of formaldehyde were not unusual for new homes, however, said the report. The results of the air testing in this very small sample of homes was being reported to offer a very preliminary indication of what compounds may be present in the indoor environments of homes in Florida and Louisiana with and without Chinese drywall.


The agencies expect the results of an air-sampling study of 50 homes in late November. An engineering analysis of electrical and fire safety issues is also forthcoming. .A study of long-term corrosion issues, that seeks to simulate decades of exposure and corrosion, will not be completed until June of 2010.

The study follows in the wake of the four-day U.S.-China summit that aimed to reinforce the notion that the United States—specifically the CPSC—will hold accountable importers of products into the United States if their products pose hazards or violate safety standards. The CPSC delegation reportedly discussed drywall safety concerns with Chinese government officials.

The CPSC stressed that this report was preliminary; the findings of each report released today must be considered within the limitations of each study and viewed in the context of the overall drywall investigation, which is still ongoing. While the studies have discovered certain differences between Chinese and non-Chinese drywall, further studies must be completed to determine any nexus between the drywall and the reported health and corrosion issues.
 

Chinese Drywall Update

On the eve of the 3rd biennial United States--China Consumer Product Safety Summit, to be held in China, the head of the Consumer Product Safety Commission reported she will press Chinese officials on whether new regulatory standards need to be set for drywall composition. CPSC Chairwoman Inez Tenenbaum said she also would inquire whether the Chinese were willing to provide compensation for the damage from tainted drywall.

In its latest status report on the Chinese drywall issues, the CPSC noted that it had received 1192 consumer complaints, from 24 different states. The majority of the reports continue to be from Florida, Louisiana, and Virginia. The focus of the federal drywall team has remained pursuing the scientific bases of the possible problems, and tracing the chain of commerce of the drywall.

CPSC reports it has completed principal field work for a 50 home indoor air sampling program, coordinated the state and federal response to allegations of radioactive phosphogypsum in Chinese drywall, and completed 75 in-depth site investigations, with another 20 in progress. Long-term air sampling tests will be completed later this month. The evaluation of the results is expected to be complete before November. (Phosphogypsum is a gypsum that has elevated levels of naturally occurring potassium, thorium and uranium radionuclides and decay products.) The CPSC coordinated testing and reporting results for radioactive phosphogypsum contamination in drywall with the Florida Department of Health and the EPA National Air and Radiation Environmental Laboratory. The results of the technical review showed that no radiological hazard was present. EPA is conducting elemental analyses of 15 drywall samples. EPA expects to complete its analyses of drywall samples in the next few weeks.

CPSC continues to analyze the information received from consumers, builders, importers, manufacturers, and suppliers of drywall to determine how much imported drywall may be affected and where that drywall has been installed. To date, CPSC staff has confirmed that during 2006, 6,997,456 sheets of Chinese drywall were imported into the U.S.

As readers of MassTortDefense know, litigation has been filed over the drywall issues, alleging that sulfur levels in the Chinese-made products are abnormally high, causing problems with air conditioning systems, appliances, internal wiring and other electrical systems.  Approximately 200 cases are pending in the MDL. In re: Chinese-Manufactured Drywall Products Liability Litigation, No. 09-md-02047 (E.D. La.).

In the MDL , the next status conference is scheduled for Thursday, November 19, 2009. Recently, the court  issued an order regarding a "Revised Exporter, Importer, or Broker Defendant Profile Form.”  All defendant drywall exporters, importers, or brokers must complete this Profile Form.  The form, inter alia, requires information on exemplar transactions concerning the exportation/importation/brokering of Chinese Drywall for import/export to the United States between 2001 and 2009, including but not limited to purchases, sales, consignments, shipments, transfers, deliveries, receipts, or other distributions.  The form requires information to identify any markings on the Chinese Drywall product (e.g., lot number, batch number, serial number, color markings, UPC codes, etc.) involved in this transaction; a list all trademarks of the product, and any markings or means of identification employed to track or identify the Chinese Drywall.

The issue of linking the specific product that allegedly harmed a plaintiff to the defendants who made and sold that particular product -- often termed "product identification" -- is an essential aspect of the cause in fact inquiry and is often problematic in toxic tort litigation.

 

 

Nano-particle Study Generates More Heat Than Light

A new study published in the European Respiratory Journal is generating media attention, and some observers assert it may have far-reaching implications for the nano-tech industry. Is this warranted?

In this study, Song, et al., Exposure to nano-particles is related to pleural effusion, pulmonary fibrosis and granuloma, 34(3) Eur. Respir. J. 559-567 (2009), researchers at China's Capital University of Medical Sciences linked lung disease in seven Chinese workers, two of whom reportedly died, to nano-particle exposures in a print plant where a paste containing nano-particles was sprayed onto a polystyrene substrate, with subsequent heat-curing.

The study reported that seven young female workers (ages 18–47), exposed to nano-particles for 5–13 months, were admitted to the hospital, all with shortness of breath and pleural effusions. Polyacrylate, consisting of nano-particles, was confirmed in the workplace. Pathological examinations of the patients' lung tissue displayed non-specific pulmonary inflammation, pulmonary fibrosis, and foreign-body granulomas of pleura. By transmission electron microscopy, nano-particles were observed to have lodged in the cytoplasm and caryoplasm of pulmonary epithelial and mesothelial cells, but also were located in the chest fluid.

The authors expressed concern that long-term exposure to some nano-particles may be related to serious damage to human lungs.  But, putting the media reception aside, this study appears to do more to highlight the common sense need to follow good industrial hygiene practices than to provide compelling evidence of any unique health risks posed by engineered nano-particles. The plant sprayed a strong chemical paste and then heated plastic material in an enclosed space apparently lacking ventilation.  The room in which the women worked was small and unventilated for a significant part of their exposure period. Only on occasion, they wore mere "cotton gauze masks." 

From the study it appears that the workers had a complicated exposure history to a mix of chemicals; while there was a reported association of nano-particles with lung disease, it is unclear which, if any, of the chemical exposures might have contributed to the lung issues. Readers of MassTortDefense know that an association is not causation.  For example, formation of thermodegradation fume products are known to cause significant occupational disease, and paint spraying has been shown to be potentially harmful long before nano-sizing of chemicals was utilized. 

Moreover, sufficient exposure information necessary to even begin to think about a causal connection between exposure to nano-sized particles in the paste/dust and lung and heart disease in the workers was missing.  Clearly, there may be alternative explanations for what the study authors described finding in the patients.

As noted here before, NIOSH emphasizes the use of a variety of engineering control techniques, implementation of a risk management program in workplaces where exposure to nanomaterials exists, and use of good work practices to help to minimize worker exposures to nanomaterials.
 

 

 

Motion For Default Filed in China Drywall MDL

An Alabama construction company that is a party in the multidistrict litigation over allegedly tainted Chinese-made drywall has asked for a default judgment against a foreign manufacturer/seller of gypsum drywall. Mitchell Co. Inc., et al. v. Knauf Gips KG, et al., No. 09-cv-4115 (E.D. La.).

Mitchell filed a motion last week  in the U.S. District Court for the Eastern District of Louisiana asking for a default judgment against China-based Taishan Gypsum Co. Ltd.  The motion alleges that Taishan has not responded to the plaintiff's complaint nor entered an appearance.  Mitchell filed its original complaint back in March, in the Northern District of Florida, seeking to represent a class of plaintiffs who allege they incurred expenses stemming from defective drywall.  The complaint names several drywall makers and sellers.  The case was later transferred with related actions to the MDL in front of Judge Fallon. In re: Chinese-Manufactured Drywall Products Liability Litigation, No. 09-md-02047 (E.D. La.). 

Interestingly, the motion comes as the Congress debates a bill that would make it easier for foreign manufacturers to be sued when their products allegedly injure U.S. consumers, the Foreign Manufacturers Legal Accountability Act of 2009.

MassTortDefense has posted about the alleged problems with Chinese imported drywall. In litigation over the issues, Lennar Corp., the U.S.' second largest home-builder (by volume), has sued more than two dozen manufacturers, suppliers and installers.  As noted here before, Sens. Bill Nelson, D-Fla., and Mary Landrieu, D-La., have introduced legislation tied to Chinese drywall.  Also, the CPSC reports that it has now received a total of 810 reports related to the allegedly defective drywall, including complaints from two additional states, Pennsylvania and South Carolina. That means the Commission (criticized in some circles for its work on this issue)has received reports from homeowners in 23 states and the District of Columbia. The majority of the reports continue to be from Florida, Louisiana, and Virginia. About 6.2 million sheets of Chinese drywall were imported into the U.S. during 2006.

 

Update On Chinese Drywall Litigation

The Consumer Products Safety Committee has reported that it has received approval from the Chinese for a visit to China in connection with the drywall issues, and that CPSC staff is working with the Chinese government to arrange an investigative visit beginning later this month.  The CPSC has asked to visit several sites of interest in its investigation of issues related to the tainted drywall, which we have posted about before.

The CPSC reports that it has now received a total of 810 reports related to the allegedly defective drywall, including complaints from two additional states, Pennsylvania and South Carolina. That means the Commission has received reports from homeowners in 23 states and the District of Columbia. The majority of the reports continue to be from Florida, Louisiana, and Virginia.  About 6.2 million sheets of Chinese drywall were imported into the U.S. during 2006.

As part of its investigation, the Commission notes the:
• Start of the Lawrence Berkeley National Laboratory chamber testing of various drywall samples to isolate specific emissions.
• Start of a 50 home indoor air sampling program.
• Site visit to a synthetic drywall manufacturing facility.
• Completion of testing for radioactive phosphogypsum contamination in drywall, in coordination with the Florida Department of Health and the EPA National Air and Radiation Environmental Laboratory. 

The EPA is conducting elemental analyses of 15 drywall samples, with a tentative date for completing its analyses of drywall samples by late August. The CPSC's engineering staff has visited seven homes in Florida, Louisiana and Virginia to gather samples of electrical, plumbing and safety systems. CPSC also has hosted a call among attorneys general of impacted States to coordinate and exchange information about State-level efforts.

Lawsuits filed over the drywall issues allege that excessive sulfur levels in the Chinese-made products are causing health effects and problems with air conditioning systems, appliances, internal wiring and other electrical systems. In June, the U.S. Judicial Panel on Multidistrict Litigation consolidated the lawsuits in the U.S. District Court for the Eastern District of Louisiana. More than 90 suits were on the docket as part of the MDL as of last week. Plaintiffs have asked the court to certify the matter as a class action. In re: Chinese-Manufactured Drywall Products Liability Litigation, MDL 2047.

The monthly status conference in the MDL was held last week before Judge Fallon. At the conference, the court considered issues raised by Liaison Counsel, including pre-trial orders, property inspections, Plaintiff and Defendant profile forms, an evidence preservation order, state court settings, state/federal coordination, discovery issues, Freedom of Information Act/ public records requests, trial settings in federal court, tolling agreement/suspension of prescription, plaintiffs' request for a class action, insurance issues, service of pleadings electronically, and the master complaint. A full report can be found here. 

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Update On China Drywall MDL

The judge handling the MDL involving the consolidated litigation involving Chinese manufactured drywall claims has issued a first order. Pursuant to Pretrial Order #1, the initial pretrial conference was set for July 9, 2009,  in the Courtroom of Judge Fallon. Earlier this summer, the U.S. Judicial Panel on Multidistrict Litigation agreed to consolidate a number of the suits in the U.S. District Court for the Eastern District of Louisiana. The suits have named as defendants the Chinese-based manufacturers, as well as importers, contractors, suppliers and others, including Knauf Gips KG, Knauf Plasterboard Tianjin Co., Taishan Gypsum Co., L&W Supply Corp., USG Corp. and Lennar Corp., the country’s second-largest home builder by volume.

The items listed in the Manual for Complex Litigation (Sections 22.6, 22.61, 22.62, and 22.63) were, to the extent applicable, set as a tentative agenda for the conference. (That may include adding parties, pleadings and motions, issue identification and development. ) Counsel were ordered to confer and seek consensus to the extent possible with respect to the items on the agenda, including a proposed discovery plan, any amendment of pleadings, consideration of any class action allegations and motions, and be prepared to select trial dates.

Plaintiffs and defendants were to submit to the Court before the conference a brief written statement indicating their preliminary understanding of the facts involved in the litigation and the critical factual and legal issues. (These statements will not be filed with the Clerk, will not be binding, will not waive claims or defenses, and may not be offered in evidence against a party in later proceedings.)

The Order covers a host of housekeeping issues for a new MDL. The Clerk will maintain a master docket case file under the style "In Re: CHINESE MANUFACTURED DRYWALL PRODUCTS LIABILITY LITIGATION” and the identification "MDL No. 2047 ".  All parties and their counsel were reminded of their duty to preserve evidence that may be relevant to this action. The duty extends to
documents, data, and tangible things in possession, custody and control of the parties to this
action, and any employees, agents, contractors, carriers, bailees, or other non-parties who possess materials reasonably anticipated to be subject to discovery in this action.

Prior to the initial conference, counsel for the plaintiffs and counsel for the defendant(s) were required to confer and seek consensus on the selection of a candidate for the position of liaison counsel for each group who will be charged with essentially administrative matters.

It is the Court’s intention to appoint a Plaintiffs’ Steering Committee (“PSC”) to conduct and coordinate the discovery stage of this litigation with the defendant’s representatives or committee.  The main criteria for membership in the PSC will be: (a) willingness and availability to commit to a time-consuming project; (b) ability to work cooperatively with others; and (c) professional experience in this type of litigation (d) willingness to commit the necessary resources to pursue this matter.

Behind the scenes, history suggests that a key issue underlying parts of the litigation the litigation will be whether the pollution exclusion applies. Insurers will likely argue that the alleged off-gassing of sulfur compounds from the Chinese drywall clearly constitutes the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants (referencing terms of the typical exclusion clause).  There is a split of authority on the scope of such a pollution clause.  Some states have narrow definitions which favor policyholders, while the more broad definitions in other jurisdictions typically favor insurers. Choice of law may be the determining factor on this.

One builder (Dragas Management) has already been named in a declaratory judgment action by its insurer, Builders Mutual Insurance Co.  In addition to relying on a pollution exclusion argument, insurers seem intent on showing that each installation of drywall constitutes a separate “occurrence” under the policy, and as such, a separate deductible would apply to each. Builders would undoubtedly prefer a single deductible for the installation within an entire development or project.

Concerns over the drywall have prompted legislators, including Sens. Nelson, D-Fla., and Landrieu, D-La., to introduce the Drywall Safety Act of 2009, which seeks to impose a recall and a temporary ban on imports until federal drywall safety standards are put in place.

 

MDL Created for Chinese Drywall Litigation

The U.S. Judicial Panel on Multidistrict Litigation has consolidated a number of lawsuits brought over Chinese-made drywall installed in U.S. homes. See In re: Chinese-Manufactured Drywall Products Liability Litigation, MDL-2047 (JPML).

The motion for consolidation encompassed ten actions, four actions in the Southern District of Florida, three actions in the Middle District of Florida and one action each in the Northern District of Florida, Eastern District of Louisiana, and Southern District of Ohio. The panel said it was aware of 67 related lawsuits that were pending in federal courts around the country. Those suits and any other related actions will be treated as potential tag-along actions.

The Panel found that all actions share factual questions concerning drywall manufactured in China, imported to and distributed in the United States, and used in the construction of houses; plaintiffs in all actions allege that the drywall emits smelly, corrosive gases. Centralization under Section 1407 will eliminate duplicative discovery, including any discovery on international parties; prevent inconsistent pretrial rulings, particularly those with respect to class certification issues; and conserve the resources of the parties, their counsel and the judiciary, said the Panel.

As is sometimes the case, no district was a clear focal point of this litigation. The common manufacturing defendant and its affiliates are foreign entities without a major presence in any of the suggested transferee districts. Most actions also name local entities, such as builders and suppliers, as defendants. Several parties suggested different districts, and all of the suggested districts, particularly those in the southeastern region, have a nexus to the litigation through allegedly affected houses built with the drywall at issue. On balance, the panel was persuaded that the Eastern District of Louisiana is a preferable transferee forum for this litigation. Centralization in this district permits the Panel to effect the Section 1407 assignment to a judge who has "extensive experience in multidistrict litigation as well as the ability and temperament to steer this complex litigation on a steady and expeditious course." That would be the Honorable Eldon E. Fallon of the Eastern District of Louisiana.

As posted on MassTortDefense before, the lawsuits allege that sulfur compound levels in the drywall are too high, causing issues with air conditioning systems, electrical appliances, internal wiring and other electrical systems in homes. Plaintiffs also allege the drywall produces a rotten egg-like stench and causes a variety of respiratory and other health problems for those who live in the affected homes. The lawsuits filed so far have named Chinese-based manufacturers, as well as importers, developers and builders, contractors, suppliers and others. Companies facing suits include Knauf Gips KG, Knauf Plasterboard Tianjin Co., Taishan Gypsum Co., L&W Supply Corp. and USG Corp. Lennar Corp., a major home builder, has brought in more than 20 manufacturers, suppliers and installers.  Some legislators have been critical of the CPSC's handling of the issue.  And bills have been introduced to ban the product.

Senate Holds Hearing on Chinese Drywall

A variety of public health officials testified last week at a hearing before the Consumer Protection, Product Safety, and Insurance Subcommittee of the U.S. Senate’s Committee on Commerce, Science, and Transportation, on the issue of allegedly toxic Chinese drywall installed in recently built homes.

Officials from the Centers for Disease Control and Prevention, the Consumer Product Safety Commission, the EPA, and Florida's Department of Health outlined the plan to study the effects of the drywall in a small number of test homes, to be completed by the end of June, and then expand the studies to a large-scale sample. The CPSC is also working with China's Administration for Quality Supervision, Inspection and Quarantine to find out how the drywall was made and to resolve significant difficulties in tracking the drywall's source.

The testifying officials warned that efforts to mitigate the drywall effects on homeowners shouldn't lead legislators to legislate policy ahead of scientific investigation. For example, Lori Saltzman, division director of the Office of Health Sciences at the CPSC, cautioned senators against legislation rushing to address any drywall issues before the ongoing studies are complete. And another panelist noted that a provision banning imported drywall composed of more than 5 percent organic material in a bill by Sen. Nelson, D-Fla., could shut down virtually all U.S. drywall imports, not just those from China suspected of being toxic.
 

According to allegations of homeowners, certain Chinese-made drywall — imported in the time frame 2005-2007 to meet an uptick in homebuilding demand after Hurricane Katrina — can cause respiratory problems and other health issues, produce a rotten smell, and corrode copper and metal fixtures, leading to fire hazards.

Randy Noel, a representative to the National Association of Home Builders, estimated the cost of replacing the Chinese-made drywall to be as much as $100,000 per home. More than 60 lawsuits have already been filed in seven states over the drywall, without conclusive scientific proof of its toxicity. Noel advocated a stay of the litigation until the CPSC and other agencies have concluded their investigations, identifying the scientific cause of the problems associated with the drywall and establishing a workable remediation strategy. He made the committee aware of a troubling new development in the area of drywall testing: the dramatic increase in the number of companies in the marketplace claiming to have the capability to test someone’s home to determine whether or not they have, or will have, a “toxic drywall” problem.
 

Not everyone has the same notion towards litigation: Saltzman reportedly remarked that the CPSC does not want to jeopardize any potential remedy for homeowners by having inadequate scientific proof to support and advance a possible court case.

 

CPSC Responds To Criticism on China Drywall Investigation

The Consumer Product Safety Commission has issued a report on the imported drywall situation, noting that nearly 200 consumers from at least 13 States and the District of Columbia have reported health symptoms or certain metal corrosion problems in their homes that may be related to drywall imported from China. (CPSC says it is still investigating the scope of the drywall problem, working to identify the links from foreign manufacturers to the U.S. consumers in consultation with the Chinese government and the U.S. Customs and Border Protection.)

The update comes on the heels of criticism by Senator Nelson (D. Fla.) of how quickly the CPSC was moving. The agency, together with the Environmental Protection Agency and the Department of Health and Human Services, is looking at charges of health symptoms or the corrosion of certain metal components in their homes allegedly related to the presence of drywall produced in China. The majority of the reports to the CPSC have come from consumers residing in Florida while others have come from consumers in Louisiana, Virginia, Wisconsin, Ohio, Alabama, Mississippi, Missouri, California, Washington, Wyoming, the District of Columbia, Arizona, and Tennessee. Consumers largely report that their homes were built in 2006 to 2007, when an unprecedented increase in new construction occurred in part due to the hurricanes of 2004 and 2005.

The judicial panel on multidistrict litigation recently agreed to consider consolidating the
more than 30 federal lawsuits filed so far over the drywall.The lawsuits so far name Chinese-based manufacturers, as well as importers, developers and builders, contractors, suppliers and others.

Common features of the reports submitted to the CPSC from homes believed to contain
problem drywall have been:
• “rotten egg” smell within their homes.
• health concerns such as irritated and itchy eyes and skin, difficulty in breathing, persistent cough, bloody noses, runny noses, recurrent headaches, sinus infection, and asthma attacks.
• blackened and corroded metal components in their homes and the frequent replacement of components in air conditioning units.

The federal government is working on an (1) evaluation of the relationship between the drywall and the reported health symptoms; (2) evaluation of the relationship between the drywall and electrical and fire safety issues in the home; and (3) the tracing of the origin and distribution of the drywall. One obvious challenge has been figuring out how much problem drywall there is in any house, given that it is already installed, likely painted and may not be clearly marked.

On the health side, the most frequently reported symptoms are irritated and itchy eyes and skin, difficulty in breathing, persistent cough, bloody noses, runny noses, recurrent headaches, sinus infection, and asthma attacks. Some of these symptoms are similar to colds, allergies or reactions to other pollutants sometimes found in homes. As such, it is difficult to determine if the reported symptoms are related to the drywall and not any other environmental factors or pollutants in the home.

Data being gathered include from in-home air sampling; laboratory elemental characterization studies of domestic and imported drywall; and laboratory chamber studies of domestic and imported drywall to separate and isolate chemical emissions from drywall as opposed to chemicals emitted from other home products (e.g., carpets, cleaners, paint,adhesives, beauty products).

If a house has “problem” drywall, the CPSC is recommending that consumers with health issues consult a physician as soon as possible; those with any of the electrical or fire safety concerns should consult the local gas or electric supplier and a licensed electrician or building inspector as soon as possible. Consumers are cautioned to beware of unqualified testing and remediation services already seeking to o take advantage of consumers struggling to address this issue.

CPSC admits it could be months before it can confidently address the scientific relationships, if any, between the problem drywall and the health and safety concerns raised by consumers.
 

Senator Calls For CPSC Resignation Over China Drywall

Sen. Bill Nelson, D-Fla., has sent a letter to the President calling for the resignation of the current head of the U.S. Consumer Product Safety Commission, and criticizing the agency for its response to reports of Chinese-made tainted drywall installed in U.S. homes.

In a letter addressed to President Obama earlier this month, the senator targeted the CPSC for failing to do enough, in his view, to halt the import of the drywall. Readers will recall that residents claim this product emits a sulfur smell, poses health risks, and also causes electrical problems.

Nelson asserted that the "agency is doing too little, too late to help residents of Florida and other states who are reporting serious health and safety problems associated with living in homes built with tainted drywall imported from China.”  The CPSC reports that it has launched a formal compliance investigation to determine any risk associated with the sulfur-based gases that may be emitted from the imported drywall

Nelson is also a sponsor of the Drywall Safety Act of 2009, which seeks to impose a recall and a temporary ban on imports until federal drywall safety standards are put in place to protect consumers. The legislation also calls for the CPSC to perform a study with the EPA to determine the level of risk posed by the substances in the drywall.

Products litigation has ensued, including a proposed class action was filed in the U.S. District Court for the Middle District of Florida. According to that suit, a shortage of drywall made in the U.S. caused many builders to use imported Chinese drywall during Florida's pre-recession construction boom earlier this decade. There has also been speculation that some of that drywall may have been kept at sea waiting to enter U.S. ports, and was thus exposed to excessive moisture/humidity that caused the alleged fume problems. Such claims are typically inappropriate for class certification because of the individual issues that will be presented by evidence surrounding injury and causation. And at least one U.S. home builder has sued more than two dozen manufacturers, suppliers and installers of drywall imported from China.
 

Bills Introduced to Ban Chinese Drywall

Rep. Robert Wexler, D-Fla., has introduced a bill to temporarily ban drywall with high levels of organic compounds. The bill H.R. 1977 would also commission a study on imported Chinese drywall. Sens. Bill Nelson, D-Fla., and Mary Landrieu, D-La., introduced the Senate version of the legislation, the Drywall Safety Act of 2009, recently in the U.S. Senate.

Some U.S. residents have complained that the imported Chinese drywall installed in their homes emits a sulfur smell and causes electrical problems. As posted on before, such drywall is now the subject of litigation, after the Florida Department of Health reported it can emit a sulfur smell when exposed to heat and moisture.

The House bill would require the U.S. Consumer Product Safety Commission to create a standard to regulate the composition of drywall. It would also require the commission to work with the National Institute for Standards and Technology and the U.S. Environmental Protection Agency to study drywall imported from China between 2004 and 2007, and used in U.S. homes. If the bills are passed, such a study on Chinese drywall could be significant in the lawsuits.  The CPSC said in February it had begun an investigation of complaints about Chinese drywall, focusing on whether the sulfur-based gases emitted from the drywall are corroding household wiring and posing a potential safety hazard in that respect. 

Between 60,000 and 100,000 homes across the nation contain tainted drywall, the two sponsoring senators have said. About 36,000 homes in Florida are thought to contain Chinese-made drywall.  According to the allegations of the litigation, a shortage of drywall made in the U.S. caused many builders to use imported Chinese drywall during Florida's construction boom between 2004 and 2006. Much of the drywall was used in construction after Hurricane Katrina. There is speculation that some of that drywall may have been kept at sea for months waiting to enter the U.S., at which point it may have been exposed to humidity that allegedly caused the fume problems.
 

China Melamine Suits to Proceed

When one thinks of global mass tort issues, questions of actions by European citizens in U.S. courts or the spate of class actions in Canada may come to mind. Perhaps we will need a broader perspective, as the courts in China have reportedly given the green light to suits arising out of the distribution of tainted dairy products. We have posted on this issue before, within the larger context of product issues arising from goods made in China.

The move signals an apparent change in the way Beijing is handling fallout from the melamine scandal, which was implicate din the death of at least six infants and sickening of nearly 300,000 others with kidney problems. A government-sanctioned compensation plan had been proposed to resolve the issues, but a large number of families have refused government compensation because it is too small, electing instead to try to sue. Under the payout plan organized by the dairies, families whose children died would have received 200,000 yuan ($29,000), while others received 30,000 yuan ($4,380) for serious cases of kidney stones and 2,000 yuan ($290) for less severe cases.

Plaintiffs needed government permission to bring suit, and it remains unclear how the government plans to handle the cases. Chinese courts often turn down class-action or group action suits, preferring to deal with cases one by one to avoid running afoul of Communist Party officials, who ultimately control the judiciary.

The crisis highlighted the need for major overhauls to China's food safety system, culminating in a law passed recently that proposes to consolidate hundreds of regulations covering the country's 500,000 food processing companies.
 

China To Set Up Food Safety Commission

China will set soon up a central food safety commission, according to state-owned media last week. The new commission will be organized under the State Council, and is to help enforce new food-safety legislation meant to tighten supervision of manufacturers and impose tougher penalties on those who manufacturer defective items. The new law, approved by the standing committee of the National People's Congress, has been in the making for two years. It also sets up a system to recall problem products and authorizes the enforcement of uniform nationwide standards on nutritional labeling.


Reportedly, the commission's task will be "to strengthen the country's food monitoring system, whose low efficiency has long been blamed for repeated food scandals," as China seeks to restore public confidence after a number of problems with tainted food. Presumably, that refers in part to the melamine scandal in which at least six infants died last year and nearly 300,000 were sickened by baby formula tainted by an industrial chemical that had been added to milk supplies to give the appearance of higher protein.


How effectively China maintains the safety of its food supply is increasingly important to consumers in other countries as well, as Chinese ingredients end up in foodstuffs sold around the world. Between 2004 and 2007, Chinese food exports climbed about 63%. Several tainted Chinese products led to mass tort litigation in the U.S.


The national food-safety commission is supposed to coordinate work by other government agencies, and reduce the number of agencies involved. United Nations public health experts last year called for an overhaul of China's food-safety system, criticizing the country's use of a patchwork of various local and national government agencies to police the food supply.
 

More Made In China Products Liability Litigation

A putative class of Florida homeowners recently filed suit against a company that manufactured drywall in China, alleging the material used in their homes emits sulfur compounds that damaged heating and electrical wiring, and created health risks. See Allen v. Knauf Plasterboard Tianjin, No. 09-CV-54-FtM-99 DNF (M.D. Fla., complaint filed 1/30/09). This is just the latest potentially significant suit arising over products made in China. Plaintiffs allege that defendants manufactured drywall that contained fly ash from Chinese coal-fired power plants, causing the product to emit sulfur compounds that create odor and corrode copper in air conditioning units and wiring in homes. At least one home builder has also brought claims over the drywall issues.

Plaintiffs’ attorneys claim that as much as 10 million square feet of such drywall was used in Florida homes due to shortages of American-made drywall between 2004 and 2006. The complaint asserted causes of action including negligence and negligence per se, strict liability, breach of express and implied warranties, fraudulent misrepresentation, and violation of Florida's deceptive and unfair trade practices act. Defendants dispute the allegations and note that any low levels of sulfur compounds present in the air in homes are not a health risk

Regardless of the merits of the case, and clearly such claims are typically inappropriate for class certification because of the individual issues that will be presented by evidence surrounding injury and causation, there is a growing volume of cases over alleged defects in products made in China. Such litigation can also raise insurance coverage disputes. Coverage litigation has erupted concerning the recent heparin drug contamination allegations, for example. What importers tell their insurers about their source of supply; whether subsidiaries are covered; whether importers here are in de facto joint ventures with Chinese suppliers; and similar questions may be front and center in coverage disputes when this type of products litigation hits. Insurance companies seem to be increasingly playing the card that insureds needed to disclose the details of their manufacturing suppliers. The recent China dairy product scandal may have insurers arguing that product defects are the result of intentional, criminal behavior, rather than negligence.

With the Consumer Product Safety Improvement Act of 2008 seeking to place importers on the hook for defects, U.S. companies may be in the market for more coverage. At the same time, Chinese exporters have not felt the need to buy insurance as they feel judgment-proof in U.S. courts. However, importers may want to consider requiring their suppliers to purchase such insurance as part of the bargaining.
 

China Melamine Update

Readers of MassTortDefense have been following the issues surrounding the dairy product contamination scandal in China, which we have posted on before.

Two recent developments: The families of 213 children who were sickened by tainted infant formula and milk have now filed a class-action lawsuit with China's highest court, seeking damages from 22 dairy producers. Class actions are rare in China; this one seeks damages mainly for parents whose children were made ill by melamine-laden dairy products, but who were offered what they saw as inadequate compensation by dairy companies. Under that plan, most received $292, while wrongful death cases were offered $29,200. Plaintiffs assert that the lower amounts were not enough to cover what they paid for doctors, medicines and other expenses.


According to the Chinese Health Ministry, nearly 300,000 children were made ill by tainted milk and at least six died. Melamine was reportedly added to milk products to fool protein-content tests.
In order for the class suit to proceed, the China Supreme Court must first agree to hear the case. Court filings in China must be accepted by the courts before they are considered on the merits.

On the criminal side, media reports are that 12 dairy officials were found guilty of charges related to the melamine issue; 2 were sentenced to death, and the highest ranking official was sentenced to life in prison as part of a plea bargain deal. Prosecutors showed that officials at the companies involved learned of the problem in 2007 but did not recall any products until September, 2008. 

In its latest update, FDA notes that there is no known threat of contamination in infant formula manufactured by companies that have met the requirements to sell such products in the United States.  In addition, the FDA -– in conjunction with state and local officials – continues to check Asian markets for food items that are imported from China and that could contain a significant amount of milk or milk proteins.

The FDA has broadened its domestic and import sampling and testing of milk-derived ingredients and finished food products containing milk or milk-derived ingredients from Chinese sources. FDA has recommended that consumers not consume certain products because of possible contamination with melamine.


 

China Melamine Update

China's Dairy Industry Association announced last week that the Chinese dairy companies accused of producing contaminated milk-containing products have agreed to pay compensation.  Reports are that nearly 300,000 people (mostly kids) were sickened, and six reportedly died.  Baby formula was contaminated with melamine, apparently an intentional act to deceive protein quality control testing.  Melamine artificially increases the protein profile of the milk, but can cause kidney damage at higher doses.

MassTortDefense has posted on the issues before.

The settlement includes an immediate payment of $130 million, and $30 million to cover future medical bills for related health problems.  Wrongful death cases will receive a reported $30,000, and seriously sick kids' families will get $4000.  Some 28,000 product users were hospitalized.

Many officials responsible for quality control and inspection of the dairy industry have been fired or indicted.  Trials are ongoing for 17 such defendants, and the former head of the largest dairy outfit was to be charged last week with manufacturing and selling counterfeit goods. That company, the Sanlu Group, ceased operations and filed for the equivalent of bankruptcy in the Fall.

China is also reportedly revising its regulatory approach to the dairy industry, with new safety and quality standards, new testing approaches, and more tools to enable local governments to catch issues.

 

Study Released Of Low Level Melamine Effects In Children

Low doses of melamine did not cause severe kidney problems in children exposed to the industrial chemical during the recent tainted milk scandal arising from China, according to researchers reporting last week. In Lam, et al., Renal screening in children after exposure to low dose melamine in Hong Kong: a cross sectional study, 337 BMJ 2991 (2008), no severe adverse renal outcomes, such as acute renal failure or urinary tract obstruction, were detected in children after exposure to low doses of melamine. The results were similar to initial findings by other scientists in Hong Kong. The prevalence of suspected melamine related abnormalities on ultrasonography was only 0.2%.

The researchers looked at more than 3,000 children aged 12 or younger. All of them had consumed melamine-tainted products for a month or more. Every child was given a urine test, and an ultrasound was performed on their kidneys. Only one child had a kidney stone, and seven had possible melamine-related deposits in their kidneys. An additional 208 tested positive for blood in their urine, a possible sign of kidney troubles.

The study is one of the first to measure the health impact of exposure to low doses of melamine, which was apparently added to infant formula and other foods in mainland China to boost their protein content and help them pass muster on protein tests. Some contaminated products were sold in Hong Kong, but the researchers noted that those products contained much lower concentrations of melamine than the tainted products sold in mainland China.

Since early September, melamine-contaminated baby formula has sickened more than 54,000 children in China and is being blamed for at least four deaths. Melamine has been detected outside China in candies, chocolates, and coffee drinks.  This latest finding may suggest that outside of China, the chances are more remote of a similar level of injury. MassTortDefense has posted on the issues here and here.
 

FDA Issues Import Alert For China Dairy Products

The FDA continues to take action to attempt to limit the impact of the China milk scandal on U.S. consumers. As part of its ongoing strategy to address the present problem with melamine contamination of consumer products exported from the People’s Republic of China, FDA has expanded its import controls on Chinese dairy products, and food and feed products manufactured in China that contain dairy ingredients. Candy, snacks, bakery products, pet food and other Chinese products that contain milk will now be detained at the border until tests prove that they are not contaminated. This action was taken to help ensure that only those Chinese dairy products (and food and feed products manufactured in China that contain dairy ingredients) which are not contaminated with melamine and melamine-related compounds reach U.S. consumers.

No adverse health effects have been reported in the United States from contamination with melamine of dairy products or dairy containing products. But melamine is not approved for direct addition to human or animal foods and no manufacturer is allowed to deliberately add it to any food for U.S. consumers.  Since melamine was discovered in infant formula in September it apparently has sickened more than 50,000 infants in China and killed at least four. Since that time, melamine has been found in a wide range of other products, including milk, eggs and fish feed. Testing by the FDA has detected melamine and cyanuric acid, a related contaminant, in a number of products that contain milk or milk-derived ingredients, including candy and beverages, according to the FDA alert. China is also one of the world’s biggest makers of supplements, and some protein powders and shakes are made largely with powdered milk.


The agency has at times blocked imports of individual food products, but it is rare for it to block an entire category of one country’s foods. The widely spread assessment is that food and feed dealers in China added melamine to their products because it increases nitrogen content to give the appearance in testing that protein levels meet specifications.

Concern has been expressed about delays spilling over to other food imports, but the FDA said the percentage of food subject to the import alert is small. Another possible issue is that private laboratories which perform product tests for FDA compliance already reportedly have long waiting lists. The agency said it won't release the imported food unless an independent laboratory verifies that representative samples contain no melamine or cyanuric acid, a melamine derivative.
At a broader level, one wonders what the alert may do to the recently negotiated opening of FDA offices in China. The timing of the FDA alert coincides with an upcoming  meeting between Health and Human Services Secretary Michael Leavitt and top Chinese health officials in Beijing.
 

FDA Updates Plans For Foreign Offices

The Food & Drug Administration (FDA) should be opening its new China office later in 2008. In the past couple years, as posted here at MassTortDefense, multiple imports from China have been at the center of safety concerns. Earlier this year, heparin allegedly contaminated with a counterfeit ingredient was blamed by some plainitff attorneys for some patient deaths; FDA has issued recalls of several foods imported from China that may have apparently been tainted with the industrial chemical melamine, which has been added to dairy products and resulted in hospitalization of thousands of children in China.

FDA staff posted at the China office will inspect facilities, provide guidance on U.S. quality standards, and later train local experts to conduct inspections on behalf of the FDA. The FDA will eventually open offices in the Chinese cities of Shanghai and Guangzhou, for a total of eight planned FDA staffers. The agency hopes a greater on the ground presence in China will help prevent unsafe imports, and the opening of a Beijing, China office later this year is just the first step in the FDA’s plan to expand its presence overseas. Over the next year, the agency plans to place as many as 60 food and drug regulators in offices worldwide, focusing on India, Latin America and the Middle East. The plan for permanent outposts marks a break from the agency's current practice of sending inspectors abroad on individual assignments.

Part of an updated import inspection plan may be to allow voluntary inspection, where manufacturers would pay third-party inspectors to verify that their plants meet FDA standards, although past attempts at a voluntary inspections system haven’t been well received by some overseas manufacturers. Democrats in the House of Representatives, offering yet another alternative, have proposed a program that would require companies to pay mandatory user fees to help finance additional FDA inspections.

Health and Human Services Secretary Michael Levitt is scheduled to travel to China next month to meet with health officials there to review joint efforts to ensure the safety of food and medical imports. The Consumer Product Safety Commission also worked to get people stationed in China. Under the current plan, the CPSC staffers who will be sent there eventually are not full inspectors. Their purpose will be to provide technical assistance to Chinese manufacturers and regulators.
 

FDA Releases Melamine Risk Assessment

The FDA has issued the results of its interim safety and risk assessment of melamine and melamine-related compounds in food, including infant formula. The purpose of the FDA interim safety/risk assessment, which was conducted by scientists in the Center for Food Safety and Applied Nutrition, was to identify the level of melamine and melamine-related compounds in food which would not raise public health concerns.

For infant formula, the safety/risk assessment concludes that at this time FDA is unable to establish any level of melamine and melamine-related compounds in infant formula that does not raise public health concerns. Melamine in baby formula has sickened more than 54,000 infants in China. The government there ordered the recall of more than 10,000 tons of formula. Last week, 12 more Chinese dairy companies were named as violators after tests found 31 batches of milk powder contaminated with melamine.Chinese officials believe that the contamination was intentional and  occurred at milk collecting stations, rather than on dairy farms. MassTortDefense has posted on this before.

In food products other than infant formula, the safety/risk assessment concludes that levels of melamine and melamine-related compounds below 2.5 ppm do not raise public health concerns. This conclusion assumes a worst case exposure scenario in which 50% of the diet is contaminated at this level, and applies a 10-fold safety factor to the Tolerable Daily Intake (TDI) to account for uncertainties.


According to the CDC, melamine is a synthetic chemical with a variety of industrial uses including the production of resins and foams, cleaning products, fertilizers and pesticides. It does not occur naturally in food. Animal studies have demonstrated that exposure to low levels of melamine produced no observable toxic effects. Exposures to high levels of melamine, or exposures to lower doses of melamine together with certain other chemicals, have caused urinary tract problems in animals. These have included urinary tract and kidney crystal and stone formation, and kidney failure. Exposures of animals to high doses of melamine over long time periods (years) have been associated with cancer of the bladder.

Because melamine is a component in plastics, there may be melamine in dinnerware, cups, and even Formica counter tops. But the amount of melamine that actually transfers from those products into food is very, very small, according to FDA.


Several melamine-contaminated foods found in recent weeks in the United States had far more than that amount of the chemical. White Rabbit candies from China were recalled after authorities in at least two states found melamine. And a New Jersey company announced that it was recalling Blue Cat Flavor Drink, after FDA testing found melamine. The chemical has also turned up in dairy products sold across Asia and, to a lesser extent, Europe.


The FDA guidelines were issued to help federal and state investigators checking for contaminated Chinese products as they enter the country and in grocery stores. To date, there have been no reports of illness from contaminated Chinese milk products in the United States. There are no approved uses for melamine to be added to food in the United States.

Melamine contamination was at the center of the tainted pet food scandal that resulted in more than 80 class actions and the creation of MDL 1850.  The federal judge overseeing the multidistrict pet food litigation has just issued final approval of a $24 million settlement that seeks to resolve claims over a massive recall of more than 90 contaminated dog and cat foods last year.

 

China Dairy Product and Infant Formula Issues Grow

Quality control investigators in China have announced they had found a dangerous protein substitute in dairy products produced by 20% of the Chinese companies that make infant formula. Reports are that more than 12,000 children had been hospitalized, most with kidney ailments, and 40,000 with less severe symptoms have been treated without admission. At least three have been killed.

Melamine, a protein imitator that is toxic, was used as a cheaper fill, and was found in the test samples. Melamine is the same protein replacement used in the Chinese-made pet food that killed thousands of cats and dogs last year.

What is the impact for readers of MassTortDefense? Several major Chinese dairy companies involved have international investors. But none of the formula products were exported to North America. The FDA said there is no known threat of contamination in infant formula manufactured by companies that have met requirements to sell the formula in the United States. However, FDA is investigating whether infant formula manufactured in China is being sold in markets here that serve the Asian community. And the FDA is alerting consumers that seven "Mr. Brown" instant coffee and milk tea products are being recalled by a Taiwanese company, due to possible contamination with melamine.

The developing food safety scandal has called into question, yet again, the effectiveness of China’s quality control system in general, and the country's new food safety regime in particular. Last year’s spate of product recalls, including drugs, toys, pet food and tires, placed the spotlight on China's quality control problems. MassTortDefense has posted on this here and here. Now comes the news that the newly enacted food safety recall system was not activated for at least two weeks after the problem became known to local officials, and the prime minister of New Zealand (an importer) charged the matter was covered up for several weeks while the Beijing Olympics were underway. Thus, thoughts naturally turn to efforts importers may mitigate the risks. A recent article in Risk Management Magazine offers a broad perspective on this. (Kent Kedl, Risk Strategies for the Chinese Market , published by the Risk and Insurance Management Society, which targets corporate risk managers.) At bottom, it is risk management to avoid a potential mass tort.

First, plan Strategy before Structure. In recent years, the Chinese government has changed its investment regulations to allow --and even encourage-- a variety of business arrangements, from strategic partnerships to wholly foreign-owned enterprises, to full acquisitions. RM suggests that companies coming to China must first ignore the "how" of structure and first focus on the "why" of their strategic intent for China: What products will have the most play? What segments of the market should they target? What distribution channels should they use? Who will be the major competition and how can they structure a defensible and sustainable value proposition?

Second, they advise companies to Get Close to the Market. Clearly, there are Chinese factories that have had quality issues, but the fact remains that there are millions of products coming out of China every month, most of which have no problems whatsoever. Maybe, then, the question should be how best to manage product quality, because someone is doing it right. Kedl and RM suggest that foreign companies need to manage their vendors on an ongoing basis. Meet with suppliers; validate the supply chain; don’t worry about price and on-time delivery to the exclusion of all else. Companies sourcing from China should consider putting their own people on the ground to manage their supply chain, establish and monitor their own quality systems, and maintain ongoing relationships with the vendors. This approach may raise a company's fixed costs but, in the long run, may greatly lower the risk associated with having products made in an emerging market.

Third, recognize that Relationships Matter. Early successful foreign entrants to China worked hard to build a relationship network for themselves. As China has developed a more credible legal framework and a more predictable market environment, however, foreign companies too often have believed they no longer need that social network and that, instead, they can do it on their own. RM suggests that may be a mistake.

Ongoing events put a premium on efforts by both China and the U.S. in implementing the 2007 Memorandum of Agreement (MOA) on food and feed safety. The MOA established a bilateral mechanism to provide greater information and other assurances to enhance the safety of food and feed products traded between the two countries. The countries have improved the exchange of information on food safety and on the relevant regulatory systems. The U.S. has agreed to conduct training for Chinese officials on U.S. regulatory standards. Each has designated new emergency contacts and notification thresholds for import safety issues. The two countries have also been working towards an electronic certification system between the FDA and China's General Administration of Quality Supervision, Inspection and Quarantine to ensure that Chinese exports meet FDA standards for safety and manufacturing quality. The countries also agreed to increase their focus on inspection, supervision and laboratory testing of Chinese imports. Finally, the report described the establishment of a cooperative mechanism to notify each other of significant risks to public health related to product safety or the gross deception of consumers, and to share information to facilitate each other’s investigation.
 

CPSC Releases Import Final Safety Strategy Document

The Consumer Product Safety Commission has just released its revised import safety strategy document. The comment period on the draft import strategy (which MassTortDefense posted on here) expired in May. The final import plan is now described in the CPSC document, Executive Summary: Import Safety Strategy, found here.

The four-prong plan addresses regulated consumer products at the design, manufacture, distribution, and consumption stages:
I. Engage the private sector and foreign governments to foster both compliance with relevant safety standards and adoption of more effective techniques of identifying potential product hazards;
II. Build safety assurances into the production processes by promoting the use of safety standards by manufacturers, and verifying compliance through third-party testing and inspections where appropriate;
III. Prevent unsafe products through strategically redeploying CPSC resources according to principles of hazard analysis and risk management to target surveillance and inspection of the distribution chain; and
IV. Identify and quickly remove product hazards in the market and provide real-time communications to consumers, foreign governments, and the private sector.

There has been a 100% increase in imports of consumer products into the United States over the last decade. The value of all imported consumer products under the jurisdiction of the CPSC was an estimated $639 billion in 2007. Last year, approximately 42% of these products were from China, and the value of these imports from China nearly quadrupled from 1998 to 2007. While imports currently account for about 44% of all consumer products sold in the United States today, they comprise over three-fourths of all product recalls administered by the agency.

With over $2 trillion worth of products (including those under CPSC jurisdiction) imported into the United States every year by over 800,000 importers at more than 300 U.S. ports of entry, the CPSC must be strategic in its vision and targeted in its use of resources to ensure the products imported into this country are safe. The plan’s theme involves reaching out to foreign agencies and countries to attempt to build safety assurances into production processes. CPSC sees a need to address product safety in the "new global marketplace" with a range of actions beyond the traditional methods of marketplace surveillance and enforcement historically utilized by the Commission. Those actions include memoranda of understanding with 14 foreign regulatory agencies in Canada, China, European Commission, Israel, South Korea, Peru, Chile, Costa Rica, India, Japan, Mexico, Taiwan, Egypt, and Vietnam.

Imports from China, in particular, have recently presented serious issues, as noted by MassTortDefense here and here and here. The CPSC action plan with China's General Administration for Quality Supervision, Inspection, and Quarantine focuses on product safety for fireworks, toys, electrical products, and lighters. The plan employs such steps as exchange of standards information, training on product testing, and exchange of information on emerging hazards. This year, CPSC created a Chinese-language page on its web site. The U.S. in December, 2007 signed two memoranda of agreements with China to enhance the safety of a wide variety of food, feed, drugs, and medical devices.

The release of the plan was accompanied by an updated import action plan update report from the Interagency Working Group on Import Safety, citing progress in import safety strategy and reiterating the call for measures beyond simply inspecting imported products at the border. The report, Import Safety--Action Plan Update, here, outlines steps taken by the federal government and trading partners to improve import safety since the last update in November, 2007. The update cited new enforcement actions, signed agreements with key trading partners, bilateral and multilateral discussions, and critical information shared on best practices. For example, CPSC established its Import Surveillance Division in early 2008, representing the first permanent, full-time presence of CPSC personnel at key U.S. ports-of-entry 

A congressional conference committee currently is working to harmonize competing versions of CPSC reform legislation that would strengthen CPSC authority and increase funding. MassTortDefense has posted on the legislation, here and here

Risk Management Article: China Manufacturing Risks

MassTortDefense has posted about the recalls of products made in China, and ways product sellers can mitigate the risks of that happening, here and here. A recent article in Risk Management Magazine offers another, broader, perspective on this. (Kent Kedl, Risk Strategies for the Chinese Market , published by the Risk and Insurance Management Society, which targets corporate risk managers.) At bottom, it is risk management to avoid a potential mass tort.


First, plan Strategy before Structure. In recent years, the Chinese government has changed its investment regulations to allow --and even encourage-- a variety of business arrangements, from strategic partnerships to wholly foreign-owned enterprises, to full acquisitions. RM suggests that companies coming to China must first ignore the "how" of structure and first focus on the "why" of their strategic intent for China: What products will have the most play? What segments of the market should they target? What distribution channels should they use? Who will be the major competition and how can they structure a defensible and sustainable value proposition?

Second, they advise companies to Get Close to the Market. Clearly, there are Chinese factories that have had quality issues, but the fact remains that there are millions of products coming out of China every month, most of which have no problems whatsoever. Maybe, then, the question should be how best to manage product quality, because someone is doing it right. Kedl and RM suggest that foreign companies need to manage their vendors on an ongoing basis. Meet with suppliers; validate the supply chain; don’t worry about price and on-time delivery to the exclusion of all else. Companies sourcing from China should consider putting their own people on the ground to manage their supply chain, establish and monitor their own quality systems, and maintain ongoing relationships with the vendors. This approach may raise a company's fixed costs but, in the long run, may greatly lower the risk associated with having products made in an emerging market.


Third, recognize that Relationships Matter. Early successful foreign entrants to China worked hard to build a relationship network for themselves. As China has developed a more credible legal framework and a more predictable market environment, however, foreign companies too often have believed they no longer need that social network and that, instead, they can do it on their own. RM suggests that may be a mistake.

FDA and China Issue Joint Progress Report on Food Safety

The United States and China issued a joint progress statement last week that described the measures both have recently taken to improve the safety of international food and feed imports.
The safety of a variety of products and substances imported from China have been in the news, ranging from pet food, to toothpaste, to toys, to pharmaceutical ingredients. MassTortDefense has posted on this here and here.

According to the statement, both countries have improved the exchange of information on food safety and on the relevant regulatory systems. The U.S. has agreed to conduct training for Chinese officials on U.S. regulatory standards. Each has designated new emergency contacts and notification thresholds for import safety issues. The two countries have also been working towards an electronic certification system between the FDA and China's General Administration of Quality Supervision, Inspection and Quarantine to ensure that Chinese exports meet FDA standards for safety and manufacturing quality. The countries also agreed to increase their focus on inspection, supervision and laboratory testing of Chinese imports.

The document outlines steps taken by both nations in implementing the 2007 Memorandum of Agreement (MOA) on food and feed safety. The MOA established a bilateral mechanism to provide greater information and other assurances to enhance the safety of food and feed products traded between the two countries.

Finally, the report described the establishment of a cooperative mechanism to notify each other of significant risks to public health related to product safety or the gross deception of consumers, and to share information to facilitate each other’s investigation.

The report comes as Senator Sherrod Brown (D.-Ohio), in a letter to the FDA's Center for Drug Evaluation & Research, called on the agency to investigate outsourcing of drug ingredients, and just as China has granted diplomatic approval for the FDA to open three inspections offices in China that also will help increase China's ability to ensure delivery of safe foods, drugs and other products. The FDA reportedly hopes to open the offices in Beijing, Shanghai and Guangzhou before the end of this year, with a total staff of around 12 people.

CPSC Reveals New Import Safety Strategy

In an earlier post on the "year of China recalls," MassTortDefense noted legislative changes to the Consumer Product Safety Act and enhanced resources of the CPSC as a response to the spate of recalls.  The commission has announced it is now seeking public comments on a draft report, on Import Safety Strategy.

The Executive Summary notes that imports currently account for about 44 percent of all consumer products sold in the United States today, but they comprise over three-fourths of all product recalls administered by the agency. The value of all imported consumer products under the jurisdiction of the CPSC was an estimated $639 billion in 2007. Last year, approximately 42 percent of these
products were from China, and the value of these imports from China nearly quadrupled from
1998 to 2007.

The report describes a four-pronged strategy to deal with the issue if safety of imported products:

I.  Engage the private sector and foreign governments to foster both compliance with relevant safety standards and adoption of more effective techniques of identifying  potential product hazards;
II.  Build safety assurances into the production processes by promoting the use of safety standards by manufacturers, and verifying compliance through third-party testing and inspections where appropriate;
III.   Prevent unsafe products through strategically redeploying CPSC resources according to  principles of hazard analysis and risk management to target surveillance and inspection of the distribution chain; and
IV.   Identify and remove quickly product hazards in the market and provide real-time
communications to consumers, foreign governments, and the private sector.

Public comments are due  by May 30, 2008, and can be sent  via e-mail to
cpsc-os@cpsc.gov

Recalls of Products Made in China (Part II)

In the previous post, MassTortDefense began exploration of some of the issues associated with the "year of China recalls."  During fiscal year 2007, the CPSC announced 473 recalls, of which 288 were from China.

We continue in Part Two with some practical tips that may be considered to mitigate the risks of using China-based suppliers.

TO DO LIST

U.S. products sellers have to respond with proactive planning:

Testing and Sampling
A report from two Canadian researchers notes that since 1988, a majority of recalls of toys were related to design issues as opposed to poor manufacturing. But, assuming a prudent design, adherence to specifications becomes the focus. US importers have at times in the past chosen products from a showroom, such as in Hong Kong. At other times, products from China are purchased through one or several middlemen, with the ultimate U.S. buyers having little information about the manufacturing or QC of the products.  And importers have relied on purchase orders - a looming battle of the forms scenario -- rather than on a comprehensive contract.

Now, companies may need to turn to be more involved in the process upstream. Random sampling rather than relying on test certificates from their sellers may be wise. Companies may need to negotiate vendor and supply contracts to require those counterparts to test products for compliance with specifications and U.S. regulations. Such a compliance program may include third-party testing and a system to track products in the retail stream of commerce. If self-testing is employed, it may be prudent to have it conducted by a group of employees incentivized to make the testing accurate and thorough.  Companies need to ensure that they have strong process controls at the key risk points of the distribution chain. QC can involve early warning systems, and includes making corrections, documenting results. The timing and scheduling of QC interventions may need to be modified. Even "sealed" products may need to be randomly inspected.

Management

There can be surprisingly high management turnover rates in China, and local management is often the source of fraud when it occurs. Multi-national product sellers may explore returning to use of expatriate management where possible, although they may lack the level of understanding of the local environment.   Importers may also seek to get a better sense of the sub-contracting activities of their suppliers.  Indeed, tracking vendors, subs, and components supplied for the product can be important, even as the supply chain is a moving target.

Note, in this setting, it may be a mistake to leave negotiations and contract management to less senior people. The audit structure employed by management should also be of a design to detect and deter fraud and nepotism at the local management level. This may require not only more inspectors, but a different kind of inspector/on the ground agent.

Risk Sharing
Contracts can be both a risk reduction and dispute resolution mechanism. It is imperative that the contract clearly lay out responsibilities and rights on QC, specifications, delivery, testing, sub-contractors, performance milestones.  U.S. companies are seeking to add arbitration clauses to new contracts, and as existing supply deals expire. Arbitration in a forum that Chinese courts will recognize may be a means to share the burden of a potential recalls, which for the most part has fallen on U.S. importers. China does not generally recognize ad hoc arbitrations. Some importers are looking at CIETAC, the China International Economic and Trade Arbitration Commission as a possibility.  In a CIETAC arbitration, there will still be limited discovery, and short document-focused hearings. Another possibility is the Hong Kong International Arbitration Center.

Companies may think about choice if language provisions in their arbitration clauses, the nationality of the arbitrators, discovery rights, injunctive relief the parties consent to. Choice of law clauses are also key in renegotiated contracts.

Importers are also seeking bonding from their Chinese partners as a way of ensuring financial sharing of the cost of recalls.


The most important kind of risk sharing, however, may be the risk of non-payment, which is only viable when the U.S. importer has good knowledge of the supply chain -- who are the suppliers, and what are they supplying.

It may increasingly make sense to provide for litigation support in the contract, so that the U.S. importer has access to needed records and witnesses should legal issues arise.

Many companies have a crisis management team in place, trained to handle problems with their products, should any arise.  The team may include legal, HR, PR, QC, and regulatory members.

Recalls of Products Made in China (Part I)

The Cook County, Illinois Circuit Court gave preliminary approval recently to a proposed settlement related to RC2 Corporation’s recall of toys tainted with lead. (A hearing on final approval is set for August.) The settlement relates to claims of consumers who purchased a recalled Thomas & Friends Wooden Railway product. This is another step towards resolution of one of the major 2007 recalls of toys made in China.

RC2 Corporation had announced last summer that it was voluntarily recalling five toys from the Thomas & Friends Wooden Railway product line due to levels of lead in surface paint that may exceed U.S. Consumer Product Safety Commission requirements. There have been no reports of illness or injury related to any of the recalled toys.

This is a good reminder to readers of MassTortDefense concerning the risks of outsourcing to China, and an opportunity to comment on mitigation of those risks.

The Year of the China Recall

The year 2007 has been dubbed the year of China recalls because of the significant recalls of toys with lead, as well as tainted pet food, and toothpaste with chemical contamination. In fact, toy recalls had been stable (at about 30 per year) until 2007, which saw a huge spike in toy recalls to more than 80, involving 25 million units. [There have been about 50 already in 2008.]

Overall product recalls have been on the rise for several years. China’s share of total product recalls in the U.S. rose significantly (to about 67% overall), and China accounted for about 98% of all toy recalls in 2007. As recently as 1999, China accounted for less than half of U.S. toy recalls. Overall U.S. imports from China have increased steadily, and China supplies most of our imported toys, but recently the recalls of China-made toys has outpaced the increases in imports of toys.

And the presence of lead was the leading cause of products made in China being recalled. Overall, lead-focused recalls increased 10x in the last 4 years.

The number of products removed from the European Union market in 2007 increased by 53 percent, with more than half of the items coming from China. The EU notes that toys were the products most often removed from markets in the 27 EU member states. About 80 percent of all toys sold in Europe come from a Chinese manufacturing facility. (The EU has a rapid alert system known as RAPEX. The RAPEX report on goods pulled from the market in 2007 can be found  here.


IMPACT OF RECALLS

Recalls have direct and indirect costs to product sellers. The costs of notice, labor costs, disposal costs, lost inventory value, refunds and repair costs, and legal fees are some of the direct costs. Indirect costs include bad publicity, damage to goodwill and reputation, loss of sales, increased production costs and testing costs in the future, diversion of management and employees from normal duties, potential legal liability (personal injury, medical monitoring, punitive damages), and increased insurance premiums. The recall may spawn shareholder derivative lawsuits if the stock price is affected by the recall. An interesting report from Lucy Allen at NERA looks at the market cap impact of recalls. Government fines are possible. The CPSC recently issued a $1 million civil penalty against athletic-shoe maker Reebok International Ltd. related to company-issued charm bracelets with toxic levels of lead. It is not unusual for recalls to cost companies tens of millions of dollars.

REGULATION
Congress has already taken steps in response to the spate of recalls. The House passed the Consumer Product Safety Modernization Act, H.R. 4040, in December, and the Senate passed its own CPSC Reform Act, S.2663 in March. The two bills will be reconciled, and the CPSC budget, staff, and enforcement powers will be increased. Both bills mandate reduction of the amount of lead in toys; third-party testing of certain children's products; raise allowable penalties for violations; and give state attorneys general enforcement authority. Empowering state attorneys general is likely to generate more enforcement claims against companies, as state AGs have been willing to take an aggressive stand on other recent issues, beginning with tobacco. This provision might also undermine uniformity of enforcement of the CPS Act. State attorney generals may simply create a confused patchwork of standards.

The Senate provision would require the CPSC to post on Internet-searchable database the reports it receives about product-related injuries. This seems of limited use to the average consumer, but may encourage additional litigation; just like plaintiffs’ attempt with ADE reports in pharmaceutical litigation, this could be misused in product liability litigation.


WHAT CAN BE DONE
In some quarters, there is a notion that the market will force China to make improvements in quality control to avoid a repeat of the year of recalls. That is, if the products cannot be trusted, then importers will stop buying them. But the fact remains that regulation of product safety in China is not as advanced as it is in Europe and the United States. In essence the growth of their economy may have outpaced their ability to regulate product quality control.

Is there an ability to hold the Chinese companies accountable for the QC issues? Frequently, mass litigation arising from a large product recall will involve numerous parties within the chain of distribution, if not originally, then through indemnification and contribution claims. The original manufacturer of the allegedly defective product rarely is not involved. But plaintiff attorneys/consumers rarely try to pursue Chinese companies, forcing the U.S. importer/seller to try to pursue them.  But U.S. companies invariably may have difficulty pursuing the chain to a Chinese company that doesn't have assets or an office in the United States. Most Chinese companies have no assets in the United States, and will ignore U.S. complaints.

In the case of Menu Foods, the pet food manufacturer whose China-sourced ingredients allegedly contaminated dozens of brands of American pet food, several putative class-action suits were filed. See In re Pet Food Products Liability Litig., MDL No. 1850. But the Chinese defendants reportedly have not responded.

  • There can be issues of personal jurisdiction. Asahi Metal Indus.. Co. v. Superior Court of Calif., 480 U.S. 102 (1987)(plurality suggesting that placement of product in stream of commerce, without more, may not be the substantial connection between defendant and forum state necessary for finding of minimum contacts). 
  • Second, especially if the manufacturer is state owned, Chinese defendants may also assert defenses based on principals of sovereign immunity and international comity. Service of a Chinese company must be conducted in accordance with the Hague Convention, which can be cumbersome. Authorities in China frequently cannot locate the accused companies because the firms are often dissolved and the factories are under new ownership.
  • Discovery is extremely limited in China. Even if a damage award is entered against a Chinese company, enforcement of the judgment may be impossible if the Chinese company does not have significant assets in the U.S.. There is no treaty between China and the United States that requires reciprocal enforcement of judgments. (Although a U.S. judgment may not be enforced in China, there may be assets of the Chinese company in other countries that enforce U.S. judgments...worth thinking about)

 

How about suits in China? Its nearly infeasible to file a lawsuit against a Chinese company in China. It can be impossible to get an expert to testify. There is limited discovery, if any. There is tolerance or lenient views of perjury.  Precedent can be irrelevant. The damages obtainable are often insufficient, with lost profits seemingly a lost concept. There are a variety of practical realities that favor the “home team.”  Foreign lawyers typically cannot be utilized.

More of what can be done in the next posting.