Settlement agreements don’t release claims related to fraud around the settlement itself

A recent decision out of the Eastern District of Louisiana, In re Chinese-Manufactured Drywall Products Liability Litigation, MDL No. 09-2047 (behind paywall), stems from a multi-district litigation over the sale of Chinese drywall in the Southeast during rebuilding efforts after Hurricanes Rita and Katrina. Eventually, five individual class settlements were approved by the court. 

Later, the Burns realized that their house contained Chinese drywall that was causing a variety of problems. They filed suit and included among their claims a failure to be informed of the multidistrict litigation. InEx, the particular defendant who supplied the Chinese drywall at issue in the Burns situation, alleged that the Burns did not opt out of the settlement and thus their claims were barred. The court ruled that the settlement did bar the Burns claim against InEx; however, the Burns allegations against Livers, the particular construction company that had performed the installation of the Chinese drywall in the Burns house, were allowed to survive. 

Among other things, Livers argued that it, too, should be protected by the InEx settlement agreement. The settlement agreement, it argued, released “[a]ny further claims and/or liabilities arising out of, or otherwise relating to, the sale, supply, marketing, distribution, or use of Chinese [d]rywall.” Livers argued that the Burns claims against it were included in this umbrella. The court disagreed, because the Burns claims contained allegations that Livers had fraudulently concealed the existence of the Chinese drywall MDL. That claim was not released by the settlement. In fact, it could not have existed until after the settlement was perfected. The court therefore allowed the Burns to to pursue “an action against Livers for allegedly preventing them from filing a claim in the settlement program.”