Proposed Lowe’s Drywall Settlement Scrutinized

Lowe's Companies Inc., the nation's No. 2 home improvement chain, has set off a legal firestorm by agreeing to a national settlement over tainted drywall in a class-action suit being decided in a Georgia state court.

The $6.5 million settlement would pay relatively small amounts to individuals who had the tainted drywall in their homes. But the handful of attorneys who quietly negotiated the deal will receive a separate payment of $2.1 million. Victims will be compensated mostly in Lowe's gift cards, offered in the amounts of $50, $250 or $2,000, depending on the level of documentation they can provide. Those who can prove they've suffered more than $2,000 in damages may also receive up to $2,500 in cash.

Customers would not necessarily receive full refunds for the defective product they purchased. For example, someone who spent $10,000 on drywall would still only qualify for a maximum of $4,500 in cash and gift cards.

Under the agreement, individuals would waive all legal rights to sue the North Carolina-based company for property damage or medical claims related to the drywall.

The figures involved are small compared with what the federal courts have established as the general cost of repairing a home contaminated by defective drywall, which emits large amounts of sulfur gases that can corrode electrical wiring and trigger respiratory problems. The U.S. Consumer Product Safety Commission says the only way to repair such homes is to remove the drywall and electrical wiring, a job that can cost $100,000 or more. A Miami jury recently awarded $2.5 million in damages to the owners of a home built using drywall from a South Florida supplier.

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. Those who don't meet that deadline automatically lose their right to sue Lowe's.

The agreement won't become final until it is signed by Superior Court Judge Bobby Peters, who has already given his preliminary approval. Peters will hear arguments for and against the agreement on Nov. 19.  By that time, however, anyone who wants to opt out of the class-action lawsuit must have done so already.

Attorneys who are representing plaintiffs in the nation's largest drywall case, which is focusing on drywall manufactured in China, have already attacked the settlement. Late Monday the lead attorneys filed a motion before U.S. District Judge Eldon Fallon, who is overseeing the multi-district federal case in New Orleans, asking him to block the Georgia settlement. They say the payments to victims are too small, the attorney fees too large and that the agreement "interferes with and erodes" the federal litigation and Fallon's own authority to deal with the wide scope of the drywall problem.

To back up their argument, they cite the Class Action Fairness Act of 2005 and a number of subsequent court decisions to establish that gift cards and coupons are not appropriate and often lead to the enrichment of attorneys at the expense of victims.

At this point, the attorneys in the Georgia settlement say they have about 40 defective-drywall cases against Lowe's. Some of their clients are also plaintiffs in the combined federal case, which involves thousands of homeowners, builders and suppliers.