Stephanie Glynn, Toxic Toys and Dangerous Drywall: Holding Foreign Manufacturers Liable for Defective Products?the Fund Concept

• Jurisdiction: United States,Federal
• Publication year: 2010
• Citation: Vol. 26 No. 1

TOXIC TOYS AND DANGEROUS DRYWALL: HOLDING FOREIGN MANUFACTURERS LIABLE FOR DEFECTIVE PRODUCTS—THE FUND CONCEPT

INTRODUCTION

The mid-decade building boom coupled with post-Hurricane Katrina reconstruction led to a nationwide drywall shortage in the United States in 2005 and 2006, forcing builders to turn to imports.1 Prior to 2005, drywall imports from China were negligible; however, since 2006, the United States

has imported more than 550 million pounds of drywall from China because it is “abundant and cheap.”2 This Chinese-made drywall has proven to be defective, and, as a result, thousands of U.S. citizens have sustained economic damage to their homes and incurred health problems.3 The drywall emits hydrogen sulfide gas, which produces a rotten-egg odor, corrodes metal, and destroys electronic equipment.4 In addition, American consumers have reported various physical ailments, such as breathing difficulties, persistent coughs, bloody noses, recurrent headaches, and asthma attacks.5

Chinese drywall presents one of the largest and most complex defective product conundrums the U.S. government has ever encountered.6 Thus far, the

U.S. Consumer Product Safety Commission (“CPSC”), the government agency responsible for protecting the public from injury or death from consumer

1. Jason Hanna, Chinese-Made Drywall Ruining Homes, Owners Say, CNN (Mar. 18, 2009), http://articles.cnn.com/2009-03-18/us/chinese.drywall_1_chinese-made-drywall-homeowners-appliances. According to the Consumer Product Safety Commission, shipping records show the United States has imported 6.5 million sheets of Chinese-made drywall since December 2005. Aaron Kessler & Joaquin Sapien, SPECIAL REPORT: Federal Failure on Chinese Drywall, HERALD-TRIB. (Dec. 14, 2010, 6:45 PM), http:// www.heraldtribune.com/article/20101214/ARTICLE/101219891.

2. Brian Skoloff, Cheap Chinese Drywall Causing Another Round of Nightmares, WASH. POST (Oct. 17,

   2009), http://www.washingtonpost.com/wp-dyn/content/article/2009/10/16/AR2009101600082.html; accord Tim Padgett, Is Drywall the Next Chinese Import Scandal?, TIME (Mar. 23, 2009), http://www.time.com/time/ nation/article/0,8599,1887059,00.html.

3. Skoloff, supra note 2.

4. Andrew Martin, Drywall Flaws: Owners Gain Limited Relief, N.Y. TIMES (Sept. 17, 2010), http:// www.nytimes.com/2010/09/18/business/18drywall.html.

5. Drywall Information Center, U.S. CONSUMER PROD. SAFETY COMM’N, http://www.cpsc.gov/info/

   drywall/where.html (last visited Feb. 20, 2012).

6. Kessler & Sapien, supra note 1. The cost of repairing an average-size house (replacing all the drywall, the wiring, and the air-conditioning system) is about $100,000. Id.

   products, has received more than 3,805 complaints about the drywall and believes thousands of others have failed to report the problem.7 Approximately 5,600 homeowners have filed suits, but because the current legal system makes it virtually impossible for U.S. plaintiffs to sue Chinese manufacturers, legal redress is limited or nonexistent for the majority of these consumers.8 Three primary procedural hurdles—personal jurisdiction, service of process, and enforcement of the judgment—prevent suits against Chinese manufacturers.9 While injured consumers may bring suit in the United States against importers, distributors, and sellers of the defective drywall,10 many of these potential defendants are out of business, bankrupt, or possess insufficient assets to satisfy a judgment. As a result, many consumers are left with no one to sue and thus no compensation for the harm they incurred.

   
   

   Chinese manufacturers have successfully argued that U.S. courts do not have jurisdiction over them.11 Virginia Senator Mark Warner, whose office is helping Virginia drywall victims negotiate with their home mortgage lenders, remarked, “[Foreign manufacturers] can avoid liability and there’s almost nothing we can do about it right now.”12 Injured consumers are left to seek legal recourse in the United States or go uncompensated. As a result, many homeowners affected by faulty Chinese drywall are facing foreclosure and bankruptcy.13 Pamela Gilbert, a former executive director of the CPSC during the Clinton Administration, noted, “Our current consumer protection laws don’t adequately address product liability in a globalized economy . . . . And these problems are only going to get worse in the future.”14 The U.S. Supreme Court has also recognized the shortcomings and difficulties present in this area of the law, and in late 2010 the Court granted certiorari in two cases, J.

   
   

7. Drywall Information Center, supra note 5; Martin, supra note 4. “A database compiled by the Herald- Tribune and ProPublica shows that at least 6,944 homeowners are seeking help for problems created by contaminated drywall.” Kessler & Sapien, supra note 1.

8. Martin, supra note 4. One company, Knauf Plasterboard Tianjin, a Chinese–German joint venture, has

   begun settlement negotiations with homeowners. Id.

9. Leveling the Playing Field and Protecting Americans: Holding Foreign Manufacturers Accountable: Hearing Before the Subcomm. on Admin. Oversight and the Courts of the S. Judiciary Comm., 111th Cong. 4

   (2009) (statement of Louise Ellen Teitz, Professor of Law, Roger Williams University School of Law) [hereinafter Hearing—Leveling the Playing Field].

10. RESTATEMENT (THIRD) OF TORTS: PRODUCTS LIABILITY § 1 (1998).

11. Martin, supra note 4.

12. Kessler & Sapien, supra note 1.

13. Monsurat Adebanjo, Gov’t Failing To Deal with Bad Drywall, CBS NEWS (Dec. 15, 2010, 3:06 PM), http://www.cbsnews.com/8301-31727_162-20025776-10391695.html.

14. Kessler & Sapien, supra note 1.

    
    

    McIntyre Machinery, Ltd. v. Nicastro15 and Goodyear Dunlop Tires Operations, S.A. v. Brown,16 concerning jurisdiction in U.S. courts over foreign manufacturers in the context of a globalized society.17

    
    

    The two cases, J. McIntyre and Goodyear, deal with the stream of commerce theory of personal jurisdiction as it pertains to specific and general jurisdiction, respectively.18 On January 11, 2011, the Court heard oral argument in both cases.19 The Court revisited the requirements under the Due Process Clause of the Fourteenth Amendment for state courts to assert personal jurisdiction over foreign defendants.20 On the last day of its 2010–2011 term, the Court issued opinions in the two cases. In J. McIntyre, the Court addressed whether the state of New Jersey could exercise jurisdiction over a foreign (English) manufacturer when the plaintiff was injured by the defendant’s product in New Jersey.21 The Court issued a fractured 4-2-3 decision, holding that the manufacturer was not subject to personal jurisdiction in the state of New Jersey because it had not engaged in conduct purposefully directed at New Jersey.22 In Goodyear, the Court addressed whether foreign subsidiaries of a U.S. parent corporation are amenable to suit in state court based on claims that are unrelated to any activity of the subsidiaries in the forum state.23 The Court reached a unanimous decision, reversing the North Carolina Court of Appeals’ ruling that the foreign Goodyear subsidiaries were subject to North Carolina’s general jurisdiction because some of the defendant’s tires had reached the state through the stream of commerce.24 The unanimous ruling in

    
    

15. J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780 (2011).

16. Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011).

17. Peter Trooboff, The Global Reach of U.S. Personal Jurisdiction, NAT’L L.J., Dec. 13, 2010, available at http://www.cov.com/files/Publication/39e9f9b2-f78f-4328-af70-e7786215eba4/Presentation/Publication Attachment/eb4ee708-e070-4ac3-b867-eb28d5b0ccdb/The%20Global%20Reach%20of%20U.S.%20Personal

    %20Jurisdiction.pdf.

18. Mark R. Vespole, Stream of Commerce in the 21st Century: McIntyre and Goodyear: Potential Ramifications of U.S. Supreme Court Decision on NJ and NC Long Arm Jurisdiction Statutes, LEXISNEXISCOMMUNITIES LITIG. RESOURCE COMMUNITY (Dec. 13, 2010, 3:50 PM), https://www.lexisnexis.

    com/COMMUNITY/LITIGATIONRESOURCECENTER/blogs/litigationcommentary/archive/2010/12/17/pot ential-ramifications-of-supreme-court-decision-on-n-j-n-c-long-arm-jurisdiction-statutes.aspx.

19. Allison Torres Burtka, Supreme Court Takes On States’ Jurisdiction over Foreign Manufacturers, AM.

    ASS’N FOR JUST. (Jan. 20, 2011), http://www.justice.org/cps/rde/xchg/justice/hs.xsl/14246.htm.

20. Id.

21. J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780, 2785 (2011).

22. Id. at 2791.

23. Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2850 (2011).

24. Id. at 2851. The Court reiterated the standard for general jurisdiction, noting that “a court may assert general jurisdiction over foreign corporations . . . when their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.” Id.

    Goodyear made it clear that introducing goods into the stream of commerce in a state was an insufficient basis for a court to exercise general jurisdiction over foreign subsidiaries when the accident occurred elsewhere.25 However, the divided ruling in J. McIntyre failed to announce a standard for determining

    when foreign firms are subject to specific jurisdiction in U.S. court, thereby virtually ensuring that the justices will consider the issue again.26 Although the Court’s holdings addressed key jurisdictional questions, neither case addressed enforcing U.S. judgments against foreign manufacturers. Absent a mechanism for enforcement, U.S. consumers will likely be unable to collect on judgments.

    
    

    Attempt at revision in this area of the law has not been limited to the judiciary. The Foreign Manufacturers Legal Accountability Act of 2010 (“2010 Act”) was introduced in the U.S. House of Representatives in February 2010, aiming to combat the lack of jurisdiction over foreign manufacturers.27

    The 2010 Act died in committee, and was reintroduced in December 2011 as the Foreign Manufacturers Legal Accountability Act of 2011 (“2011 Act”).28 As the 2011 Act is in the early stages of the legislative process at the time of...