Court Should Review Punitive Damages Re-Trial Issue

Readers concerned about punitive damages law have their eyes on Wyeth LLC v. Scroggin.  The case involves a woman who allegedly developed cancer after taking hormone therapy drugs. (The FDA continues to approve the drugs as safe and effective.) The plaintiff contends that Wyeth was negligent in failing to include a stronger warning on its label, and that she would not have taken the drug if the warning had been stronger. The district court conducted a bifurcated trial
before a single jury, with liability determined first and punitive damages determined second. In the first phase, the jury found for plaintiff and awarded $2.7 million in compensatory damages. In the second phase, the same jury determined that defendant was liable for punitive damages of $19.4 million. Wyeth LLC v. Scroggin, 554 F.Supp.2d 571 (E.D. Ark. 2008). On appeal, the U.S. Court of Appeals for the Eighth Circuit overturned the punitive damages award, ruling that the award was tainted by the admission of improper evidence during the punitive damages phase of the trial. But rather than ordering an entirely new trial, the appeals court ordered a partial new trial limited to punitive damages only. Scroggin v. Wyeth, 586 F.3d 547 (8th Cir.2009).

Wyeth is seeking Supreme Court review of the denial of its request for an entirely new trial.  Permitting a tort plaintiff to preserve his compensatory damages award at the same time that he pursues punitive damages before a separate jury is unfair to defendants, and it is likely to lead to increases in punitive damages awards. Partial retrials limited to punitive damages violate jury trial rights protected by the Seventh Amendment. The Petition for Cert here, 78 USLW 3566 (3/16/10), describes in detail the sharply conflicting views of the federal appeals courts regarding the circumstances under which partial retrials in jury cases are consistent with the Seventh Amendment, both generally, and specifically with respect to partial retrials confined to punitive damages. It is fair to say some lower courts have struggled to apply the Seventh Amendment standards set forth in Supreme Court precedent, and that the appeals courts have adopted divergent and irreconcilable approaches.

The Washington Legal Foundation submitted an amicus brief on this issue. In its brief urging the Supreme Court to grant review, WLF argued that the Seventh Amendment prohibits such partial retrials limited to punitive damages. WLF argued that the Seventh Amendment “right to trial by jury” has long been understood to constitute those jury trial rights that existed under the English common law when the Seventh Amendment was adopted in 1791. At common law there was no practice of setting aside a verdict in part. If the verdict was erroneous as to any issue, a new trial was directed as to all issues, so that all related issues could be decided by a single jury. Where the issue to be re-tried is related to issues already decided by the first jury, partial retrials create a danger that the second jury will be confused when told that some issues have already been decided.  WLF has argued that in this case the principal issue at any retrial on punitive damages (whether defendant acted sufficiently culpably in failing to provide stronger cancer warnings to merit a punitive award) is substantially similar to an issue decided in the first trial (whether it acted sufficiently culpably in failing to provide stronger cancer warnings to merit an award of compensatory damages).  The similarity of the two issues creates a significant danger of jury confusion, and the Seventh Amendment requires the plaintiff either to accept $2.7 million as her total compensation or to retry her entire case before a new jury.

WLF notes that considerable empirical evidence suggests that permitting partial retrials regarding punitive damages exacerbates the unpredictability of punitive damages awards. Moreover, the evidence suggests that permitting such partial retrials is a considerable disadvantage to tort defendants, who on average are likely to face larger monetary judgments than if a single jury considers all related tort claims.

Consumer Product Safety Commission Issues Draft Guidance on Definition of "Children's Products"

As readers know, much of the recent policy focus of the Consumer Product Safety Commission (as well as Congress) has been on the safety of products used by children. But what is a "children's product"?  The CPSC has announced it is issuing a proposed interpretive rule aimed at providing further guidance as to what constitutes a “children's product” to mitigate potential confusion among manufacturers about how to comply with the relevant new safety requirements, such as under the Consumer Product Safety Improvement Act.  The proposal would provide additional guidance on the factors that must be considered when evaluating what is a children's product. Written comments and submissions in response to this notice must be received by June 21, 2010.

Section 3(a)(2) of the CPSA (as amended by the CPSIA) defines a "children's product'' as a consumer product designed or intended primarily for children 12 years of age or younger. A determination of whether a product is a "children's product'' will be based on consideration of  four specified statutory factors, but because each of those four factors incorporates the concept of  "use'' by the child in some manner, under the proposed rule the Agency would further interpret the term "for use'' by children 12 years or younger to generally mean that children will physically interact with such products based on the reasonably foreseeable use and misuse of such product.

First factor: a manufacturer's statements about the product's intended use, including a label on such product; a manufacturer's statement that the product is not intended for children does not preclude a product from being regulated as a children's product if the primary appeal of the product is to children 12 years of age or younger. Similarly, a label indicating that a product is for ages 10 and up does not necessarily make it a children's product if it is a general use product. Such a
label may recommend 10 years old as the earliest age for a prospective user, not necessarily the age for which the product is primarily intended.

Second factor: if the product is represented in its packaging, display, promotion, or advertising as appropriate for use by children 12 years of age or younger. These representations can be express
(such as product advertising declaring that the product is for use by children 12 years of age or younger) or implied (such as product advertising showing the product being used by young children). These representations may be found in packaging, text, illustrations and/or photographs depicting consumers using the product, instructions, assembly manuals, or advertising media used to market the product. The prominence, conspicuousness, and or other emphasis given to each portrayal of a product's uses or intended users on packaging or in advertising media can be weighted differently according to which images or messages are the strongest and most obvious to the consumer at the point of purchase. For example, labeling in large, high contrast letters on the front of a package can send a stronger message than block letters in a small box on the package's side panel. Besides labeling and illustrations, a product's physical location in a retail outlet or visual associations in the pages of an on-line distributor's Web site could imply its suitability for a certain age group. The close association of a product in a store or on a Web site with other products that are clearly intended for children 12 years of age or younger could affect consumer perceptions of the intended age group for that product.

Third factor: whether a consumer product is designed or intended primarily for a child 12 years of age or younger is whether the product is commonly recognized by consumers as being intended for use by a child 12 years of age or younger. For example, traditional board and table games like chess, checkers, backgammon, playing cards, or Chinese checkers are commonly recognized as equally attractive to children and adults because the level of difficulty increases or decreases depending on the player's skill. Versions of these games, and similar games commonly considered by consumers to appeal to a general audience, are not considered children's products. However, if a manufacturer adds marketing portrayals or other features to the game or its packaging that make it more attractive to or suitable for children than a general use product would normally be, then the game could be  considered a children's product. Examples include small sizes that would not be comfortable for the average adult; exaggerated features (large buttons, bright indicators) that simplify the product's use by kids; safety features that are not found on similar products intended for adults; colors commonly associated with childhood (pinks, blues,
bright primary colors); features that do not enhance the product's utility, (such as cartoons), but contribute to its attractiveness to children 12 years of age or younger.

Fourth factor: the Age Determination Guidelines (``Guidelines'') issued by the CPSC staff in 2002, which focus on an age determination for a given product's intended user group,  The Guidelines provide information about the primary goals of play that are seen for different ages throughout childhood. For example, toddlers consistently want to mouth objects because mouthing is a primary strategy for exploration of any object at that age. Early  childhood entails lots of exploration and discovery. High levels of detail in their toys are not necessary, and toddlers like bright
colors. However, during middle childhood, children become very interested in role-playing, and they desire increasingly more realistic props during their playtime, and more realistic colors become
important. After a certain age, children do not consider the simplistic, brightly colored toys intended for toddlers to be intended for them and may find them very unappealing or even insulting. Nine to
12 year old children are interested in developing new motor skills and exercising their increasingly complex problem solving abilities. The factors that make various objects appealing to children of different ages are discussed at length in the Guidelines.

The proposed rules also offer examples in a number of product lines.

JPML Denies MDL Status to Pain Pump Litigation- Again

For the second time, the JPML has declined to consolidate the federal product liability cases involving pain pumps. In re Ambulatory Pain Pump-Chondrolysis Products Liability Litigation, J.P.M.L., MDL No. 2139 (4/14/10).

In the litigation, plaintiffs allege that they developed chondrolysis, i.e., damage to their joint cartilage, after pumps were used to directly send anesthetic into their shoulder joints following surgery.

In August, 2008 the Panel had denied the motion for centralization in MDL No. 1966, at at time the  docket involved a total of thirteen actions, as well as eighteen potential tag-along actions.  At that point, the panel noted that an indeterminate number of different pain pumps made by different manufacturers were at issue, as were different anesthetic drugs made by different pharmaceutical companies. Moreover, not all of the then-thirteen constituent actions involved pharmaceutical company defendants, and many defendants were sued only in a minority of those actions.

When the litigation grew to 102 actions in 26 districts, and 70 tag-alongs, the plaintiffs tried again. Most defendants opposed the renewed effort. But although the number of related actions had certainly grown, the Panel found that the issues that weighed against centralization in that earlier docket remain. An indeterminate number of different pain pumps made by different manufacturers are still at issue, as are different anesthetics made by different pharmaceutical companies. Most, if not all, defendants are named in only a minority of actions; and several defendants are named in but a handful of actions. Many actions involve no anesthetic manufacturers at all.

In the current litigation, individual issues of causation and liability continue to appear to  predominate, and remain likely to overwhelm any efficiencies that might be gained by centralization. Pain pumps come in different sizes and designs, with differing volume, duration, and flow capacities. The same anesthetic was not used in all surgeries. Plaintiffs have different medical histories (indeed, some have undergone more than one surgery involving a pain pump).

Third, said the Panel, the constituent actions are at widely varying procedural stages. In many, fact
discovery is either over or nearly over. The record showed that expert discovery is underway or has
been completed in a number of actions. It was also noted that while most plaintiffs supported the motion, others requested exclusion on the ground that their cases were too far advanced.

Thus, the Panel was not convinced that centralization would serve the convenience of the parties or promote the just and efficient conduct of the litigation taken as a whole.


 

Federal Court Sends Melamine Contamination Claims To China

A federal court recently sent back to China various Chinese families' product liability cases stemming from alleged melamine contamination of infant formula. See Tang v. Synutra International Inc., 2010 WL 1375373 (D. Md.).

Plaintiffs, one hundred Chinese citizens residing in China, brought suit on their own behalf as parents and on behalf of fifty-three minor children who allegedly suffered adverse health
conditions, predominantly the development of kidney stones, as a result of ingesting contaminated milk products produced by Defendants’ Chinese subsidiaries.  The principal place of business of both defendants, Synutra International, Inc., and Synutra, Inc., is in Maryland. Plaintiffs sought compensatory damages of at least $5.5 million for each child and $1.5 million for each parent, as well as a collective punitive damages award of $500 million. Defendants filed their motion to
dismiss on, inter alia,  the grounds of forum non conveniens.

In September 2008, the Chinese Administration of Quality Supervision, Inspection and
Quarantine (“AQSIQ”) initiated an emergency testing program of the country’s dairy supplies. Later that month, AQSIQ announced that certain lots of infant formula were found to have contained melamine, a chemical commonly used as an industrial component in plastics, adhesives, countertops, etc.  Melamine is not a food additive. It is not approved for human consumption.

By December 2008, approximately 300,000 Chinese infants were found to have ingested dairy products contaminated with melamine. Allegedly as a result, at least six infants have died and scores of others have required medical treatment for maladies associated with kidney damage. AQSIQ found varying amounts of melamine in sixty-nine batches of infant milk powder produced by several companies, including defendants' subs. In response to this crisis, the Chinese government, in conjunction with the China Dairy Industry Association, established a compensation program, funded by the dairy companies, that produced the contaminated milk products and totals approximately $160 million. It offered a lump-sum payment to the families of affected children, according to the extent of injury. To date, the families of approximately ninety-five percent of the injured children have reportedly accepted the remedies provided by the plan. Of those who have not, some have opted instead to bring suits in Chinese or U.S. courts.

The adequacy of the Chinese courts to adjudicate these suits was a significant point of contention between the parties; indeed, it was the critical factor of the forum non conveniens analysis in this case.

At the outset of any forum non conveniens inquiry, the court must determine whether there exists an alternative forum. The defendant bears the burden of establishing that the alternative forum is
available to all parties and that an adequate remedy is available to the plaintiff.  Although some courts conflate these issues, the availability and adequacy of the supposed forum are better seen as raising independent issues that warrant separate consideration by the court.

Ordinarily, a defendant can satisfy the availability element by showing that it is “amenable to process” in the alternative forum. Where the remedy offered by the alternative forum is so clearly inadequate or unsatisfactory that it is no remedy at all, however, the court may conclude that dismissal would not be in the interests of justice. Many courts have presumed the adequacy of the alternative forum and placed at least the burden of production on the plaintiff to establish otherwise.

Although plaintiffs here challenged both the availability and adequacy of the alternative forum to adjudicate their claims, there was no question in the court's mind that the Chinese forum was
available, since the defendant showed that it is “amenable to process” in the alternative forum.

Whether China constitutes an adequate forum was the primary issue in dispute. The dispute as to the adequacy of the Chinese forum boiled down to the competing declarations of the parties' China law experts. Defendants’ declarant opined that Chinese courts are adequate to resolve plaintiffs’ dispute and described that Chinese law provides causes of action for personal injury and products liability, a right to present evidence and argument in court, the power to compel witness testimony, and a right to appeal. Plaintiffs would be entitled to recover compensatory damages for expenses such as loss of income, related travel expenses, food subsidies, living expenses for dependents, as well as compensation for emotional damages, but not punitive damages.

Plaintiffs' experts claimed that “several volunteer milk attorneys” were summoned to a meeting held at the Beijing Bureau of Justice, a government entity, where an official demanded all attorneys to withdraw from representation on tainted-milk cases. The experts also asserted that the Chinese courts have denied litigants access to the courts, as well as the right to appeal an adverse ruling, because none of the complaints filed by contaminated-milk victims has been “either accepted or formally denied,”  resulting in the cases remaining perpetually in limbo. They also asserted that families of “seriously sickened children” receive $4,400, and “those suffering from other kidney problems” receive $292 under the government compensation scheme, and this is not “a legal remedy,” but rather “a settlement offer" made by the dairy companies,  In essence, plaintiffs asserted that the Chinese courts were deviating from normal process with respect to melamine claims and pressuring lawyers to withdraw representation of these claimants, thereby forcing the
unfortunate victims into a Hobson’s choice between pursuing futile litigation or accepting the "meager remedy" provided by the compensation program.

The court granted the motion, finding China an adequate forum.  The guiding principles included that the prospect of delay presented by the alternative forum does not typically render the alternative forum inadequate. The complaints had not yet been rejected in China. The court was not wiling to make the value judgment, on the basis of what it called limited evidence presented, that corruption in the Chinese judiciary would systematically deny access to a legal remedy there.  Courts have traditionally been reluctant to cast such aspersions on foreign judicial systems absent a substantial showing of a lack of procedural safeguards.

Second, even if the Chinese courts were not open to plaintiffs, another remedy was indisputably available to them, namely, the compensation program. While the plaintiffs characterized the
program as a “government-sanctioned settlement plan” from the companies that produced the contaminated milk products, as opposed to a legal remedy , they cited no authority for the proposition that the available remedy need be purely “legal” in nature. Regardless of whether it was enacted by the Chinese legislature or sanctioned by the judiciary, it is undisputed that the compensation program developed in China in the wake of the melamine contamination crisis was organized and sanctioned by government entities working in conjunction with the dairy industry and administered through an insurance provider.

Third, although the remedy offered by the compensation program was far less lucrative than what plaintiffs sought in the U.S., the courts have made clear, that the test is not to compare the rights, remedies, and procedures available under the law that would be applied in each forum to determine whether the law applied by the alternative forum is as favorable. 

Happy Birthday!

Happy Birthday to us. 

This week marks the second anniversary of the MassTortDefense blog.  In that time, I have posted nearly 500 stories from a defense counsel perspective, on product liability, toxic tort, and mass tort issues ranging from asbestos to zinc. 

Nearly 100,000 folks have dropped by to read a posting. I am very grateful for our readership, which rivals the readership of "A Brief History of Time" in intellect and the readership of "Harry Potter" in loyalty.  

 As always, comments and feedback are appreciated.

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Case of Successor Liability for Asbestos Exposure Claims

New York's highest court has ruled that a buyer assumed the liability for certain asbestos-related claims under a sale contract when it bought the boiler business of plaintiff American Standard Inc. back in 1970. American Standard Inc. v. Oakfabco Inc., 2010 WL 1286394 (N.Y., 4/6/10).

The court said that the issue here was whether the buyer of a boiler business assumed the seller's liabilities for tort claims based on boilers sold before the business was acquired, even where the tort claimants were not exposed/injured until after the acquisition. In 1970, American Standard, Inc. sold its Kewanee Boiler division to OakFabco, Inc. The parties entered an asset purchase and sale agreement in which the buyer assumed certain liabilities. The boilers manufactured by Kewanee had been insulated with asbestos, and as a result many tort claims were brought in the years and decades following the purchase of the business.

Some of those claims were brought by plaintiffs who had suffered injuries after the closing of the transaction, allegedly attributable to boilers manufactured and sold before the closing. In this declaratory judgment action brought by American Standard against OakFabco, the issue was whether liabilities for such injuries were among the liabilities that OakFabco assumed.  OakFabco argued that the definition of the liabilities OakFabco assumed was limited to "existing and outstanding” liabilities as of the Closing Date. According to OakFabco, a tort claim cannot be “existing and outstanding” before the tort plaintiff has been exposed and injured, because until then it is not possible for a tort lawsuit to be brought.

The court found, however, that the overall contract language meant that the buyer would deal with any problems customers had after the closing date with boilers that had been installed previously. It would have been absurd for OakFabco, said the court, to tell a customer whose boiler failed after the closing that, since the customer's claim was not “existing and outstanding” on the closing date, it was not OakFabco's problem. By including warranty, service, repair and return claims in the definition of liabilities, the parties demonstrated that they were not reading the words “existing and outstanding” as OakFabco now did.

The court therefore concluded that the liabilities assumed by OakFabco included claims brought by tort claimants injured after the closing date by boilers installed before that date.

The case is a timely reminder that an important aspect of evaluating the possible acquisition of a target company is the potential litigation liability that may be acquired simultaneously. If a target company is involved, or could potentially become involved, in mass tort litigation, it presents both risk and opportunity to the acquirer. The threat of this type of litigation may result in the opportunity to acquire a target at a below-market valuation multiple, and the uncertainty caused by mass tort exposure can result in valuation discounts that make the attendant risk acceptable. There are potentially significant risks, however, associated with mass tort litigation exposure, such as in asbestos, and thus buyers must proceed carefully. In the private equity context, in particular, mass tort litigation exposure can adversely impact the ability to secure third-party debt financing and can have an adverse impact on investment exit. Private equity purchasers may have shorter investment time frames than strategic buyers, and mass tort litigation often takes a substantial amount of time to resolve itself.

The general rule of law, and the typical structure of an asset purchase agreement, is that an acquirer of the assets of another corporation for cash does not acquire the liability for prior injuries caused by products sold by the target company prior to closing. It is crucial that the language be clearly drafted to reflect the parties' agreement on the allocation of such liability.

Even when the parties purport to allocate such liability to the target, however, the buyer may find itself responsible for the litigation through the operation of various legal doctrines that are exceptions to the general rule. The Restatement (Third) of Product Liability Law notes that a business entity that acquires assets of a predecessor business entity is subject to liability for harm caused by a defective product sold by the predecessor if the acquisition results from a fraudulent conveyance to escape liability for the liabilities of the predecessor, or results in the successor becoming a mere continuation of the predecessor. A few states also add the so-called “product line” exception, which allows a plaintiff to recover for injuries caused by a defective product sold by the predecessor in cases in which the successor corporation has continued the predecessor’s product line.

Thus, even in the absence of an actual merger or stock acquisition, or contract language assuming liability, it may be that a buyer of corporate assets will still face exposure to product litigation liability risks. Attempting to structure the deal to try to minimize the possible application of such theories will often be the first line of defense. In an asset sale, the buyer may also want to seek a provision that the seller shall not dissolve for some set period of time, so that the mass tort plaintiffs’ other remedies seemingly are not destroyed. Special indemnification by the seller for the underlying exposure is another alternative. This indemnification should survive for a sufficient period of time, and ideally would not be subject to a special cap higher than is typical for representations made by a “clean” company. The use of a special escrow to set aside funds for the litigation indemnification may be important.
 

Third Circuit Decides Wrongful Life Case

A federal appeals court has upheld a district court decision denying the product liability claims of a plaintiff against a tissue bank which allegedly sold defective sperm with a genetic mutation that allegedly caused her child's developmental disabilities. D.D. v. Idant Laboratories, 2010 WL 1257705  (3d Cir. 4/1/10). The case presents some of the interesting issues when traditional products doctrine confronts 21st century medical technology.

Plaintiff sought to be artificially inseminated with semen provided by defendant Idant. She selected the semen of a specific donor, and was told the specimen had been tested in conformity with New York Health Regulations. Following successful insemination, the child was born, but according to plaintiff, was soon displaying abnormalities such as “trouble sleeping, tantrums, and anxiety as well as developmental delays.”  Plaintiff found an expert who opined that there was a connection between the purchase from defendant and the child's developmental problems.

The district court dismissed the child's claims, under NY law, for strict products liability, third party beneficiary breach of express warranty, third party beneficiary breach of implied warranty of merchantability, and third party beneficiary breach of contract, as claims based on an impermissible "wrongful life theory."

Guided by the principle that, whether it is better never to have been born at all than to have been born with even gross deficiencies, is a mystery more properly to be left to philosophers and theologians, see Becker v. Schwartz, 46 N.Y.2d 401, 411, 413 N.Y.S.2d 895, 386 N.E.2d 807 (1978), New York courts have held that a cause of action may not be maintained on behalf of an infant plaintiff based on a claim of wrongful life. Sheppard-Mobley v. King, 4 N.Y.3d 627, 797 N.Y.S.2d 403, 830 N.E.2d 301, 305 (N.Y.2005).  Wrongful life cases pose particularly thorny problems of injury and in the damages context: “Simply put, a cause of action brought on behalf of an infant seeking recovery for wrongful life demands a calculation of damages dependent upon a comparison between the Hobson's choice of life in an impaired state and nonexistence. This comparison, the law is not equipped to make.” Becker, 46 N.Y.2d at 412, 413 N.Y.S.2d 895, 386 N.E.2d 807.

The Third Circuit agreed that regardless of whether a particular cause of action is denominated as one of contract, products liability, or something else, all of the claims on behalf of the child here suffered from the same legal defect: the lack of a cognizable injury. In arguing that the defective semen left the child impaired and in need of costly treatment, plaintiff was essentially saying that the genetic makeup was the injury. But New York law, which controlled here, states that she, like any other child, does not have a protected right to be born free of genetic defects. To find the contrary would invite litigation for any number of claimed injuries and, even more problematic, would require courts to identify certain traits below some arbitrarily established marker of perfection as “injuries.”  Accordingly, the court of appeals concluded that, applying New York law, the causes of action asserted failed to identify damages different from those for wrongful life.

If readers are interested in wrongful life issues, see also Daniels v. Delaware, 120 F. Supp. 2d 411 (D. Del. 2000); Reed v. Campagnolo, 810 F. Supp. 167 (D. Md. 1993), certifying questions to 630 A.2d 1145 (Md. 1993); Gildiner v. Thomas Jefferson Univ. Hosp., 451 F. Supp. 692 (E.D. Pa. 1978) (interpreting Pennsylvania law); Phillips v. United States, 575 F. Supp. 1309 (D.S.C. 1983) (interpreting South Carolina law); DiNatale v. Lieberman, 409 So. 2d 512 (Fla. Dist. Ct. App. 1982); Atlanta Obstetrics & Gynecology Group v. Abelson, 398 S.E.2d 557 (Ga. 1990); Blake v. Cruz, 698 P.2d 315 (Idaho 1984); Goldberg v. Ruskin, 499 N.E.2d 406 (Ill. 1986); Cowe v. Forum Group, Inc., 575 N.E.2d 630 (Ind. 1991); Bruggeman v. Schimke, 718 P.2d 635 (Kan. 1986); Taylor v. Kurapati, 600 N.W.2d 670 (Mich. Ct. App. 1999); Wilson v. Kuenzi, 751 S.W.2d 741 (Mo. 1988); Greco v. United States, 893 P.2d 345 (Nev. 1995); Smith v. Cote, 513 A.2d 341 (N.H. 1986); Karlsons v. Guerinot, 57 A.D.2d 73 (N.Y. App. Div. 1977); Azzolino v. Dingfelder, 337 S.E.2d 528 (N.C. 1985); Ellis v. Sherman, 515 A.2d 1327 (Pa. 1986); Nelson v. Krusen, 678 S.W.2d 918 (Tex. 1984); James G. v. Caserta, 332 S.E.2d 872 (W. Va. 1985). 

CPSC Chair Offers Comments on Database

U.S. Consumer Product Safety Commission Chairwoman Inez Tenenbaum testified last week at a  hearing before the U.S. Senate Subcommittee on Financial Services and General Government.  She noted that her agency was preparing to staff up for 2011 in anticipation of greater enforcement efforts under the Consumer Product Safety Improvement Act of 2008.  

Tenenbaum was seeking a slight increase in CPSC's approximately $118 million funding. She testified that the budget will allow CPSC to hire 46 new full-time employees, bringing total staffing staffing levels more than 1.5 times the complement as recently as in 2008.  Tenenbaum also noted that the CPSC would work closely with small businesses to ensure that CPSIA third-party verification requirements do not become a costly burden, by dedicating a business ombudsman to address concerns.

She testified that the CPSC is currently in the process of building the Consumer Product Safety Risk Management System, a Web-based database that is supposed to change the way CPSC collects, analyzes and deploys data about regulated products. She reiterated that the system is scheduled to be up and running by March 11, 2011.

We have posted about this database before.  And we had the opportunity to hear the Chair speak on the issue at the recent DRI Products Liability Annual Meeting.  She noted she understand the level of concern about the database.  The CPSC has issued a proposed notice of rulemaking on the database, and the recent Open Commission Briefing/Meeting on Public Database - Notice of Proposed Rules-making is available. To concerns from the manufacturing community about whether the database might allow for unconfirmed reports about their products, she noted that the CPSC does not want to publish inaccurate or confidential information. Every report of harm that is submitted will be reviewed by a member of the agency’s staff and, further, every report that identifies a manufacturer will be sent to that manufacturer, generally within 5 business days. She stressed the creation of a non-public manufacturer portal to speed receipt of and replies to these reports. She also stated that the agency will protect proprietary and confidential information from the companies.

While those goals are worthy, CPSC needs to develop a rigorous and timely process for addressing false and inaccurate reports-- those that will scare consumers, harm business, and generate no additional safety gains. The commission needs to employ means to prevent the submission of fraudulent reports of harm while not discouraging the submission of valid reports. CPSC also needs to think about specific disclaimers it should make with regard to the accuracy of the information contained in the public database, and not put any governmental imprimatur on voluntary data that has not been verified. A sufficient time period should also be allocated for manufacturers to evaluate and respond to any proposed report.

Seventh Circuit Issues Forum Non Conveniens Ruling

The Seventh Circuit has affirmed a district court's ruling which dismissed Taiwanese plaintiffs' claims against blood product manufacturers on statute of limitations and forum non conveniens grounds. Chang v. Baxter Healthcare Corp., 2010 WL 1136521 (7th Cir. 3/26/10).

Because my colleague Dave Walk was part of the winning defense team, just the facts here without alot of commentary. 

The case was filed originally in California by residents of Taiwan but transferred by the multidistrict panel to the district court in Illinois with the other suits in the clotting-factor mass tort for pretrial proceedings.  The main tort claim was that the defendants acquired blood from "high-risk" donors, processed it improperly in California where they manufactured clotting factors, and after discovering that the factors were contaminated by HIV nevertheless continued to distribute the product in foreign countries (while withdrawing them from distribution in the United States). Thus, plaintiffs in this case, or the hemophiliac decedents whom they represented, in fact resided, and obtained and injected the clotting factor, in a foreign country.

The court addressed first the claims that were dismissed as untimely. The critical issue so far as these dismissals on the merits were concerned, said the court, was choice of law. When a diversity case is transferred by the multidistrict litigation panel, the law applied is that of the jurisdiction from which the case was transferred, in this case California. The California statutes of limitations don't begin to run until the plaintiff discovers, or should in the exercise of reasonable diligence have discovered, that he has a claim against the defendant.  But this discovery rule, even if applicable, would not save the plaintiffs' tort claims from dismissal for untimeliness. Plaintiffs argued that they didn't have enough information on which to base a suit until a New York Times article about the contamination of clotting factors with HIV was published on May 22, 2003, and therefore that their suit, filed in 2004, was timely.  But as the district court found, the plaintiffs had a reasonable basis to suspect that they had a cause of action more than five years before the article appeared, when their counsel actually had begun negotiations with two of the defendants to settle negligence claims arising from the alleged contamination of the defendants' clotting factors with HIV. (These negotiations culminated in the settlement in 1998 on which the plaintiffs' breach of contract claim was based.)

The plaintiffs argued that the limitations period should have been tolled by defendants' “fraudulent concealment” because when entering into the settlement agreement they claimed that they had done nothing wrong and that they were offering financial aid purely as a humanitarian gesture. The plaintiffs were mistaken in this. Denial of liability when negotiating a settlement agreement is the norm; it is not evidence of fraudulent concealment of anything.

The district court was also correct in ruling in the alternative that a California court would apply the Taiwanese 10-year statute of repose, because the plaintiffs' tort claims arose under Taiwanese law. The hemophiliacs whom the plaintiffs represented were infected in the 1980s, more than a decade before these suits were brought. If the plaintiffs' tort claims arose in Taiwan, California law makes the Taiwanese statute of repose applicable to those claims. The reason is California's “borrowing” statute, which is sensibly designed to discourage forum shopping, would bar the action in California if it would have been barred in Taiwan. The plaintiffs tried to argue that their claims arose in California, not Taiwan, because it was in California that the defendants allegedly failed to process their clotting factors in a way that would prevent contamination by HIV. But generally there is no tort without an injury. That is the rule in California.  And the injury alleged occurred in Taiwan.

Turning to the claims that the district court dismissed not as untimely but on the basis, rather, of forum non conveniens, the court noted that the contract was negotiated and signed in Taiwan.  The key language at issue, the so-called scale-up clause, was ambiguous.  Evidence beyond the language of the settlement agreement would be necessary to "disambiguate the clause," said the court, and it seemed that most of the persons who are in a position to give such evidence live in Taiwan, including the plaintiffs' Taiwanese counsel who negotiated the settlement, a Taiwanese patient representative, members of the Taiwanese department of health, defendants' Taiwanese outside counsel, and an employee of defendants in Taiwan.

Taiwanese law makes it difficult to gather evidence for use in a trial in a foreign country because Taiwan is not a party to the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters; the alternative method of obtaining evidence in a foreign country, sending a letter rogatory to the foreign court, seemed to not be a very satisfactory means of obtaining evidence.  So this important factor pointed to Taiwan. The only circumstance that would favor holding the trial in California rather than in Taiwan would be the greater convenience for the defendants, since they are American companies. But as they didn't want the case to be tried in California, or indeed anywhere else in the United States, really there was nothing in favor of the American forum, said the court. When application of the doctrine of forum non conveniens would send the plaintiffs to their home court, the presumption in favor of giving plaintiffs their choice of court is little more than a tie breaker.  But, said the panel, "there is no tie here."

 

Safe Chemicals Bill Introduced in Senate

Sen. Frank R. Lautenberg, D-N.J., chair of the Senate Subcommittee on Superfund, Toxics
and Environmental Health, introduced this week the "Safe Chemicals Act of 2010," which would
amend the the Toxic Substances Control Act of 1976.

Over the last several months, Congress has held a series of hearings focusing on chemical safety and possible ways to modernize TSCA. Chemical business leaders, public officials, scientists, doctors, academics, and liberal environmental organizations have expressed support for varied methods of reforms to the principal toxic substance law. The “Safe Chemicals Act of 2010” comports with the reform principles laid out by the Obama Administration and groups such as the Safer Chemicals Healthy Families Coalition, and purports to address issues with TSCA identified by the GAO.

The bill (summarized here) is supposed to:

  • provide EPA with sufficient information to judge a chemical’s safety, by requiring manufacturers to develop and submit a minimum data set for each chemical they produce, while also preventing duplicative or unnecessary testing. EPA will have full authority to request additional information needed to determine the safety of a chemical.
  • Prioritize chemicals by having EPA categorize chemicals based on risk, and focus resources on evaluating those most likely to cause harm.
  • Place a new burden of proof on chemical manufacturers to prove the safety of their chemicals, including all foreseeable uses, before the chemical may enter the market or continue to be used.
  • Create more access to chemical information, by establishing a public database to catalog the information submitted by chemical manufacturers and the EPA’s safety determinations. The EPA will impose requirements to ensure the information collected is "reliable."
  • Promote innovation and development of green chemistry, through grant programs and research centers to foster the development of safe chemical alternatives, and bring some new chemicals onto the market using an expedited review process.


     

It is clear that safety must be the primary goal of chemical regulatory reform, and the scientific and technological advances made since the passage of TSCA should allow industry and the regulatory agency to achieve a high degree of safety.  Certainly,  the need to prioritize chemicals for evaluation, a proper risk-based approach to EPA safety reviews, and a reduction in animal testing, are all aspects that should generate bi-partisan support. However, the bill’s proposed decision-making standard may be both legally and technically impossible to meet. Readers know how the articulation and application of the burden of proof can be outcome determinative. It is impossible to prove that something is "safe,” if one means risk-free. Every substance, even water, is hazardous to health at some levels in some exposure contexts. It would be devastating for our economy if this bill was merely a back-door attempt to make the so-called precautionary principle the law in this country, as it is in Europe. It is simply scientifically false that every chemical that is dangerous at high doses is also hazardous at low doses;  it is patently false that every chemical that causes effects in lab animals will also cause those effects in human beings.

And the proposed changes to the new chemicals program could very well hamper innovation in new products, processes, and technologies. In addition, the bill undermines business certainty by appearing to allow states to adopt their own regulations and create a lack of regulatory uniformity for chemicals and the products that use them.

Congressmen Henry Waxman and Robert Rush have proposed a "discussion draft" on the House side, and that may afford an opportunity for a transparent and meaningful discussion by all key stakeholder groups to ensure that TSCA reforms are based on sound science and protect the safety of all consumers, while promoting jobs and innovation.  In these uncertain economic times, the last thing needed is another expensive government program that risks doing more harm than good.

 

Latest Round in Lipstick Wars Goes to Defendants

We previously posted about a case in which a federal judge threw out  a purported class action against L’Oreal USA Inc. and Procter & Gamble Distributing LLC that accused the companies of selling Cover Girl and Maybelline lipsticks containing lead. Koronthaly v. L’Oreal USA, Inc., et al., No. 07-5588 (D.N.J. July 29, 2008).

The U.S. Court of Appeals for the Third Circuit has affirmed the decision. Koronthaly v. L'Oreal USA,  No. 08-4625 (3d Cir. 3/26/10).

Koronthaly purchased lipstick products manufactured, marketed, and distributed by appellees L’Oreal. and P&G. She alleged these lipstick products contained lead. The FDA does not regulate the presence of lead in lipstick, but Koronthaly asserted that the lipstick contained lead in greater amounts than permitted in candy by the FDA. Koronthaly alleged that she did not know when she purchased the products that they contained any lead, and when she learned of the lead content she immediately stopped using them. Moreover, had she known of the lead she claims she would not have purchased the products.

To prove constitutional standing, said the court of appeals, a plaintiff must demonstrate (1) an injury-in fact that is actual or imminent and concrete and particularized, not conjectural or hypothetical, (2) that is fairly traceable to the defendant’s challenged conduct, and (3) is likely to be redressed by a favorable judicial decision. Summers v. Earth Island Inst., 129 S. Ct. 1142, 1149 (2009). In this case, standing foundered on the first requirement, injury-in-fact, said the court.

Koronthaly’s argument that she was misled into purchasing unsafe lipstick products was belied by an FDA report finding that the lead levels in the defendants’ lipsticks were not dangerous and therefore did not require warnings. Moreover, Koronthaly conceded that she has suffered no adverse health effects from using the lipsticks. Koronthaly therefore had to fall back on only a subjective allegation -- that the trace amounts of lead in the lipsticks were unacceptable to her, not an injury-in-fact sufficient to confer Article III standing. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 564 (1992)(injury-in-fact must be accompanied by “continuing, present adverse effects”); Georgine v. Amchem Prods., Inc., 83 F.3d 610, 636 (3d Cir. 1996) (Wellford, J., concurring) (“Fear and apprehension about a possible future physical or medical consequence . . . is not enough to establish an injury in fact.”).

Furthermore, to the extent that Koronthaly contended that the injury-in-fact was the loss of her “benefit of the bargain,” she mistakenly relied on contract law, said the court. See Rivera v. Wyeth-Ayerst Labs., 283 F.3d 315, 319-21 (5th Cir. 2002) (plaintiff, whose only claim was that she “would like her money back” for having purchased a product that failed to make certain disclosures and allegedly was defective, did not have an injury-in-fact sufficient to create standing). Her lipstick purchases were not made pursuant to a contract involving lead levels, and therefore she could not have been denied the benefit of any bargain. Absent any allegation that she received a product that failed to work for its intended purpose or was worth objectively less than what one could reasonably expect, Koronthaly had not demonstrated a concrete injury-in-fact.

The dismissal was affirmed. In the lipstick wars, attention now will focus on Stella v. LVMH Perfumes and Cosmetics USA Inc., N.D. Ill., No. 1:07-cv-06509, dismissed 4/3/09; which is currently on appeal before the Seventh Circuit.
 

 

District Courts May Need to Conduct Full Daubert Inquiry Before Class Certification Decision

The Seventh Circuit issued a very interesting opinion on the interplay of class certification and Daubert issues. American Honda Motor Co., Inc. v. Allen, 2010 WL 1332781 (7th Cir., April 7, 2010).  Specifically, the defendant asked the court to resolve whether the district court  must conclusively rule on the admissibility of an expert opinion prior to class certification when that opinion is essential to the certification decision. Since this is the type of question that Rule 23(f) was designed to address, the court of appeals took the appeal -- and agreed with Honda. 

Plaintiffs were purchasers of Honda's Gold Wing GL1800 motorcycle; they alleged that the motorcycle has a design defect that prevents the adequate dampening of “wobble,” that is, side-to-side oscillation of the front steering assembly. Plaintiffs moved for class certification pursuant to Rule 23(b)(3). To demonstrate the predominance of common issues, they relied heavily on a report prepared by a motorcycle engineering expert, who opined about a "reasonable wobble decay" standard. Honda moved to strike the report pursuant to Daubert, arguing that this wobble decay standard was unreliable because it was not supported by empirical testing, was not developed through a recognized standard-setting procedure, was not generally accepted in the relevant scientific, technical, or professional community, and was not the product of independent research.

The district court said that it had "definite reservations" about the reliability of the expert's wobble decay standard. Nevertheless, the court declined to exclude the report in its entirety "at this early stage of the proceedings.”  The trial court denied Honda's motion to exclude “without prejudice,”  and granted plaintiffs' motion for class certification.

The 7th Circuit has already noted that a district judge may not duck hard questions by observing that each side has some support. Tough questions must be faced and squarely decided, if necessary by holding evidentiary hearings and choosing between competing perspectives. But the court had not yet specifically addressed whether a district court must resolve a Daubert challenge prior to ruling on class certification if the testimony challenged is integral to the plaintiffs' satisfaction of Rule 23' s requirements.  Here, it did hold that when an expert's report or testimony is critical to class certification, as it was in this case, a district court must conclusively rule on any challenge to the expert's qualifications or submissions prior to ruling on a class certification motion. That is, the district court must perform a full Daubert analysis before certifying the class if the situation warrants. If the challenge is to an individual's qualifications, a court must make that determination by comparing the area in which the witness has superior knowledge, skill, experience, or education with the subject matter of the witness's testimony. The court must also resolve any challenge to the reliability of information provided by an expert if that information is relevant to establishing any of the Rule 23 requirements for class certification.

Here, while the trial court began to ask the right questions, it never finished. The court's effective statement of admissibility left open the questions of what portions of the expert's testimony it may have decided (or will decide) to exclude, whether the expert reliably applied the standard to the facts of the case, and, ultimately, whether plaintiffs had actually satisfied Rule 23(b)(3)'s predominance requirement -- because they relied on the expert opinions. As a result, the district court never actually reached a conclusion about whether the expert report was reliable enough to support plaintiffs' class certification request.  This was not sufficient. Indeed, it was an abuse of discretion, according to the court of appeals.

The court went on to examine the record, which revealed to it that exclusion was the inescapable result when the Daubert analysis is carried to its conclusion. The expert originally developed the standard for use in a lawsuit in which he testified as an expert against Honda; despite its publication in one journal, there is no indication that this wobble decay standard had been generally accepted, or indeed, accepted by anyone other than this author. The expert never conducted any rider confidence studies to determine when motorcycle riders perceive wobble, or performed any tests to determine the minimal wobble amplitude at which riders detect oscillation.  He did test a single, used 2006 GL1800, ridden by a single test rider, but then extrapolated his conclusions to the entire fleet of GL1800s produced from 2001 to 2008 -- arguably too small a sample size from which reliable extrapolations can be made. 

The court therefore granted Honda's petition for leave to appeal, vacated the district court's denial of Honda's motion to strike and its order certifying a class, and remanded for proceedings consistent with this opinion.

 

FDA Proposes Regs on Direct-to-Consumer Prescription Drug Ads

The Food and Drug Administration has proposed to amend its regulations concerning direct-to-
consumer (DTC) advertisements of prescription drugs. Specifically, the proposed rule would implement a new requirement of the Federal Food, Drug, and Cosmetic Act, added by the Food and Drug Administration Amendments Act of 2007 (FDAAA), that the major statement in DTC television or radio advertisements relating to the side effects and contraindications of an advertised prescription drug intended for use by humans be presented in a clear, conspicuous, and neutral manner. See 75 Fed. Reg. 15,376 (3/29/10). FDA is also proposing standards that the agency would consider in determining whether the major statement in these advertisements is presented in the manner required by FDAAA.

Readers of MassTortDefense know how DTC ads have impacted products litigation, from effects on the learned intermediary doctrine, to influence on the jury pool, to forming part of the basis of substantive information-based claims.

Under the current regulations the presentation of risk information in an advertisement for a prescription human or animal drug is required to be comparable in prominence and readability to the presentation of effectiveness information in the advertisement. If an advertisement presents effectiveness information in a clear and conspicuous manner, risk information is required to be presented in a comparable manner.  The new proposal would require disclosure of the major side effects and contraindications of the drug in a clear, conspicuous, and neutral manner, regardless of the manner in which effectiveness information is presented in the advertisement.

The proposed regulations would define the required clear, conspicuous, and neutral manner, as being met if:

1. Information is presented in language that is readily understandable by consumers;
2. Audio information is understandable in terms of the volume, articulation, and pacing used;
3. Textual information is placed appropriately and is presented against a contrasting background for sufficient duration and in a size and style of font that allows the information to be read easily; and
4. The advertisement does not include distracting representations (including statements, text, images, or sounds or any combination thereof) that detract from the communication of the major
statement.

FDA said it recognizes that these standards require judgment in their application. Therefore, the agency does not intend to prescribe a set formula for ‘‘clear, conspicuous, and neutral’’ major
statements because there is more than one way to achieve these standards in a television or radio ad. FDA intends to be flexible enough to consider the variety of techniques sponsors may use to appropriately convey required risk information in prescription drug ads. Sponsors have the flexibility to be creative in designing their ads as long as all of the standards listed here are complied with such that the major statement is communicated effectively to consumers and the overall message
that the advertisement conveys to consumers is accurate and non-misleading.

Comments on the proposed rule are due by June 28, 2010.

Upcoming Drug and Medical Device Seminar

DRI’s Drug and Medical Device Committee will hold its 26th annual Seminar on May 20-21, 2010, at the San Francisco Marriott, in San Francisco, California.

The Seminar is one of the best of its kind, highly useful to practitioners who represent pharmaceutical and/or medical device manufacturers. This year's Seminar will feature a number of nationally recognized attorneys, both in-house and outside counsel, who will address cutting-edge topics that are relevant to all who practice in this area, whether they are associates, lead trial counsel, or in-house counsel.

This year’s program will offer a mixture of presentations, such as trial skills demonstrations, panel discussions, and individual presentations from leaders in their practice areas. In addition to the outstanding program, there will be numerous networking opportunities, including the annual Young Lawyers Blockbuster. 

See the Seminar Brochure to register or to learn additional information. The advanced registration deadline is April 30, 2010.
 

Supreme Court Decides Class Action Erie Question- But Did They Answer the Question?

The U.S. Supreme Court last week ruled that certain state laws barring class actions cannot be utilized to dismiss such class actions in federal court. Shady Grove Orthopedic Associates PA v. Allstate Insurance Co., 2010 WL 1222272 (3/31/10).

The appellant, Shady Grove Orthopedic Associates PA, had sought to bring a $5 million class action against Allstate Insurance seeking penalties for interest on claims under no-fault accident insurance policies that the insurer allegedly paid late. The policy was governed by New York state law. And the Eastern District of New York found that a New York state law prohibited Shady Grove from bringing a class action. The law prohibits plaintiffs from recovering state statutory penalties in class actions unless class proceedings are authorized in the statute.

State substantive (contract) law governed the case, but since the case was in federal court under diversity jurisdiction, Rule 23 applied to the procedural aspects of the class action.  So how to deal with the fact that New York law does not allow such a lawsuit to seek to recover a penalty as part of the remedy? The lower courts ruled that New York’s ban on such a remedy controlled in federal court, too, because Rule 23 is only a procedural rule, while the New York law limiting the remedy was substantive.  (Remember Erie from civil procedure class?) The district court found that the interest Shady Grove sought to recover was a “penalty” under the statute, precluding a class action in the federal court, and the U.S. Court of Appeals for the Second Circuit affirmed.

In a majority opinion joined by four other justices, Justice Scalia wrote that F.R.C.P. 23, and not state law, is the controlling authority on whether this class action could be filed in federal court.  New York’s law and Rule 23, that opinion said, are directly contradictory in  that both purport to control whether the class action lawsuit could be pursued in federal court.  The Court rejected the Second Circuit's belief that § 901(b) and Rule 23 do not conflict because they address different issues: that is, the lower court thought Rule 23 concerned only the criteria for determining whether a given class can and should be certified; section 901(b), on the other hand, addresses an antecedent question, thought the lower court, whether the particular type of claim is eligible for potential class treatment in the first place.

But Rule 23 prevails if there is such a conflict.  Rule 23 provides a one-size-fits-all formula for deciding the class-action question, said Justice Scalia.  If Rule 23’s specific terms are met, the class action case may proceed, because the federal rules empower a federal court to certify a class in every case where the Rule 23 criteria are met. “Rule 23 unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Rules’ prerequisites are met. We cannot contort its text, even to avert a collision with state law that might render it invalid.”  By its terms ,this provision creates a categorical rule entitling a plaintiff whose suit meets the specified criteria to pursue his claim as a class action.

The Scalia group rejected Allstate's point that allowing Shady Grove to sue on behalf of a class transforms the dispute over a five hundred dollar penalty into a dispute over a five million dollar penalty. First, Allstate's aggregate liability, said the opinion, does not depend on whether the suit proceeds as a class action. Each of the 1,000-plus members of the putative class could (as Allstate acknowledged) bring a freestanding suit asserting his individual claim. More fundamentally, said Justice Scalia, the substantive nature of New York's law, or its substantive purpose, makes no difference. A Federal Rule of Procedure is not valid in some jurisdictions and invalid in others, or valid in some cases and invalid in others-depending upon whether its effect is to frustrate a state substantive law (or a state procedural law enacted for substantive purposes).


In her dissent, Justice Ginsburg worried that the majority ruling would frustrate the intent of
the Class Action Fairness Act of 2005 by making it easier to file class actions. And the decision may give plaintiffs an incentive to file class actions in federal rather than state courts, at least where the latter may apply state laws limiting class actions. But the majority found that the short of the matter is that a federal rule governing procedure is valid whether or not it alters the outcome of the case in a way that induces forum shopping. The majority rejected the dissent's apparent approach of determining whether state and federal rules conflict based on the subjective intentions of the state legislature as an enterprise destined to produce “confusion worse confounded.”

The decision came on a 5-4 vote, but the complex of opinions means only that New York may not bar this particular class action lawsuit in federal court when a federal court procedural rule allowed it. Justice Stevens wrote that he was joining only for “this case.”  In the remainder of the Stevens’ concurring opinion, he made it clear that he disagreed with Justice Scalia on the general question of whether federal courts, applying what they considered to be federal procedural rules in a state-law case, would always trump a state rule.  In particular, Justice Stevens was worried about a situation in which a state law that is procedural is so intertwined with a state right or remedy that it actually defines the scope of the state-created right.  His reading of the Rules Enabling Act was that federal courts may not craft procedural rules that modify “any substantive right.” Of course, the mere chance that a federal rule would intrude on such a right or remedy, he said, is not sufficient.

Justice Scalia responded that the test the Court has applied has always been whether the federal rule really regulates procedure, the judicial process for enforcing rights and duties recognized by substantive law and for justly administering remedy and redress for disregard or infraction of them. The test is not whether the rule affects a litigant's substantive rights; most procedural rules do. What matters is what the rule itself regulates: If it governs only the manner and the means by which the litigants' rights are enforced, it is valid; if it alters the rules of decision by which the court will adjudicate those rights, it is not.

We probably haven't heard the last of this debate.

 

Federal Court Dismisses Device "Consumer" Claims

A federal court last month dimissed claims by plaintiffs concerning hip implants, with an analysis important for other consumer protection-type class action claims. Watkins v. Omni Life Science, Inc., 2010 WL 809820 (D.Mass. 2010).

Plaintiffs were recipients of the Apex Model Replacement Hip. Although neither plaintiff alleged an Apex Hip malfunction, they claimed that the allegedly relatively high rate of failure of the Apex Hip placed them and members of the proposed class at serious risk of future harm.  The failure rate was also alleged to have diminished the market value of their hip implants and those of the putative class members. Plaintiffs claimed that they would not have selected the model Hip over other alternative devices but for the representations made by the defendant manufacturer. Plaintiffs asserted claims for breach of implied warranty, breach of contract, unjust enrichment and constructive trust, violations of the Massachusetts consumer protection statute, and violations of the consumer protection laws of all other states (for the class).

Omni filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), arguing that no legally cognizable injury was pled in any of plaintiffs' claims. Plaintiffs' reply argument, as is typical, was a benefit of the bargain theory. Plaintiffs claimed that an accident-related injury or a manifested defect need not be shown as a predicate of recovery on their consumer claims. They claimed that their sufficient injuries consisted of: (1) the apprehension caused by the prospect of an increased risk of hip failure and (2) the extra money that they paid for an overvalued Apex Hip.

First, the court said, although plaintiffs' claims were styled as contract and breach of warranty claims, they actually were tort allegations. A plaintiff cannot disguise a tort claim with mere contract langauge. In Massachusetts, the economic loss doctrine applies, and purely economic losses cannot be recovered in tort or product liability actions in the absence of personal injury or property damage. The court added that the economic loss rule applied to the plaintiffs' consumer protection act claims as well.

As tort claims, plaintiffs failed to allege sufficient injury. Apprehension of a heightened risk stemming from an allegedly defective product that has not failed or caused harm to this plaintiff is insufficient as a matter of law to support a claim. See Anderson v. W.R. Grace & Co., 628 F.Supp. 1219, 1231 n. 6 (D.Mass.1986) (“The weight of authority would deny plaintiffs a cause of action solely for increased risk because no ‘injury’ has occurred.”). Plaintiffs' overpayment argument was also based on a theory of economic loss that has no place in a tort context. See Iannacchino v. Ford Motor Co., 451 Mass. 623, 633, 888 N.E.2d 879 (2008).

To the extent an allegation sounding in fraud was underlying some of the claims, read in the aggregate, the court found that Omni's alleged misrepresentations, as pled, lacked the capacity to mislead consumers, acting reasonably under the circumstances, to act differently from the way they otherwise would have acted. Under Rule 9b, in alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.  This was not done.

 

Fifth Circuit Affirms Exclusion of Plaintiff's Causation Experts

A federal appeals court recently affirmed a judgment for the maker of a drug used to treat Parkinson's disease in litigation alleging that the drug caused plaintiff's compulsive gambling.  Wells v. SmithKline Beecham Corp., 2010 WL 1010591 (5th Cir. 2010).

Wells sued GlaxoSmithKline, the manufacturer of Requip, alleging that GSK had failed to warn patients about the alleged side effect of pathological gambling.  For Wells to win under Texas law,  he had to show that the failure to warn caused his injury.  Causation has two levels, general and specific, and a plaintiff must prove both. General causation is whether a substance is capable of causing a particular injury or condition in the general population, while specific causation is whether a substance caused a particular individual's injury. Sequence matters, said the 5th Circuit: a plaintiff must establish general causation before moving to specific causation. Without the predicate proof of general causation, the tort claim fails.

Wells engaged three expert witnesses to address general causation, that the drug supposedly could cause pathological gambling. In reaching their conclusions, the experts relied upon: (1) published articles documenting case-specific correlations between Requip and gambling; (2) a single unpublished study allegedly showing a nexus between Parkinson's medicines generally and gambling; (3)  internal data supposedly revealing case-specific associations between Requip and gambling; and (4) the fact that GSK has since changed the Requip label to warn about possible gambling side-effects. (Of course, on the last point a regulatory agency can require a warning based on a lesser level of proof than is required to recover in a tort action.) Defendant challenged the evidence under Daubert, and the district court granted summary judgment.  Plaintiff appealed.

Readers know that Daubert requires admissible expert testimony to be both reliable and relevant.  This entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.  Although there are “no certainties in science,” the expert must present conclusions grounded in the methods and procedures of science.  In short, the expert must employ in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.

The court of appeals found that each of the three experts had, in deposition, in essence conceded that there exists no scientifically reliable evidence of a cause-and-effect relationship between Requip and gambling, that the state of the art was mere association, not cause.  That alone would doom the plaintiff's case.

But more interesting for readers is when the court went on, in the alternative, to address the methodologies and fit. 

The studies relied on were, each expert conceded, not statistically significant epidemiology. They were, in fact, case studies. Although case-control studies are not per se inadmissible evidence on general causation,  the courts have frowned on causative conclusions bereft of statistically significant epidemiological support. While the court agreed that in epidemiology hardly any single study is ever conclusive, and it did not suggest that an expert must back his or her opinion with multiple published studies that unequivocally support his or her conclusions, here there was simply too great an analytical gap between the data and the opinion proffered.  Bottom line-- the bases for the experts' conclusions passed none of the applicable Daubert factors: that Requip causes problem gambling is not generally accepted, has not been subjected to peer review and publication, and is not backed by studies meeting requisite scientific standards.

Without the expert testimony, Wells could not prove general causation.  Here's a useful quote:  "Wells urges the law to lead science -- a sequence not countenanced by Daubert."  See also Rosen v. Ciba-Geigy Corp., 78 F.3d 316, 319 (7th Cir.1996) (“Law lags science; it does not lead it.”).

 

Chamber Releases State Liability Systems Ranking Study

The Institute for Legal Reform of the U.S. Chamber of Commerce has released its 2010 State Liability Systems Ranking Study.  The study was conducted for the U.S. Chamber to explore how reasonable and balanced the states’ tort liability systems are perceived to be by U.S. business. Participants in the survey were comprised of a sample of 1,500 in-house general counsel, senior litigators or attorneys, and other senior executives who indicated they are knowledgeable about litigation matters at companies with at least $100 million in annual revenues.

The 2010 ranking builds on seven previous surveys in which all 50 states were ranked by those familiar with the litigation environment in that state.  The State Liability Systems Ranking Study basically aims to quantify how corporate attorneys view the state systems.  Overall, more than two in five (44%) senior attorneys view the fairness and reasonableness of state court liability systems in America as excellent or pretty good, up slightly from the last survey in 2008 (41%).  A majority
(56%) view the systems as only fair or poor. Two-thirds (67%) report that the litigation environment in a state is likely to impact important business decisions at their companies, for instance, where to locate or do business, an increase from 63% in 2008 and 57% in 2007.

Respondents were asked to give jurisdictions a grade (A, B, C, D or F) in each of the following areas:

  • Having and enforcing meaningful venue requirements;
  • Overall treatment of tort and contract litigation;
  • Treatment of class action suits and mass consolidation suits;
  • Damages;
  • Timeliness of summary judgment or dismissal;
  • Discovery;
  • Scientific and technical evidence;
  • Judges’ impartiality;
  • Judges’ competence; and
  • Juries’ fairness.

These elements were then combined to create an overall ranking.

The worst jurisdiction in the survey was Chicago/Cook County, Illinois,  followed by Los Angeles,
California, the state of California in general, the state of  Texas in general, and Madison County, Illinois.  Your humble logger's home turf of Philadelphia was ranked 13th worst.

The best? Survey says:

1. Delaware
2. North Dakota
3. Utah
4. Nebraska
5. Iowa