Impacts of Chinese Drywall Likely to Continue in 2010

January 8, 2010
Client Alert Newsletter Forecast 2010

"Chinese Drywall" typically refers to drywall manufactured with a high sulfur content that is believed to have been primarily imported from China and used in construction projects generally between 2004 and 2007. Chinese Drywall is believed to emit hydrogen sulfide gas which can have a corrosive effect on metal building components. In addition, the U.S. Consumer Product Safety Commission ("CPSC") issued a report in November of 2009 concluding that the hydrogen sulfide being emitted from Chinese Drywall also appears to have health effects. Although the current multi-district litigation focuses on the use of Chinese Drywall in the South, the CPSC has received reports from 32 states and Chinese Drywall was sold in much of the Mid-Atlantic Region. The federal government's Interagency Drywall Task Force is continuing to investigate. Meanwhile, in mid-January a federal district court in Louisiana ruled in favor of plaintiffs in multi-district litigation and refused to limit their damages under the economic loss rule. Commentators expect to see financial institutions begin requiring the testing of properties as a condition of financing and various legislative initiatives are being presented in Congress and the state legislatures. If Chinese Drywall is determined to be a defective product, is recalled or prevents a bank from financing a real estate transaction, we may see Chinese Drywall becoming a bigger issue even where it is not emitting hydrogen sulfide.