It may have started with a runny nose or a recurrent headache. Perhaps the children’s noses began to bleed or their coughs would not disappear. Maybe someone noticed the house smelled like rotten eggs or that black and corroded air conditioning parts needed replacement too soon. Others worried when their eyes and skin would not stop feeling itchy or their breathing became unusually difficult.
These are examples of recurring symptoms that consumers described in 4,051 reports to the U.S. Consumer Products and Safety Commission that have been linked to homes constructed between 2006 and 2007, during a dramatic increase in new construction. Many of the newly constructed homes contained drywall imported from China because the domestic supply of drywall could not keep up with the demand. In 2005, foreign manufacturers imported fewer than two million pounds of drywall from China. A year later, however, foreign manufacturers dramatically increased drywall imports to 550 million pounds. Tim Padgett, “Is Drywall the Next Chinese Import Scandal?,” Time (March 23, 2009).
Manufacturers make drywall using natural gypsum ore, an important mineral building material, or synthetic gypsum. Problematic drywall was marked by elevated rates of silver and copper corrosion, a distinctive malodor, and sulfur gas emissions. The Safety Commission’s investigations showed that “the top ten reactive sulfur-emitting drywall samples were all produced in China [and that] [s]ome of the Chinese drywall had emission rates of hydrogen sulfide 100 times greater than non-Chinese drywall samples.” Press Release, Consumer Product Safety Commission, CPSC Identifies Manufacturers of Problem Drywall Made in China (May 25, 2010). Consequently, lawsuits implicating foreign manufacturers ensued.
Foreign Entity Lawsuits
When a suit involves a foreign entity like the Chinese drywall manufacturers, laws from other jurisdictions can add complexity to domestic laws. Parties generally encounter four procedural hurdles in legal actions against foreign manufacturers: (1) identifying the manufacturer; (2) serving process on the manufacturer; (3) obtaining jurisdiction over the manufacturer; and (4) collecting a judgment from the manufacturer. For example, serving formal notice of a complaint under applicable international treaties may require significant time and expense. This article outlines the personal jurisdiction hurdle.
To establish personal jurisdiction over nonresident defendants, such as foreign manufacturers, federal courts utilize a two-part sequential analysis to satisfy the requirements of the Fourteenth Amendment Due Process Clause. The first part of the constitutional analysis is whether a defendant had purposefully established minimum contacts in the forum state. The second part considers whether exercising personal jurisdiction comports with traditional notions of fair play and substantial justice.
Products made by foreign manufacturers can reach the United States even when foreign manufacturers lack the minimum contacts constitutionally necessary for establishing personal jurisdiction. In Asahi Metal Industry Co. v. Superior Court of California, Solano Cnty., 480 U.S. 102 (1987), the United States Supreme Court held that merely placing the product into the stream of commerce fails to satisfy the minimum contacts test. Instead of simply entering the stream of commerce, Asahi established that a nonresident defendant must perform an additional purposeful act in the jurisdiction.
Proposed and Enacted Legislative Solutions
Due to Asahi and similar cases, experts have argued that U.S. courts are unsure about personal jurisdiction over foreign manufacturers who produce goods that harm U.S. consumers. The complexity and breadth of the Chinese drywall litigation spotlighted this procedural hurdle. In response, federal legislators proposed the Foreign Manufacturer’s Legal Accountability Act of 2010 (the “2010 Act”) to establish “a level playing field on which to compete with foreign corporations.” Press Release, U.S. Rep. Braley (Jun. 28, 2010). The 2010 Act focused on simplifying service of process and jurisdictional issues involving foreign manufacturers by requiring them to consent to personal jurisdiction. Specifically, the 2010 Act would have required foreign manufacturers to register an agent and to consent to personal jurisdiction in the state and federal courts of the state where the agent is located.
Supporters generally viewed the 2010 Act as a means of closing loopholes unavailable to domestic manufacturers, who were financially undercut by foreign manufacturers. Detractors generally opposed the 2010 Act because they believed it overlapped with existing regulations and unlawfully targeted international trade partners. This debate resulted in Congress passing and President Obama signing the Drywall Safety Act of 2012 (the “2012 Act”), instead of the proposed 2010 Act.
The 2012 Act does not require foreign manufacturers to register an agent for service of process or to consent to personal jurisdiction. Instead, it expresses Congress’s sense that China should “direct the companies that manufactured and exported problematic drywall to submit to jurisdiction in United States Federal Courts and comply with any decisions issued by the Courts for homeowners with problematic drywall.” Drywall Safety Act of 2012, Pub. L. No. 112-266, 126 Stat. 2437 (2013). The 2012 Act also sets forth a mix of mandatory and voluntary standards for limiting sulfur content and for labeling, identifying, and removing problematic drywall. The mandatory labeling standards use ASTM International’s gypsum board labeling provisions.
The 2010 Act, however, has not completely disappeared. Legislators recently introduced a similar bill named the Foreign Manufacturers Legal Accountability Act of 2013 (H.R. 1910). These legislative efforts illustrate the gravity of procedural issues lurking in every civil lawsuit – even if not disputed in your particular case.