US judge holds Chinese drywall company in contempt

Updated: 2014-07-22 11:16

By AMY HE in New York (China Daily USA)

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A China-based drywall company has been ordered by a US federal judge to pay $55,000 in penalties for refusing to participate in court proceedings over allegations that its product damaged homes where it was used.

A judge with the US District Court for the Eastern District of Louisiana found Taishan Gypsum Co Ltd in contempt of the court, ruling that the company cannot conduct business in the US until it participates in litigation.

"This refusal to appear is a direct contemptuous act occurring in open court after actual practice notice of the proceedings," wrote US District Judge Eldon Fallon in a ruling on July 17. "Such disobedience of the Court's order harms both the many other parties in this case and the decorum of the Court."

Taishan Gypsum had been accused of selling defective drywall that was used primarily in homes in the South. The product emitted various sulfide gases, causing home-appliance failure, with homeowners also complaining of health problems. Hurricanes Katrina and Rita had led to a housing boom in the South and along the East Coast, and Chinese manufacturers sold "considerable amounts" of gypsum wallboard — also known as Chinese drywall — to homeowners in Florida, Virginia, and Louisiana.

The defective drywall affected about 12,000 to 20,000 homes and businesses in the states and were sold to homeowners between 2005 and 2008. Taishan's lawyers had lost an argument in the Fifth US Circuit Court of Appeals, but did not appeal to the US Supreme Court. The company, however, did not work toward paying its $2.6 million settlement to the families involved, and that is why it was called to court last week.

The judge wrote that not only had Taishan failed to appear in court, but it had "refused to appear" for examination. The company was ordered to pay $15,000 in attorney's fees and $40,000 in penalties, and if it fails to cease conducting business in the US, will have to pay 25 percent of profits earned.

The judge also ordered for the contempt to be forwarded to the US secretary of Commerce, chair of the US Senate Committee on Commerce, Science, and Transportation, and the US attorney general so that "these officials are aware of the seriousness of the situation, and for any appropriate action they may see fit".

Arnold Levin, an attorney for the plaintiffs, said that it was "very, very shocking" that Taishan failed to show up in court after having argued the case in the Fifth Circuit Court repeatedly.

"They had very good lawyers in the Fifth Circuit, and then suddenly they lose the case and they just take their football and go home," he said.

Geoffrey Sant, adjunct professor at New York-based Fordham University School of Law and special counsel at Dorsey & Whitney, said that for Chinese companies being tried in a US court, refusal to respond to litigation happens frequently and often leaves a bad impression on judges.

"I've seen at least in other cases—these kinds of contempt decisions—and it can often put a lot of pressure on the defendant to resolve the case. It affects you in many ways. You're affected both in the current case and in future litigation because courts will look at you as having been held in contempt and distrust you," he said.

Taishan failed to plead or defend itself in 2009 when proceedings initially took place and was issued a default judgment. However, a day before the expiration for the window of appeal, the company appealed to the Fifth Circuit Court saying that US courts lacked jurisdiction over the cases, but was ultimately overruled.

"I think a lot of Chinese companies that have been sued in the US have been afraid to fight, because they think it's too expensive and they go, ‘I won't even show up, let's see what they can do,'" Sant said. "You get these very difficult situations for Chinese companies because even if they later want to hire attorneys and have the attorneys fight for them, it's very difficult to help the company if you already lost a default judgment."

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