In January, senior officials at Louisiana-Pacific Corp. drew
attention to an upbeat earnings report with an unusual stunt. They
shaved their heads bald.
Now, some of their customers feel as if they are getting scalped.
In a bitter endgame to one of the biggest consumer class-action lawsuits
ever, Louisiana-Pacific is playing hardball to settle tens of thousands
of outstanding claims brought on behalf of homeowners who purchased
allegedly defective home-siding. The big building-products maker
already has paid about $375 million to settle as many as 75,000 claims
from homeowner plaintiffs, under a 1996 settlement pact. About 60,000
claims remain unpaid, for an estimated total of $350 million.
Louisiana-Pacific now is offering to pay those remaining claimants just
$125 million -- or about 35 cents on the dollar. And the betting
on both sides of the dispute is that the offer will get many takers.
Last week, a court-appointed administrator mailed a check for the
new, discounted dollar
figure to claimants, who need only cash the check to accept L-P's offer.
When the 1996 pact was reached, lawyers for both sides praised it as
an example of how the legal system can redress economic harm to huge
numbers of consumers whose individual losses are too small to make
separate suits feasible. But today, many homeowners aren't happy.
"The whole thing just stinks," says Stanley Creeden, a suburban Atlanta
resident, who is still owed money under the court-approved settlement.
"Every time I walk into Home Depot" and see Louisiana-Pacific's products,
he adds, "it makes my blood boil."
The L-P siding, a concoction of wood scraps and resins, was installed
on about 800,000 homes around the country from 1985 to 1995. It warped
prematurely, rotted in wet weather and sprouted mushrooms and other fungus.
Lawsuits sprouted as well, although L-P contended the problems stemmed
mostly from faulty installation.
Ward Hubbell, Louisiana-Pacific's chief spokesman, defends the $125
million offer as serving everyone's interests. "We've got an obligation
to do what is fair by the homeowners," he says. "We also have an
obligation to grow the company. We're trying to very carefully balance
those two priorities."
The offer comes as L-P is experiencing an astonishing corporate turnaround.
In a booming housing market, its 1999 net profit was up more than 100-fold,
to $216.8 million, on sales of $2.88 billion. (The sale of certain pulp
and paper businesses also played a role.) The spectacular earnings
led to January's head-shaving exploit by top company brass, who had
promised to go
bald if profits beat ambitious internal predictions.
Under the 1996 settlement, L-P had seven years to pay consumers the
$375 million. After that period, the pact provided for L-P to have
the option either to pay all remaining claims or to declare the deal
concluded, in which case unpaid consumers could haul the company
back to court and start again.
Today, the company has paid out essentially all of the $375 million
to homeowners who got in line early, either because their siding
deteriorated sooner or because they followed the litigation closely.
At this point, the pact doesn't require L-P to put up additional
settlement money, if any, until 2004 -- potentially leaving 60,000
homeowners with unpaid claims on their hands and, in many cases,
unsightly siding on their houses.
"It is almost a joke," says Janet Livingston. "We've just about written
it off." She and her husband built a retirement home near Seattle
about five years ago and sheathed it in Louisiana-Pacific siding.
A neutral inspector, who reports to the court, determined that roughly
70% of their siding has turned bad and needs to be replaced.
That would have entitled the couple to about $6,500 under the 1996 pact.
L-P's recent offer was for about $2,300, Ms. Livingston says. Replacing
the siding will cost at least $18,000, she figures. Ms. Livingston
says she is inclined to accept the offer, but her husband wants to
keep fighting.
"Meanwhile, back at the ranch, my house is going to have this [mold
and fungus] growing on it," she says.
Many homeowners accuse L-P of resolving its liability on the cheap.
They are also angry at their own lawyers, who are receiving $26 million
in fees for representing the claimant class.
A few plaintiffs have gone so far as to consult with a new round of
lawyers about the possibility of suing the class-action attorneys
for malpractice, according to David O'Doherty, a Lincoln, Neb., lawyer
who runs the Defective Hardboard Siding Information Center, a Web
site on building-product litigation. For a fee, Mr. O'Doherty has
referred some homeowners to
plaintiffs' attorneys.
But the malpractice idea has been shelved, Mr. O'Doherty says, partly
because plaintiffs couldn't find attorneys willing to finance such a suit.
Another obstacle was that the settlement had been vetted and approved by
a federal judge, in Portland, Ore., where L-P is based. Uncompensated
homeowners, he says, are "giving up hope of receiving any money."
The homeowners' lawyers say they were justified in giving L-P some
flexibility in light the company's financial problems back
in the mid-1990s. L-P "could have easily ended up in bankruptcy,
and nobody would have received anything," says Jonathan Selbin, a
lawyer with Lieff,
Cabraser, Heimann & Bernstein, a San Francisco firm that helped
negotiate the settlement.
He staunchly defends the team's work. "This has still been an absolutely
tremendous settlement," Mr. Selbin says. If homeowners don't like the L-P
offer, he adds, they can decline it and "be returned back to their original
rights," as outlined in the settlement agreement, including going back
to court in a few years to sue on their own.
Other plaintiffs' counsel are less defiant, but unapologetic. "We would
love to be able to have more money, faster, to everybody," says Christopher
Brain, a Seattle lawyer on the class-action team. But "we can't go back
and redo agreements based on 20/20 hindsight."
For its part, Louisiana-Pacific maintains the $125 million offer is
generous, even though it covers only a third of the value of outstanding
claims. "It is a creative new program to put dollars in the hands of
claimants," says Stephen Grant, a lawyer for the company. He stresses that
the company is making the current offer voluntarily, years before it would
have been required to provide any more money. Some homeowners may feel
shortchanged, he adds, but "that doesn't mean that the settlement viewed
from the perspective of the class as a whole wasn't gangbusters."
That is cold comfort to unpaid homeowners. Although payments under the
1996 settlement pact were greater than what people would have received
under the company's warranty, they still averaged less than half
the cost of replacing the siding. And now, under the new offer, even
that fraction will be shrinking.
