First Circuit Affirms Exclusion of Specific Causation Opinion

The First Circuit recently affirmed the exclusion of plaintiff's expert in a toxic tort claim, leading to summary judgment. See Milward v. Rust-Oleum Corp., No. 13-2132, 2016 WL 1622620 (1st Cir. 4/25/16).

Plaintiff Milward worked as a pipefitter and refrigerator technician for over thirty years. During the course of his employment, Milward was exposed to varying levels of benzene from paints and other products manufactured by (among others) Rust–Oleum Corporation. In 2004, he was diagnosed with Acute Promyelocytic Leukemia (“APL”). Three years later, Milward and his spouse sued Rust–Oleum.

To succeed against Rust–Oleum, the Milwards had the burden of establishing, through expert testimony, general and specific causation. In other words, they needed to show that exposure to benzene can cause APL (general causation), and that exposure to benzene was, in fact, a substantial factor in the development of Brian's APL (specific causation). The district court bifurcated the proceedings; it planned first to address the admissibility of expert testimony on general causation, and then to consider the specific causation issue.  

The issue on this appeal was specific causation. The Milwards retained occupational medicine physician Dr. Sheila Butler to serve as their expert witness, and the admissibility of her opinion testimony was at the heart of this appeal.  In her proposed testimony, Dr. Butler presented three theories.  First, she testified that although benzene is naturally occurring, there is no safe level of benzene exposure. This was her predominant theory, and she consistently reiterated her hypothesis. She emphasized that she reached this conclusion by examining “the biology, the pathophysiology, what the substance does to the person and the disease process.” And, she noted, she was able to do so without relying on any of the relevant epidemiological studies. Given this no-safe level theory, Dr. Butler maintained that Milward's exposure was likely the cause of his APL. The district court rejected this hypothesis because it could not be properly tested with any known rate of error. The Milwards did not meaningfully challenge the district court's conclusion on appeal.

Second, Dr. Butler rather cursorily concluded that even beyond the no-safe level hypothesis, certain epidemiological studies have established that an individual's “relative risk” of developing APL increases when exposed to specified amounts of benzene. She then compared Milward's exposure levels to those that had been found to be dangerous in that research. Since Milward's alleged exposure was higher than the amounts found to be hazardous, Dr. Butler reasoned that benzene exposure was likely the cause of his APL. Notably, she did not explain why she chose the studies on which she relied, nor did she address any study with contrary findings. In fact, during Dr. Butler's deposition, defendant's counsel asked her a number of questions about her ability and willingness to engage with the relevant epidemiological research. For instance, counsel asked, “Are you aware of any studies which find that there is no relationship between benzene exposure and APL,” to which she answered “Yes ... the literature has support for both.” Counsel then asked, “Do you intend in this case to weigh the different epidemiological studies and offer an opinion as to which ones we should rely on and which ones we should discount,” to which she replied, “No.”


Finally, Dr. Butler engaged in a so-called “differential diagnosis” to conclude that benzene exposure likely caused Milward's APL. Through this method (essentially a process of elimination) Dr. Butler “ruled out” some of the more common factors associated with APL, among them obesity and smoking. She then determined that since benzene exposure was a potential cause, she could also “rule out” an idiopathic diagnosis (or, a diagnosis without a known cause). Thus, since benzene exposure was the only significant potential cause remaining, she concluded that it was likely the culprit.

The court of appeals noted that it is NOT true that scientific studies must present diametrically opposing conclusions to be in tension with one another. Here, a number of studies were identified that showed a correlation between APL and benzene exposure at a specific level, while other studies do not show that correlation. In order to establish specific causation by the relative risk method, Dr. Butler was required to choose a study, or studies, to serve as a baseline to which she could then compare this case. There can be no serious question that choosing a study that showed a correlation above a specific level, rather than one that did not exhibit any such correlation, yields a vastly different comparison. The district court did not clearly err in finding that the studies were sufficiently distinct from one another such that utilizing one, rather than another, would necessarily lead to different testimony.  Generally, where an expert's medical opinion is grounded exclusively on scientific literature, a district court acts within its discretion to require the expert to explain why she relied on the studies that she did and, similarly, why she disregarded other, incompatible research. See, e.g., Kuhn v. Wyeth, Inc., 686 F.3d 618, 623–24 & 633 (8th Cir.2012) (permitting testimony where the expert witness relied on methodologically reliable studies and provided an explanation for why those studies were chosen); Norris v. Baxter Healthcare Corp., 397 F.3d 878, 886 (10th Cir.2005) (noting in the context of a general causation finding that the expert witness's inability to address contrary views made the opinion unreliable).

It is self-evident that, when an expert engages in a relative risk analysis in the manner that Dr. Butler did here, the district court is on firm ground in requiring such an explanation, since the validity of the approach depends on the reliability of the studies chosen. See 3 Mod. Sci. Evidence § 23:27 (2014–2015 Ed.) (discussing the use of the relative risk approach in establishing specific causation).  So, the district court reasonably ruled that there needed to be some indication of why Dr. Butler utilized the studies that she did. Indeed, her complete unwillingness to engage with the conflicting studies (irrespective of whether she was able to or not) made it impossible for the district court to ensure that her opinion was actually based on scientifically reliable evidence and, correspondingly, that it comported with Rule 702.

On the third issue, while a “differential diagnosis” can be a “reliable method of medical diagnosis: in some contexts, see Granfield v. CSX Transp., Inc., 597 F.3d 474, 486 (1st Cir.2010), an expert must still show that the steps taken as part of that analysis—the “ruling out” and the “ruling in” of causes—were accomplished utilizing scientifically valid methods. See Ruggiero v. Warner–Lambert Co., 424 F.3d 249, 254 (2d Cir.2005).  Since Dr. Butler was only able to “rule out” an idiopathic APL because she had “ruled in” benzene as a cause, the validity of her differential diagnosis turns on the reliability of that latter conclusion. See Ruggiero, 424 F.3d at 254 (noting that an expert must use reliable scientific methods to “rule in” causes); see also Best v. Lowe's Home Ctrs., Inc., 563 F.3d 171, 179 (6th Cir.2009); Glastetter v. Novartis Pharm. Corp., 252 F.3d 986, 989 (8th Cir.2001). Indeed, the reliability of that decision was particularly critical here given the extensive number of APL cases that are idiopathic. Under such circumstances, eliminating a number of potential causes—without properly and explicitly “ruling in” a cause—is simply “of little assistance.” Restatement (Third) of Torts; Phys. & Emot. Harm § 28, cmt. c(4)(2010).  

Dr. Butler “ruled in” benzene exposure solely by relying on her two other theories. But, both of these theories were unreliable. Given that the record did not contain a scientifically reliable basis to “rule in” benzene, Dr. Butler needed some other method to “rule out” an idiopathic diagnosis. She did not provide one. As such, the district court acted within its discretion to conclude that the extraordinary number of idiopathic APL cases, coupled with the lack of a reliable means to rule out an idiopathic diagnosis here, muted Dr. Butler's ability to reliably apply this methodology.

Once the district court excluded Dr. Butler's testimony, it then correctly granted Rust–Oleum's motion for summary judgment. As is well-established under Massachusetts law, “expert testimony is required to establish medical causation.” Reckis v. Johnson & Johnson, 28 N.E.3d 445, 461 (Mass.2015).

 

"The Rise of Empty Suit Litigation"

Two of my partners here at SHB, Victor Schwartz (of the famed “Schwartz on Torts” casebook) and Cary Silverman, just published a new article, “The Rise of “Empty Suit” Litigation®. Where Should Tort Draw the Line?”,  80 Brook. L. Rev. 599 (2015) .  

The article focuses on litigation where an individual or class action plaintiff has suffered no real harm, physical, emotional or economic.  These include:

·         claims for recovery of speculative emotional harm;

·         liability for the estimated cost of medical monitoring following exposure to a potentially harmful substance absent a physical injury;

·         class action litigation claiming that a product’s actual value was lower than the purchase price or that the resale value of a product diminished because of an alleged latent defect, even when the product functioned properly for most or all consumers; and

·         class actions challenging product labeling or advertising on behalf of all consumers where few, if any, of them were actually misled.

Empty Suit Litigation®” addresses both individual claims where there has been no real injury or economic loss, and class actions that rely on speculative or expert-driven theories of harm or class-wide damages.

Definitely worth checking out.  

 

Upcoming Seminar of Interest

Our readers may be interested in the upcoming seminar: Chemical Products Liability and Environmental Litigation.  

It's scheduled for April 22-23 in New Orleans, and includes topics such as Recent Developments In Fracking Litigation, and Navigating the Litigation Threat Stemming from Potentially Disruptive Regulatory Changes.

Your humble blogger is on the faculty.  I have the privilege of moderating a panel on In-House Perspectives: Thinking like Litigation Counsel, Analyzing Litigation Trends, and Sharing Insight about Docket Management.  The panel features Jennifer L. Ferratt, Esquire, of Chevron USA; Scott A. King, Esquire, from Occidental Chemical Corporation, and Eric S. Sarner, Esquire, of Praxair, Inc.

This is the 6th Annual conference and the prior years' drew great reviews from litigators in the toxic tort and environmental fields. 

Worth checking out.

Lone Pine Issue Moving to State Supreme Court

Readers know we have posted before about the important case management tool known as the "Lone PIne" order. These “Lone Pine” orders take their name from a 1986 New Jersey Superior Court case involving toxic tort claims; they refer to case management orders that require the plaintiffs to make a showing regarding causation, injury, and/or damages to demonstrate, typically at an early stage, some minimal level of evidentiary support for the key components of their claims which will be in dispute.

A Colorado trial court had dismissed a claim, relying on a Lone Pine order, 2012 WL 1932470, that arose from the drilling and completing of three natural gas wells in Silt, Colorado.   The central issue was whether defendants caused plaintiffs’ alleged injuries, which plaintiffs vaguely described as “health injuries” from exposure to air and water contaminated by defendants with “hazardous gases, chemicals and industrial wastes." Plaintiffs also alleged that defendants had caused loss of use and enjoyment of their property, diminution in value of property, loss of quality of life, and other damages.  The court required plaintiffs, before opening full two-way discovery, to make a prima facie showing of exposure and causation.  The court further determined that the prima facie showing requirement should not prejudice plaintiffs because they needed a good faith basis for their complaint, and ultimately they would need to come forward with this data and expert opinion on exposure and causation in order to establish their claims anyway.

Plaintiffs were given 105 days to comply with the CMO. After that time, all plaintiff's expert could opine was that “sufficient environmental and health information exists to merit further substantive discovery.” Significantly, the expert offered no opinion as to whether exposure was a contributing factor to plaintiffs’ alleged injuries or illness. And the requested march towards further discovery
without some adequate proof of causation of injury is precisely what the CMO was meant to
curtail. The expert suggested, at best, a very weak circumstantial causal connection between the Wells and plaintiffs’ injuries. 

The expert did not opine on whether any and each of the substances present in the air and water samples (taken after plaintiffs had moved out of the area) can cause the type(s) of disease or illness that plaintiffs claimed (general causation). Finally, and perhaps most significantly,the expert did not even attempt to draw a conclusion that plaintiffs’ alleged injuries or illnesses were in fact caused by such exposure (specific causation).

The Colorado Court of Appeals ruled in 2013 that the state civil procedure rules did not allow trial courts to require plaintiffs to present prima facie evidence supporting their claims after initial disclosures, but before other discovery commenced.  This view was outside the mainstream of cases discussing the broad discretion necessarily given trial courts to manage their dockets and administer discovery. 

The state supreme court has now agreed to review the decision.  See Antero Res. Corp. v. Strudley,, No. 2013SC576 (Colo. cert. granted 4/7/14).  The review will focus on two issues. First, whether the trial court is barred under the state rules from entering a modified case management order requiring plaintiffs to produce limited evidence essential to their claims after initial disclosures but before further discovery.  The second issue is whether the district court in this case acted within its discretion in entering and enforcing such an order.

It will be interesting to see if Colorado moves back into the mainstream in allowing these sensible case management tools.

Asbestos Conspiracy Verdict Overturned

An Illinois appellate court recently affirmed the trial court's decision overturning a significant jury verdict against various defendants accused of conspiring to conceal the dangers of asbestos. See Gillenwater v. Honeywell International Inc., et al., No. 4-12-0929 (Ill. App. Fourth District, 2013).

Plaintiff allegedly contracted mesothelioma as a result of exposure to asbestos in his job as a pipe-fitter. Gillenwater never worked for any of the companies in the appeal, but alleged they had engaged in a civil conspiracy with one another and the distributor to conceal the hazards of asbestos-containing products.  Readers understand that plaintiffs will often allege a conspiracy to draw in deep pocket defendants and to attempt to utilize one defendant's documents against another defendant.  The case went to trial and the jury returned a verdict for significant compensatory and punitive damages against the three defendants.

The court of appeals found that while there was some evidence that these defendants had some knowledge of the risks of asbestos, there was not sufficient evidence for a jury to conclude that they conspired together to conceal that knowledge.  Indeed, plaintiffs had no evidence that defendants Honeywell and Abex ever interacted with the product seller in any way. Honeywell and
Abex appeared to be nothing but bystanders, allegedly committing alleged wrongs that had nothing to do with plaintiff.  

Because a conspiracy requires a conspiratorial agreement between the active wrongdoer and the other conspirators, a logical first step when evaluating a claim of conspiracy is to clearly identify the active wrongdoer, the one whose tortious conduct was the proximate cause of harm to the plaintiff, as distinct from those who harmed the plaintiff more indirectly, merely by allegedly encouraging the active wrongdoer. The court noted that the gist of a conspiracy claim is not the agreement itself, but the tortious acts performed in furtherance of the agreement.  It is important to identify the active wrongdoer, because a conspiracy exists only if the others intentionally assisted or encouraged the tortious conduct of the active wrongdoer.  Here the alleged active wrongdoer was Owens-Corning. 

Plaintiff did present some evidence of interaction between defendant Owens Illinois and Owens-Corning because it manufactured the insulation that was ultimately distributed by Owens-Corning. The court reviewed the other alleged interactions on studies and warnings, shared directors, stock ownership, contracts, etc., in detail. But also noted that those companies terminated their relationship more than a decade before Gillenwater was first exposed to the products. The court cited numerous federal cases for the proposition that once a conspiracy has been terminated, that conspiracy claim cannot be extended by suggesting a second, subsidiary conspiracy to keep the original one under wraps. 

While a conspiracy can be shown by circumstantial evidence, and mere parallel conduct might serve as circumstantial evidence of an agreement under the civil conspiracy theory, it cannot, in itself, be considered clear and convincing evidence of such an agreement among manufacturers of the same or similar products.  Here, the defendants appeared to be engaging in parallel conduct by which they allegedly concealed the dangers of their own asbestos-containing products in order allegedly to maximize their own profits. 

This is not to say it is impossible for companies to have a conspiratorial agreement to continue doing that which is in their economic interest. But here a conspiratorial agreement was unnecessary to explain parallel conduct in continuing to do that which is in their economic interest. They each could be expected to pursue their economic interest on their own individual initiative. For that reason, in the absence of more evidence, it would be pure speculation to posit a conspiracy on the basis of consciously parallel conduct that is in each company’s economic interest; and tort liability cannot rest on speculation, said the court of appeals.

 

Maryland Retains Contributory Negligence

In an interesting decision, the Maryland Court of Appeals decided to retain the traditional doctrine of contributory rather than comparative fault.  See Coleman v. Soccer Association of Columbia, No. 9-2012 (Md. July 9, 2013). 

Several decades ago, the court in Harrison v. Montgomery County Bd. of Educ., 295 Md. 442, 444, 456 A.2d 894 (1983), addressed whether the common law doctrine of contributory negligence should be judicially abrogated in Maryland and the doctrine of comparative negligence adopted in its place.  The court declined to abandon the doctrine of contributory negligence in favor of comparative negligence, pointing out that such change “involves fundamental and basic public policy considerations properly to be addressed by the legislature.”

In Coleman, the petitioner presented the same issue that was presented in Harrison, namely whether the court should change the common law and abrogate the defense of contributory negligence in certain types of tort actions. After reviewing the issue again, the court arrived at the same conclusion: that, although the court had the authority to change the common law rule of contributory negligence, it would decline to abrogate Maryland’s long-established common law principle of contributory negligence.

The opinion provides an interesting dialog as to which branch of government should decide such a substantial change to the tort law.  The majority and concurring opinions say that the issue of adoption of comparative fault is really one for the legislature to decide. Note my colleagues filed an amicus brief in the case on behalf of the American Tort Reform Association, Chamber of Commerce of the United States of America, and others, arguing for continued application of the contributory negligence doctrine.

 

ATRA Releases "Judicial Hellholes" Report

The American Tort Reform Association has released its latest edition of the Judicial Hellholes report.  Of particular interest, ATRA ultimately chose to move formerly #1-ranked Philadelphia (home base of your humble blogger) off the list of Judicial Hellholes and into the top slot on the marginally less critical "Watch List."   ATRA wanted to acknowledge various efforts taken by the local court recently to step back from prior administrative steps that seemed designed to attract out of state mass tort plaintiffs.

ATRA now ranks California -- the entire state – as the new #1 Judicial Hellhole (it was #2 last year).  "Lingering troubles with an unbalanced playing field" earn West Virginia the second-place ranking; Madison County, Illinois earned the #3 ranking with filings of new asbestos lawsuits in the small, rural jurisdiction poised to set another record. And New York City’s mounting tort liability, and Baltimore because of its asbestos litigation, led to fourth- and fifth-place rankings for those jurisdictions.


This latest report also debuts a new feature scrutinizing some of the worst (and best) federal appellate decisions of the year, and they also added a special focus on the explosion of consumer protection litigation, particularly that which targets “Big Food.”

 

 

Fracking Toxic Tort Case Dismissed Per Lone Pine Order

Readers will recall our earlier postings on "fracking"; natural gas from shale rock promises to provide cleaner, abundant energy for the U.S.  New drilling methods allow companies to tap into huge quantities of gas from shale rock. New estimates show that we have enough of this natural gas to last 100 years at current consumption rates.

The second biggest natural gas field in the world -- the Marcellus -- runs through your humble blogger's home state of Pennsylvania. The energy, jobs, taxes, and independence that tapping into this domestic resource will bring has spurred much interest and anticipation. The method to extract the gas from the rock is called hydraulic fracturing, or fracking, which like any technology, carries potential risks.

However, the potential drilling into the Marcellus Shale has caught the attention of the plaintiffs' bar, including personal injury and environmental class action lawyers. Plaintiffs lawyers are openly speculating about everything from gas leaks and fires, to environmental groundwater impacts, to the problems of large tanker trucks on small rural roadways.

We posted before about one such case already filed regarding another deposit, out West. See Strudley v. Antero Resources Corp., No. 2011CV2218 (Colo. Dist. Ct., Denver Cty., 3/24/11). Plaintiffs sued the gas exploration company and drilling equipment contractor, alleging that the hyrdrofracking contaminated their well water.

Earlier this month, the Colorado court dismissed the claim, relying on a  Lone Pine order, 2012 WL 1932470. The case arose from drilling and completing three natural gas wells in Silt, Colorado known as the Diemoz A well, the Fenno Ranch A well, and the Three Siblings A well. Construction of the Wells allegedly began on August 9, 2010. By January 10, 2011, plaintiffs had moved out of their home and away from Silt.

The central issue was whether defendants caused plaintiffs’ alleged injuries, which
plaintiffs vaguely described as “health injuries” from exposure to air and water contaminated by
defendants with “hazardous gases, chemicals and industrial wastes." Plaintiffs also alleged that
defendants had caused loss of use and enjoyment of their property, diminution in value of
property, loss of quality of life, and other damages. 

Cognizant of the significant discovery and cost burdens presented by a case of this nature, the court endeavored to invoke a more efficient procedure than we see in the standard case management order. The court required plaintiffs, before opening full two-way discovery, to make a prima facie showing of exposure and causation, a form of a Lone Pine order. See Lore v. Lone Pine Corp., No. L-33606-85 1986 WL 635707 (N.J. Sup. Ct. Nov. 18, 1986). The court further
determined that the prima facie showing requirement should  not prejudice plaintiffs because
ultimately they would need to come forward with this data and expert opinion on exposure and causation in order to establish their claims anyway.

The court also seemed influenced by the fact that the Colorado Oil and Gas Conservation Commission (“COGCC”) had conducted an investigation of the plaintiffs’ well water and had concluded that the water supply was not affected by oil and gas operations in the vicinity. Defendants also provided evidence to support their contention that the air emission-control
equipment at the Wells and prevailing wind patterns made it unlikely that plaintiffs or their
property were exposed to harmful levels of chemicals from defendants’ activities.

Specifically, the CMO required plaintiffs to identify the identity of each hazardous substance from defendants’ activities to which he or she was exposed and which caused him or
her injury;  evidence whether any and each of these substances can cause the type(s) of disease or illness that plaintiffs claimed (general causation);  the dose or other quantitative measurement of the concentration, timing and duration of his/her exposure to each substance; a medically recognized diagnosis of the specific disease or illness from which each plaintiff allegedly suffers or is at risk for such that medical monitoring is purportedly necessary; and a conclusion that such illness was in fact caused by such exposure (specific causation).

Plaintiffs were given 105 days to comply with the CMO. After that time, all plaintiff's expert could opine was that “sufficient environmental and health information exists to merit further substantive discovery.” Significantly, he offered no opinion as to whether exposure was a contributing factor to plaintiffs’ alleged injuries or illness. And the requested march towards further discovery
without some adequate proof of causation of injury is precisely what the CMO was meant to
curtail. The expert  suggested, at best, a very weak circumstantial causal connection between the Wells and plaintiffs’ injuries. In fact, he merely temporally associated plaintiff’s symptoms with the Wells being brought into production.

While the proffered evidence showed existence of certain low level gases and compounds in both the air and water of plaintiffs’ Silt home, there was neither sufficient data nor expert analysis stating with any level of probability that a causal connection does in fact exist between the alleged injuries and exposure to defendants drilling activities.  This is particularly telling, since Mr. Strudley complained of “nasal sinus congestion, nose bleeds at inconvenient times” and “an aversion to odors,” while he owns a painting business, and was frequently exposed to paint vapors -- offering a ready alternative explanation for his alleged respiratory symptoms.

The expert did not opine on whether any and each of the substances present in the air and water samples (taken after plaintiffs had moved out) can cause the type(s) of disease or illness that plaintiffs claimed (general causation). He did not discuss the dose or other quantitative measurement of the concentration, timing and duration of the alleged exposure to each substance. Finally, and perhaps most significantly,the expert did not even attempt to draw a conclusion that plaintiffs’ alleged injuries or illnesses were in fact caused by such exposure (specific causation).

The case reflects an effective, but also appropriate, use of the Lone Pine order. It may be a useful model for other fracking toxic tort suits, and is important as an illustration of a method to avoid long, expensive, and unnecessary discovery in such cases. 

 

Update BUT SEE Strudley v. Antero, Colo. Ct. App., No. 12CA1251, 7/3/13.

Tort Reform Continues in Arizona

As always at MassTortDefense we are happy to note tort reform victories.

Earlier this month Arizona Governor Brewer signed legislation limiting punitive damage awards in product liability defect suits in the state.

The bill, H.B. 2503, was passed by wide margins in both chambers of the state legislature earlier in the Spring.  It states that punitive damages generally cannot be awarded in a civil suit in Arizona when a product is designed, manufactured, packaged, labeled, sold, or represented in relevant and material respects in accordance with a federal agency's approval, clearance, or determination.

The legislation does not exempt punitive damages if the company that sells a product does so after a final order is given from a government agency to withdraw or recall the item from the market.

Supporters had indicated that the measure was important to discourage the practice of seeking punitive damages simply as a lever to force a defendant to settle, as insurance typically does not cover punitives. Businesses that manufacture products in compliance with all relevant health and safety standards should not be held liable for punitive damages in product liability cases. Laws like this one give clients the security to be innovative. When creating new products, businesses can be assured that by complying with mandated guidelines they will not be subject to unjust punitive sanctions. 

 

Court of Appeals Affirms Dismissal of FEMA Trailer Claims

The Fifth Circuit recently upheld the dismissal of putative class actions filed by Mississippi and Alabama residents against the federal government alleging trailers provided to Hurricane Katrina-impacted citizens contained hazardous levels of formaldehyde. See In re: FEMA Trailer Formaldehyde Products Liability Litigation (Mississippi Plaintiffs), No. 10-30921, and In re: FEMA Trailer Formaldehyde Products Liability Litigation (Alabama Plaintiffs), No. 10-30945 (5th Cir. 2012).

Plaintiffs-Appellants brought this Federal Tort Claims Act action against the United States for injuries allegedly related to their exposure to elevated levels of formaldehyde contained in the component materials of the Emergency Housing Units (“EHUs”) provided to them by the Federal Emergency Management Agency (“FEMA”) after Hurricanes Katrina and Rita. Readers will recall we have posted about various aspects of this litigation before. In October 2007, the United States Judicial Panel on Multidistrict Litigation created MDL No. 07-1873 (In re: FEMA Trailer Formaldehyde Products Liability Litigation), and assigned the complex litigation to the United States District Court for the Eastern District of Louisiana.

The key facts: After the hurricanes, FEMA activated its Individual and Household Assistance Program and, from September 2005 through May 1, 2009, the agency supplied disaster victims with EHUs, at no cost, to use as temporary shelter. The EHUs were taken from FEMA’s preexisting inventory, which had been purchased from public retailers as well as directly from manufacturers. The EHUs were small, portable, and usually placed at the disaster victims’ home sites. The trailers were installed by government contractors who placed the units on blocks or piers, anchored them to the ground using straps or bolts, and connected them to public sewer and water lines.

In March 2006, when FEMA began receiving formaldehyde-related complaints, it encouraged shelter occupants to ventilate their EHUs by opening the doors and windows. In June 2006, FEMA prepared an informational brochure informing EHU occupants of the potential risks of formaldehyde exposure, encouraging them to ventilate their units, and urging them to seek medical help if they developed health problems related to formaldehyde. In September 2006, FEMA began working with the Environmental Protection Agency to test the EHUs for formaldehyde, and also developed various new mitigation techniques.  In July 2007, FEMA distributed another informational brochure to EHU occupants, set up a hotline and a dedicated call center to field formaldehyde complaints from occupants, and continued to assist occupants in locating alternative housing. FEMA subsequently entered into an agreement with the CDC to conduct additional testing, the findings of which were compiled in a third informational brochure and distributed to EHU occupants in early 2008.

The federal government filed various motions to dismiss the claims against it, or in the alternative for summary judgment, based on the FTCA’s discretionary function exception.The district court denied the motions and held that the FTCA’s discretionary function exception might not apply to some or all of appellants’ claims, the determination of which would be driven by the facts of each individual case.  The district court then denied class certification and scheduled a series of bellwether trials in the MDL, but none of the FTCA claims brought by the bellwether plaintiffs against the Government advanced to the trial stage.

The Government then moved under Federal Rule 12(b)(1) to dismiss Appellants’ FTCA claims for lack of subject-matter jurisdiction on the grounds that no analogous private liability existed under the Mississippi and Alabama emergency statutes.  The district court granted the Government’s motion and dismissed appellants’ FTCA claims. Plaintiffs appealed to the Fifth Circuit.

 A plaintiff may only sue the United States if a federal statute explicitly provides for a waiver of sovereign immunity. The United States must consent to be sued, and that consent is a prerequisite to federal jurisdiction. Delta Commercial Fisheries Ass’n v. Gulf of Mex. Fishery Mgmt. Council, 364 F.3d 269, 273 (5th Cir. 2004). Waivers of sovereign immunity are narrowly construed in favor of the United States. In re Supreme Beef Processors, Inc., 468 F.3d 248, 253 (5th Cir. 2006). The FTCA is recognized as providing a waiver of sovereign immunity and provides the sole basis of recovery for tort claims against the United States. See 28 U.S.C. § 1346 and § 2671, et seq.; In re Supreme Beef Processors, 468 F.3d at 252 n.4. But the Act provides that the United States shall be liable in the same manner and to the same extent as a private individual under like circumstances. See
28 U.S.C. § 2674.

The "same manner" analysis is a mix of federal and state law. The FTCA requires the  Government's liability to be measured in accordance with the law of the state where the alleged act or omission occurred, so here the Appellants’ FTCA claims were limited by the relevant provisions set forth in Mississippi and Alabama tort law. See 28 U.S.C. § 1346(b)(1); Richards v. United States, 369 U.S. 1, 11-14 (1962); Cleveland ex rel. Cleveland v. United States, 457 F.3d 397, 403 (5th Cir. 2006). Whether a private person in “like circumstances” would be subject to liability is also a question of sovereign immunity and, thus, is ultimately a question of federal law. See United States v. Olson, 546 U.S. 43, 44 (2005). Because the federal government could never be exactly like a private actor, a court’s job in applying the standard is to find the most reasonable analogy. LaBarge v. Cnty. of Mariposa, 798 F.2d 364, 366-69 (9th Cir. 1986). Inherent differences between the government and a private person cannot be allowed to disrupt this analysis. The Fifth Circuit has consistently held that the government is entitled to raise any and all defenses that would potentially be available to a private citizen or entity under state law. Camacho v. Tex. Workforce Comm'n, 445 F.3d 407, 410 (5th Cir. 2006). Therefore, if a private person under “like circumstances” would be shielded from liability pursuant to a state statute, lower courts must decline to exercise subject matter jurisdiction in a case like this.

Because, here, the Mississippi and Alabama emergency statutes abrogate the tort liability of a private person who, (1) voluntarily, (2) without compensation, (3) allows his property or premises to be used as shelter during or in recovery from a natural disaster, the Government’s voluntary, cost-free provision of the EHUs to disaster victims, in connection with Hurricanes Katrina and Rita, was
also immunized conduct under the statute.  Despite plaintiffs' arguments, the Government’s provision of the government-owned EHUs, as implemented by FEMA, was voluntary because it was under no contractual or legal obligation, under any federal legislation, to provide the EHUs to disaster victims in response to the disasters. The Government did not receive compensation from the disaster victims in exchange for letting them use the EHUs. (The collection of taxes by the Government was not comparable to the traditional quid pro quo compensation contemplated by the statute.) In addition, the Government’s actions relating to the EHUs fell within the time frame contemplated by the statute as “during or in recovery from” a major disaster, since FEMA’s temporary emergency housing program ran from the hurricanes up to May, 2009.

Because Mississippi and Alabama emergency laws would protect those private individuals who shelter natural disaster victims from tort liability, the federal government's voluntary provision of the trailers was likewise immunized, the court concluded.

As an alternative, the appellants asked the Fifth Circuit to certify questions to the state supreme courts of Alabama and Mississippi regarding the meaning of the state emergency statutes, but the appeals court agreed with the district court that these questions did not warrant certification. Dismissals affirmed.

NTP Proposes Changes to Process for Next Report on Carcinogens

The National Toxicology Program is accepting comments on a revised process for reviewing substances that may be added to its widely cited "Report on Carcinogens." NTP is accepting comments up to Nov. 30th.

The Report is required by Congress to be published every two years, and is designed to provide
information on substances that may pose a hazard to human health by virtue of their  carcinogenicity.  Substances are listed in the report as either known or reasonably anticipated human carcinogens. The 12th Report was published in June, 2011. But now, the NTP is proposing changes to the review process for listing substances in the 13th Report.

The NTP will hold a listening session on November 29, 2011, from 1–5 p.m. (EST), as well, to receive oral comments on the proposed review process.

Under the proposed process, NTP says it would make its substance review process more flexible, and more descriptive of the  reasoning it used to develop a proposed classification of an agent, and  thus would summarize the relevant science and also the agency's reasoning about how the agent should be classified.

Toxic tort practitioners among our readers may want to take a look (and have their experts do so).
 

State Appeals Court Rejects Medical Monitoring

The Wisconsin court of appeals last week affirmed the dismissal of a plaintiff's medical monitoring complaint for failure to state a claim.  Alsteen v. Wauleco Inc.,  No. 2010AP1643 (Wis. Ct. App., 6/14/11).

Plaintiff alleged that, while living in a nearby neighborhood, she was exposed to carcinogenic
chemicals that defendant Wauleco allegedly released from the Crestline window factory. Alsteen did not allege that she suffered any present health problems due to this exposure; however, she contended she was at an increased risk of developing cancer in the future. She therefore sought damages for future medical monitoring expenses.

From approximately 1946 to 1986, operations at the Crestline site included treatment of wood products with a preservative called “Penta.”  Plaintiff alleged that Penta contains hazardous chemicals, including dioxins, pentachlorophenol, and benzene. These chemicals, plaintiff asserted, are harmful to human health and some are classified as possible carcinogens. As a result, the air, soil, surface water, and groundwater in her River Street neighborhood allegedly  became contaminated with dangerous levels of these hazardous chemicals. Current and former residents of the neighborhood had ingested, inhaled, and absorbed these chemicals, the complaint averred.

Some neighbors sued for personal injuries; others sued for property damage.  A third group, including plaintiff, sued for medical monitoring.  Readers know we have posted on medical monitoring issues before.

The trial court dismissed the action for failure to state a claim.  The key issue on appeal was whether Wisconsin law recognized a cause of action for medical monitoring, for increased risk of future disease in the absence of present injury. The court of appeals affirmed, relying on Wisconsin case law that requires actual injury before a plaintiff may recover in tort;  on the reasoning of the Supreme Court’s decision in Metro-North Commuter Railroad Co. v. Buckley, 521 U.S. 424 (1997)(asymptomatic railroad worker who had been exposed to asbestos could not recover medical monitoring expenses under FELA); and on the persuasive reasoning of courts in several other jurisdictions that have addressed the issue and have articulated sound policy reasons for refusing to recognize medical monitoring claims in the absence of actual injury.

Increased risk of future harm is not an actual injury under Wisconsin law.  Meracle v. Children’s Service Society of Wisconsin, 149 Wis. 2d 19, 437 N.W.2d 532 (1989), and mere exposure to a chemical is not an affront to plaintiff's body that constitutes an actual injury. Dyer v. Blackhawk Leather, LLC, 313 Wis. 2d 803, 758 N.W.2d 167 (2008).  The court recognized that while medical monitoring in essence substitutes the increased risk of future disease for the traditional tort injury element, this argument is inconsistent with Wisconsin law, which requires plaintiffs to prove present injury. This "argument turns tort law on its head by using the remedy sought —compensation for future medical monitoring — to define the alleged injury."  See also Henry v. Dow Chem. Co., 701 N.W.2d 684, 691 (Mich. 2005). Similarly, other courts have rejected the argument that the "need" for medical monitoring itself is an injury, reasoning, “With no injury there can be no cause of action, and with no cause of action there can be no recovery. It is not the remedy that supports the cause of action, but rather the cause of action that supports a remedy.” Wood v. Wyeth-Ayerst Labs., 82 S.W.3d 849, 855 (Ky. 2002).

The state court also found persuasive the worries of the Supreme Court in Buckley: First, it recognized that medical monitoring claims present  special difficulties for judges and juries who will be forced to identify which costs are the extra monitoring costs, over and above those otherwise recommended. This problem is compounded by uncertainty among medical professionals about just which tests are most usefully administered and when. The Court also expressed concern that permitting a medical monitoring claim without actual injury could lead to unlimited and  unpredictable liability.

Importantly, the state court here recognized that many of the policy concerns identified in Buckley also apply in the context of a court-supervised medical monitoring fund (as opposed to damages). Specifically, the Supreme Court’s concerns regarding the difficulty of assessing the costs of the remedy, unlimited and unpredictable liability, and confusion over application of secondary sources of payment, apply regardless of the form of remedy.

Finally the court aligned itself with the trend in recent cases around the country to reject such claims: E.g., Henry, 701 N.W.2d 684; Hinton v. Monsanto Co., 813 So. 2d 827 (Ala. 2001); Lowe v. Philip Morris USA, Inc., 183 P.3d 181(Or. 2008); Badillo v. American Brands, Inc., 16 P.3d 435 (Nev. 2001); Paz v. Brush Eng’d Materials, Inc., 949 So. 2d 1, 3, 5 (Miss. 2007).

The court accordingly refused to “step into the legislative role and mutate otherwise sound legal
principles” by creating a new medical monitoring claim that does not require actual injury.

 

.

 

Bills to Curb Frivolous Suits Introduced in Congress

With the Republicans in control of the House, many were wondering about the prospects for tort reform at the federal level.  Indeed, President Barack Obama observed in his State of the Union address on January 25, 2011, “I am willing to look at . . . ideas to bring down costs including reform to rein in frivolous lawsuits.” 

House Judiciary Committee Chairman Lamar Smith (R-Texas) earlier this month introduced legislation to reduce frivolous lawsuits. Senate Judiciary Committee Ranking Member Chuck Grassley (R-Iowa) then introduced a companion bill in the Senate (S.533).

The Lawsuit Abuse Reduction Act (LARA), H.R. 966, would impose mandatory sanctions for plaintiff lawyers who file merit-less suits in federal court. 

Chairman Smith argued that lawsuit abuse has become too common in American society partly because the lawyers who bring these cases have everything to gain and nothing to lose. Plaintiffs' lawyers can file frivolous suits, no matter how absurd the claims, without any penalty. Meanwhile defendants are faced with the choice of years of litigation, high court costs and attorneys' fees or a settlement. Our legal system encourages frivolous lawsuits while defendants are left paying the price even when they are innocent. Many of these cases have cost innocent people and business owners their reputations and hundreds of thousands of dollars.

Ranking Member Grassley noted that without the serious threat of punishment for filing frivolous lawsuits, innocent individuals and companies will continue to face the harsh economic reality that simply paying off frivolous claimants through monetary settlements is often cheaper than litigating the case. "This perverse dynamic not only results in legalized extortion, it leads to businesses spending money to defend against baseless lawsuits rather than to create new jobs."

The Lawsuit Abuse Reduction Act would take three steps to help thwart frivolous lawsuits.

* Reinstates the requirement that if there is a violation of Rule 11, there will be sanctions.

* Requires that judges impose monetary sanctions against lawyers who file frivolous lawsuits.

* Reverses the 1993 amendments to Rule 11 that allow parties and their attorneys to avoid sanctions for making frivolous claims by withdrawing them within 21 days after a motion for sanctions has been served.

The House Judiciary Committee has already held a hearing on the House version, at which witnesses included Elizabeth A. Milito of the NFIB Small Business Legal Center, Professor Lonny Hoffman of the University of Houston Law Center, and Victor E. Schwartz, well known tort reform advocate.


 

District Court Upholds Punitives in Surprising Decision

In a surprising and somewhat questionable decision, the U.S. District Court for the Northern District of Ohio recently upheld a jury verdict awarding punitive damages with a ratio of more than 6-1 between punitive and compensatory damages. Cooley v. Lincoln Electric Co., No. 1:2005-cv-17734 (N.D. Ohio, 3/7/11).

The case was part of the welding fumes mass tort.  Plaintiff Curt Cooley used welding rods at work and home for about 40 years. After being diagnosed with a form of manganese poisoning, Cooley  sued several welding rod manufacturers, alleging that defendants knew that inhaling welding fumes presented a risk of irreversible neurological injury but failed to adequately warn of the risk.

The overwhelming majority of welding rod verdicts have been for defendants, but here a jury returned a verdict for plaintiffs, awarding $787,000 in compensatory damages, after reduction for the allocated plaintiff's comparative fault of 37%, and $5 million in punitive damages.

In post-trial motions, defendants moved, inter alia, for reduction of the punitive damages. In BMW
of North America, Inc. v. Gore
, the Supreme Court articulated three guideposts for lower courts to use in evaluating whether a punitive damages award is excessive. These guideposts are: (1) “the degree of reprehensibility” of defendants’ conduct; (2) “the disparity between the harm or potential harm suffered by [Cooley] and his punitive damages award;” and (3) “the difference between this remedy and the civil penalties authorized or imposed in comparable cases.”  The court here seemed overwhelmed by the first factor and gave insufficient weight to the second and third.

In State Farm Mutual Automobile Ins. Co. v. Campbell, the Supreme Court articulated five criteria for evaluating the degree of reprehensibility: (1) “the harm caused was physical as opposed to economic;”  (2) “the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others;” (3) “the target of the conduct had financial vulnerability;” (4) “the conduct involved repeated actions or was an isolated incident;” and (5) “the harm was the result of intentional malice, trickery, or deceit, or mere accident.”

The trial court found that the first two criteria allowed the jury to find a high degree of  reprehensibility. Here, the harm to Cooley was physical, but not fatal. Yet, the court rejected defendants' argument that this factor is not as strong as it is in cases where a person died as a result of a defendant's conduct.  The court concluded  that the jury was entitled to conclude defendants knew manganese in welding fumes could cause permanent neurological injury, but chose to give an inadequate warning.

The second guidepost looks to the mathematical relationship between compensatory and
punitive damages. The trial court stressed that the Supreme Court has avoided imposing a bright-line ratio between compensatory and punitive damages, and ignored the numerous cases questioning high single-digit multipliers, which are less likely to comport with due process. The trial court rejected the observation that for some defendants the ratio was close to 9-1. The jury awarded $1.25 million in compensatory damages, but assigned 37% fault to Cooley,
reducing the compensatory award to $787,500. It awarded punitive damages in the total amount of
$5 million, allocated among the defendants as: ESAB, $1.75 million; Hobart, $1.75 million; Lincoln, $750,000; and BOC, $750,000. Using a logical approach, the ratios are as follows: ESAB, 8.9:1; Hobart, 8.9:1; Lincoln, 3.8:1; and BOC, 3.8:1. But, if, instead, the ratio is not calculated for each individual defendant, the overall ratio is still $5 million divided by $787,500, or 6.3:1. The court was persuaded by the fact that all of these ratios, using either of these different approaches, are single-digit.  The court also found that the reprehensible conduct supported a higher ratio.

The court went on to twist the next factor - the comparison of punitives to compensatories-  right around.  It noted that whether viewed as $1.25 million or $787,500, the compensatories were "not large considering Cooley’s circumstances."   For example, Cooley testified he is depressed and
impotent, which are symptoms of manganese poisoning. All things considered, the jury’s award of
compensatory damages was "relatively conservative, making for a low denominator in the ratio." And since the denominator was "conservative" and "low," the higher ratio when compared to punitives was permitted.  However, the same jury that found punitive damages level conduct, found plaintiff 37% at fault, and awarded all of the damages it thought were appropriate to fully compensate the plaintiff.  This is not a case where the multiplier was high because the  compensatory damages are merely a nominal sum in recognition of an injury difficult to quantify in monetary terms.  As the court noted, this case involves a significant injury, and the jury awarded what it awarded.  The court seemed to be approaching the line of substituting its assessment of damages for the jury's, and upholding the punitive award because the compensatory award was too "conservative."

Defendants also argued that the punitive damages award was excessive because, using the factor of comparison to other fines and penalties, civil penalties under OSHA would be limited to approximately $70,000, the maximum fine per violation. The court rejected this because OSHA has never found a violation or fined defendants, and thus "analysis of this issue is necessarily speculative."  In fact, the comparison is not just to actual fines assessed, but to potential fines in order to give the court an idea of how the legislature and society would assess a penalty for the conduct alleged. If it was is unclear whether OSHA would treat the conduct in plaintiff's workplace as a single violation subject to a maximum fine of $70,000, as defendants argued, or impose a fine separately for pieces of the conduct, as plaintiff argued, the issue should have been decided, not pushed aside.

Finally the court rejected any relevance to any aspect of the punitive damages ratio analysis of the fact that Cooley's injury might have been avoided had he read a warning or a Material Safety Data Sheet, particularly those sent in the last decade of his career. This was only relevant to comparative fault for compensatory damages, said the court. But, in reality, it should have been considered a major factor in the reprehensibility analysis.

 

 

Teen Riding Oil Pump Like a Toy An Anticipated Use?

A Louisiana appeals court last week reversed the grant of summary judgment against a plaintiff injured during his attempt to "ride" a oil well pump like it was an amusement park attraction. Payne v. Gardner, No. 10-0021 (La. Ct. App., 10/27/10).

Thirteen-year-old Henry Goudeau, Jr. sustained injuries when he climbed onto the moving pendulum of an oil well pump and attempted to “ride” the pendulum. When he climbed on the moving pendulum, his pants became entangled in other parts of the pump and, as the pendulum continued to move upward, he alleged he sustained severe personal injuries.

Defendants moved for summary judgment, pointing to the undisputed facts that they manufactured the pump for the sole purpose of extracting oil from the ground; they never intended for anyone to ride the pump; and the plaintiff would not have gone near the pump had his mother been with him.

Plaintiff argued in opposition to the motion that there existed a foreseeable risk that children would attempt to play on the oil well pump. Under Louisiana law, the manufacturer of a product is liable to a claimant for damage proximately caused by a characteristic of the product that renders the product unreasonably dangerous when such damage arose from a reasonably anticipated use of the product by the claimant or another person or entity.  Plaintiff thus argued that there were
genuine issues of material fact concerning what constitutes the “reasonably anticipated use” of an oil well pump.

Under the Louisiana product liability act, reasonably anticipated use’ means a use or handling of a product that the product’s manufacturer should reasonably expect of an ordinary person in the same or similar circumstances. This is an objective inquiry, which requires the court  to ascertain what uses of its product the manufacturer should have reasonably expected at the time of manufacture.  Plaintiffs pointed the trial court to 3 cases from California, Texas, and Oklahoma, over the past 30 years in which children had been injured while attempting to “ride” on an oil well pumping unit. See Titus v. Bethlehem Steel Corp., 91 Cal.App. 3d 372, 154 Cal. Rptr. 122 (Cal.App. 2d Dist. 1979); Burk Royalty Co. v. Pace, 620 S.W. 2d 882 (Tx.App. 12th Dist. 1981);  Knowles v. Tripledee Drilling Co., Inc., 1989 OK 40, 771 P.2d 208 (1989).  And the caretaker of the well thought he had heard about a similar incident.

The appeals court thus found that there was conflicting evidence on whether an attempt to “ride” the pumping unit is a use or handling of the pumping unit that the pump maker should reasonably expect of an ordinary person in the same or similar circumstances. This "scintilla of direct evidence" presented by plaintiff was sufficient to allow a reasonable juror to conclude that the defendant should have expected an ordinary person in the same or similar circumstances to use
or handle the pumping unit in this way.

What?  A manufacturer is not responsible for every conceivable or foreseeable use of its product.  All this scanty evidence suggested was that the misuse was foreseeable.  Not that it was reasonably foreseeable, not that a manufacturer should reasonably expect such misuse, certainly not that this was the act of an ordinary person under the circumstances. There was no evidence indicating that this accident occurred pursuant to a use reasonably expected of an ordinary consumer.

The Louisiana Act expressly rejected the prior standard that a seller was liable for all reasonably foreseeable uses and misuses of the product.  Moreover, the statute focuses the inquiry at the time of manufacture.  This 50-year old pump was made and sold before any of the incidents relied on by the court to reverse summary judgment.  How do accidents that occurred after the pump at issue here was manufactured put the manufacturer on notice?


 

Second Circuit Upholds Dismissal of Alien Tort Statute Claim Against Corporate Defendants

A federal appeals court last week dismissed claims that defendants including Royal Dutch Shell PLC aided alleged human rights abuses in Nigeria, ruling that corporations cannot be found liable under the Alien Tort Statute.  See Kiobel, et al. v. Royal Dutch Petroleum Co. et al., No. 06-cv-4800 (2d Cir., Sept. 17, 2010).

Plaintiffs asserted claims for aiding and abetting violations of the law of nations against defendants —all of which are corporations— under the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350,
a statute enacted by the first Congress as part of the Judiciary Act of 1789. The court called it a jurisdictional provision unlike any other in American law and of a kind apparently unknown to any other legal system in the world. The ATS laid largely dormant for over 170 years. Judge Friendly called it a “legal Lohengrin” since “no one seems to know whence it came.”  

Then, in the early 1980's, the statute was given new life, when courts first recognized that the ATS provides jurisdiction over (1) tort actions, (2) brought by aliens (only), (3) for violations of the law of nations (also called “customary international law,” 3) including, as a general matter, war crimes and crimes against humanity—crimes in which the perpetrator can be called “hostis humani generis, an enemy of all mankind.” Since that time, the ATS has given rise to an abundance of litigation in U.S. district courts. For most of that time, aliens brought ATS suits in U.S. courts only against notorious foreign individuals.  This case involved one of the key unresolved issues since the ATS was reinvigorated: Does the jurisdiction granted by the ATS extend to civil actions brought against corporations under the law of nations?

Plaintiffs were residents of Nigeria who claimed that Dutch, British, and Nigerian corporations engaged in oil exploration and production aided and abetted the Nigerian government in
committing violations of the law of nations. Their suit could proceed only if the ATS provides jurisdiction over tort actions brought against corporations under customary international law.  The district court dismissed the claim, and the Second Circuit reviewed de novo the dismissal for failure to state a claim, see Fed. R. Civ. P. 12(b)(6), assuming all well-pleaded, nonconclusory factual allegations in the complaint to be true.  The court noted that the substantive law that  determines jurisdiction under the ATS is neither the domestic law of the United States nor the domestic law of any other country.  By conferring subject matter jurisdiction over a limited number of offenses defined by international law, the ATS requires federal courts to look beyond rules of domestic law —however well-established they may be— to examine the specific and universally accepted rules that the nations of the world treat as binding in their dealings with one another.  The ATS thus leaves the question of the nature and scope of liability —who is liable for what— to customary international law.  Whether a defendant is liable under the ATS depends entirely upon whether that defendant is subject to liability under international law. It is inconceivable, said the court of appeals, that a defendant who is not liable under customary international law could be liable under the ATS. 

Customary international law includes only those standards, rules or customs affecting the relationship between states or between an individual and a foreign state, and used by those states for their common good and/or in dealings inter se.  The Second Circuit concluded, after exhaustive review, that the principle of individual liability for violations of international law has been limited to natural persons —not “juridical” persons such as corporations— because the moral responsibility for a crime so heinous and unbounded as to rise to the level of an “international crime” has rested solely with the individual men and women who have perpetrated it. Quoting the Nuremberg tribunal's explanation for individual liability for violations of international law:  “Crimes against international law are committed by men, not by abstract entities, and only by punishing individuals who commit such crimes can the provisions of international law be enforced.”  Indeed, said the Second Circuit, international law has steadfastly rejected the notion of corporate liability for international crimes, and no international tribunal has ever held a corporation liable for a violation of the law of nations.

The court concluded, therefore, that insofar as plaintiffs were bringing claims under the ATS against corporations, the plaintiffs failed to allege violations of the law of nations, and plaintiffs’ claims fell outside the limited jurisdiction provided by the ATS.

The majority felt the need to address the lengthy, and surprisingly strident, dissent.  The majority observed that the responsibility of establishing a norm of customary international law lies with those wishing to invoke it, and in the absence of sources of international law endorsing (or refuting) a norm, the norm simply cannot be applied in a suit grounded on customary international law under the ATS. Thus, even if there were, as the dissent argued, an absence of sources of international law addressing corporate liability, that supposed lack of authority would actually support the majority holding.  As it happens, no corporation has ever been subject to any form of liability under the customary international law of human rights, and thus the ATS, the remedy Congress has chosen, simply does not confer jurisdiction over suits against corporations.

The majority also noted the "passion" with which the dissent disagreed with the holding, as it called the majority “illogical” on nine separate occasions, “strange,” and “internally inconsistent.”  More than 200 years ago, Chief Justice John Marshall began the practice of announcing the judgment of the Supreme Court in a single opinion. This, in turn, led to formal dissenting opinions, which can serve a valuable purpose in the law. But one of the most famous dissents in legal history was by Justice Oliver Wendell Holmes in Lochner v. New York, 198 U.S. 45 (1905), when a majority of the Court struck down a state regulation limiting the hours someone could work in a bakery. The dissent began with a different tone: "I regret sincerely that I am unable to agree with the judgment in this case and that I think it my duty to express my dissent." Id. at 65.  Not quite the approach here.

 

Tort Liability Annual Report Released by Think Tanks

The Pacific Research Institute (PRI), a free-market think tank based in San Francisco, and the Manufacturers Alliance/MAPI, a public policy and economic research organization based in Arlington, VA, announced last week the release of their 2010 U.S. Tort Liability Index, a measure of which states impose the highest and lowest tort costs and risks.

According to the report, Alaska, Hawaii, and North Carolina lead the pack with the best rankings, while New Jersey, New York and Florida bring up the rear. Again, the states with the worst performance had the highest monetary tort losses and tort litigation risks, meaning they had more costly and riskier business climates due to larger plaintiff awards, larger plaintiff settlements, more lawsuits, or some combination of the three.

Direct tort costs account for almost 2 percent of GDP in the United States, which is the highest in the world, not surprising to our readers. Such high costs cause businesses to divert revenue, that could hire workers, to fight lawsuits. But all our readers ultimately shoulder the burden through higher prices and insurance premiums, lower wages, restricted access to health care, less innovation, and higher taxes to pay for court costs.

The Best Tort climates, according to the report:

Alaska
Hawaii
North Carolina
South Dakota
North Dakota
Maine
Idaho
Virginia
Wisconsin
Iowa


The Worst climates, according to the report:

New Jersey
New York
Florida
Illinois
Pennsylvania
Missouri
Montana
Michigan
Connecticut
California
 

States were also ranked according to their tort rules and reforms to reduce lawsuit abuse and limit tort costs and risks, such as award caps, or venue reforms to stop “litigation tourism."  Oklahoma, Texas, Ohio, Colorado and Mississippi did well on the tort reform scale in this report. The states with the least favorable tort rules for defendants, according to the analysis, are Rhode Island, New York, Pennsylvania, Minnesota and Illinois. 

This report can also be contrasted with the Chamber of Commerce report ranking state liability systems, and the ATRA report of the "most unfair jurisdictions."

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). 

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.

 

Court Excludes Toxic Tort Causation Testimony

A federal court has excluded plaintiffs' expert testimony in litigation alleging personal injury and property damage from releases at a Midwest refinery.  Baker, et al. v. Chevron USA Inc., et al., No. 05-cv-00227 (S.D. Ohio Jan. 6, 2010). In the absence of necessary expert testimony, the claims were subject to summary judgment.

Plaintiffs in this case were residents of the villages of Hooven and Cleves, Ohio, who asserted claims for personal injury and property damage allegedly resulting from the Gulf Oil refinery, now owned by defendant Chevron USA.  Gulf operated a gasoline refinery which was situated on the eastern edge of Hooven from 1930 to 1985. Gulf also refined diesel fuel, jet fuel, and fuel oil at the refinery and operated an asphalt plant at this location. Gulf and Chevron merged in 1985, and Chevron closed the refinery in 1986.

Plaintiffs alleged that Gulf’s operation of the refinery resulted in the release of millions of gallons of gasoline and diesel fuel.  But these plaintiffs did not claim injuries resulting from groundwater contamination. Rather, they asserted injuries allegedly caused by air emissions from the refinery and, in particular, the benzene contained in those emissions. Benzene is ubiquitous in the ambient air and is a component or constituent of vehicle exhaust and cigarette smoke. In the petroleum industry, benzene is found in small amounts in gasoline.

For case management purposes, the matter was bifurcated between personal injury claimants and property damage claimants. The parties were permitted to select bellwether plaintiffs for each trial group. This opinion dealt with the claims of the bellwether personal injury claimants, and a key issue, as is often the case in toxic tort litigation, was causation.

Regarding their alleged benzene exposure, plaintiffs offered a three-step procedure. First, expert Dr. Cheremisinoff calculated a gross amount of benzene released from the refinery through emissions. Then, using those calculations, Dr. Rosenfeld, plaintiffs’ second expert, used an air flow model to calculate the cumulative dose of benzene to which each plaintiff was exposed. Third, using those dose estimates, a third expert, Dr. Dahlgren, submitted opinions that each plaintiff’s dose of benzene was sufficient to cause her illness. 

Chevron moved to exclude Dr. Dahlgren's opinions under Daubert, and for summary judgment contingent  upon the striking of  plaintiffs' causation evidence. The principal argument raised was that Dr. Dahlgren’s opinions were unreliable because there was an insufficient scientific or medical basis to conclude that the doses of benzene to which plaintiffs’ were exposed were large enough to have caused their illnesses. Relatedly, Chevron contended that there is an insufficient scientific or medical basis to conclude that benzene even causes some of the illnesses alleged. The Court held a hearing on Chevron’s Daubert motion during which Dr. Dahlgren and Chevron’s medical expert also testified.

In a toxic tort case, the plaintiff must present evidence of both general causation and specific causation. General causation establishes whether the substance or chemical at issue is capable of causing a particular injury or condition. Specific causation relates to whether the substance or chemical in fact caused this plaintiff’s medical condition. Without expert medical testimony on both general causation and specific causation, a plaintiff’s toxic tort claim will fail.

In this case, Dr. Dahlgren offered causation opinions based largely on epidemiological studies. (Epidemiology is the study of the incidence, distribution, and etiology of disease in human populations.) Epidemiology is usually considered highly probative evidence on general causation in toxic tort cases. The court may nonetheless exclude expert testimony based on epidemiological studies where the studies are insufficient, whether considered individually or collectively, to support the expert’s causation opinion. Nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence that is connected to existing data only by the ipse dixit of the expert. A court may thus conclude that there is simply too great an analytical gap between the data and the opinion proffered.

A couple of parts of the court's detailed analysis are worth highlighting for readers of  MassTortDefense:

First, Dr. Dahlgren’s reliance on the “one-hit” or “no threshold” theory of causation in which exposure to one molecule of a cancer-causing agent has some finite possibility of causing a genetic mutation leading to cancer. The court noted that while the one-hit theory has been accepted for purposes of establishing regulatory safety standards, it has not been accepted as a reliable theory for causation under Daubert standards.  See Allen v. Pennsylvania Eng’g Corp., 102 F.3d 194, 199 (5th Cir. 1996) (“Scientific knowledge of the harmful level of exposure to a chemical, plus knowledge that the plaintiff was exposed to such quantities, are minimal facts necessary to sustain the plaintiffs’ burden in a toxic tort case.”); McClain v. Metabolife Int’l, Inc., 401 F.3d 1233, 1240 (11th Cir. 2005) (holding that district court erred by not excluding plaintiff’s expert’s causation opinion because he neglected dose-response relationship); Henricksen v. ConocoPhillips Co., 605 F. Supp.2d 1142, 1162 (E.D. Wash. 2009) (excluding expert’s opinion pursuant to Daubert where “he presumed that exposure to benzene in gasoline can cause AML in any dose.”); National Bank of Commerce v. Associated Milk Producers, Inc., 22 F. Supp.2d 942, 961 (E.D.Ark. 1998), aff’d, 191 F.3d 858 (8th Cir. 1999); Sutera v. Perrier Group of Am., Inc., 986 F. Supp. 655, 667 (D. Mass.
1997). Moreover, since benzene is ubiquitous, causation under the one-hit theory could not be established because it would be just as likely that ambient benzene was the cause of plaintiffs’ asserted illnesses.

Second, the court noted that to the extent that Dr. Dahlgren relied on the evidence that plaintiffs were exposed to benzene in excess of regulatory levels, that is insufficient to make his opinions admissible. The mere fact that plaintiffs were exposed to benzene emissions in excess of mandated limits is insufficient to establish causation. Nelson v. Tennessee Gas Pipeline Co., 243 F.3d 244, 252-53 (6th Cir. 2001); David L. Eaton, Scientific Judgment and Toxic Torts- A Primer in Toxicology for Judges and Lawyers, 12 J.L. & Pol’y 5, 39 (2003) (“regulatory levels are of substantial value to public health agencies charged with ensuring the protection of the public health, but are of limited value in judging whether a particular exposure was a substantial contributing factor to a particular individual’s disease or illness.”). This is because regulatory agencies are charged with protecting public health and thus reasonably employ a lower threshold of proof in promulgating their regulations than is used in tort cases. Allen, 102 F.3d at 198.

Third, the court focused on the issue of the link between cited literature and the actual specific opinion given. The court recognized that an expert’s opinion does not have to be unequivocally supported by all epidemiological studies in order to be admissible under Daubert. But here, the opinions expressed in Dr. Dahlgren’s revised report were based "on a scattershot of studies and articles which superficially touch on each of the illnesses at issue." The expert had not differentiated the cases in any way and simply assumed that each reference supported his causation opinion on each and every illness. That clearly was not the case. Also, none of the cited studies supported an opinion that benzene can cause the illnesses from which plaintiffs suffer at the extremely low doses or exposures experienced in this case. Even if it is medically accepted that benzene can cause disease at high doses, Dr. Dahlgren could not cite any paper finding that the relevant low cumulative exposure significantly increases the risk of developing the injuries.

The court, therefore, found that the expert's causation opinions were not reliable under the standards enunciated by Daubert and, consequently, inadmissible. Without Dr. Dahlgren's testimony, the plaintiffs were unable to establish that their illnesses were caused by alleged emissions from the plant, the court observed, and so granted Chevron's motion for summary judgment on all four bellwether personal injury plaintiffs.
 

State Supreme Court Reverses Itself on Economic Loss Doctrine

Not long ago we blogged about the economic loss rule, noting that the doctrine had some variants among the states.  Recently, the South Carolina Supreme Court pulled back on an exception to the economic loss rule, concluding that its 2008 opinion expanding the ability to recover in tort for purely economic damages had been wrongly decided. Sapp v. Ford Motor Co., 2009 WL 4893648 (S.C., 12/21/09). Very refreshing to see a court recognize an issue quickly, and act promptly to correct the error.

Economic loss generally refers to damages that occur through the loss of the value or use of the goods sold or the cost of repair, when there has been no claim of personal injury or damage to property other than the product. The economic loss doctrine has held that such damages, a product injuring itself in essence, is a claim about a breach of the commercial relationship, and thus must be brought in contract/warranty, and not a tort claim sounding in negligence or strict liability. Most states have adopted some form of the economic loss rule, although with some variation in detail. Some carve out exceptions, and in South Carolina there has long been an exception for economic damage to a residence. The reasoning was that a home is often an individual's largest investment and different in kind from other manufactured goods. The courts also looked at the unequal bargaining power between builders and home purchasers.

But in Colleton Preparatory Academy Inc. v. Hoover Universal Inc., 379 S.C. 181, 666 S.E.2d 247 (S.C. 2008), the court seemed to expand the exception even farther, into commercial property.  In Colleton Prep, which concerned allegedly defective materials used in constructing a school building, the state court held that a tort suit could go forward even where only the product itself is damaged, if there is also a clear, serious and unreasonable risk of injury or death, as was the case in a school. The defense bar termed this a very surprising opinion, because it extended the seemingly narrow exception so far that it threatened to swallow the rule, appearing to create tort liability for mere potential harm or risk.

In Sapp, actually two cases consolidated for appeal, plaintiffs sued over allegedly defective cruise-control systems on Ford Motor Co. F-150 trucks, which allegedly caused fires. The lower courts dismissed the claims, saying that under the economic loss doctrine, tort recovery was not available because the damage was only to the allegedly defective products themselves. At oral argument on plaintiffs' appeal, they argued the new expanded exception, suggesting the truck fire created that clear and serious risk of injury. 

The supreme court seemed to recognize the problems it had created. The court recognized that
the exception for residences was a very narrow one.  And the court clarified it  no intention of the exception extending beyond residential real estate construction and into commercial real estate construction. "Such a progression was in error and we now correct that expansion. Much less did we intend the exception to the economic loss rule to be applied well beyond the scope of real estate construction in an ordinary products liability claim.” Accordingly, the court overruled Colleton Prep to the extent it could be read to expand the narrow exception to the economic loss rule beyond the residential builder context.

In South Carolina, as in many states, the purpose of the economic loss rule is to define the line between recovery in tort and recovery in contract. In the context of products liability law, when a defective product only damages itself, the only concrete and measurable damages are the diminution in the value of the product, cost of repair, and consequential damages resulting from the product's failure. Stated differently, the consumer has only suffered an economic loss. When only damage is to the product itself, what has happened is the consumer's expectations have not been met, and he has lost the benefit of the bargain. Accordingly, where a product damages only itself, tort law provides no remedy and the action lies in contract; but when personal injury or other property damage occurs, a tort remedy may be appropriate.  The traditional economic loss rule provides a more stable framework and results in a more just and predictable outcome in product liability cases.

State Court Reaffirms Economic Loss Doctrine

The Pennsylvania Supreme Court last week issued an interesting little opinion on the economic loss doctrine. Excavation Technologies, Inc. v. Columbia Gas Company Of Pennsylvania, No. 32 WAP 2008 (Pa. S.Ct. Dec. 29, 2009).

In the context of products liability actions, economic loss generally refers to damages that occur through the loss of the value or use of the goods sold or the cost of repair, when there has been no claim of personal injury or damage to property other than the product. The economic loss doctrine has held that such damages, a product injuring itself in essence, is a claim about a breach of the commercial relationship, and thus must be brought in contract/warranty, and not a tort claim sounding in negligence or strict liability. As the Pennsylvania court put it, the economic loss doctrine provides, “no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or property damage.” Adams v. Copper Beach Townhomes Communities, 816 A.2d 301, 305 (Pa. Super. 2003).

The theory is that tort policy concerns with safety are less present when a product damages only itself; damage to only the product really means that the product has not met customer expectations, a natural warranty claim; that warrant y law is best suited to deal with disagreements over product quality, as the parties can negotiate the terms, within limits, of warranty scope, remedies, etc.; and warranty law with its built-in limits on privity and the requirement of forseeability of consequential damages better reflects society’s traditional concern with the fulfillment of reasonable economic expectations. Tort law, on the other hand, protects a product consumer’s interest in being free of injury regardless of the existence of any direct agreement with the product maker.

Most states have adopted some form of the economic loss rule, although with some variation in detail. Some carve out exceptions for sudden calamitous events (that feel like a tort?), or where there is a “special relationship” (isn’t that special?) between the parties, or in a post-sale duty to warn tort claim. This case involved another possible exception. Appellant sued appellee on a theory of negligent misrepresentation under § 552 of the Restatement (Second) of Torts, which generally holds that one who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. The state Supreme Court granted an appeal to determine whether § 552 imposes tort liability for economic losses to a contractor caused when a gas utility company fails to mark or improperly marks the location of gas lines.

The Court acknowledged that some lower courts had noted an exception for claims of negligent misrepresentation under § 552, which allows such claims to evade dismissal even if they assert purely economic losses. Bilt-Rite Contractors, Inc. v. Architectural Studio, 866 A.2d 270 (Pa. 2005) (finding negligent misrepresentation claim against architect for economic loss viable under § 552). But the economic loss doctrine is well-established in tort law, said the court. See Aikens v. Baltimore and Ohio Railroad Company, 501 A.2d 277, 278-79 (Pa. Super. 1985) (roots of economic loss doctrine first recognized in Robins Dry Dock and Repair Company v. Flint, 275 U.S. 303 (1927)).  The court distinguished Bilt-Rite as a case involving someone who is in the business of giving information for pecuniary gain, and rejected tort liability for anyone not a professional information provider, including one who is under a public duty to give the information (thus rejecting Section 3 of § 552).

This will help prevent plaintiffs from dressing up warranty claims against typical product sellers as negligent misrepresentation claims evading the doctrine of economic loss.  Readers of MassTortDefense know that it does often matter whether a plaintiff can proceed in tort:  warranty claims may involve defenses like privity and puffing and reliance; there may be limitations on remedies, disclaimers on warranties; a different statute of limitations and accrual date.