Expert May Be Needed on Design Defect, Even Under Consumer Expectations Test

Back when we taught Products Liability in law school, one of the topics that always got significant attention and discussion from the bright-eyed students was how to define "defect." The panoply of tests for defective or unreasonably dangerous products never failed to excite discussion, particularly the role of consumer expectations in product assessment.

That same topic is the focus of an interesting recent decision in the Seventh Circuit. See Show v. Ford Motor Co., Nos. 10-2428 and 10-2637 (7th Cir.,  9/19/11).

Plaintiffs were involved in a motor vehicle accident in a 1993 Ford Explorer;  they sued Ford, alleging design defect. In products liability cases in which the plaintiff alleges a design defect, Illinois (whose law supplied the substantive rules) permits the claim to be established in either
of two ways. First, the plaintiff may introduce evidence that the product failed to perform as safely as an ordinary consumer would  expect when used in an intended or reasonably foreseeable manner. This has come to be known as the consumer expectation test. Second, the plaintiff may introduce evidence that the product’s design proximately caused his injury, when the benefits of the challenged design do not outweigh the risk of danger inherent in such design. This test, which adds the balancing of risks and benefits to the alternative design and feasibility inquiries, has come to be known as the risk-utility or risk-benefit test.

Here, plaintiffs proceeded under the first prong, and offered no expert opinion. Ford moved for summary judgment in light of the absence of expert testimony. Plaintiffs conceded that testimony by an engineer or other design expert was essential when a claim rests on the risk-utility approach. But, they argued that jurors, as consumers, can find in their own experience all of the necessary opinions under the consumer expectation test. The district court sided with the defense, and plaintiffs appealed.

The court first discussed a very interesting preliminary question. The parties assumed, as did the lower court, that state law in this diversity case determined whether expert testimony was essential. The assumption rested on a belief that the quality of proof is part of the claim’s substantive elements, which in turn depend on state law under the Erie doctrine even when substantive doctrine is implemented through federal evidentiary rules.  However, there was a question whether Illinois treats the risk-utility and consumer expectations approaches as distinct substantive law doctrines, or merely as procedural aspects of the general question: is the product unreasonably dangerous. Perhaps the two tests are not theories of liability; they could be considered methods of proof by which a plaintiff may demonstrate that the element of unreasonable dangerousness is met.  If the consumer expectation test is not an independent theory of liability, perhaps federal rather than state law determines whether expert evidence is essential on it. Federal law often requires expert evidence about consumers' knowledge and behavior, because jurors are supposed to decide on the basis of the record rather than their own intuitions and assumptions. If federal courts require expert evidence, rather than relying solely on jurors' experience, in trademark and credit suits, for example, why not in product defect cases, asked the court?  But the court decided to bypass the question, in light of the parties' positions below. 

Turning to the consumer expectations issue, the court felt that plaintiffs’ argument that jurors should be able to rely on their own expectations as consumers reflected a belief that “expectations” are all that matters. Yet because the consumer expectations approach is just a means of getting at some of the issues that bear on the question whether a product is unreasonably dangerous, it is impossible to dispense with expert knowledge, concluded the panel.  The design defect is tied up in the issue of causation. Did the design decisions that went into the 1993 Ford Explorer even contribute to the rollover? Causation is a question about physics, and design options are the province of engineers. Jurors own cars, but people own lots of products without being able to explain (or even understand) the principles behind their construction and operation.  Unguided intuitions will not solve the equations. Without an expert’s assistance the decision would depend on speculation, which cannot establish causation—an issue on which plaintiffs bear both the burden of production and the risk of non-persuasion.

Because consumer expectations are just one factor in the inquiry whether a product is unreasonably dangerous, a jury unassisted by expert testimony would have to rely on speculation. The record here did not show whether 1993 Explorers were unduly (or unexpectedly) dangerous, because the record (absent an expert) lacked evidence about many issues, such as: (a) under what circumstances they roll over; (b) under what circumstances consumers expect them to do so whether it would be possible to reduce the rollover rate; and (d) whether a different and safer design would have averted this particular accident. All of these are subjects on which plaintiffs bear the burden of proof. There are other issues too, such as whether the precautions needed to curtail the rate of rollovers would be cost-justified.

The absence of expert evidence on these subjects was fatal to plaintiffs’ suit.

 

Don't Forget the Cocktail Sauce: Second Circuit Tosses Shrimp Tray Class Action

We have warned readers of MassTortDefense of the alarming trend of plaintiff lawyers seeking to attack every aspect of a product's packaging and labeling as somehow a case of consumer fraud -- often ignoring common sense in the process.

The latest example comes from a case rightly rejected by the Second Circuit last week. See Verzani v. Costco Wholesale Corp., No. 10-04868, 2011 WL 4359936  (2d Cir., Sept. 20, 2011).

Plaintiffs brought a putative class action against Costco Wholesale Corp. over the size of its "shrimp trays." (We love em, especially for football parties.) Plaintiffs claimed that the wholesaler misled customers by labeling its shrimp trays as 16 ounce trays when the shrimp part of the tray itself only weighed about 13 1/2 ounces. The other few ounces were allegedly made up of  the cocktail sauce and lemon wedges. (We pause and ask, how can you eat shrimp without those two accompaniments?)

The case had a somewhat lengthy procedural history, with issues of preliminary injunctions, choice of law, motions to dismiss, and jurisdiction, in play; the class issue was never reached. In relevant part, the trial court dismissed the claims in 2009, concluding that the plaintiffs' contention that a “reasonable consumer” would not assume that the net weight of the product included the cocktail sauce and other (useful and edible) elements was not well founded. The district court later denied the plaintiffs' motion to amend, 2010 WL 3911499 (S.D.N.Y.), noting that a reasonable consumer would not believe that the net weight disclosed on the label for the shrimp tray refers to only the shrimp. The label lists the ingredients in descending order based on their relative weight --shrimp, lemon wedges, leaf lettuce -- followed by a number of ingredients that comprise the cocktail sauce, such as, tomato paste, distilled vinegar, and horseradish; it clearly states “Net WT 160z (1.00 lb).”

Verzani's interpretation of “net weight” as including 16 ounces of shrimp alone was objectively unreasonable; a simple visual inspection of the tray, with its clear plastic top,  would reveal that shrimp is not the only edible item inside. In fact, the product's name alone, “Shrimp Tray with Cocktail Sauce,” suggested that a consumer (at a minimum) is purchasing shrimp and cocktail sauce. A reasonable consumer reading the tray's label would not pick out “shrimp” to the exclusion of all the information on the label (including the product's name and the listed ingredients) when assessing the net weight of the product.

Plaintiffs appealed, but in a summary order, the panel found that court had been right to throw out the case and deny the motion to file an amended complaint.

Ninth Circuit Applies Dukes

The Ninth Circuit issued an interesting class action decision applying several of the key aspects of the recent Supreme Court decision in Wal–Mart Stores, Inc. v. Dukes.  See Ellis v. Costco Wholesale Corp., 2011 WL 4336668  (9th Cir. 2011).

The case was a gender discrimination claim; while we don't focus on labor law here at MassTortDefense, the Rule 23 guidance is instructive generally for many of our class action cases.

The district court certified the class, which alleged gender discrimination, and Costco appealed. Let's focus on three instructive aspects of the Ninth Circuit's analysis.

The trial court had found the commonality prerequisite, but the court of appeals noted that it is insufficient for plaintiffs to merely allege a common question. See Wal–Mart, 131 S.Ct. at 2551–52. Instead, they must pose a question that “will produce a common answer to the crucial question.” Id. at 2552; see also id. at 2551 (“What matters to class certification is not the raising of common ‘questions' ... but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.”). In other words, plaintiffs must have a common question that will connect many individual promotional decisions to their claim for class relief.

In thinking about common issues, some courts have remained reluctant to delve into the merits of the claims. The Ninth Circuit reminds us that it is not correct to say a district court may consider the merits to the extent that they overlap with class certification issues; rather, a district court must consider the merits if they overlap with the Rule 23(a) requirements. Here, the defendant challenged the admissibility of the plaintiffs' experts' opinions, and the district court seemed to have confused the Daubert standard with the distinct “rigorous analysis” standard to be applied when analyzing commonality. Instead of judging the persuasiveness of the evidence presented about commonality, the district court seemed to end its analysis of the plaintiffs' evidence after determining such evidence was merely admissible. To the extent the district court limited its analysis of whether there was commonality to a determination of whether plaintiffs' evidence on that point was admissible, it did so in error.

(Specifically, while plaintiffs alleged nationwide discrimination, their proof seemed to show great variation in defendant alleged conduct by region. Plaintiffs would face an exceedingly difficult challenge in proving that there were questions of fact and law common to the proposed nationwide class, but the district court failed to engage in a “rigorous analysis” on this point.)

Next is typicality. Costco argued that plaintiffs could not satisfy the typicality requirement because each of the named plaintiffs' respective discrimination claims were subject to unique defenses. The district court rejected this argument and held that, as a general matter, individualized defenses do not defeat typicality. This was also error. A named plaintiff's motion for class certification should not be granted if there is a danger that absent class members will suffer if their representative is preoccupied with defenses unique to him or her. A unique background or factual situation may require a named plaintiff to prepare to meet defenses that are not typical of the defenses which may be raised against other members of the proposed class. 

Third, the court examined the effort of plaintiffs to get damages in a 23(b)(2) class. The prior thinking was that in Rule 23(b)(2) cases, monetary damage requests might be allowable if they were merely incidental to the litigation, but "this standard has been called into doubt by the Supreme Court" in Wal–Mart, 131 S.Ct. at 2560. The Supreme Court rejected the “predominance” test for determining whether monetary damages may be included in a 23(b)(2) class certification. Id. at 2559. Instead of considering the amount of the damages sought or the subjective intent of the class members seeking relief to determine if injunctive relief “predominates,” the first relevant inquiry, said the Ninth Circuit, is what procedural safeguards are required by the Due Process Clause for the type of relief sought. Id. at 2557–58.

While rule 23(b)(3) arguably expanded the breadth of possible class actions, it also expanded the procedural protections afforded the class. Unlike classes certified under Rule 23(b)(1) or (b)(2), a(b)(3) class is not mandatory. Instead, putative class members are afforded the right to be notified of the action and to opt out of the class. The absence of these protections in a class action predominantly for monetary damages violates due process. And the Wal–Mart court opined: “We fail to see why the Rule should be read to nullify these protections whenever a plaintiff class, at its option, combines its monetary claims with a request—even a ‘predominating request’—for an injunction.” 131 S.Ct. at 2559.

Even beyond the due process issue, the Supreme Court also stated that claims for individualized relief (like the backpay at issue here) do not satisfy Rule 23(b)(2), because the “key to the (b)(2) class is the indivisible nature of the injunctive or declaratory remedy warranted."  Id. at 2557.  Rule 23(b)(2) does not authorize class certification when each class member would be entitled to an individualized award of monetary damages. Here, the district court erred, therefore, by focusing on evidence of plaintiffs' subjective intent, instead of on whether the monetary relief could be granted absent individualized determinations of each class member's eligibility.

The court of appeals vacated the district court's order finding that Plaintiffs had satisfied Rule 23(b)(2) and remand for the district court to apply the legal standard confirmed in Wal–Mart.  

Bills Introduced to Halt New Federal Regulations

We from time to time have called our readers attention to developments in the important field of tort reform.  While often this takes the form of state legislation affecting substantive legal doctrine, there is another important branch, evidenced by recent proposals from Republican senators seeking passage this fall of legislation that would impose a moratorium on multiple Administration regulations now in the pipeline.

For example, Sen. Ron Johnson (R-Wis.), along with two dozen co-sponsors, has authored a bill that would bar all federal agencies from finalizing any pending rules or voluntary guidance documents that could significantly impact the economy. The moratorium would remain in place until unemployment returns to the level it was when the President took office (7.7%).

The Regulation Moratorium and Jobs Preservation Act of 2011 (S. 1438) would apply to any "significant regulatory action," meaning any regulatory action that is likely to result in a rule or guidance that may have an annual effect on the economy of $100,000,000 or more, or adversely affect in a material way the economy, or jobs, or materially alter the budgetary impact of entitlements, grants, user fees, or loan programs, or  raise novel legal or policy issues.

Congressman Reid Ribble (R. Wis.) has announced the introduction of a similar bill in the House,  H.R. 2898.
 

A sightly different approach was introduced by Sen. Susan Collins (R-Maine), calling for a one-year “time out” on significant new federal rules. The Regulatory Time-Out Act (S. 1538) is designed to provide job creators with a "breather" from these burdensome new regulations.

These broad measures follow the introduction of a variety of bills that would roll back specific regulations already on the books, and/or force agencies to periodically review existing rules.  House and Senate Republicans, as well as a few Democrats, have urged structural changes in the regulatory process to address what they see as burdensome regulations that negatively impact the economy. Such regulations have forced businesses, especially smaller firms, to freeze or cut back on hiring.  The United States Chamber of Commerce has argued that the legislation would place an important check on the relatively small number of economically significant regulations that impact the business community’s ability to compete.

 

Gulf Oil Spill MDL Court Issues Trial CMO

The court managing the Gulf oil spill MDL recently entered an important case management order defining the structure and scope of the upcoming trial on the Deepwater Horizon oil spill.  That Trial of Liability, Limitation, Exoneration, and Fault Allocation is scheduled to commence, as previously ordered in CMO No. 1 and CMO No. 2, on February 27, 2012.  See In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, MDL No. 2179 (E.D. La., Order 9/14/11).

Readers know we have been keeping an eye on this signficant litigation since the MDL was created. CMO No. 3 notes that the trial will address all allocation of fault issues that are to be tried to the bench without a jury, including the negligence, gross negligence, or other bases of liability of, and the proportion of liability allocatable to, the various defendants, third parties, and non-parties with respect to the issues, including limitation of liability.

The trial will be conducted in three phases.

Phase One [the Incident Phase] of the trial will address issues arising out of the conduct of various parties, third parties, and non-parties allegedly relevant to the loss of well control at the Macondo Well, the ensuing fire and explosion on the Deepwater Horizon vessel, the sinking of the Deepwater Horizon on April 22, 2010, and the initiation of the release of oil from the Macondo Well or Deepwater Horizon.

Phase Two of the trial will address Source Control and Quantification of Discharge issues. Source Control issues consist of issues pertaining to the conduct of various parties, third parties, and non-parties regarding stopping the release of hydrocarbons stemming from the Incident from April 22, 2010 through approximately September 19, 2010. Quantification of Discharge issues refer to  issues pertaining to the amount of oil actually released into the Gulf of Mexico as a result of the Incident from the time when these releases began until the Macondo Well was capped on approximately July 15, 2010 and then permanently cemented shut on approximately September 19, 2010.

Phase Three [Containment Phase] of the trial will address issues pertaining to the efforts by various parties, third parties, and non-parties aimed at containing oil discharged as a result of the Incident by, for example, controlled burning, application of dispersants, use of booms, skimming, etc. Phase Three of the trial will also address issues pertaining to the migration paths and end locations of oil released as a result of the Incident as carried by wind, currents, and other natural forces.

CMO No. 3 also addresses the sequence of proof for Phase One: first plaintiffs, then Transocean, then the other defendants. At the end of each Phase of the trial and after consideration of the parties' submissions, the Court may decide to issue partial Findings of Fact and  conclusions of Law for that Phase if it deems the record adequately developed. The Court said it anticipates that discovery and other pretrial proceedings for Phase Two of the trial and possibly for Phase Three of the trial will likely need to be conducted concurrently with pretrial proceedings for and the conduct of Phase One of the trial.

 

 


 

Class Certification Denied in Printer Litigation

A federal court recently denied class certification in a case brought on behalf of consumers accusing Epson America Inc. of misrepresenting how its NX series of printers functioned with ink cartridges. Christopher O’Shea et al. v. Epson America Inc. et al., No. 09-cv-08063 C.D. Cal.). Readers may recall our post that the court earlier dismissed many of the plaintiffs' claims on the basis that a manufacturer is not required under consumer protection laws to denigrate its own product and broadcast that its product may not perform as well as its competition.

In May 2009, plaintiff Rogers purchased a “Stylus NX 200” inkjet printer manufactured by defendants. Her decision to purchase this printer was allegedly based, in part, on a statement on the printer box that read: “Replace only the color you need with individual ink cartridges.”  Plaintiff allegedly understood this statement to mean that the printer would only require a black cartridge to print black text. In actuality, plaintiff alleged, the Epson NX 200 printer requires all cartridges to function. She subsequently filed suit against Epson claiming that Epson failed to disclose and affirmatively misrepresented the features of the printer.

Plaintiff  moved for class certification.  The interesting part of the court's analysis relates to the predominance issue under Rule 23(b)(3). Even though individualized questions of reliance and materiality were diminished under some of the plaintiff's theories because the consumer fraud claims are governed by the “reasonable consumer” test, which requires plaintiff to show that members of the public are likely to be deceived, Williams v. Gerber Products Co., 523 F.3d 934, 938 (9th Cir. 2008), the notions of reliance and injury still impacted class certification. Specifically, the court was not convinced that members of the putative class had standing to pursue their claims in federal court. To have standing under Article III, a plaintiff must present an injury that is concrete, particularized, and actual or imminent; fairly traceable to the defendant’s challenged action; and redressable by a favorable ruling.

In the context of Rule 23(b)(3), questions of Article III standing amount to an inquiry as to whether individual issues of injury-in-fact and causation predominate over common issues. While case law suggested that absent class members need not establish standing under the requirements of California’s consumer laws, there is a distinct requirement of Article III standing in federal court.  Statutory interpretations cannot permit a federal class action to proceed where class members lack Article III standing.  The requirement that all members of the class have Article III standing makes sense. If that were not the rule, a class could include members who could not themselves bring suit to recover, thus permitting a windfall to those class members and allowing Rule 23 to enlarge substantive rights.  The court therefore held that absent class members must satisfy the requirements of Article III.

Satisfaction of Article III’s requirements in turn raised individualized issues that defeated certification under Rule 23(b)(3) in this case. Article III requires some showing of injury and causation for a plaintiff to recover. Even if the alleged failure to disseminate truthful information about the product  would be subject to common proof, whether each class member was entitled to recover was not susceptible to proof on a class-wide basis because, to establish standing under Article III, each class member was required to show that they suffered some injury as a result of using or buying the product. Plaintiff therefore must show that all persons in the United States who purchased an Epson NX series printer during the class period suffered an injury which was caused by Epson’s alleged misrepresentation, and which was likely to be redressed by a decision in plaintiff’s favor. The record contained evidence indicating that the injury purportedly suffered by some members of the putative class could not fairly be traced to Epson’s allegedly deceptive representation.  Those individuals who purchased printers from certain third-party on-line sources, such as Amazon.com, were not exposed to the allegedly deceptive representation before they purchased their printers. Not all consumers who purchased an NX200 printer bought it at a retail store. Nor could standing be established by plaintiff’s (unsupported) assertion that the misrepresentation was on every box of the subclass, since some individuals purchased class printers without ever having been exposed to the allegedly deceptive representation. The fact that these individuals may have subsequently seen the misrepresentation when the package arrived in the mail was beside the point. There cannot be a causal connection between the consumer’s injury (the money spent on the printer) and Epson’s alleged misconduct (the purportedly deceptive advertising) because these consumers purchased the printers without ever seeing the purported misrepresentation.

Based on the foregoing, the court found that individualized issues of injury and causation permeated the class claims.The proposed class failed to satisfy Rule 23(b)(3)’s requirement that common issues predominate.

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FDA Issues Draft Guidance on Informed Consent Language

The FDA has issued draft guidance on the use of "Exculpatory Language in Informed Consent" agreements. The document applies to non-exempt human subject research conducted or supported by the Department of Health and Human Services, and is intended for clinical investigators, institutional review boards, and funding agencies that may be responsible for review or oversight of human subject research conducted or supported by HHS or regulated by FDA.

This document provides guidance on the regulatory prohibition on the inclusion of exculpatory language in informed consent in clinical trials and other research. Readers may know that under federal regulations, no informed consent, whether oral or written, may include any exculpatory language through which the subject or the representative is made to waive or appear to waive any of the subject’s legal rights, or releases or appears to release the investigator, the sponsor, the institution, or its agents from liability for negligence.

The document includes examples of language that OHRP and FDA consider acceptable as well as examples of language that the agencies would consider improperly exculpatory.

Mexico Passes Class Action Legislation

Readers with connections to Mexico may wish to take note that in March, 2012, enabling legislation will take effect permitting class action litigation in this southern neighbor.

While Mexico’s Consumer Protection Law had allowed for certain limited collective actions in consumer matters to be brought by the Federal Consumer Protection Agency, this marks a significant change. In April, 2010, the Mexican Congress passed an amendment to the Constitution permitting of class actions in federal courts in Mexico and requiring that class action implementing legislation be enacted within one year of the amendment’s effective date. The amendment was ratified by the required number of state legislatures, and Congress went to work.  The Senate approved a class action bill in December, 2010, as we alerted you. The House approved one in April, 2011. The law was published in the Official Gazette on Aug. 30, 2011, with an effective date of March, 2012.

Class actions will be available for consumer products and services claims, environmental claims, and certain financial services and antitrust claims.  The law recognizes three types of class actions:  diffuse actions to protect rights that belong to everyone, such as environmental issues; collective actions to protect rights that belong to a class linked by a non-contractual relationships; and homogeneous individual right-type class actions on behalf of a group linked by contract. Class actions that involve diffuse rights will be opt-out; and the class action will be opt-in if they involve collective rights or individual homogeneous rights. Significantly, the opt-in period can run up to 18 months following a final judgment or settlement.

In addition to individual actions (numerosity minimum 30); the law gives standing to a variety of federal agencies, such as the Federal Consumer Protection Agency, Federal Environmental Protection Agency, National Commission for the Protection of Users of Financial Services, and the Federal Antitrust Agency; and to certain civil not-for-profit associations whose function is to protect the collective rights of their members.

Plaintiffs must show commonality, and a notion of standing, and there is a general exception (perhaps like superiority/manageability?) for cases in which handling the dispute on a class-wide basis would be "improper."

Other features of note:

  • quick turn around on certification pleadings and the court's ruling on class certification
  • required settlement conference after certification, before trial
  • limits on attorney's fees for plaintiffs
  • modified loser pays provision
  • the court may order notice to class members “through the most suitable resources for that purpose”

In cases in which individual class members seek damages, the law adopts a two-stage procedure consisting of a class-wide trial followed by individualized mini-proceedings on damages. The law prohibits payments to individual class members through a class representative. Individualized evidence need not be submitted during the class-wide phase of the trial proceedings.

Time will tell how the federal courts of Mexico apply the new law beginning in 2012.  It is clear from the debate on the legislation that there is concern about class action abuse (American-style).  Certainly, the legal risks have been raised for those doing business in these sectors in Mexico.
 

 

Medical Monitoring Claim Rejected in Rail Spill

The Sixth Circuit recently rejected the medical monitoring claims of a putative class of residents of a small Ohio town who alleged exposure to chemicals released after a CSX Transportation Inc. train accidentally derailed. Jonathan Hirsch et al. v. CSX Transportation Inc., No. 09-4548 (6th Cir. Sept. 8, 2011).

On October 10, 2007, thirty-one cars of a CSX train derailed and caught fire near the town of Painesville, Ohio. As a precaution, emergency personnel removed about 1,300 people from the surrounding half-mile radius. Most of what burned in this fire was non-toxic, but nine of the cars were carrying potentially hazardous materials. The plaintiffs claimed that 2,800 tons of burning material were sent into the surrounding atmosphere, and that, as a result, the level of dioxin in their town was significantly elevated.

While the fire was still burning, several residents of the town brought suit against CSX;  the district court did not allow the plaintiffs to pursue an independent cause of action for medical monitoring, but decided a court-supervised medical monitoring was available as an equitable remedy under Ohio law. See Wilson v. Brush Wellman, 817 N.E.2d 59, 63-65 (Ohio 2004); see also Day v. NLO, 851 F. Supp. 869, 880 (S.D. Ohio 1994).  Defendant then moved for summary judgment, which was granted. The district court held that the plaintiffs had failed to meet their burden to show that (1) the dioxin released into the air by the fire is a known cause of human disease; and (2) that the named plaintiffs were exposed to dioxin in an amount sufficient to cause a significantly increased risk of disease such that a reasonable physician would order medical monitoring. The plaintiffs timely appealed.

The court of appeals focused on the issues of causation and injury. Rather than traditional personal injuries, the alleged injuries consisted solely of the increased risk of—and corresponding cost of screening for—certain diseases that, according to plaintiffs, were more likely to occur as a result of the train crash. Assuming that Ohio would recognize such an injury, the remedy would be a medical monitoring program that would spare the Plaintiffs these expenses. But were plaintiffs actually at such an increased risk of disease that they were entitled to a medical monitoring program? Not every exposure, not every increased risk risk of disease warrants increased medical scrutiny. For the plaintiffs to prevail, there must be evidence that a reasonable physician would order medical monitoring for them.

Plaintiffs hired several experts to try to meet this burden. (No Daubert issue raised; the issue was sufficiency, not admissibility.). They offered a chemical engineer who tested the community for levels of dioxin. He assumed a normal background level of dioxin at 4 parts per trillion and took measurements around Painesville to compare with this baseline. His measurements
showed elevated levels near the crash site.  Plaintiffs had a chemist who speculated about train cargo, nature and amounts; then, a physicist who plotted the dispersion and concentration of the chemicals from the fire on a map for the purpose of showing which members of the community were exposed to what levels of dioxin. Then a medical doctor used this map to determine who in the community was likely exposed to levels of dioxin above what the EPA considers acceptable—levels at which the risk of cancer increases by "one case in one million exposed persons."

The court of appeals saw at least two problems with this offer.  One issue was the use of the regulatory level. The expert not only accepted the risk of one in a million as the threshold for monitoring, but appeared to have halved it. “One should be afforded the benefit of medical
monitoring, if one has sustained a dose equal to or in excess of 50% of the EPA maximum.” There was little explanation as to why he believed that reasonable physicians would order expensive and burdensome testing for such a small risk, but he explained he wanted "to err on the side of patient safety.”  However, a one-in-a-million chance is small. Indeed, it is proverbially small. If something has a one-in-a-million chance of causing cancer in an individual, then it will not cause cancer in 999,999. For some perspective, the National Safety Council estimates a person’s lifetime risk of dying in a motor vehicle accident as 1 in 88. The lifetime risk of dying in “air and space transport accidents” is roughly 1 in 7,000. The risk of being killed by lightning
is roughly 1 in 84,000, while the risk of being killed in a “fireworks discharge” stands at around 1 in 386,000. So, a small risk and no basis to say it called for medical monitoring.  Certainly the EPA didn't base its standard on any medical monitoring analysis.

Second, the doctor based based his assessment on the exposure map.  But the map was unreliable. The estimate of the total material burned was speculative. The expert admitted that “the fire temperature, particle size distribution, and fire area were not established.” And there were other sources of exposure not accounted for.

Plaintiffs thus alleged only a risk that bordered on legal insignificance, and failed to produce evidence establishing with any degree of certainty that they had even this hypothetical risk.

Summary judgment affirmed.

Chevron Suit Proceeds: Ecuador Plaintiffs' Judicial Estoppel Motion Rejected

A New York federal court ruled last week that Chevron could continue to pursue its effort to overturn a questionable $18 billion judgment against the company in Ecuadorean court. Chevron Corp. v. Salazar et al., No. 1:11-cv-0371 (S.D.N.Y. 8/31/11).

This is an action by Chevron for, among other things, a declaration that the large judgment entered against it by a provincial court in Lago Agrio, Ecuador, is not entitled to recognition or enforcement, and for an injunction against its enforcement outside of Ecuador.

The district court's memorandum opinion dealt with their contentions that Chevron was judicially estopped to now deny that (1) the Ecuadorian legal system provides impartial tribunals and procedures compatible with due process of law, and (2) the Ecuadorian court had jurisdiction over Chevron.

The judicial estoppel argument rested principally on statements made in a separate lawsuit brought in 1993 by many of the same plaintiffs against Texaco, Inc. — then an independent, publicly owned company.  That suit was dismissed on the ground of forum non conveniens many years ago and, indeed, before this Lago Agrio litigation even began.  Plaintiffs cited statements made in briefs, and in affidavits and declarations by witnesses submitted in the prior litigation in
support of Texaco's efforts to obtain the forum non conveniens dismissal.  All were allegedly to the effect that the Ecuadorian courts were neither corrupt nor unfair.

Each and every one of these statements was made by Texaco. Indeed, each was made before Chevron acquired its stock in Texaco in October, 2001.  Chevron never was a party to the prior litigation. Thus, the statements about and the alleged consent to jurisdiction in Ecuador were made by Texaco and Texaco alone.

The court thought it important to emphasize that the pleadings in this case were entirely devoid of any allegations that Texaco merged with or into Chevron, or indeed, any subsidiary of Chevron. Nor were there any allegations that would support piercing the corporate veil of Texaco, treating Chevron as Texaco's alter ego, or otherwise disregarding the separate corporate existence of Texaco. Texaco did not merge with or into Chevron. Rather, a wholly owned subsidiary of Chevron
merged with and into Texaco. Texaco was the surviving entity. Chevron became the sole stockholder.

Judicial estoppel occurs when a party assumes a legal position which it later changes, and  assumes a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position previously taken by him. It applies if 1) a party's later position is clearly inconsistent with its earlier position; 2) the party's former position has been adopted in some way by the court in the earlier proceeding; and 3) the party asserting the two positions would derive an unfair
advantage against the party seeking estoppel. Some courts limit it to situations where the risk of inconsistent results has a clear impact on judicial integrity.

Here, the court had a factual and a legal rejection of the application of judicial estoppel.  While Texaco certainly appeared to have argued throughout much of the 1990s that it could get a fair trial in Ecuador, the issue here was different. The issue now was whether the Ecuadorian legal system, in the next decade, provided impartial tribunals and procedures compatible with due process of law. It was Chevron's contention that it did not, as a result of events that occurred in and after 2004, whatever may have been the case previously.  That is not an inconsistent position from what Texaco had allegedly argued.

Second, the operative legal documents in the public record established that Texaco at all relevant times was a legal entity separate and distinct from Chevron. The fact that a Chevron subsidiary merged into Texaco did not make Chevron responsible for Texaco's obligations. To be sure the law recognizes various bases for disregarding a corporate entity and imposing its obligations upon the stockholder or stockholders. But a litigant seeking to impose corporate obligations on a shareholder or shareholders must allege facts that, if proven, would justify disregard of the corporate entity. The plaintiffs alleged no such facts in this case. They certainly had not demonstrated, as they must in order to prevail on a motion for judgment on the pleadings on this theory, that the pleadings unequivocally establish facts that warrant disregarding Texaco's separate corporate existence and imputing its prior statements and positions to Chevron. 

Reconsideration Denied in Rejected "All Natural" Class Action

Here is an update on an interesting case we posted on before. A federal court last week denied a motion for reconsideration of its ruling that denied class certification to a consumer alleging that Arizona Beverages deceptively marketed its drinks as “all natural.”  See Coyle v. Hornell Brewing Co. et al., No.1:08-cv-02797 (D.N.J. 8/30/11). 

Plaintiff alleged that she was misled by labels on bottles of Arizona brand beverages touting “All Natural” ingredients, and thereby induced into buying bottles of Arizona beverages that contained High Fructose Corn Syrup (“HFCS”), which she claimed is not “natural”. Plaintiff sought to certify, under Fed. R. Civ. P. 23(b)(2), a class of consumers who purchased similarly labeled Arizona beverages that contained HFCS, seeking only declaratory and injunctive relief.

During the course of discovery in this case, plaintiff produced a retainer agreement she signed in anticipation of this lawsuit. But, the agreement was signed on August 9, 2007, more than seven months before plaintiff alleged that she was first misled by defendants’ “all natural” labeling in her product purchase on March 30, 2008. Indeed, plaintiff repeated the 3/08 purchase date in her deposition. She later changed her story.

The court originally observed that it need not find plaintiff to have intentionally lied to hold that she did not meet the adequacy element of Rule 23(a)(4). The issue was not simply whether plaintiff in fact lied, but whether her inconsistent testimony made her vulnerable to a unique factual or legal defense not faced by other class members, thereby rendering her interests potentially too antagonistic to the interests of the other class members. And that is exactly the case; the court found that plaintiff’s factual inconsistencies raised sufficiently grave credibility problems as to prevent her from serving as an adequate class representative.

Plaintiff filed a reconsideration motion. The court did reconsider its finding as to the adequacy of plaintiff’s counsel as a result of plaintiff’s repeated pleadings and certified discovery responses including the March 30, 2008 allegation. This "serious error" did not necessarily disqualify counsel.

But the court re-affirmed its decision as to the adequacy of plaintiff as class representative. Plaintiff argued that any defenses that she would face as a result of the credibility problems identified by the court could not become the focus of the entire litigation.  But the controlling rule does not hold that the only defenses that will disqualify a proposed named plaintiff on adequacy grounds are those which could become the focus of the entire litigation.  Indeed, to deny certification, a court need not conclude that credibility problems would ultimately defeat the class representative’s claim; rather, the court may deny class treatment if that unique defense is even arguably present. 

In any event, the court disagreed with plaintiff’s contention that the unique credibility-related defenses could not become the focus of the litigation in this matter. The court noted that plaintiff would have real trouble surviving summary judgment on the issue of "ascertainable loss" with a record  showing no dispute of fact that plaintiff’s only qualifying purchase of defendants’ product took place after plaintiff herself had concluded that the product was not “all natural.”  Plaintiff’s entire action would be vulnerable to a motion for summary judgment on the issue of ascertainable loss, which would prevent plaintiff (and the class she would seek to represent) from pursuing even injunctive relief.

Determining whether this plaintiff made her purchase of defendants’ product on the date she repeatedly claimed, after she had retained a lawyer to file the suit, would become a major focus and quite probably a show-stopper for this class. Reconsideration denied.

MDL Court Rules on Availability of Punitive Damages in Gulf Oil Spill Litigation

The MDL court overseeing the claims arising from the 2010 Gulf of Mexico oil spill has ruled that plaintiffs can seek punitive damages against allegedly responsible parties in economic loss and property damage suits. In Re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, No. 2:10-md-02179 (E.D. La., 8/26/11).

Readers may recall that this MDL consists of hundreds of consolidated cases, with thousands of claimants, arising from the April 20, 2010 explosion, fire, and sinking of the Deepwater Horizon  mobile offshore drilling unit, which resulted in the release of millions of gallons of oil into the Gulf of Mexico before it was finally capped approximately three months later. In order to efficiently  manage this complex MDL, the court consolidated and organized the various types of claims (e.g., personal injury, environmental, property, and economic damages) into several “pleading bundles.”  One such pleading bundle includes all claims for private or non-governmental economic loss and property damages.  There are in excess of 100,000 individual claims encompassed within this bundle.

The court recently ruled on several pending motions to dismiss the claims by this sub-group of plaintiffs, but let's focus on the punitive damages claims. The court's analysis began with the Oil Pollution Act of 1990: the OPA is silent as to the availability of punitive damages. So the issue became whether plaintiffs who could assert general maritime claims pre-OPA enactment could still plausibly allege punitive damages under general maritime.  The court concluded they could.

First, punitive damages have long been available at common law, and the common-law tradition of punitive damages extends to maritime claims. The court reasoned that Congress had not occupied the entire field of oil spill liability in light of the OPA provision preserving admiralty and maritime law, “except as otherwise provided.” OPA does not mention punitive damages; thus, while punitive damages are not available under OPA, the court did not read OPA’s silence as meaning that punitive damages are precluded under general maritime law. The MDL court observed that Congress knows how to proscribe punitive damages when it intends to, as it did in the commercial aviation exception under the Death on the High Seas Act, 46 U.S.C. § 30307(b) (“punitive damages are not recoverable”).
 

Second, the court saw nothing to indicate that allowing a claim for punitive damages in this context would frustrate the OPA liability scheme. All claims against the allegedly Responsible Party must comply with OPA’s procedure, regardless of whether there is also cause of action against the Responsible Party under general maritime law. However, the behavior that would give rise to punitive damages under general maritime law–gross negligence–would also break OPA’s limit of liability. See 33 U.S.C. § 2704(a). Thus, the imposition of punitive damages under general maritime law would not, according to the court, circumvent OPA’s limitation of liability.

Finally on this issue, the court noted that some courts had held that the Trans-Alaska Pipeline Authorization Act (“TAPAA”), which provided “the liability regime governing certain types of Alaskan oil spills, imposing strict liability but also capping recovery,” did not restrict the availability of punitive damages.  OPA, like TAPAA, creates a liability regime governing oil spills, imposes strict liability on the Responsible Parties, includes liability limits, and is silent on the issue of punitive damages.

Thus, the court concluded, the OPA does not displace general maritime law claims for those plaintiffs who would have been able to bring such claims prior to OPA’s enactment. 


 

Proof of Feasible Alternative Design Does Not Prove Defect

Readers know that most jurisdictions require that a plaintiff alleging a design defect in a product must produce sufficient evidence of a feasible alternative design that would have avoided the plaintiff's injury had it been adopted.  But a Texas appeals court reminded us recently that evidence of a safer alternative design, while necessary, is not sufficient to show a design defect. Zavala v. Burlington Northern Santa Fe Corp., No. 08-10-00169-CV (Tex. App., 8th Dist., 8/24/11).

Plaintiff filed suit against the railroad, alleging personal injuries sustained while attempting to open an allegedly defective railcar hopper door to unload sugar. Defendant filed a motion for summary judgment, which the trial court granted, and Zavala appealed.

Plaintiff alleged a manufacturing defect, but he could not identify the exact car which injured him or pinpoint any specific defect on that car. He did not see the hopper car again, but he identified the opening mechanism on a BNSF model 450 car as the “same or substantially similar hopper loading mechanism I was injured on.”  The court concluded that since he could not identify the specific car which caused his injuries, he must show more than a scintilla of evidence that all BNSF model 450 cars possess a manufacturing defect. That he could not do.

The court then turned to the alleged design defect. The defect was the alleged unreasonably
dangerous condition of the hopper car opening mechanism. Texas courts apply a risk-utility analysis to design defects that requires consideration of the following factors: (1) the utility of the product to the user and to the public as a whole weighed against the gravity and likelihood of injury from its use; (2) the availability of a substitute product design which would meet the same need and not be unsafe or unreasonably expensive; (3) the manufacturer’s ability to eliminate the unsafe character of the product without seriously impairing its usefulness or significantly increasing its costs; (4) the user’s anticipated awareness of the dangers inherent in the product and their avoidability because of general public knowledge of the obvious condition of the product, or of the existence of suitable warnings or instructions; and (5) the expectations of the ordinary consumer.  The risk-utility analysis operates in the context of the product’s intended use and its intended users.

The court of appeals reasoned that global assertions that all model 450 doors were defective because they were all hard to open does not create more than a mere suspicion of a defect. It refused to hold that a hard-to-open door is necessarily a malfunction, or that circumstantial proof of a hard-to-open door suffices to demonstrate a design defect.

Plaintiff pointed to his expert evidence of an alleged feasible alternative design for the hopper door. Although evidence of an alternative safer design may assist in proving a design defect, proof of an alleged safer alternative design is not enough to sustain a defective design claim, concluded the court of appeals. See also Hernandez v. Tokai Corp., 2 S.W.3d 251, 256 (Tex. 1999)(proof of an alternative safer design does not negate the common law requirement that the alleged defect renders the product unreasonably dangerous).  A design defect claim arises if a safer alternative design existed and there is a defect that was a producing cause of the personal injury, property damage, or death for which the claimant seeks recovery.

Here, plaintiff failed to produce sufficient evidence to create an issue of fact on defect, even if he did have evidence of a feasible alternative design.  In essence, the court recognized that there can be more than one non-defective way to design a product. There may be different pluses and minuses in each design, and the existence of an alternative does not render all other alternatives necessarily defective.

 

Court Dismisses Consumer Fraud Claims Against iPad

A California federal court last week dismissed a putative class action accusing Apple Inc. of misleading consumers about the ability of its iPad to function outdoors without interruption. Jacob Baltazar et al. v. Apple Inc., No. 3:10-cv-03231 (N.D. Cal. 8/26/11).

We have posted before about the spate of consumer fraud class actions that look for any aspect of a functioning product that can be attacked as less than perfect, and turn it into a nationwide class action.  Here is a good case reminding readers that manufacturers do not warrant perfection, merely that the product will be reasonably fit for ordinary uses and reasonable expectations.

Plaintiffs alleged that Apple had represented that its iPad tablet computers function outdoors without interruption, when in fact the devices allegedly overheat and shut down when used in sunny conditions. Plaintiffs in this consumer class action asserted claims including breach of warranty and fraud.  Apple moved to dismiss plaintiffs’ second amended complaint for failure to state a claim upon which relief may be granted. The court agreed that the complaint failed to allege facts tending to show that Apple ever represented or claimed that the iPad would operate under such conditions, or that members of the putative class justifiably relied on such representations.

Each of the named plaintiffs alleged that he or she chose to purchase an iPad based at least in part on what they characterize as representations by Apple that the iPad could function outdoors as an e-reader and mobile Internet device. They relied, first, on a claim that Apple produced a television commercial showing depictions of the iPad being used outdoors, at least some of the time on sunny days, and posted on its website a video showing scenes of the iPad being used outdoors and in the sun. They also based their claims on a statement made on Apple’s website that reading the iPad is "just like reading a book.” Finally, they asserted that Apple represented expressly, both on the iPad’s packaging and on its website, that the iPad would function normally within a specified ambient temperature range.

While a complaint attacked by Rule 12(b)(6) motion to dismiss does not need overly detailed factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007).

Regarding the ads, while plaintiffs observed correctly that a warranty can be created by statements in advertisements, see e.g., Thomas v. Olin Mathieson Chem. Corp., 255 Cal. App. 2d 806, 811 (1967), they did not point to any cases in which a court found that advertising images alone are sufficient to created an express warranty. On the other hand, courts have rejected warranty claims based on advertising images alone. Moreover, even if the advertisement could be construed as an express warranty, the warranty would be that the iPad would work in the exact situations depicted, not in other situations. Plaintiffs described seven brief scenes in a thirty-
second commercial depicting the iPad in use in “outdoor locations,” some of which uses
allegedly occurred on a “sunny day.” But several of the images were on the screen for less
than a second, and none show the iPad being used in direct sunlight or for an extended period in
any environment. Even under the most liberal pleading standard, these brief clips of iPad use in some outdoor locations cannot be construed as an express warranty that the device will operate without interruption in direct sunlight or in outdoor conditions generally.

On the implied warranty claim,plaintiffs failed to identify with sufficient specificity which of the  functions are the ordinary purpose of the iPad and how the device was unfit for that purpose. The complaint alleged that the iPad was marketed as a mobile tablet computer that can be used “anywhere, whether it be while sitting in a park, at an outdoor café, or on one’s own front stoop.” However, the complaint alleged that the product was unfit for use, generally, presumably everywhere and under all conditions. It failed to allege the device did not meet “a minimum level of quality” for a tablet computer.

On the fraud-based claims, the court noted that to state a claim for fraud or intentional misrepresentation under California law, a plaintiff must allege: (1) misrepresentation (false representation, concealment, or nondisclosure); 2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Ct., 12 Cal.4th 631, 638 (1996); Anderson v. Deloitte & Touche, 56 Cal.App.4th 1486, 1474 (1997).  Plaintiffs failed to allege adequately that Apple misrepresented the conditions under which the iPad would operate or that they justifiably could rely on those representations in believing that the iPad would operate as they expected. For example, none of the named plaintiffs claimed to have relied on Apple’s statement that the iPad can be used “just like a book,” which, the court noted, was mere puffery. 

However, the court gave the plaintiffs 30 days to submit a third amended complaint.