We are no strangers to Chinese Drywall litigation here at the Monitor, but you may have noticed it has been quite a while since the allegedly defective building material reared its head (see prior posts here, here, here, here, and here). For two defendants who reached settlement agreements years ago in the class actions consolidated into a Multi-District Litigation in the Eastern District of Louisiana, their Chinese Drywall class action days are apparently not behind them. The Fifth Circuit affirmed this month that the claims of a putative class of Florida property owners who allege their condominiums lost market value on account of the stigma associated with the use of Chinese Drywall on another building in their complex are not enjoined because they do not fall within the scope of the defendants’ MDL settlement agreements. In re Chinese-Manufactured Drywall Products Liability Litigation, No. 14-31355, 2015 WL 5771919, at *1 (5th Cir. Oct. 2, 2015).

At the Lauderdale One Condominium Complex in Fort Lauderdale, Florida, residents live in one of two separate condominium buildings, referred to as “Building One” and “Building Two.” Building One was constructed using Chinese Drywall. Building Two was not. Plaintiff Mangiarelli owns a condo unit in Building Two, which has never contained any Chinese Drywall. So, what gripe inspired Mangiarelli to commence a class-action lawsuit against Chinese Drywall defendants Sixty Fifth and One, LLC (“Sixty Fifth”) and Banner Supply Company Pompano, LLC (“Banner”)? He claims that his condominium has lost market value as a result of the stigma of being associated with Building One. Stigma, as it turns out, is difficult to overcome.

In 2009, all federal actions alleging damage resulting from Chinese Drywall were transferred to a Multi-District Litigation. See In re Chinese–Manufactured Drywall Prods. Liab. Litig., 2:09–MD–2047–EEF–JCW (E.D.La.2009). Sixty Fifth and Banner were defendants in class actions consolidated into the MDL, and both defendants ultimately settled the class-action claims against them, reaching agreements referred to as “Banner” and “Global.” They filed a motion to enjoin the Florida state court action, arguing that the Banner and Global settlement agreements covered Mangiarelli’s claims. Additionally, they argued, Mangiarelli could not bring the stigma claims individually because he did not opt out of the Banner and Global agreements. The district court disagreed, as did the Fifth Circuit.

As for the parties’ arguments, Sixty Fifth and Banner did have in their corner a broad definition of class membership in both settlement agreements. The Global agreement defined the settlement class as consisting of “[a]ll persons or entities … with claims, known or unknown, arising from or related to actual or alleged Chinese Drywall purchased, imported, supplied, distributed, marketed, installed, used, sold or in any way alleged to be within the legal responsibility of [Sixty Fifth].” The Banner settlement agreement contained a very similar provision. The Fifth Circuit made clear, however, that this language, however, broad, must be read in the context of the agreement as a whole and that “language elsewhere in the settlement agreement required that a class member have a significant connection to an Affected Property.’” 2015 WL 5771919, at *2.

The court therefore rejected appellants’ contention that the settlement agreements’ class definitions were distinct from any provision concerning “Affected Property,” such that an individual would not need to own, inhabit, or otherwise have a close tie to Affected Property to be considered a class member. The court also dismissed as illogical the argument that Mangiarelli should not be allowed to proceed on his stigma claim because he failed to opt out of the settlement agreements when appellants’ acknowledged that the terms of the Global and Banner agreements do not cover such claims: “It spurns simple reasoning to require individuals to opt out of a settlement agreement under which they were never entitled to compensation.” Id. at *3. Cases cited by appellants to support the proposition that it is common for individuals to be “class members” under a settlement agreement, yet to be barred from recovery under the terms of that agreement were, according to the court, “easily distinguishable” in that they all involved class members who forfeited the opportunity to recover a portion of the settlement funds through their own actions.

At the end of the day, this decision affirms some basic principles of contract interpretation—namely, that each provision of a contract should be read in light of other provisions and, if possible, in a manner which avoids an illogical outcome. Tellingly, to reach its decision, the court did not rely on other cases interpreting settlement agreements in particular. It simply cited the basic rule which dictates that terms of a contract are not to be read in insolation. As with any contract, it is difficult to envision and account for all potential future scenarios when crafting a settlement agreement. Here, for instance, it is unlikely that claimants like Mangiarelli and his Fort Lauderdale neighbors were initially contemplated by the parties to the Global and Banner agreements. Appellants’ took their best shot by urging a close reading of an undeniably broad class definition, but, much like the condominiums in Mangiarelli’s complex, the court was not buying it.