More Problems Cited with Lowe’s Chinese Drywall Settlement

More consumer advocates are speaking out against a proposed settlement in a Chinese drywall class action lawsuit involving Lowe’s stores. Under the proposed settlement, claimants would receive gift cards in amounts ranging from $50 to $2,000. Those who can prove they’ve suffered more than $2,000 in damages may also receive up to $2,500 in cash.

As we reported previously, the $4,500 maximum reward offered under the settlement would not even begin to cover the cost of properly remediating a home with Chinese drywall. Such an effort is estimated to cost at least $100,000 per home.

The proposed Lowe’s Chinese drywall settlement was first reported by the Web site ProPublica. Now, the site is reporting that some consumer groups are speaking out against the proposal. For one thing, advocates have problems with the way claimants will be notified of the settlement.

So far, about 40 plaintiffs are involved in the Lowe’s class action lawsuit. However, according to ProPublica, the class-action settlement would automatically apply to Lowe’s customers throughout the nation, unless they notify the Superior Court of Muscogee County, Ga. by Nov. 9 that they want to opt out. Lowe’s customers won’t be notified of the settlement or their option to opt out via mail, but rather, the retailer will use a web site, ads in Parade Magazine and notices on store receipts to get the word out. If potential claimants don’t opt out, they waive their right to sue Lowe’s individually.

In most cases, notification plans for class action lawsuits involve contacting potential claimants by mail, ProPublica said.

Ed Mierzwinski, consumer product director for the U.S. Public Interest Research Group, a nonprofit consumer advocacy organization, said the notification plan is inadequate. “I cannot believe the judge would approve these notice disclosures,” Mierzwinski said. “When people get their Sunday paper, a lot of them throw away Parade magazine along with all of the other inserts that come in the paper.”

Others have problems way the deal is structured. In its previous report, ProPublica said the proposed settlement totals $6.5 million. Attorneys who quietly negotiated the deal will receive a separate payment of $2.1 million. An additional $1 million would be spent on administering the settlement.

According to the new ProPublic report, the agreement is structured as a reversionary settlement. That means that if it does not draw enough claimants to pay out at least $2.5 million in cash and gift cards, Lowe’s would keep the remaining $4 million that was set aside for the plaintiffs. If that happens, the lawyers would still be paid $2.1 million, meaning they would receive almost as much as their clients. If Lowe’s received more than $6.5 million in claims, the amounts individual claimants can receive would shrink.

Brian Wolfman, a visiting professor at Georgetown University Law Center told ProPublica that such settlements are problematic because they “provide the class lawyers no incentive to put money in their clients’ pockets and make it possible for the lawyers to walk away with far too much of the goodies.”

It should be noted that the Lowe’s class action lawsuit is not part of the multi-district litigation currently underway in federal court in New Orleans, which involves the Chinese drywall manufacturers Knauf Plasterboard Tianjin Co. Lt and Taishan Gypsum Co. Ltd., as well as thousands of homeowners, builders and suppliers. Lowe’s, however, is also a defendant in that litigation.

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