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  • Writer's pictureKirk Hartley

Another Mass Tort Bankruptcy, Sort of – Chinese Drywall and the Chapter 11 filed by Builder WC

Chinese drywall claims are emerging as a would-be class action issues in the WCI Communities chapter 11 case pending in Delaware. Would be class representatives filed papers seeking permission to present a class proof of claim. WCI has now responded with a brief opposing the class. The opposition is routine in the sense that it follows all the now-standard tactics for seeking to block a class action regarding conditions in buildings. More interesting is the way this debtor wants to treat tort claims individually, in contrast to other “mass tort” cases in bankruptcy in which aggregation is said to be the answer. WCI’s opposition brief is here.

WCI explains the issue as follows:

“By her Motions, Goldstein seeks permission to file a claim on behalf of a group of individuals who have allegedly suffered damages from defective drywall originating from China (“Chinese Drywall”) installed in homes by WCI built in Florida. In order to file a class proof of claim, Goldstein also requests that this Court certify a class for purposes of pursuing claims on theories of negligence, strict liability, breach of warranty, and negligent misrepresentation.”

Unlike debtors in some other mass tort cases, the debtors here provided individual mailed notice on a broad scope to potential tort claimants. Specifically, the brief says that notice was sent to all who purchased WCI Homes in the last 10 years:

“6. All individuals or entities that purchased a home built by the Debtors in the last ten years (the “Home Purchasers”) received notice of the commencement of the Chapter 11 Cases and separate actual and constructive notice that February 2, 2009 at 4:00 p.m.”

According to the brief, the number of claims filed is small (“over 70”), and so one one sees why the debtor opposes a class action that would increase claims. Also interesting is the Debtor’s argument that bankruptcy court can and should individually resolve thousands of tort claims, an argument not heard when debtors and other plan proponents seek to “estimate” claim values.

” 22. Here, just as in Grace and Daigle, joinder is practicable. Despite Goldstein’s assumptions, the number of homeowners potentially affected by the Chinese Drywall attributable to WCI is more likely to number in the hundreds, rather than the thousands. To date, over 70 homeowners have filed proofs of claim related to the use of Chinese Drywall in their homes. The media coverage devoted to problems with Chinese Drywall has been extensive. Request for Judicial Notice in Support of the Debtors’ Objection to Motion of the Sound at Waterlefe, a Condominium, for Entry of an Order Requiring Debtors to Identify and Notify all Potential Defective Chinese Drywall Claimants of a Potential Defective Chinese Drywall Claim and to Enlarge Time to File Claims Arising from Defective Chinese Drywall (“Request for Judicial Notice”) [Docket No. 1786].

As shown from the claims relating to Chinese Drywall filed pre-petition, the amounts sought by claimants are significant, ranging from $50,000 to over $1,000,000. Thus, akin to Daigle, it is likely that interested persons have already filed individual proofs of claim. Further, as shown in Grace, even if thousands of claims are filed, the bankruptcy court is capable of resolving each individual claim. (emphasis added).

23. Goldstein ignores the realities of bankruptcy court. Virtually every large Chapter 11 case involves thousands of claims. Many will have tens of thousands. Bankruptcy courts are uniquely qualified to handle such claims and requiring each putative class member to file a claim is not unduly burdensome for the claimant or the Court. In this case, the Debtors already have approximately 4,000 claims filed against them and have developed specialized procedures to efficiently deal with them, including through the ADR Procedure. Therefore, a class proof of claim is not warranted.”

WCI’s brief shows the issue as scheduled for hearing on July 1.

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