Friday, June 13, 2008

The Ebb and Flow of the Law - New Jersey Edition

Yo! What’s goin’ on over in Joisey?

It wasn’t too long ago that New Jersey was one of the last places you’d want to be in if you were a drug or device manufacturer – litigating product liability claims, that is. To some extent that was ironic, because quite a few of our drug (not as much device, but some) company clients were, in fact, headquartered there.

Why do we say that?

Well for defendants, a lot of New Jersey law was just plain lousy. For starters, there was the unique “direct to consumer” exception to the learned intermediary rule that the Supreme Court had adopted in Perez v. Wyeth Laboratories Inc., 734 A.2d 1245 (N.J. 1999). Nor had New Jersey been receptive to preemption arguments in cases where FDA-approved warnings were allegedly inadequate. Feldman v. Lederle Laboratories, 592 A.2d 1176 (N.J. 1991), rejected preemption in a tetracycline case where the company had tried to add the warning in question but been rebuffed by the FDA.

Add to that an extremely liberal standard for admitting “scientific” (the quote marks are intentional) expert testimony. See Clark v. Safety-Kleen Corp., 845 A.2d 587 (N.J. 2004); Kemp v. State, 809 A.2d 77 (N.J. 2002); Landrigan v. Celotex Corp., 605 A.2d 1079 (N.J. 1992); Rubanick v. Witco Chemical Corp., 593 A.2d 733 (N.J. 1991). Even now, we can’t say for sure if if the New Jersey Supreme Court has ever concluded that an expert should have been excluded for having wacky theories. We can’t think of any such case, and that would take more research than we’re inclined to do right now. We encourage New Jersey readers to point out such as case if it exists.

New Jersey law was also big on medical monitoring. See Theer v. Philip Carey Co., 628 A.2d 724 (N.J. 1993), Mauro v. Raymark Industries, Inc., 561 A.2d 257 (N.J. 1989), Ayers v. Jackson Township, 525 A.2d 287 (N.J. 1987). You might even say New Jersey invented medical monitoring as a cause of action. Good move, Edison.

The state had a scary consumer protection statute with neither a reliance element nor an exception for federally regulated activity. See, e.g., Cox v. Sears Roebuck & Co., 647 A.2d 454 (N.J. 1994). Things got so bad that some courts had held it was an abuse of discretion not to certify consumer fraud class actions. E.g., Delgozzo v. Kenny, 628 A.2d 1080 (N.J. Super. App. Div. 1993).

Not only that, but the state had shown affinity for bizarre liability theories like public nuisance. See James v. Arms Technology, Inc., 820 A.2d 27 (N.J. Super. App. Div. 2003).

Beyond expansive substantive law, New Jersey had also interpreted its statute of limitations practically out of existence with a discovery rule that required knowledge of an “actionable claim” – including tortious conduct. E.g., Lopez v. Sawyer, 300 A.2d 563 (N.J. 1973). The state applied that rule even to wrongful death cases. Martinez v. Cooper Hospital-University Medical Center, 747 A.2d 266 (N.J. 2000). It was one of the few places that tolled the statute of limitations for failed out-of-state class actions. Staub v. Eastman Kodak Co., 726 A.2d 955 (N.J. Super. 1999).

In choice of law cases, New Jersey courts had shown disturbing willingness to impose its own limitations rules on claims having nothing to do with the state - except that the defendant had the misfortune to be a New Jersey corporation. Gantes v. Kason Corp., 679 A.2d 106 (N.J. 1996). That’s a great way to attract business to the state.

And worst of all, lawyers practicing in New Jersey have to use the New Jersey state reporters, rather than the West System, when citing cases in their papers.

And although it’s not like defendants had no luck at all in New Jersey (in his younger days Bexis helped with cases that rejected market share liability and recognized the learned intermediary rule: Shackil v. Lederle Laboratories, 561 A.2d 511 (N.J. 1989); Niemiera v. Schneider, 555 A.2d 1112 (N.J. 1989)), by the middle of the first decade fo the new millenium, New Jersey had earned a reputation as a plaintiffs’ paradise.

And this wasn’t just sour grapes coming from losing defense counsel. By 2004 plaintiffs’ counsel in mass tort litigation were sending out letters to their colleagues across the country touting New Jersey as a friendly place for forum-shopping plaintiffs from around the nation to congregate and sue the state’s largest industry.

But lately things seem to have turned around for defendants in mass torts in New Jersey – big time. There’s been a string of major decisions by the New Jersey Supreme Court that indicate that New Jersey might no longer be the plaintiffs’ jurisdiction of choice.

We date this sea change from the Supreme Court’s decision in Thiedemann v. Mercedes-Benz USA, LLC, 872 A.2d 783 (N.J. 2005), in which the court refused to allow consumer fraud actions in the absence of real, out-of-pocket damages:


The ascertainable loss requirement operates as an integral check upon the balance struck by the CFA between the consuming public and sellers of goods. The importance of maintaining that balance is obvious. Defects can, and do, arise with complex instrumentalities. . . . The mere fact that an [product] defect arises does not establish, in and of itself, an actual and ascertainable loss to the [product] purchaser.
872 A.2d at 794. That was the first trimming that any cause of action relevant to prescription drug product liability litigation had received in the Garden State in quite some time.

Defendants got another boost - drug-specific this time - in Banner v. Hoffmann-La Roche Inc., 891 A.2d 1229 (N.J. Super. App. Div. 2006), in which the court affirmed a holding that a drug warning was adequate as a matter of law under the learned intermediary rule:

[Defendant] fulfilled its duty by advising of the risks associated with [its drug] and advising of the need for either effective contraception or abstinence. The choice was plaintiffs’ to elect. We cannot conclude that [defendant] had a duty to withhold. . .a medication her doctor determined was an appropriate treatment for her unless [plaintiff] agreed to the use of contraceptive techniques that may have violated her religious principles.

Id. at 1241 (Accutane birth defects case). The Supreme Court denied an appeal, letting the pro-defense ruling stand. Hello learned intermediary rule.

Then things started to accelerate. The New Jersey Supreme court last year put the kibosh on the lower courts’ overenthusiastic inclinations to apply New Jersey law to everything in Rowe v. Hoffman-La Roche, Inc., 917 A.2d 767 (N.J. 2007). As we discussed at the time, the Court held that New Jersey law did not automatically apply to any case involving a New Jersey company where a failure to warn was alleged. The interests of the state where the plaintiff lived prevailed over the interests of New Jersey as the state of incorporation:

To allow a life-long Michigan resident who received an FDA-approved drug in Michigan and alleges injuries sustained in Michigan to by-pass his own state’s law and obtain compensation for his injuries in this State’s courts completely undercuts Michigan’s interests, while overvaluing our true interest in this litigation. In this instance, where the challenged drug was approved by the FDA and suit was brought by an out-of-state plaintiff who has no cause of action in his home state, this State’s interest in ensuring that our corporations are deterred from producing unsafe products. . .is not paramount.
Id. at 776. Bye-bye nationwide class actions based upon New Jersey law.

Expansive liability theories took a second hit last year in In re Lead Paint Litigation, 924 A.2d 484 (N.J. 2007), in which the court rejected, in no uncertain terms, the application of public nuisance to situations involving product-related injuries. Public nuisance liability was not a good idea: it “would stretch the theory to the point of creating strict liability to be imposed on manufacturers of ordinary consumer products”). Id. at 502 The Product Liability Act, the court held, was the sole theory of liability - the statute subsumed “any claim or action brought by a claimant for harm caused by a product, irrespective of the theory underlying the claim,” N.J.S.A. 2A:58C-1b(3) - against defendants sued for allegedly making defective or dangerous products:


Were there any doubt about the essential nature of the claims asserted by plaintiffs, a careful reading would demonstrate that they sound in products liability causes of action. The central focus of plaintiffs' complaints is that defendants were aware of dangers associated with lead-and by extension, with the dangers of including it in paint intended to be used in homes and businesses-and failed to warn of those dangers. This classic articulation of tort law duties, that is, to warn of or to make safe, is squarely within the theories included in the PLA.
924 A.2d at 503. Bye-bye public nuisance, and the attendant attempts at class actions or quasi-class actions under government sponsorship.

Also in 2007, consumer fraud claims in New Jersey were cut back by International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., 929 A.2d 1076 (N.J. 2007). We believe that this case was the first time that the New Jersey Supreme Court ever reversed the certification of a class action under the state’s Consumer Fraud Act. As we posted before, the Court held, first, that the reaction of the plaintiff class to the defendant’s marketing campaign could not have been uniform, so individual issues predominated. “Ascertainable loss” under the CFA thus implicitly included something that looks a lot like reliance. 929 A.2d at 1087. Not only that, but the Court prohibited attempts to use broad statistical “fraud on the market” theories for proof of ascertainable loss. Id. at 1088. Finally, the CFA is not to be used as a vehicle for large entities to establish large claims. Id. at 1088-89.

Bye-bye to third party payor consumer fraud class actions - and a lot of others.

The most recent – and probably the most dramatic – pruning of product liability litigation was the Court’s decision earlier this month in Sinclair v. Merck & Co., 2008 WL 2340280 (N.J. June 4, 2008). As we’ve (well, Herrmann, since it's a Vioxx case) already discussed, with one fell swoop the court eliminated altogether two of the most popular bases for class certification in mass tort litigation: medical monitoring and consumer fraud claims. First, the Court held that, the New Jersey Product Liability Act requires “physical” harm as an essential element of a claim. N.J.S.A. 2A:58C-1b(2) (“physical damage to property” or “personal physical illness, injury or death”). That eliminates medical monitoring where no physical injury is alleged. 2008 WL 2340280, at *7-8. Bye-bye medical monitoring - albeit only in product liability cases.

Next, relying on Lead Paint, the Sinclair court held that plaintiffs couldn’t get around the present injury requirement by alleging Consumer Fraud claims. Just like public nuisance, consumer fraud claims were subsumed by the broadly inclusive Product Liability Act:

The language of the PLA represents a clear legislative intent that, despite the broad reach we give to the CFA, the PLA is paramount when the underlying claim is one for harm caused by a product. The heart of plaintiffs' case is the potential for harm caused by [the] drug. It is obviously a product liability claim. Plaintiffs’ CFA claim does not fall within an exception to the PLA, but rather clearly falls within its scope. Consequently, plaintiffs may not maintain a CFA claim.

2008 WL 2340280, at *7. Bye-bye consumer fraud claims in product liability cases.

Sinclair thus makes it unnecessary to discuss any further the consumer fraud aspect of McDarby v. Merck & Co., 2008 WL 2199871 (N.J. Super. App. Div. May 29, 2008), because McDarby held exactly the same thing. But McDarby also continued the contraction of New Jersey tort law. As we (well, Herrmann) discussed when that decision first came down, it also eliminated punitive damages in cases involving FDA-approved drugs and medical devices. The Product Liability Act only permitted punitive damages “where the product manufacturer knowingly withheld or misrepresented information required to be submitted under the [FDA’s] regulations.” N.J.S.A. 2A:58C-5c. McDarby held that exception to be preempted because it was predicated upon proof of fraud on the FDA. 2008 WL 2199871, at *43 (following Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001)).

Bye-bye punitive damages in drug/device cases.

But … just when we might be willing to declare that things have turned a corner in New Jersey we get a monstrosity like Smith v. Alza Corp., 2008 WL 2329751 (N.J. Super. App. Div. June 9, 2008). Smith reminds us how far New Jersey still needs to go. It involved one of New Jersey’s many forum-shopping plaintiffs – an Alabama resident with no connection to New Jersey other than he happened to take an OTC drug made by a company headquartered in New Jersey.

Under Rowe one might have thought that Alabama law would have to apply.

One would have thought wrong.

Applying New Jersey law, the Smith court first held that a company that did nothing but apply labels to drugs – an entity that never took title to the product – could be liable as a product manufacturer under the PLA. The court chose to apply “manufacturers” rather than “sellers” liability by limiting the exception for sellers to, essentially, retailers (unfortunately there are no page cites in Westlaw’s copy of the opinion as this is written). In doing so it ignored the obvious purpose of this part of the PLA – which is to allow sellers to escape liability where there is a manufacturer that can be sued in the same action. N.J.S.A. 2A:58C-9. In this case there obviously was such a manufacturer, since it had also been sued.

The court also refused to apply the Alabama statute of limitations (which did not recognize a discovery rule in wrongful death) to an action brought by an Alabama plaintiff for injuries suffered in Alabama by taking a drug purchased in Pennsylvania. The court struggled to distinguish Rowe, eventually pointing to the “consumer-protectionist feature” of the statute at issue in Rowe, and then put forward exactly the same New Jersey interest that had been rejected as insufficient in Rowe: “the allegedly defective product was packaged and labeled here and then shipped from this State.” (again, no page cites in Smith – sorry).

At least one could have made a case for New Jersey law under Gantes – which, if older than Rowe (and not in the drug context), at least also involved a statute of limitations. But the Smith court then proceeded to apply New Jersey substantive law as well, allowing the plaintiff out from under his home state’s law, which did not allow intermediate suppliers to be liable without some showing that they were actually at fault.

Smith characterized the “policy” of Alabama’s retention of negligence defenses for intermediate sellers as “to afford business entities certain defenses not available under traditional no-fault strict liability.”

Traditional?

Since when did strict liability become “traditional” compared to negligence? But we digress.

“On the other hand, New Jersey’s adherence to a no-fault theory of strict liability stems from encouraging the safe production of products among manufacturers.” Smith at ???

Thus, for some reason the policies of New Jersey, where the product was made, trumped Alabama – where the plaintiff lived, where he used the product, and where he was injured:


[T]he nature of the State’s contacts to the litigation and to the parties, and the strength of its underlying policies, are such to establish New Jersey’s superior governmental interest in applying its law of products liability. [Defendant] is a New Jersey corporation operating a business here that packaged and labeled Acutrim in New Jersey and shipped the product from this State. Defendant has no contacts with Alabama. Moreover, the conduct allegedly causing the injury occurred outside Alabama. As such, other than plaintiff’s residency, Alabama has no discernable interest in extending its products liability law to defendant, which actually may operate as a hindrance to its resident obtaining full compensation for his injuries. New Jersey, on the other hand, has a strong interest in applying its no-fault strict liability law to [an out of state plaintiff] to encourage the manufacture and distribution of safe products for the public and, conversely, to deter the manufacture and distribution of unsafe products within the State.

Smith at ???

We invite our readers to compare this reasoning to the New Jersey Supreme Court’s choice of law analysis in Rowe – specifically to the first two block quotes that we set out here. They’re completely incompatible. No two ways about it – the Smith decision simply ignores the controlling precedent of a New Jersey Supreme Court decision that is less than two years old.

And it gets worse.

Smith then turns to the New Jersey Consumer Fraud Act. Why should New Jersey’s statute apply to a purchase by an Alabama resident in Pennsylvania? The answer seems to be that New Jersey’s statute is somehow “better” than Alabama’s (or presumably Pennsylvania’s) because it allows a plaintiff to recover the most money:

New Jersey is the site of the alleged deceptive practice and, as noted, has a substantial interest in deterrence. Alabama, on the other hand, although home to plaintiff, was not the situs where plaintiff purchased the [product] and has no direct relationship with defendant. . . . Indeed, any interest Alabama may have in compensating its domiciliary, is better served by the NJCFA, which mandates punitive damages. Accordingly, New Jersey's interest in applying the NJCFA outweighs Alabama’s interest.

Smith at ??? (emphasis added). It’s hard to find a more transparently result oriented conflict of law decision than that. The defendant’s interest isn’t even considered – only the plaintiff’s.

About the only good thing that can be said about Smith is that the defendant can appeal it, and it is blatantly obvious that this result conflicts not only with Rowe, but also with Sinclair – which bars CFA claims altogether in product liability actions.

Smith will be another chance to gauge the New Jersey Supreme Court’s determination to reign in the state’s still overly liability-prone lower courts. We hope the Court is up to the challenge. We’d like to be able to add, bye-bye Smith.

1 comment:

Kevin Haverty said...

I read your analysis of the Smith case (which was my case) and you seem to have missed the main point. Critical to the decision is the fact that Alabama expressly and steadfastly applies lex fori and deems its statute of limitations to be procedural. Even if one were to accept the dubious conclusion of the Rowe court that NJ's interests in deterring the manufacture and distribution of defective products are diminished in pharmaceutical cases, that diminished interest would still trump the utter lack of interest another state has in applying its purely procedural statute of limitations to a suit pending in another jurisdiction. That is why the App. Div. said that it was "at a loss" to discern any interest on the part of Alabama.
The decision was a faithful application of NJ's governmental interest test.