State Supreme Court to Review "Trial by Formula" Short Cuts In Class Action

The Pennsylvania Supreme Court agreed earlier this month to review an important class action issue: the use of "trial by formula" as a vehicle to overcome the un-manageability and predominance of individual issues in a proposed class action. Braun et al. v. Wal-Mart Stores Inc. et al., No. 551 EAL 201 (Pa. 7/2/12).

The case involves the appeal of an award for Wal-Mart employees who allegedly worked off the clock by skipping rest and meal breaks.

The state Supreme Court indicated it would review: Whether, in a purported class action tried to verdict, it violates Pennsylvania law (including the Pennsylvania Rules of Civil Procedure) to subject Wal-Mart to a “Trial by Formula” that relieves Plaintiffs of their burden to produce class-wide “common” evidence on key elements of their claims.

There is a huge difference between deciding that aspects of an adequate representative's claim are typical of other class members', and extrapolating from representative's claims to the class as a whole on issues that are admittedly not common.  We noted for readers before that this procedural short cut, which can deny defendants due process and a right to adjudicate and defend against each claim, was criticized in the federal class context in the U.S. Supreme Court's decision in Dukes v. Wal-Mart Stores Inc. The U.S. Supreme Court was clear: "We disapprove that novel project." Because the Rules Enabling Act forbids interpreting federal Rule 23 to abridge,enlarge or modify any substantive right, a class cannot be certified on the premise that the defendant will not be entitled to litigate its defenses to individual claims.

The same issue applies to the trial plans proposed by many mass tort plaintiffs, which try to use the class rule to prevent defendants from ever having an opportunity to litigate individual defenses as to individual class members. Now we may start to see if plaintiffs can evade this by proceeding at a state class level in cases not removable under CAFA.

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. 

Update on BPA

Several recent developments concerning BPA.


The Canadian government announced earlier this month that it intends to draft new regulations to prohibit the importation, sale, and advertising of baby bottles containing bisphenol A; the proposed bans are to take effect in 2009.


Environment Canada and Health Canada have released a scientific assessment, concluding that bisphenol A poses no danger to the general public, but expressing some uncertainty about its potential impact on infants up to 18 months of age. The scientific evidence of the neuro-developmental and behavioral impact of bisphenol A on rodent test subjects, although highly uncertain and not capable of easy extrapolation to humans, is apparently providing the basis for taking action to limit exposure to the substance for newborns and infants. The government plans also to allocate almost $2 million to support additional research on bisphenol A.


The first regulatory step comes as Environment Canada and Health Canada published a notice of their intention to designate bisphenol A as toxic under the Canadian Environmental Protection Act, a first step that allows the government to take regulatory action on the chemical. The agencies also issued a draft risk management approach for the chemical that aims to reduce releases of the substance into the environment. The proposed risk management plan, which is open to a 60-day public comment period that started on Oct. 18, said that BPA should be managed using a life cycle approach that prevents or minimizes its release into the environment.


The Canadian draft plan incorporates a regulatory ban on the import, sale, and advertising of polycarbonate baby bottles made with bisphenol A. It calls for the adoption of an “as low as reasonably achievable” principle in the packaging of canned infant formula, and indicates that the government will develop migration target levels for bisphenol A from infant formula cans to the formula they contain. The government proposes exploration of imposing migration targets for bisphenol A in canned foods in general.  The regulations will establish maximum bisphenol A concentrations in industrial effluents and will require the implementation of management systems for facilities where the substance is used, the draft plan said.


In addition, the plan calls for a survey on the content of bisphenol A in medical devices, further research on exposure of pregnant women to the substance, monitoring through the Canadian Total Diet Study, and additional environmental monitoring in waste water effluents and waters downstream from waste water treatment plants.


Meanwhile, back in the States…
State attorneys general from Connecticut, Delaware, and New Jersey called on manufacturers of baby bottles and baby formula to stop using BPA in their products. The AGs cite the recent studies in letters to the companies urging them to stop putting BPA into infant formula containers. “Mounting evidence suggests that BPA from the lining of these cans leaches directly into the infant formula,” claimed the AGs.


The AGs cited a February 2008 publication of the Work Group for Safe Markets, a coalition of liberal public health and environmental advocacy organizations, advocating without much support  that low levels of exposure to BPA may cause damage to reproductive, neurological, and immune systems during stages of fetal and infant development. They also cite the study released by Yale School of Medicine on BPA exposure and effects on brain function and mood disorders in monkeys.


The letters were reportedly sent to: Avent, Disney First Years, Gerber, Dr. Brown, Playtex, Evenflo, Abbott, Mead Johnson, PBM Products, Nature's One, and Wyeth.


Finally, the FDA Science Board Subcommittee on Bisphenol A has just released comments on the FDA’s draft exposure assessment of BPA. The Science Board provides advice primarily to the Commissioner of the FDA and other appropriate officials on specific complex and technical issues as well as emerging issues within the scientific community. This temporary Subcommittee was established by the Science Board and consists of two members of the Science Advisory Board and five scientists drawn from academia and government agencies. The focus of this Subcommittee is the scientific peer-review of the draft assessment prepared by the FDA of bisphenol A for use in food contact applications.

While the Subcommittee agrees with the focus of the draft assessment on dietary exposures to children, they believe that the FDA assessment would be strengthened by considering cumulative exposures and differential risk in neonates. They also recommend that the FDA exposure assessment be expanded to include a larger number of infant formula samples and that it rely on mean values rather than accounting for the variability in samples. Until the qualitative and quantitative information (including application of uncertainty factors) is revised, the Subcommittee cannot yet agree that the Margins of Safety defined by FDA are adequate.
 

FDA Releases Melamine Risk Assessment

The FDA has issued the results of its interim safety and risk assessment of melamine and melamine-related compounds in food, including infant formula. The purpose of the FDA interim safety/risk assessment, which was conducted by scientists in the Center for Food Safety and Applied Nutrition, was to identify the level of melamine and melamine-related compounds in food which would not raise public health concerns.

For infant formula, the safety/risk assessment concludes that at this time FDA is unable to establish any level of melamine and melamine-related compounds in infant formula that does not raise public health concerns. Melamine in baby formula has sickened more than 54,000 infants in China. The government there ordered the recall of more than 10,000 tons of formula. Last week, 12 more Chinese dairy companies were named as violators after tests found 31 batches of milk powder contaminated with melamine.Chinese officials believe that the contamination was intentional and  occurred at milk collecting stations, rather than on dairy farms. MassTortDefense has posted on this before.

In food products other than infant formula, the safety/risk assessment concludes that levels of melamine and melamine-related compounds below 2.5 ppm do not raise public health concerns. This conclusion assumes a worst case exposure scenario in which 50% of the diet is contaminated at this level, and applies a 10-fold safety factor to the Tolerable Daily Intake (TDI) to account for uncertainties.


According to the CDC, melamine is a synthetic chemical with a variety of industrial uses including the production of resins and foams, cleaning products, fertilizers and pesticides. It does not occur naturally in food. Animal studies have demonstrated that exposure to low levels of melamine produced no observable toxic effects. Exposures to high levels of melamine, or exposures to lower doses of melamine together with certain other chemicals, have caused urinary tract problems in animals. These have included urinary tract and kidney crystal and stone formation, and kidney failure. Exposures of animals to high doses of melamine over long time periods (years) have been associated with cancer of the bladder.

Because melamine is a component in plastics, there may be melamine in dinnerware, cups, and even Formica counter tops. But the amount of melamine that actually transfers from those products into food is very, very small, according to FDA.


Several melamine-contaminated foods found in recent weeks in the United States had far more than that amount of the chemical. White Rabbit candies from China were recalled after authorities in at least two states found melamine. And a New Jersey company announced that it was recalling Blue Cat Flavor Drink, after FDA testing found melamine. The chemical has also turned up in dairy products sold across Asia and, to a lesser extent, Europe.


The FDA guidelines were issued to help federal and state investigators checking for contaminated Chinese products as they enter the country and in grocery stores. To date, there have been no reports of illness from contaminated Chinese milk products in the United States. There are no approved uses for melamine to be added to food in the United States.

Melamine contamination was at the center of the tainted pet food scandal that resulted in more than 80 class actions and the creation of MDL 1850.  The federal judge overseeing the multidistrict pet food litigation has just issued final approval of a $24 million settlement that seeks to resolve claims over a massive recall of more than 90 contaminated dog and cat foods last year.

 

China Dairy Product and Infant Formula Issues Grow

Quality control investigators in China have announced they had found a dangerous protein substitute in dairy products produced by 20% of the Chinese companies that make infant formula. Reports are that more than 12,000 children had been hospitalized, most with kidney ailments, and 40,000 with less severe symptoms have been treated without admission. At least three have been killed.

Melamine, a protein imitator that is toxic, was used as a cheaper fill, and was found in the test samples. Melamine is the same protein replacement used in the Chinese-made pet food that killed thousands of cats and dogs last year.

What is the impact for readers of MassTortDefense? Several major Chinese dairy companies involved have international investors. But none of the formula products were exported to North America. The FDA said there is no known threat of contamination in infant formula manufactured by companies that have met requirements to sell the formula in the United States. However, FDA is investigating whether infant formula manufactured in China is being sold in markets here that serve the Asian community. And the FDA is alerting consumers that seven "Mr. Brown" instant coffee and milk tea products are being recalled by a Taiwanese company, due to possible contamination with melamine.

The developing food safety scandal has called into question, yet again, the effectiveness of China’s quality control system in general, and the country's new food safety regime in particular. Last year’s spate of product recalls, including drugs, toys, pet food and tires, placed the spotlight on China's quality control problems. MassTortDefense has posted on this here and here. Now comes the news that the newly enacted food safety recall system was not activated for at least two weeks after the problem became known to local officials, and the prime minister of New Zealand (an importer) charged the matter was covered up for several weeks while the Beijing Olympics were underway. Thus, thoughts naturally turn to efforts importers may mitigate the risks. A recent article in Risk Management Magazine offers a broad perspective on this. (Kent Kedl, Risk Strategies for the Chinese Market , published by the Risk and Insurance Management Society, which targets corporate risk managers.) At bottom, it is risk management to avoid a potential mass tort.

First, plan Strategy before Structure. In recent years, the Chinese government has changed its investment regulations to allow --and even encourage-- a variety of business arrangements, from strategic partnerships to wholly foreign-owned enterprises, to full acquisitions. RM suggests that companies coming to China must first ignore the "how" of structure and first focus on the "why" of their strategic intent for China: What products will have the most play? What segments of the market should they target? What distribution channels should they use? Who will be the major competition and how can they structure a defensible and sustainable value proposition?

Second, they advise companies to Get Close to the Market. Clearly, there are Chinese factories that have had quality issues, but the fact remains that there are millions of products coming out of China every month, most of which have no problems whatsoever. Maybe, then, the question should be how best to manage product quality, because someone is doing it right. Kedl and RM suggest that foreign companies need to manage their vendors on an ongoing basis. Meet with suppliers; validate the supply chain; don’t worry about price and on-time delivery to the exclusion of all else. Companies sourcing from China should consider putting their own people on the ground to manage their supply chain, establish and monitor their own quality systems, and maintain ongoing relationships with the vendors. This approach may raise a company's fixed costs but, in the long run, may greatly lower the risk associated with having products made in an emerging market.

Third, recognize that Relationships Matter. Early successful foreign entrants to China worked hard to build a relationship network for themselves. As China has developed a more credible legal framework and a more predictable market environment, however, foreign companies too often have believed they no longer need that social network and that, instead, they can do it on their own. RM suggests that may be a mistake.

Ongoing events put a premium on efforts by both China and the U.S. in implementing the 2007 Memorandum of Agreement (MOA) on food and feed safety. The MOA established a bilateral mechanism to provide greater information and other assurances to enhance the safety of food and feed products traded between the two countries. The countries have improved the exchange of information on food safety and on the relevant regulatory systems. The U.S. has agreed to conduct training for Chinese officials on U.S. regulatory standards. Each has designated new emergency contacts and notification thresholds for import safety issues. The two countries have also been working towards an electronic certification system between the FDA and China's General Administration of Quality Supervision, Inspection and Quarantine to ensure that Chinese exports meet FDA standards for safety and manufacturing quality. The countries also agreed to increase their focus on inspection, supervision and laboratory testing of Chinese imports. Finally, the report described the establishment of a cooperative mechanism to notify each other of significant risks to public health related to product safety or the gross deception of consumers, and to share information to facilitate each other’s investigation.