New Law Takes Effect Regarding Venue, Removal

For all the litigators out there, a reminder that The Federal Courts Jurisdiction and Venue Clarification Act of 2011, H.R. 394, P.L. 112-63. took effect last week.  The act amends the federal jurisdictional statutes regarding diversity jurisdiction (28 U.S.C. § 1332), venue (28 U.S.C. §§ 1390-92, 1404), and removal (28 U.S.C. §§ 1441, 1446, 1454).  Legislative history here.

Among its provision, the new act states that, with respect to diversity, the district courts shall not have original jurisdiction of any civil action between citizens of a state, and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same state.

It modifies the citizenship rules to treat corporations as citizens of any foreign state: (1) by which it has been incorporated, and (2) where it has its principal place of business. It treats insurers as citizens of any foreign state: (1) of which the insured is a citizen, (2) by which the insurer has been incorporated, and (3) where the insurer has its principal place of business.

The law now dictates that, upon removal of any civil action with both removable and non-removable claims, the district court shall sever from the action all non-removable claims and remand them to the state court from which the action was removed.  So no discretion to hold on to such claims.

The law prescribes revised requirements for filing notices of removal, including allowing statements in the notice of the amount in controversy, when it exceeds the necessary amount, if the initial pleading seeks: (1) non-monetary relief; or (2) a money judgment, but where the relevant state practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded. Removal of the action is proper on the basis of an amount in controversy asserted this way,  if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds the amount required.

Importantly, the law now allows removal of a case based on diversity of citizenship more than one year after commencement of the action if the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action.  This deals with a common plaintiff tactic in mass torts, such as the inclusion of a treater simply to defeat diversity. In 1988, Congress amended the statute to prohibit the removal of diversity cases more than one year after their commencement. This change was intended to encourage prompt determination of issues of removal in diversity proceedings, and it sought to avoid the disruption of state court proceedings that might occur when changes in the case made it subject to removal. The change, however, led some plaintiffs to adopt removal-defeating strategies designed to keep the case in state court until after the 1-year deadline passed. In those situations, some courts have viewed the 1-year time limit as `jurisdictional' and therefore an absolute limit on the district court's jurisdiction.

The new venue provision requires the issue of proper venue of any civil action brought in a U.S. district court to be determined without regard to whether the action is local or transitory in nature. It repeals the "local action" rule that any civil action, of a local nature, involving property located in different districts in the same state, may be brought in any of such districts.  It also allows a district court to transfer a civil action to any district or division to which all parties have consented.

Significantly, the act resolves a circuit split regarding the time each defendant in a multi-defendant case has to file a notice of removal. Traditionally, the defendant had 30 days from receipt of the plaintiff’s complaint to file a notice of removal.  But in multi-defendant cases, some courts have adopted the “first-served” rule, under which each defendant in a case had 30 days from the date on which the first defendant was served, while others adopted the “later-served” rule, which gives each defendant a 30-day period to file a notice of removal after that defendant is served.  The new law adopts the latter view (but keeps the unanimity rule.)

Tort Reform Advances In Tennessee

Readers know that tort reform is an important issue we have posted on before, at the federal and state level.  Latest update: Tennessee recently enacted reform legislation that will, among other things, limit the amount of non-economic damages that plaintiffs can recover in civil lawsuits.

Specifically, the Tennessee Civil Justice Act of 2011 was signed into law by Gov. Bill Haslam earlier this month. 

The new law limits venue to the county where the events constituting the cause of action occurred, where the business has its principal office, or where its registered agent of record is located.

Prior law included punitive damages in calculating the bond amount, set a maximum appeal bond at $75 million, and did not address the possibility that obtaining the bond could render an appellant bankrupt or insolvent. The amended law facilitates the appeal of a trial court verdict by lowering the maximum amount of a bond from $75 million to the greater of (i) $25 million or (ii) 125% of the judgment amount. In determining the bond amount, the court will now not consider or include punitive damages, unless there is evidence of the appellee dissipating assets. The law also gives the court discretion to take other actions or set other terms, if obtaining the bond would render the appellant insolvent or bankrupt.

Prior state law had no cap on non-economic damages. The new law places a cap of $750,000 on the non-economic damages incurred by an injured plaintiff, damages like pain and suffering.  A few exceptions are provided, such as no cap in intentional torts, or when the defendant was under the influence of alcohol or illegal drugs and his or her judgment was substantially impaired, or when a defendant intentionally falsified, destroyed or concealed records to avoid liability.

Prior state law did not have caps on punitive damages. Under the new act, punitive damages must be proven by clear and convincing evidence and are capped at 2x compensatory damages or $500,000, whichever is greater. There are limited instances when the defendant's liability is not limited by the caps: (i) if the defendant intended to injure the plaintiff, (ii) if the defendant was under the influence of alcohol or illegal drugs and his or her judgment was substantially impaired, and (iii) if the defendant intentionally falsified, destroyed or concealed records to avoid liability.  Moreover, no punitive damages may be assessed against the manufacturer of a drug or device who was in compliance with applicable laws and regulations, unless the manufacturer withheld material information from regulators or misrepresented that information to the regulators.

The new law provides additional protections for non-manufacturer product sellers. No product liability action may be commenced or maintained against any seller, other than the manufacturer, unless the seller exercised substantial control over that aspect of the design, testing, manufacture, packaging or labeling of the product that caused the alleged harm for which recovery of damages is sought, or the seller altered or modified the product, and the alteration or modification was a substantial factor in causing the harm for which recovery of damages is sought; or the seller gave an express warranty which was breached.

Also, the seller of a product other than the manufacturer would not be liable for punitive damages, unless the seller exercised substantial control over that aspect of the design, testing, manufacture, packaging or labeling of the product that caused the harm for which recovery of damages is sought; the seller altered or modified the product and the alteration or modification was a substantial factor in causing the harm for which recovery of damages is sought; or the seller had actual knowledge of the defective condition of the product at the time he supplied the same.

Under the new Act, the state court of appeals would hear appeals from orders of trial courts granting or denying class action certification if a notice of appeal is filed within 10 days after entry of the order. All proceedings in the trial court would be automatically stayed pending the appeal of the class certification ruling.

State Appeals Court Orders Venue Changes in Benzene Litigation

The Texas Court of Appeals ruled last week that a trial court had erred in denying the defendants' motion to transfer venue in a multi-plaintiff benzene lawsuit. Shell Oil Co. v. Baran, 2008 WL 2369030 (Tex.App.-Beaumont June 12, 2008).

Location, location, location – crucial factors in real estate and potentially in product liability litigation as well. While plaintiffs traditionally have the right to select the forum of their choice, such discretion is not unfettered. Venue rules, jurisdictional requirements, forum non conveniens, and removal possibilities, may all be considered by defendants to level the playing field.

The litigation in Baran involved the claims of multiple plaintiffs who sued more than 40 chemical and oil companies in Orange County, Texas, alleging they developed leukemia and other serious illnesses as a result of exposure to benzene, benzene-containing products, naptha, mineral spirits, petroleum distillates, methyl ethyl ketone, solvents, paints, primers, coatings, paint thinners, toluene and xylene. Among the specific injuries alleged were myelodysplastic syndrome, acute myelogenous leukemia and non-Hodgkin's lymphoma.

Plaintiffs filed a “Motion to Sever and Motion to Consolidate,” in which they asked the court to sever each plaintiff's claims into a separate proceeding, but to consolidate the cases for pre-trial discovery purposes only, which the trial court granted. But the trial court denied the defense motions to transfer venue as to each plaintiff. The moving defendants then filed an accelerated interlocutory appeal.

The court of appeals acknowledged that a plaintiff is generally permitted to choose venue first, and the plaintiff's choice of venue cannot be disturbed if the suit is initially filed in a county of proper venue. In Texas, however, in a suit with multiple plaintiffs, each plaintiff must, independently of every other plaintiff, establish proper venue.

Plaintiffs relied upon the general venue statute, which provides that suit shall be brought in the county where all or a substantial part of the events or omissions giving rise to the claim occurred or in the county where the defendant's principal office is located.  Plaintiffs alleged that all or a substantial part of the events giving rise to their cause of action occurred in Orange County, Texas, contending that each plaintiff alleged and offered prima-facie proof of a disease caused by cumulative exposures to defendants' benzene containing products, which resulted in each plaintiff's suffering an indivisible injury.  Because the injury was allegedly indivisible, plaintiffs argued, each arose out of the same transaction, occurrence, or series of transactions or occurrences even with multiple exposures.

Defendants specifically denied this allegation of venue, and the court agreed appellees provided insufficient facts to support this allegation, in their petition, or by way of affidavit or attachments supporting their same transaction or occurrence theory. In fact, plaintiffs did not plead this alleged venue fact in their original petition.

Plaintiffs’ other alleged basis for maintaining venue in Orange County was the allegation that DuPont had a principal place of business there. However, because plaintiffs sued multiple defendants, the trial court cannot maintain venue as to all of the other named defendants unless plaintiffs' claims arose out of the same transaction, occurrence, or series of transactions or occurrences. Again, plaintiffs argued that their claims arose out of the same transaction, occurrence, or series of transactions or occurrences because they suffered from indivisible injuries. But they had not pled adequate facts to conclude that their claims arose from the same transaction or occurrence. Thus, the trial court erred in concluding that plaintiffs independently established venue in Orange County.

When a plaintiff files suit in a county where venue is not proper, the defendant may have the suit transferred to a proper venue. Thus claims against ConocoPhillips Company, and several other defendants, were transferred to Harris County, Texas. The trial court was directed to transfer all of plaintiffs' claims and causes of action against Berryman Products, Inc. to Tarrant County, Texas, and to transfer all of plaintiffs' claims and causes of action against Safety-Kleen Systems, Inc. to Collin County, Texas, and so forth.