Opposing Counsel in Chinese Drywall Trial Spar Over Alleged 'Deal' to Hide Defects

Jose Pagliery
Daily Business Review
June 10, 2010

Jurors heard opening statements Tuesday in the nation's first trial involving a domestic distributor of defective Chinese drywall as a Miami couple claimed the supplier covered up problems while making a deal with the manufacturer to replace unsold sheets.

The case pits Armin Seifart and Lisa Gore against Banner Supply, the Miami company that provided the Chinese drywall used to build their home in 2007. They blame the company for selling builders drywall that released sulfide gases that damaged their Coconut Grove, Fla., home.

About 550 million pounds of Chinese drywall used to finish nearly 60,000 homes was imported from 2004 to 2007. Homeowners are seeking damages from companies along the supply chain for manufacturing or supplying drywall that smells like rotten eggs and eats away at metal inside homes.

Banner sold drywall made by Germany's Knauf Gips KG's Chinese operation, Knauf Plasterboard Tianjin.

Speaking to the jury for the first time, one of Banner's attorneys, Peter Spillis, said the company takes responsibility for the damage to the couple's home and is willing to pay for repairs. However, the attorney with Atlanta-based Weinberg Wheeler Hudgins Gunn & Dial countered claims that the company attempted to cover up product defects.

The couple's attorney, Ervin Gonzalez, said a confidential agreement between Knauf Tianjin and Banner -- which was kept secret until it was unsealed Friday by Miami-Dade Circuit Judge Joseph P. Farina -- is proof of the corporate attempt to hide drywall problems.

In late 2006, the company received complaints from a Fort Lauderdale, Fla., contractor, who said the drywall in five homes smelled bad. The company hired North Little Rock, Ark.-based Center for Toxicology and Environmental Health to conduct air quality tests and asked Knauf Tianjin to send researchers to check out the complaints. Banner said the results showed concentrations of sulfur were not at levels high enough to present a danger or health concerns.

But in January 2007, Banner agreed to get rid of its Chinese drywall inventory and promised to keep silent about any odor or health problems. The agreement stipulated the Chinese manufacturer would take back all of Banner's unsold drywall, pay Banner for holding it and replace it with 47,956 sheets of U.S.-made wallboard. In return, Banner would hold back information from other businesses and promised not to assist others in suing the manufacturer.

NO HEROES

Gonzalez, a partner with Colson Hicks Eidson in Coral Gables, Fla., offered jurors a preview of the agreement and said it was proof company executives "decided to protect their own skin." He said Banner should have alerted contractors and builders when it discovered problems a full year before the drywall was ever used to build the couple's home.

"They weren't the heroes who would've stopped people from buying these homes," he said. "What'd they do? Nothing. They still haven't. They're sitting there with a secret."

Gonzalez showed jurors the effect of sulfur emissions on objects from the couple's gutted $1.7 million, two-story home, including corroded metal pipes, blackened copper electrical wiring.

"Their dream home turned into a nightmare," he said.

Before trial, Gonzalez and colleague Patrick Montoya accused several Miami companies of being liable for problems at the Seifart-Gore home. After reaching confidential settlements with Miami-based Certain Homes and Mandy's Drywall & Stucco, which helped build the home, the attorneys set their sights on Banner, which supplied contractors. The couple also has filed a lawsuit against Knauf Gips KG in federal court.

The couple is seeking more than $700,000 in remediation and displacement costs from Banner, plus anticipated losses on a future resale. A new state law requires home sellers to disclose whether Chinese drywall was used in construction, which will greatly reduce a home's value. The couple is seeking damages on claims of a private nuisance and violations of the Florida Deceptive and Unfair Trade Practices Act.

Gonzalez said it all could have been avoided if Banner skipped the agreement with Knauf Tianjin and reached out to customers.

"It's rare you'll see someone put a cover-up in writing," he told jurors.

MAYBE a BAD BATCH

But Spillis said Banner's agreement was not an attempt to bury information about the product because company executives weren't aware of any widespread problems. They had received complaints from only one contractor, and Knauf Tianjin officials assured them the issue was inconsequential.

"By the end of November, the only thing they know is that there's a limited number of boards with a smell," he said. "They think, 'It's over. Maybe that's a bad batch.'"

He asked jurors to consider just how little Banner knew about the drywall defects at the time it signed the secret agreement with the manufacturer.

"Who in their right mind would sign away the rights to go after those responsible for the problem if they thought there was a problem?" Spillis asked.

Company attorneys sought to sue Knauf Tianjin and pull the manufacturer into the Miami case -- an extensive process because of jurisdictional complications -- but the couple's attorneys successfully opposed that to get to trial sooner.

"We're willing to pay for reasonable remediation costs and they're asking for much more than that," another company attorney, Michael P. Peterson, said in an interview. "And we're here to clear our name."

The company has hired Fort Lauderdale attorney Jeffrey A. Backman with Adorno & Yoss, as well as Todd Ehrenreich, managing partner of Weinberg Wheeler Hudgins Gunn & Dial's Miami office.

TONS OF DRYWALL

Tons of Chinese drywall entered the U.S. at the height of the housing boom in 2006 when most U.S. drywall manufacturers temporarily shut down for mandatory maintenance. U.S. wallboard producers such as National Gypsum couldn't keep up with demand, so distributors looked elsewhere.

Banner ended up with drywall made in Mexico, Brazil and China.

In the last year, hundreds of defective drywall lawsuits have surfaced, with more than half in Florida and others primarily in Sunbelt states.

Many with offshore and out-of-state defendants ended up in federal court, and all federal cases have been consolidated in multidistrict litigation before U.S. District Judge Eldon Fallon in New Orleans. He has presided over two homeowner trials that produced awards against Chinese drywall makers.

Fallon appointed Gonzalez to the plaintiff steering committee, where he coordinates pretrial issues.