Local homes with Chinese drywall to set bar for remediation

Richard Serpe paced behind his desk, a wireless telephone headset affixed to his ear as he discussed courtroom strategies with other attorneys.

For months the Norfolk lawyer has worked with scientists and contractors, cutting holes in walls in seven Virginia homes, testing corrosion, and developing estimates for what it will take to remediate homes that contain drywall made in China.

The product emits a noxious gas that, government agencies have found, apparently corrodes electrical appliances, and some homeowners contend that it causes illness.

Serpe represents 86 local residents whose homes contain the drywall. He will present his findings in New Orleans, where the first federal court hearing on drywall is to begin Friday.

Also present will be lawyers representing Knauf Plasterboard Co. Ltd., the subsidiary of a German manufacturer, whose drywall was used widely in Florida, and Mitchell Homes, a builder based in Alabama.

Like Serpe, both groups have done tests on the seven Virginia homes and come up with estimates for how much it will cost to fix the problem.

The stakes are high. The differences in the plans could amount to hundreds of thousands of dollars for homeowners in Hampton Roads and across the country, as the hearing will result in the first federal judicial decision on remediation and help set the standard for federal trials set to begin in March.

Serpe was introduced to Chinese-made drywall in January 2009 when a Chesapeake homeowner called, saying he suspected his home was built with the wallboard after electrical appliances repeatedly failed.

"In one week I went from having never heard of the stuff to nonstop calls about it," Serpe said.

Initially, it looked like the drywall situation would be resolved quickly. The Dragas Cos., which had identified Chinese-made drywall in homes it had built, offered to relocate homeowners while it spent millions remediating the condos. A large builder in Florida had taken a similar action, but other local builders were resistant.

On May 1, Serpe filed suit in Norfolk federal court on behalf of five clients against Venture Supply Inc., a drywall importer; the manufacturer Taishan Gypsum Co. Ltd.; and the developer of a Norfolk condo complex.

The lawsuit was transferred to a federal court in New Orleans to be tried with hundreds of other cases. After the Chinese manufacturer failed to respond to the suit, U.S. District Judge Eldon Fallon issued a default judgment against Taishan.

Attorneys selected seven homes in Virginia - one in Virginia Beach, two in Newport News and four in Williamsburg - to serve as a cross section of homes affected by the drywall across the country.

Taishan will not take part in the proceedings. Instead, Knauf volunteered to study the seven homes and produce its own estimate for fixing the problem.

The judge is expected to rule on the proposals by March. The decision will be binding only on the seven Virginia homes, but the judge has indicated that outcome will "provide some guidance for similarly situated or affected properties."

"It's going to have huge implications," said Samuel Issacharoff, a law professor at New York University who specializes in complex litigation and class action cases. "Don't underestimate the power that a judge has. The nature of the default judgment is it takes the decision out of the hands of a jury and puts it into a judicial decision."

It is possible, however, that a jury could conclude differently after the first trial, Issacharoff acknowledged.

Investigations on the homes were finished in recent weeks, and the court ordered them to be kept confidential until the hearings begin. But the opposing plans are likely to have vast differences on both how to fix the homes and what it will cost, said Richard A. Nagareda, a law professor at Vanderbilt University and an expert on large-scale civil cases.

Knauf is "afraid that they're going to get drawn into a claim that they knew something was wrong," Nagareda said. "They don't want to enter a trial where all the research has already been done on the plaintiff side."

Serpe said he plans to ask the judge to rule that the homes be gutted of all of the drywall and electrical wiring and appliances, including removing all copper pipes. The cost of the work will range from $190,000 to $235,000 per home.

Those figures don't include the loss of personal property inside the homes or moving and living expenses for those homeowners who have moved out. And the initial trials and hearings in New Orleans won't touch on personal injury claims.

Because the judge's ruling will apply only to the seven homes, Serpe's team of attorneys also plan to file a second class-action suit asking the judge to enter a ruling against Taishan on behalf of all local homeowners.

Judicial decisions will mean little, however, if Taishan ignores the judgment.

"This is becoming a common problem in a globalized world," Nagareda said. "If a company doesn't have assets in the U.S., it could be hard to get at them."

Nagareda thinks it's still possible the Chinese government or the manufacturer eventually will step in and offer to contribute to a settlement.

Still, the process could take several years to sort out, Nagareda said.

During a meeting in Chesapeake with homeowners last week, Serpe was asked what would be the end result of all the hearings and trials in New Orleans and locally.

"I don't know how this thing's going to end up," he said. "What I can tell you is it's like an archer. Every one of these things is like an arrow. We're shooting all the ammunition we have against everybody that's got money and is responsible. I don't know when we're going to hit the mark."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com