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President Signs Chinese Drywall Legislation

January 15, 2013

In the final days of the 112th Congress, and amidst the bustle of the "fiscal cliff" negotiations, Congress passed H.R. 4212, the Drywall Safety Act of 2012 (the "Act"), a new law designed to address problematic Chinese drywall. The legislation, signed into law by President Obama on January 14, does not provide relief to homeowners affected by corrosion allegedly caused by sulfur content in problem drywall but does require action to ensure that it never happens again. In a largely symbolic manner, its passage signals Congress's desire to hold foreign manufacturers accountable for defects in products imported into the United States. The Act, however, only states the "sense of Congress" that the Secretary of Commerce should "insist" that the Government of the People's Republic of China "direct the companies that manufactured and exported problematic drywall" to submit to the jurisdiction of the United States federal courts. 

The Act falls short of earlier efforts to pass legislation specifically addressing the liability of foreign manufacturers whose products are sold and distributed in the United States. The lack of a registered agent for service of process in the United States has hindered the ability of the government and consumers to pursue relief against many foreign manufacturers of defective products. In 2010, Congress attempted to deal with this issue in H.R. 4678, "The Foreign Manufacturer Legal Accountability Act," which would have required foreign manufacturers to designate a registered agent for service of process, presumably in the state through which most products were imported. The House version of the bill banned imports from manufacturers that did not have a registered agent for service of process in the United States. Seen as a threat to the economy given the robust importation and sale of foreign goods in the United States, the bill ultimately failed to pass.  

In addition to articulating Congress's desire that Chinese drywall manufacturers submit to jurisdiction in United States federal courts, the Act imposes labeling requirements on all drywall manufacturers. Within 180 days of enactment, the Act makes mandatory a drywall labeling provision contained in the ASTM voluntary standard for these products. This is the culmination of an effort initiated by a unanimous Consumer Product Safety Commission (CPSC) in December 2009 to require mandatory labeling of drywall to track the identity of the manufacturer, and the date, country and specific location of manufacture. The Consumer Product Safety Improvement Act of 2008 requires similar tracking labels on children's products that enable the ultimate purchaser to determine the manufacturer, location, and date of production of the product, and any identifying batch or lot information.

The Act also requires the CPSC to regulate the sulfur content of drywall, limiting it to "a level not associated with elevated rates of corrosion in the home." Unfortunately, no such level has been established in the scientific literature, and the Act is sufficiently vague on the point to invite difficulties in interpretation and enforcement, particularly with respect to product testing and certification. Would content analysis of the boards be acceptable or would chamber testing regarding the amount of emissions at certain temperature and humidity levels be required to establish a level shown not to permit corrosion? The CPSC's work has demonstrated that temperature and humidity may play a significant role in sulfur emissions and any content level selected would need to be set low enough to account for such variations. A level set without scientific support is also likely to lead to litigation by prospecting plaintiff attorneys with respect to any drywall product containing detectable concentrations of sulfur. This could prove particularly challenging because sulfur is a naturally occurring element in gypsum (also known as calcium sulfate), which is a primary constituent of most drywall made in the United States. Importantly, the Act contains an exception allowing the Commission to defer to a voluntary standard on gypsum content if an acceptable standard is developed by Subcommittee C11.01 on Specifications and Test Methods for Gypsum Products of ASTM International in the next two years. Stakeholders participating in the voluntary standards process have two years to work to define the content level and testing protocols so compliance can be established in a cost effective and reasonable manner thereby mitigating the risks of unpredictable enforcement result and potential litigation.

Finally, the Act requires the CPSC to revise its "Remediation Guidance for Homes with Corrosion from Problem Drywall" to ensure that Chinese drywall removed from such homes is not recycled into new boards made in the United States. The CPSC's guidance document is not compulsory, making enforcement against the objectionable recycling practices challenging at the federal level. Nonetheless, state unfair competition statutes and state common law claims may offer some novel avenues for redress if manufacturers ignore the stated Congressional intent.  

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Cheryl A. Falvey
Partner – Washington, D.C.
Phone: +1.202.624.2675
April Nelson Ross
Partner – Washington, D.C.
Phone: +1.202.624.2687