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The Investigators: Court settlement on dangerous drywall

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LOUISIANA (WMC-TV, with contributions from WLOX TV) -- Nearly 4,500 households in four states -- including Mississippi - will receive either repairs or cash in a settlement with a German manufacturer of imported drywall.

U.S. District Judge Eldon Fallon of the Eastern District of Louisiana announced the Knauf Plasterboard Tianjin Co. will create an uncapped fund to pay an estimated $800 million to $1 billion in damages to homeowners in Louisiana, Mississippi, Florida and Alabama.

According to an e-mail sent from the plaintiffs' lawyers' steering committee to an Action News 5 legal source, the settlement includes all plaintiffs who filed claims against Knauf before Dec. 9, 2011.

The e-mail said claimants will have three options:  drywall replacement by a designated contractor, drywall replacement by qualified contractors of their choice or an undisclosed cash pay-out.

Matthew Y. Harris, a New Albany, MS, attorney representing three Mid-South homeowners whose properties were built with the corrosive drywall, said his clients are part of a separate case, but he's hopeful the settlement is the first domino to drop.

"Our folks aren't included. This is for people who had drywall manufactured by the Knauf company at a Chinese location," Harris wrote in an e-mail to the Action News 5 Investigators. "As far as collecting on it, the Court will send, to all members of that class, instructions as to how to claim it. If not done already, a claims administrator will likely be appointed by the Court to vet claims and oversee payouts to qualified claimants."

One of Harris' clients is Kay Mullins.

The McNairy County, TN, homeowner just completed a $14,000 rehabilitation of her 2007 kitchen addition.  Everything from the trim to the cabinets - ceiling to walls -- had to come out because unlicensed Corinth, MS., contractor Dewey Leonard installed Chinese drywall during the construction four years ago.

"I don't even really like to come in here anymore because I think of the whole thing," said Mullins. "Tearing it down, putting it back up -- it's taken away nine months of our lives."

Mullins initially turned to Mississippi Attorney General Jim Hood for help, since her contractor was based in Mississippi. But Hood's mediation staff referred her case to the CPSC when it determined the attorney general did not have jurisdiction over Chinese drywall complaints. It's not a violation of Mississippi building codes -- or Tennessee or Arkansas codes, for that matter.

"It is a defective product, but not every defective product is a violation of our consumer protection statutes," Hood said. "We would never be able to prove that some little distributor down in South Mississippi or North Mississippi knew that this product was going to cause all the problems that it has."

CPSC spokesperson Scott Wolfson acknowledged the agency has received the attorney general's referral of Mullins' complaint. He said she's one of approximately 3,900 homeowners in 42 states who have reported problems with defective Chinese drywall.

"CPSC has tried multiple times--from the U.S. and while in China--to bring the Chinese manufacturers to the negotiating table, but they have refused to respond," Wolfson said in an e-mail to The Action News 5 Investigators.

According to the CPSC, builders on the cheap imported more than six million sheets of Chinese drywall in the wake of Hurricane Katrina (2005), when the demand for rebuilding homes surpassed the supply of American drywall. The Chinese import, made from industrial waste, has corroded copper wiring and electrical systems in homes along the Gulf Coast.

"It's the first time I've seen it in Tennessee," said Rob Hurston, technical services director for the Memphis Area Homebuilders Association (www.mahba.com) and the inspector who confirmed the presence of Chinese drywall in Mullins' home.

"It is highly detrimental to copper, copper wiring and copper plumbing pipes and air conditioning coils because of the sulfur gas that it emits, and there is no way to cover it up or make it stop," Hurston said.

ProPublica, a non-profit investigating agency, and the Sarasota (FL) Herald-Tribune have released some of the most in-depth reporting of the regulatory problems with imported dry wall:  http://www.propublica.org/article/federal-probe-of-chinese-drywall-falls-short.

The report said both federal and state governments are woefully behind in regulating the import and installation of Chinese drywall. According to ProPublica's investigation, complications with international trade policies and finger-pointing among government agencies have stalled efforts to regulate it.

The report's particularly critical of the CPSC.

The report said the agency "...hasn't fully exercised the powers it does have, including the power to sue the U.S. companies that imported, built or distributed the drywall in an effort to make them pay to repair the homes."

"We have no interest in responding to ProPublica's claims, as much of their reporting has been false and misleading," Wolfson countered. "We are the smallest of four federal agencies that have worked on the drywall investigation, and we have invested the most money, resources and staff time to do the scientific work needed to inform the impacted families, the Congress and the courts about how to fix the problem."

The problem seemed to be growing in the Mid-South when The Action News 5 Investigators discovered Chinese drywall in two Corinth, MS, rental properties. The discovery occurred two weeks after we confirmed the presence of the drywall in Kay Mullins' house, just across the state line.

Corinth builder Eric Price, who has no contractor's license on file with the Mississippi Board of Contractors, built rental properties for Erik Smith and Jimmy Rogers in 2008. Like Mullins, both Smith and Rogers are represented by Harris. 

Two years later, Smith and his tenants noticed a sulfur smell in each of his units. At about the same time, Rogers discovered the copper tubes of his 2-year-old duplex's evaporator coil had corroded.

Inspections of the properties revealed Price had used Chinese drywall to construct them.

Smith had to temporarily vacate his properties and spend more than $30,000 to gut them and replace the imported drywall with American-made drywall.

"It ruined the retirement I had planned," Smith said. "It shouldn't have been here."

Rogers demolished the interior of his duplex and replaced the Chinese drywall. Total cost:  $15-20,000.

"You set everything up for your kid going to college, and you have to dip back into that money to replace this," said Rogers.

Price did not return voice mail messages or acknowledge an Action News 5 business card left with his wife. His father David, the licensed contractor and owner of David Price Construction Co. in Corinth, did acknowledge his family used the imported drywall.

"We didn't manufacture the drywall," David Price said. "We don't know where we got it from. We never see the drywall sheets. We have a subcontractor install those for us. Our attorney has advised that we discontinue contact with you."

Dewey Leonard, Mullins' contractor, said, "If I had known it was Chinese sheet rock, I would have never unloaded it. And I sure wouldn't have put it in (Kay Mullins') home. I wouldn't put it in yours, mine or anybody else's."

Purchase orders examined by the Action News 5 Investigators indicated Leonard bought the drywall from Johnson Lumber & Supply in Booneville, MS.

Brandon Elliott, manager of the supply store, declined Action News 5's request for an on-camera interview, but he acknowledged his store sold the Chinese drywall. He said his store was misled by its wholesaler on the Mississippi Gulf Coast.

"The wholesaler sold it to us with the assurance that it was A-grade sheet rock," said Elliott, who refused to name the wholesaler or show Action News 5 his invoices.

Shortly after our initial story aired, Johnson Lumber & Supply's phone number was disconnected. Hood said his investigators determined it had gone out of business.

Adding to the complication of the drywall not being a building code violation, Tennessee's home improvement law mandating contractors licenses has a fatal loophole. 

According to the Tennessee Department of Commerce & Insurance, the law requires Tennessee counties to adopt it before it can be enforced. 

Department spokesperson Shannon Ashford said only nine Tennessee counties have adopted the law. McNairy County, Mullins' home county, is not one of them.

That means Leonard is likely clear of any wrongdoing in his work on Kay Mullins' addition.

"I don't have a contractor's license," Leonard said. "I've never had them. Nobody's drove up here and told me I had to have them."

"You know, you put your faith and trust in someone, and you think they'll do it and do the right thing, and that hurts," said Mullins. "We didn't have a contract. It was kind of like the old days when you go on a man's word."

John Sullivan, executive director of the Mississippi Board of Contractors (MSBOC), said Mississippi-based contractors must have a state contractor's license if they perform new construction within the state of Mississippi of more than $50,000 or remodeling projects more than $10,000.

Sullivan said the contractors board only has the authority to discipline contractors working on Mississippi contracts. He indicated the board may be interested in pursing Eric Price for his lack of a license, but if Price is working under the supervision of his father's company, he may be cleared.

"We know (Chinese drywall) is a problem. We know it is not going away," Sullivan said. "But the MSBOC may only investigate those complaints that provide sufficient evidence of a specific violation of the statutes and rules that govern the board.

"A complaint against a contractor alleging the contractor used drywall manufactured in China, alone, is not sufficient evidence to find a violation of the rules and regulations of the board."

The exact details of Thursday's settlement in Louisiana are expected to be officially released Dec. 20. According to the steering committee's e-mail, Knauf has already agreed to pay up to $160 million in attorneys' fees and contribute to a $30 million "other loss" fund for personal injuries and economic losses.

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