Legal News

Chinese Drywall: If You Think That is Bad, Just Wait.


Absurdity, Allegory and China is doing an excellent job in covering the recent problems with Chinese drywall that have cropped up in Florida. AAC has done a series of posts on this issue, the most recent one, entitled, Just Follow the Links, [link no longer exists] which, as its name implies, links over to the previous ones.

As I am always saying, lawyers make for excellent canaries in terms of what is happening and what is going to happen. This is because we oftentimes hear things from our clients before they become public, through either litigation or an announced deal. My law firm has been hearing much more about and/or getting much more work in four areas relating to China. Only one relates to the drywall problem, but all four directly relate to the downturn in the economy.

Here goes. . . .

First, we are hearing of even more incidences (yes that is possible) of China product quality control problems. Chinese companies that are strapped for cash are the most likely to skimp on quality and with more Chinese companies strapped for cash….well you do the math. In How To Protect Your Company From Bad China Product, we wrote how foreign companies can reduce the likelihood of receiving bad product from their Chinese manufacturers and our advice from that post still holds, but the need for foreign companies to follow it has increased.

Second, we are getting an increasing amount of work from foreign companies who want to exit from their Chinese joint ventures. The reason this is happening now is that when times were good, the foreign participants in joint ventures have a tendency to “let things slide.” Now, with profits tanking, they are feeling they cannot just sit back and wait.

Third, and paradoxically enough, we are doing a greatly increased business in forming joint ventures in China. We are getting clients saying that up to a few months ago they were planning on going into China on their own, via a Wholly Foreign Owned Entity (WFOE), but now they want to go the joint venture route to “spread the risk.”

Fourth, we are getting a ton of work from companies owed money from other companies that are either unable to pay their bills or just choosing not to pay the companies calling us. Our international litigation team has more than double the number of breach of international contracts as just six months. As Jeremy Gordon over at China Business Services, puts it, “this is a risky time for payment.”

Are you seeing these same legal/business trends? How are they impacting your business?

7 responses to “Chinese Drywall: If You Think That is Bad, Just Wait.”

  1. Interesting post Dan. I am surprised to find that your firm is both handling a rise in demand for JV formation at the same time it is experiencing an increasing number of clients who want out of their JV partnerships. I would have thought that more companies would opt for the WFOE in order to maintain more control over the course of their venture, but I guess under uncertain economic conditions, JVs are an alternative to help spread the risk. However, I guess the level of risk also depends on how reliable the Chinese JV partner is…

  2. Suing Chinese Drywall Manufacturers. Why All The Bother?
    Someone just emailed me an article on Chinese Drywall, with the question, “why do you think these lawyers are spending so much to serve the Chinese defendants.” My short answer is that I have no clue. I will backtrack a bit first. The article is entitl…

  3. Chinese Drywall Cases Makes U.S. Lawyers Angry. I Want My Lex Americana!
    I want my MTV. I will be speaking at a Chinese drywall seminar in New Orleans next month and that means I am on an email list that I think consists of others who will also be speaking at this seminar. Seeing as how this email list consists of around 10…

  4. I’d like to know your opinion of the recent change allowing US homeowners to file for class action suit against Knauf. Our legal council is indicating this acceptance is accompanied by a pool of funds to compensate the first 5000 cases. Thank you.

  5. Chinese Drywall Litigation. The Half-Assed Defense. I Told You So. And Why Seizing Assets Is Very Different From Seizing Ships. With Apologies To Scott Weinstein For Something I Never Said.
    A few months ago, I spoke in New Orleans at the leading Chinese Drywall Conference. I was introduced as the person who was going to explain whether it would be possible to sue and collect from the Chinese companies involved in providing the drywall tha…

Leave a Reply

Your email address will not be published. Required fields are marked *