Monday, June 30, 2008

Expert Opinions on Legal Issues Excluded

The recent decision in Iacangelo v. Georgetown University, ___ F. Supp.2d ___, 2008 U.S. Dist. LEXIS 46416 (D.D.C. June 17, 2008), hasn't gotten much play in the press.

For good reason.

It was written by a magistrate judge, doesn't give too much of a sense of the underlying facts, and stands for a relatively unremarkable proposition.

But if we took the time to read the !@*!! thing, then we're going to inflict it on you.

And it does relate to an issue that's dear to our hearts -- the admissibility of expert opinions on questions of law.

And we'll keep this post mercifully short.

The parents of an incapacitated adult brought medical malpractice, breach of fiduciary duty, and failure to warn claims against health care providers. Plaintiffs pleaded that defendants "breached an alleged guaranteed rate of success of the medical procedure employed by Defendants." Id. at *2. (Those were either awfully stupid doctors or lying plaintiffs. We weren't there, so we can't tell you which.) Plaintiffs also pleaded negligence per se claims based on alleged violations of the Federal Food, Drug, and Cosmetic Act. Id.

We can't quite figure out what medical procedure the defendants performed on the patient. But it sounds like a doozy: The medical devices involved were allegedly "illegal," "unapproved," and "the subject of an Import Act." Id. at *13-*14.

Although plaintiffs did not plead a claim for legal malpractice, they asserted that using unapproved devices "without both an IDE and IRB approval" violated the standard of care. Id. at *13. The hospital purportedly should have performed due diligence, learned the FDA status of the devices, and protected the patient appropriately. Id. Plaintiffs offered expert witnesses who gave legal opinions about the propriety of the defendants' legal conduct to establish that the treating physician committed medical malpractice.

The trial court excluded the expert testimony. "[T]here is no claim for legal malpractice or any supporting theory that a patient can sue her physician's lawyer for legal malpractice." Id. at *17. Moreover, "[i]n attempting to use legal experts to prove that liability and causation have been established and to interpret statutory language, Plaintiffs would effectively usurp the function of the trier of fact." Id. at *18.

This case is neither the cleanest nor strongest example we've seen of courts excluding testimony on questions of law, but it adds to the list of precedents on that point.

Now that we've posted about it, perhaps you won't lose this case in that folder of old opinions stuck in your file drawer.

Friday, June 27, 2008

Guest Post - Using Twombly To Fight Fraudulent Joinder

What follows is a guest post from some of our friends over at Reed Smith - specifically Lisa Baird, Tracy Weiss and Mike King. Needless to say, it's their own work, so they deserve all the credit. As usual, we'll end up with the blame.

They point out ways that those of us on the defense side can use the Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1969 (2007), to defeat fraudulent joinders committed by plaintiffs seeking to defeat federal diversity jurisdiction.

For our own prior posts on Twombly see here, and here.

And so, without further ado:

*********************

Practitioners in the pharmaceutical litigation field unfortunately are quite familiar with state court complaints that include additional defendants named for the sole purpose of defeating diversity jurisdiction and removal to federal court. Motion practice attacking these “fraudulently joined” defendants is common and, all too often, fruitless. However, the United States Supreme Court’s recent decision in Bell Atlantic Corp. v. Twombly offers defendants a higher caliber of ammunition to use in their eternal guerilla war against fraudulent joinder of bogus defendants.

Courts have long interpreted pleading standards under Rule 8 liberally, allowing claims to proceed to discovery unless the plaintiff could “prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 46-47 (1957). This familiar “no set of facts” language recently (and expressly) met its demise, however. See Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1969 (2007). In Twombly, a class action antitrust case brought under Section 1 of the Sherman Act, the United States Supreme Court held that “[w]hile a complaint attacked by Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 1963-65. Twombly’s pleading standard focused on the “plausibility” of the plaintiff’s claims (rather than mere possibilities), and required the complaint to set forth “enough facts to state a claim to relief that is plausible on its face.” Id. at 1974.

There has been considerable debate as to the breadth of Twombly’s holding. While the Court cautioned that it was not adopting a heightened pleading standard, see id. at 1973, n. 14, it noted that it was applying “general standards to a § 1 claim” in reaching its holding. Id. at 1965. Rigorous application of a pre-existing standard that had only been laxly enforced, however, is practically indistinguishable from a heightened standard. Suffice to say, numerous courts have applied Twombly outside the context of Sherman Act litigation. That includes, as has already been pointed out in this blog, drug and medical device product liability litigation. See Heck v. American Medical Systems, Inc., No CCB-07-2101, 2008 WL 1990710 (D. Md. April 30, 2008); cf. In re Bausch & Lomb Inc. Products Liab. Litig., MDL No. 1785, 2007 U.S. Dist. LEXIS 76657 (D. S.C. October 11, 2007) (applying Twombly to economic loss claims related to discarded contact lens solution).

So what does Twombly mean in the context of fraudulent joinder? Generally, fraudulent joinder involves the assertion of claims against a non-diverse defendant in an effort to defeat diversity jurisdiction. In evaluating whether a party has been fraudulently joined, many courts have employed a Rule 12(b)(6) standard, and more recently, the standard set forth in Twombly. See, e.g., Pascale Service Corp. v. Int’l Truck and Engine Corp., No. 07-0247-S, 2007 WL 2905622, *3 (D.R.I. Oct. 1, 2007); Taylor v. Shelter Lincoln Mercury, Ltd., No. 2:07-CV-0097, 2007 WL 3244701, *1 (W.D. La. Nov. 2, 2007); Tippen v. Republic Fire & Casualty Ins. Co., No. 06-7701, 2007 U.S. Dist. LEXIS 87351 (E.D. La. November 28, 2007); Results Marketing, Inc. v. Buffalo-Lake Erie Wireless Systems Co., LLC, No. 3:CV-08-0382, 2008 U.S. Dist. LEXIS 39924 (M.D. Pa. May 16, 2008).

The true impact of Twombly on fraudulent joinder analysis remains to be seen, however. One court has addressed the issue in the context of multiple insurance coverage claims following Hurricane Katrina, and its decisions shed some light on the issue. In some cases, the court dismissed claims against the non-diverse insurance agent, citing Twombly, due to the plaintiffs’ failure to allege sufficient facts. See, e.g., Soroe v. State Farm Fire and Casualty Co., No. 1:07CV134, 2008 U.S. Dist. LEXIS 22340, (S.D. Miss. 2008); Chester v. State Farm Fire & Casualty Co., No. 1:07CV132, 2008 U.S. Dist. LEXIS 22356 (S.D. Miss. March 6, 2008); Remel v. State Farm Fire & Casualty Co., No. 1:07CV126, 2008 U.S. Dist. LEXIS 22361 (S.D. Miss. March 6, 2008); Zar v. State Farm Fire & Casualty Co., No. 1:07CV133, 2008 U.S. Dist. LEXIS 17357 (S.D. Miss. March 5, 2008). However, when plaintiffs supplemented the record with an affidavit setting forth some factual allegations concerning the non-diverse defendant, that coupled with the extensive deference owed to plaintiffs at the 12(b)(6) stage, led the same court to find that there was no diversity and thus to remand. See LaFrance v. State Farm Fire & Casualty Co., No. 1:07CV125, 2008 U.S. Dist. LEXIS 22362 (S.D. Miss. March 10, 2008); LaFleur v. State Farm Fire & Casualty Co., No. 1:07CV527, 2008 U.S. Dist. LEXIS 25727 (S.D. Miss. March 26, 2008).

The point is that Twombly is out there, and defendants should take remember to take advantage it in the fraudulent joinder context. Because Twombly requires plaintiffs to assert plausible factual allegations against all defendants, defendants who hope to show that a non-diverse defendant was fraudulently joined to defeat removal to federal court have a new, powerful argument to make. Where the complaint simply alleges the non-diverse defendant’s name and residence with factually bare legal claims, it is no longer enough for plaintiff to rely on the argument that discovery might lead to facts supporting it, and a fraudulent joinder challenge now stands a better chance of success. This may be particularly true in the case of mass torts, where the economic burdens of allowing implausible claims to proceed to discovery fall most heavily. At minimum, Twombly has been forcing plaintiffs to supplement their allegations to set forth facts sufficient to survive dismissal in order to avoid charges of fraudulent joinder.

Thursday, June 26, 2008

More Thoughts About "Parallel" Requirements Claims and Preemption

“Parallel” requirements.

That’s where they’re going to come after us. We know it. They know it.

Plaintiffs have no choice. Under Riegel v. Medtronic, Inc., 128 S. Ct. 999 (2008), supposedly “parallel requirements” – alleged tort duties congruent with FDA requirements – are essentially the only thing the Supreme Court did not find preempted in a product liability case brought against the manufacturer of a pre-market approved (“PMA”) medical device.

Note that we’re not saying (we’d never say) that “parallel” requirements claims aren’t preempted. Riegel doesn’t contain any affirmative holding that such claims escaped preemption in a PMA device case. “Parallel” claims just weren’t addressed one way or the other in Riegel. They escaped preemption analysis because the Supreme Court held that the plaintiff had waived any argument about such claims:


The District Court in this case recognized that parallel claims would not be pre-empted, but it interpreted the claims here to assert that [defendant’s] device violated state tort law notwithstanding compliance with the relevant federal requirements. Although [plaintiffs] now argue that their lawsuit raises parallel claims, they made no such contention in their briefs before the Second Circuit, nor did they raise this argument in their petition for certiorari. We decline to address that argument in the first instance here.
128 S. Ct. at 1011.

Talk about plaintiffs getting lucky because they messed up their own case. It’s enough to make a conspiracy theorist wonder....

But be that as it may, after Riegel “parallel” requirements is where any plaintiff asserting injury from a PMA-approved device has to go to have any kind of viable claim at all.

So what can we on the defense side argue in favor of the preemption of “parallel” requirements?

Glad you asked.

Right now, we see three basic sets of arguments in favor of preemption of “parallel” requirements allegations.

The first argument: This approach takes the maximalist position that purported “parallel” violation claims are preempted – notwithstanding Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996) – because the FDCA expressly forbids private enforcement of the statute. “[A]ll such proceedings for the enforcement, or to restrain violations of this chapter shall be by and in the name of the United States.” 21 U.S.C. §337(a). Lohr never considered §337(a), and we’ve got post-Lohr Supreme Court precedent on our side.

A unanimous Supreme Court relied on §337(a) in Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001), as one piece of its rationale holding that private “fraud on the FDA” claims were preempted. This section, Buckman held, demonstrates the intent of Congress that private litigation must not interfere with how the FDA does its job: “The FDCA leaves no doubt that it is the Federal Government rather than private litigants who are authorized to file suit for noncompliance with the medical device provisions.” 531 U.S. at 349 n.4. In §337(a), “we have clear evidence that Congress intended that the MDA be enforced exclusively by the Federal Government.” 531 U.S. at 352.

Both before and after Buckman, this rationale has barred a wide range of claims brought by private litigants, including tort claims, e.g., In re Orthopedic Bone Screw Products Liability Litigation, 193 F.3d 781, 791 (3d Cir. 1999) (§337(a) “expressly restricts its enforcement to the federal government”); and (even more frequently) in Lanham Act claims. E.g., Mylan Laboratories, Inc., v. Matkari, 7 F.3d 1130, 1139 (4th Cir. 1993); Sandoz Pharmaceuticals v. Richardson Vicks, 902 F.2d 222, 231 (3d Cir. 1990); Ethex Corp. v. First Horizon Pharmaceutical Corp., 228 F. Supp.2d 1048, 1059 (E.D. Mo. 2002); see generally Schwarz Pharma, Inc. v. Breckenridge Pharmaceutical, Inc., 388 F. Supp.2d 967, 974-75 (E.D. Wis. 2005).

The bounds of preemption under a straight §337(a) analysis include any private claim in which “the court would be required to interpret or apply” either “the FDCA or its accompanying regulations.” Schwartz Pharma, 388 F. Supp.2d at 975.

With respect to “parallel” violation claims, §337(a) preemption has been addressed most recently in litigation concerning food. We’ve discussed a couple of these cases before, here and here.

While these cases have allowed claims that would seem to violate §337(a) escape preemption, they’ve done so solely on a food-specific rationale. Section 337(a) preemption is avoided only due to an FDCA provision that’s unique to food and has no counterpart in the medical device (or drug) arena. See In re Farm Raised Salmon Cases, 175 P.3d 1170, 1178 (Cal. 2008); Vermont Pure Holdings, Ltd. v. Nestle Waters North America, Inc., 2006 WL 839486, at *5 (D. Mass. 2006).

Specifically, those cases rely on an FDCA provision, 21 U.S.C. §343-1(a), that expressly preserves state enforcement of “identical” state food regulations. Indeed, they concede generally that §337(a) prohibits private enforcement of purported FDCA violations, but go on to hold that §343-1(a) preserves “identical” state law that the states can then enforce. Farm Raised Salmon, 175 P.3d at 1181; Vermont Pure Holdings, 2006 WL 839486, at *6 n.3. These cases thus imply that, where no such exception exists, §337(a) would apply with full force, and state-law violation claims would be preempted.

That’s one.

Approaches two and three are claim specific. They rely on what it must mean for state-law claims and FDA violations to be “parallel.” At minimum, parallelism imposes two restrictions on putative state-law claims.

First, for an FDCA violation to be “parallel” to a state law claim of any sort, a traditional state tort duty must actually exist. There must be something for the asserted FDCA violation to be “parallel” to. If there’s only an FDCA violation without any “parallel” in state law, then there’s nothing to prevent preemption. That’s what was going on in Buckman – preemption would exist because, as in Buckman, the claimed violation would give rise to a novel claim under state law.

Second, even where there is a corresponding state-law claim, that claim must actually be “parallel” to the federal claim. The state-law plaintiffs can’t base their “violation” claim on some unique and bizarre interpretation of an FDA regulation that the Agency has never agreed with. The claims must be “genuinely” parallel. This type of situation is what the Supreme Court was talking about in Bates v. Dow Agrosciences LLC, 544 U.S. 431 (2005):


In undertaking a pre-emption analysis. . ., a court should bear in mind the concept of equivalence. To survive pre-emption, the state-law requirement need not be phrased in the identical language as its corresponding [federal] requirement; indeed, it would be surprising if a common-law requirement used the same phraseology as [the federal standard]. If a case proceeds to trial, the court’s jury instructions must ensure that nominally equivalent labeling requirements are genuinely equivalent. . . . [A] manufacturer should not be held liable under a state labeling requirement. . .unless the manufacturer is also liable for misbranding as defined by [governing federal law].
Id. at 454 (emphasis added).

Now, we’ll discuss approaches two and three in a little more detail.

The second argument: The fraud on the FDA-related violation claims in Buckman, that Court held, “exist[ed] solely by virtue of the FDCA disclosure requirements.” 531 U.S. at 353. This fact distinguished them from the “parallel” claims in Lohr, which “arose from the manufacturer’s alleged failure to use reasonable care in the production of the product, not solely from the violation of FDCA requirements.” Id. Not every “violation of the FDCA will support a state-law claim.” Id. Rather, Lohr only referenced “certain state-law causes of actions that parallel federal safety requirements.” Id. This exception demanded a cause of action parallel to “traditional state tort law”:

[W]ere plaintiffs to maintain their fraud-on-the-agency claims here, they would not be relying on traditional state tort law which had predated the federal enactments in questions. On the contrary, the existence of these federal enactments is a critical element in their case.

Id.

This aspect of what “parallel” means supports preemption of violation claims alleging, for example, that products should have been recalled (either sooner or at all). That’s because state law does not recognize claims for failure to recall or retrofit. See Restatement (Third) of Torts, Products Liability §11 (1998). Similarly, there can’t be “parallel” claims in many states with respect to a defendant’s alleged FDCA violations involving post-marketing suppression of risk information and/or failure to modify labels. That’s because a lot of states don’t recognize claims for post-sale duty to warn. There are undoubtedly plenty of other examples of “violation” claims without any close state-law analogs.

In this respect, Buckman-style preemption of supposedly “parallel” violation claims is a lot like the requirement already imposed upon negligence per se claims as a matter of state law in a number of jurisdictions – that negligence per se cannot create novel state tort duties. See, e.g., Perry v. S.N., 973 S.W.2d 301, 306 (Tex. 1998); Elder v. Allstate Insurance Co., 341 F. Supp.2d 1095, 1102 (D. Minn. 2004).

A significant practical advantage of this second preemption argument is that it can be determined largely a matter of law. That is: (1) the comparison between the claimed violation and the accepted state law theories, and (2) the determination whether there is any reasonably close match, is the kind of argument that does not require extensive discovery and could be decided (perhaps on motion to dismiss) without the need for a great deal of expensive discovery.

The third argument: The requirement that the state law claim must (in practice as well as in theory) actually – or as Bates puts it, “genuinely” – be “parallel” has a fair amount of precedential support. For example, in a prior post we already discussed Kemp v. Medtronic, Inc., 231 F.3d 216, 230 (6th Cir. 2001). There, the court concluded that the purported “violations” weren’t actually violations. Rather the plaintiffs had erroneously interpreted FDA requirements. Id. at 230 (FDA “d[id] not include” Plaintiffs’ claimed requirement); 231 (describing “specious nature of plaintiffs’ claim”); 231-32 (claims based upon “inapplicable” materials). Because the supposedly “parallel” claims actually weren’t, Kemp found preemption. “To permit a jury to find [defendant] negligent for failing to [comply with a incorrectly stated FDA requirement] would be to impose a requirement different from and in addition to those established by the FDA.” Id. at 230.

After Bates, a number of other courts – mostly outside the drug and device field – have addressed this aspect of parallelism. The closest is Bruesewitz v. Wyeth, Inc., 508 F. Supp.2d 430 (E.D. Pa. 2007), decided under the Vaccine Act – which prescription-only products overseen by the FDA. We’ve already discussed other aspects of Bruesewitz here. The Vaccine Act decrees all vaccines to be “unavoidably unsafe” within the meaning of Restatement (Second) of Torts §402A, comment k (1965). In Bruesewitz, the court rejected a plaintiff’s contrary argument for case-by-case determination. That argument was preempted because it could not possibly involve a “parallel” requirement:


Applying the “parallel requirements” holding of Bates, the Court concludes Congress did not intend to allow a case-by-case determination as to whether a vaccine is unavoidably unsafe. Doing otherwise would allow state common law to impose additional requirements on vaccine manufacturers wishing to avoid liability, rather than merely providing additional remedies for violating federal law.
508 F. Supp.2d at 446. Thus, if the effect of the claim is to deviate from how the agency judges the product, there is preemption. Only the remedy for a violation can be different - not the particulars of the violation claim itself. Id.

Of somewhat lesser relevance – given the greater differences in statutory language already discussed above, are the food preemption cases. In Vermont Pure Holdings, a Bates “parallel requirements analysis” required that the state-law claim be in “substantially the same language as the comparable provision of the [FDCA],” and “any difference [must] not result in the imposition of materially different requirements.” 2006 WL 839486, at *5. See id. at *6 (state standards “must mirror” federal standards).

The court in Reyes v. McDonald’s Corp., 2006 WL 3253579 (N.D. Ill. 2006), looked to whether the plaintiff’s false labeling claim paralleled FDA nutritional labeling requirements. Id. at *5. This comparison extended to both the administrative burden of proof and the details of the plaintiff’s claims. “General” allegations would sweep too broadly:


Plaintiffs will still bear the burden of establishing that the [National Labeling Education Act] A was violated because they seek to enforce state common law claims identical to the NLEA. Plaintiffs cannot rest on general allegations of consumer deception alone, because any allegation that [defendant] be required to act in a way that is not identical to the requirements of the NLEA would be preempted. Plaintiffs must be able to show that the allegations are identical to acts deemed misbranding under the terms of the NLEA.
Id. at *6. Further, the plaintiffs’ claim had to conform to the FDA’s regulations, and not just the statute. Id. at *7 (“any analysis of the preemptive effect of NLEA. . .requires an examination of the regulations governing the NLEA”).

Because the plaintiff’s state-law claims were “broader” than what the applicable federal regulations imposed, preemption imposed “important limits” on the non-parallel aspects of those claims. Id. at *7. For example, the FDA’s regulations allowed 20% margin for error in nutritional labeling. Two of the plaintiff’s three claims fell within this margin, and were therefore preempted. Id. (within-margin claims “would be seeking to recover under a broader definition of “misbranding”. . ., resulting in an inconsistent standard for labeling”).

Entirely outside the FDCA context, in Mortellite v. Novartis Crop Protection, Inc., 460 F.3d 483 (3d Cir. 2006), a truly “parallel” requirements claim had to involve “requirements that are consistent with [federal] requirements and which only provide new remedies.” Id. at 491. In another FIFRA case, there was no directly applicable federal regulation. Thus, the court in Indian Brand Farms, Inc. v. Novartis Crop Protection, Inc., 2007 WL 4571087 (D.N.J. Dec. 20, 2007), decided that mere general congruity between the purposes of tort law and FIFRA to ensure that products are “reasonably safe for use” didn’t make the tort claims “parallel” to the federal statute. Id. at *9. A state claim concerning an unregulated product aspect could not be “parallel” to the federal scheme, but instead was both “different from” and “in addition to” federal requirements – and was thus preempted. Id. at *8.

Finally the Bates “genuine” parallelism requirement was also discussed in Fox v. Cheminova, Inc., 387 F. Supp.2d 160 (E.D.N.Y. 2005). Fox held that Bates imposed preemption to the “extent that [state law claims] add to or differ from what [federal law] requires. That question could not be answered until “[t]he parties. . .flesh out the precise contours of the State labeling laws.” 387 F. Supp.2d at 167.

As Fox indicates, in contrast to the Buckman approach, a preemption motion brought pursuant to the Bates “genuinely” parallel standard will usually require a full summary judgment record. To make the necessary comparisons, the precise nature of the plaintiff’s FDCA violation claim must be known in some detail.

Finally by laying out these three approaches to “parallel” violation claims, we’re certainly not by any means implying that these are the only arguments that defendants can make. There are all kinds of common-law, non-preemption arguments. We’ve discussed those at some length, here. Even as to preemption, we passed along another possible formulation, here. All we’re saying is that these three preemption arguments: (1) are what comes to our all-too-limited brains at the moment, and (2) are supported by significant existing precedent, and thus good candidates for immediate use in appropriate cases.

Undoubtedly there are other defense-minded folks out there who have also been thinking about how to deal with preemption and “parallel” requirements claims. If anybody has additional bright ideas of their own, we’re all ears.

Wednesday, June 25, 2008

Exxon Valdez Punitive Damages Award Vacated By Supreme Court

This morning the United States Supreme Court issued its opinion in the long-running Exxon-Valdez case, Exxon Shipping Company v. Baker, No. 07-219, slip op. (U.S. June 25, 2008). Here's a link. Bottom line: The huge ($2.5 billion) award is vacated with instructions to reduce the award to a 1:1 ratio with compensatory damages (some $500 million). The reduction is taken under maritime law, not on a constitutional basis.

The Court split 4-4 on (Alito not participating) on whether there could be punitives under maritime law for acts of managerial agents.

Of more interest to us, the Court found no preemption of punitive damages by the Clean Water Act. First, there was waiver. Second (which may well be dicta in light of the first ruling), there was no express preemption of the punitive damages remedy (which the defendant claimed was preempted) where there was no preemption of compensatory damages (a position the defendant disclaimed), and no implied preemption either - although the latter received less than one sentence of treatment:

This concession, however, leaves Exxon with the equally untenable claim that the CWA somehow preempts punitive damages, but not compensatory damages, for economic loss. But nothing in the statutory text points to fragmenting the recovery scheme this way, and we have rejected similar attempts to sever remedies from their causes of action. All in all, we see no clear indication of congressional intent to occupy the entire field of pollution remedies; nor for that matter do we perceive that punitive damages for private harms will have any frustrating effect on the CWA remedial scheme, which would point to preemption.

Slip op. at 15 (citations and footnote omitted). There is no mention of any presumption against preemption.

There's an interesting general discussion of punitive damages, their history and purpose that anyone litigating this subject should become familiar with. The Court states that most "recent" research "undercuts" much of the criticism of runaway punitive damages. Slip op. at 24. Our opponents will like that, of course - but the Court doesn't stop there.

The real problem the Court sees with punitive damages was not usually their gross amount, but their unpredictability:


The real problem, it seems, is the stark unpredictability of punitive awards. Courts of law are concerned with fairness as consistency, and evidence that the median ratio of punitive to compensatory awards falls within a reasonable zone, or that punitive awards are infrequent, fails to tell us whether the spread between high and low individual awards is acceptable. The available data suggest it is not.

Slip op. at 26.

For those who thought that the Supreme Court might have backed away from excessiveness Due Process review in the recent Phillip Morris v. Williams decision - it's baaack:

The Court’s response to outlier punitive damages awards has thus far been confined by claims at the constitutional level, and our cases have announced due process standards that every award must pass. Although "we have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula," we have determined that "few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process"; "[w]hen compensatory damages are substantial, then a lesser ratio, perhaps onlyequal to compensatory damages, can reach the outermost limit of the due process guarantee."
Slip op. at 28 (citations to Gore and Campbell omitted). But this time, as indicated, the Court decides excessiveness under federal maritime, rather than constitutional, analysis. Id. Instead, the Court takes its first stab ever at common-law excessiveness review of a punitive award:


Whatever maybe the constitutional significance of the unpredictability of high punitive awards, this feature of happenstance is in tension with the function of the awards as punitive, just because of the implication of unfairness that an eccentrically high punitive verdict carries in a system whose commonly held notion of law rests on a sense of fairness in dealing with one another. Thus, a penalty should be reasonably predictable in its severity, so that even Justice Holmes’s "bad man" can look ahead with some ability to know what the stakes are in choosing one course of action or another.

Slip op. at 29.

The court adopts a ratio-based standard for federal common law excessiveness review. "The more promising alternative is to ... peg[] punitive to compensatory damages using a ratio or maximum multiple." Slip op. at 33. This is a "more rigorous standard[] than the constitutional limit." Id. The Court, after extensive discussion, elects to apply a 1:1 ratio:



[G]iven the need to protect against the possibility (and the disruptive cost to the legal system) of awards that are unpredictable and unnecessary, either for deterrence or for measured retribution, we consider that a 1:1 ratio, which is above the median award, is a fair upper limit in such maritime cases.

Slip op. at 40. "Such" cases are those


with no earmarks of exceptional blameworthiness within the punishable spectrum (cases like this one, without intentional or malicious conduct, and without behavior driven primarily by desire for gain, for example) and cases (again like this one) without the modest economic harm or odds of detection that have opened the door to higher awards.
Id.

Now this is a maritime case, so it's not binding on any state court. However, another maritime case that the Court cited - Robbins Dry Dock - was extremely influential in bringing about the "economic loss rule" that almost every state has adopted. So was East Coast Steamship v. Deleval. Likewise the Court's MetroNorth decision, a FELA case, was influential in leading many jurisdictions to reject damages for mere risk of future injury in the absence of any present physical injury. Thus it is possible that the Court's decision here will influence the manner in which states view non-constitutional excessiveness challenges to punitive damage awards.

More On Taxation of Confidentiality Agreements

We posted a few hours ago about the Amos tax case, and we gave our amateur opinion that it was unlikely to have much of an effect in the product liability area.

Professor James Maule, of Villanova, who blogs at Mauled Again, is less sanguine. He has suggested that, so long as confidentiality agreements are common in product liability settlements (and they are, of course), the IRS might well take the position that the portion of a settlement received in return for confidentiality is taxable.

The good professor notes that Amos has in fact been cited in a few later tax cases -- Braden v Comr, TC Summary Op 2006-78; Green v Comr, TC Memo 2005-250; and Allum v Comr, 2005-177 -- although never for the confidentiality issue, which is what we're thinking about here.

Finally, Professor Maule provided this list of articles that discuss the Amos issue, in case this comes up in one of your settlements:
  • McMillian, "The Nuisance Settlement 'Problem': The Elusive Truth and a Clarifying Proposal," 31 Am. J. Trial Advoc. 221;
  • Sorrels & Choudhury, "Plaintiff's Attorneys Beware: Little Known Tax Consequences Associated with Confidentiality Provisions," 6 Hous. Bus. & Tax L.J. 258 (also appears in 69 Tex. Bar J. 120);
  • Mehta, "Lasting Agreement," 30 Los Angeles Lawyer 28 (near the end of the article); and
  • Freeman, "Ethics Watch: Another Reason to Avoid Confidential Settlements: Taxation," 16 S. Carolina Lawyer 9.
One of the joys of blogging is the chance to learn something new every day. (Of course, when you start from our base of knowledge, those opportunities truly abound.)

What Do You Know? Many 9/11 Workers Not Sick

According to this article in today's New York Times, many of the workers seeking damages for injuries allegedly sustained while working at the World Trade Center clean-up site have suffered no injury at all, or seek damages for injuries, such as a deviated septum, that couldn't possibly be related to work at Ground Zero.

Not only that, but the plaintiffs apparently did not produce their medical records on time and often produced only incomplete records.

Have we ever heard that story before?

Taxation of Confidentiality Provisions

One of our colleagues recently called with a question about the tax treatment of settlement agreements that contain confidentiality provisions.

Apparently, the IRS is trying to capture some of the money that has been changing hands in settlements that are treated confidentially. Although the portion of the settlement payment made in compensation for personal injuries is not taxable, amounts paid to "buy" a confidentiality agreement might be taxable. The IRS assigns some value to the confidentiality provision and then taxes the recipient of the benefit. Because the plaintiff fears being taxed on the value of the confidentiality provision, the plaintiff asks the defendant (in one of several ways) to share that risk.

We personally haven't settled many cases recently, so we weren't aware of this issue. In a couple of seconds of research on the web, however, we found this analysis, which looks to be pretty thoughtful. The case that started this controversy was Amos v. Commissioner of Internal Revenue (Dec. 1, 2003) No. 13391-01. It's an interesting issue, but we don't think it's likely to play a big role in the settlement of product liability cases.

So far as we can tell (and we ain't tax lawyers by a long shot), no later case or IRS ruling has cited Amos. That's striking, because the IRS watches developments in this area closely because of the number of taxpayers involved and is usually quick to apply any pro-IRS result as widely as possible.

Moreover, the IRS recently adopted a pro-plaintiff (that is, no taxation of sums allocable to confidentiality provisions) position in the clergy abuse cases -- cases in which the plaintiffs had difficulty establishing that their injuries, many of them alleged to have been sustained decades earlier, were physical injuries. The result may have been different in Amos because there was much more than confidentiality at stake for the defendant (Dennis Rodman), including the dropping of criminal charges, and because there seemed to be real doubt on the part of the Tax Court as to the extent of Amos's actual physical injuries.

But that's a quick take from two guys who couldn't spell IRS if you spotted us a letter.

For real tax advice, talk to a real tax lawyer.

Tuesday, June 24, 2008

Dog Bites Man In Connecticut (Breen v. Synthes)

On Monday, it's the aura and majesty of the Supreme Court of the United States, descanting grandiloquently about issues of national importance.

On Tuesday, it's the Appellate Court of Connecticut droning on about comment (k) to the Restatement.

On this blog, you never know what you'll get.

Bad news: It's Tuesday.

In Breen v. Synthes-Stratec, Inc., 108 Conn. App. 105, 947 A.2d 383, 2008 Conn. App. LEXIS 261 (Conn. Ct. App. May 27, 2008), Breen broke his leg. The orthopedic surgeon treated it in part by implanting a bone plate. Six months later, the plate broke. Breen sued Synthes, which manufactured the plate.

Synthes won at trial; Breen appealed.

Breen asserted, among other things, that the learned intermediary doctrine and comment (k) to the Restatement (Second) of Torts apply only to prescription drugs, not to prescription medical devices.

The court would have none of it.

Although comment (k) expressly mentions only "drugs," "vaccines," and "experimental drugs" as unavoidably unsafe products, those examples are illustrative only: The Restatement says that the same (unavoidable unsafeness) "'is true of many other drugs, vaccines, and the like.'" (Slip op. at 5, quoting Restatement (Second) of Torts, Sec. 402A, comment (k).) Medical devices are included among "the like."

Moreover, the Connecticut Supreme Court has "applied the learned intermediary doctrine, which is supported by comment (k), in the context of prescription implantable medical devices." Slip op. at 5, citing Hurley v. Heart Physicians, P.C., 278 Conn. 305, 317, 898 A.2d 777 (2006).

'nuf said.

Actually, not quite enough said.

Breen also asserted that the learned intermediary doctrine and comment (k) apply only to medical devices that the FDA classifies as "class III" -- "represented to be for a use in supporting or sustaining human life or for a use which is of substantial importance in preventing impairment of human health or presents a potential unreasonable risk of illness or injury." According to Breen, the learned intermediary doctrine should not apply to class II devices, such as Synthes' bone plates.

The Connecticut court would have none of it, because Breen had presented no argument supporting that distinction.

Along the way, the Connecticut court collected cases from many different states applying comment (k) (slip op. at n.5) and the learned intermediary doctrine (slip op. at n.6) to medical devices.

That's today's news.

Maybe tomorrow we'll be surprised by something out of the U. S. Supreme Court.

Monday, June 23, 2008

From The Mouth of Plaintiffs' Counsel . . .

We'll report here on one last thing that we heard at the ALI Mass Litigation conference in Charleston last month -- because they are words that should be in the public domain.

A plaintiffs' lawyer speaking at the conference said that MDL transferee judges create trouble when they appoint to the plaintiffs' steering committee lawyers who represent no clients in the underlying mass tort.

Thus: A prominent plaintiffs' lawyer seeks a spot on an MDL steering committee because of his or her reputation as a mass tort lawyer, even though the lawyer doesn't represent any plaintiffs in this particular mass tort. The MDL transferee judge appoints that lawyer to the steering committee.

There's then an opportunity to settle some or all of the cases in the litigation at a fair price.

The lawyers who actually represent clients in the mass tort would like to accept the settlement. They think the settlement is good for their clients, and the lawyers will be paid their contingent fees extracted from each client's settlement payment.

But the lawyer who's on the steering committee and represents no clients has an entirely different agenda. That lawyer has no contingent fee interest in the litigation; he or she is paid out of the common benefit fund only for hours spent working on the case. That lawyer thus wants the case -- and the hours -- to continue, whether or not the proposed settlement is in the clients' best interest.

We have two reactions to this: First, we didn't make this up. We heard it from the mouth of a prominent plaintiffs' lawyer. MDL transferee judges should consider this perspective when they're appointing counsel to the plaintiffs' steering committee.

Second, we don't want to hear that "defense lawyers prolong litigation for the same reason."

We're certain that some defense lawyers prolong litigation to maintain a stream of revenue.

But intelligent, competent defense lawyers do not. Intelligent, competent defense lawyers know that, if they dispose of a case quickly and efficiently, a satisfied client will return with new work in the future. Quick victories yield more business.

Moreover, if a defense lawyer establishes a track record of disposing of cases quickly, other clients, too, will retain that lawyer based on his or her reputation.

On the plaintiffs' side, in the context of a steering committee, the incentives are different. First, a committee is a committee: No one plaintiffs' lawyer will get credit for obtaining a quick, valuable settlement of a mass tort.

And even if one lawyer did get that credit, product liability plaintiffs are different from product liability defendants. Plaintiffs are individuals who have allegedly been injured; defendants are institutions. Plaintiffs are thus not repeat players who are in a position to reward successful counsel by retaining them again in future litigation.

We won't, however, use this post as a soapbox.

(Don't fret. We'll probably use our next post as a soapbox.)

Rather, we'll just urge MDL transferee judges to consider the benefits of generally appointing to plaintiffs' steering committees lawyers who have some skin in the game -- those who represent clients in the underlying mass tort.

Friday, June 20, 2008

Redish on qui tam

We finally flipped through Martin Redish's paper, "Private Contingent Fee Lawyers and Public Power: Constitutional and Political Implications," which we found through Point of Law.

The paper focuses on the government's use of private contingent fee lawyers to prosecute civil litigation. We like Redish's argument: "Imagine a system in which all police work is performed not by governmental employees but by private contractors who are paid by the arrest: the more arrests, the more money they receive. Can anyone seriously imagine that such a system would be either constitutional or in any way consistent with the values of the American political system? I think not." Redish paper at 1.

And we like Redish's conclusion: The "government's use of private contingent fee attorneys in civil litigation is (1) inconsistent with the nation's democratic tradition, (2) unethical, and (3) a violation of the Due Process Clause." Id. at 6. "[T]he contingency fee practice removes the protections assured to defendants politically by the social contract that inheres in liberal democracy and constitutionally by the Due Process Clause." Id. at 10.

That stuff alone makes the paper worth reading.

But what really grabbed us came many pages later. Redish acknowledges that qui tam actions seem to put government power in the hands of private litigants, and he explains at length why the qui tam analogy does not justify using private contingent fee lawyers to pursue public claims. Id. at 25-30.

And then the kicker: "[T]he modern form of the qui tam action has never been subjected to scrutiny under the analysis by which I have found the private contingency fee action improper." Id. at 30 n.81.

We know this isn't a qui tam blog, but here's a wake-up call to the readers of this blog who also play in the qui tam sandbox: Read the Redish piece, and think about using his analysis to defend qui tam cases.

Back to drugs and devices shortly.

Thursday, June 19, 2008

Users' Guide To Defense Amicus Briefs - Wyeth v. Levine, Part II

A confession: There wasn’t supposed to be a Part II to this post.

When we posted our earlier users guide to the Levine defense amicus briefs, we thought we had included everything – we really did.

Shows what we know.

It seems our “good ol’ boys” approach to collecting the defense amicus briefs had a few holes in it. We called up some folks we thought were likely to have copies and asked them to send what they had to us. We checked the Supreme Court’s docket, too, but we should have known it was: (1) not that current, and (2) not 100% accurate. So we missed two – there were also amicus briefs filed by DRI (we should have known those guys wouldn’t miss this party) and by the Generic Pharmaceutical Association. We missed DRI’s appearance because the docket had them listed with the plaintiff-side counsel (we do hope they’ll get that fixed - that's not where the “The Voice Of The Defense Bar” belongs). We missed the GPA (great acronym) because they’re new kids on the block, and because pioneer and generic pharma don’t talk to each other enough about this kind of thing.

Anyway, we’ve got ‘em now, so here goes:

Part II

We’ll do DRI’s brief first because … well … they’re DRI, and because Dan Troy wrote it – and he’s one of our preemption heroes.

But heroism aside, what does DRI have to say that’s interesting and different?

It’s not new, but DRI does highlight plaintiff’s counsel’s closing argument tirade against the FDA in the very first paragraph of the summary of argument. We observed both in Part I and in our initial post on Levine that plaintiff’s explicit attack on the FDA is one of the best things the defense side has going for it in this case. It’s really hard for the other side to tell the jury it should disregard the Agency, and then to argue before the United States Supreme Court, with a straight face, that there’s no conflict between the verdict the plaintiff obtained and the Agency’s actions.

Good facts make good law.

We’ll skip over DRI’s lengthy description of the FDA’s New Drug Application process – not because there’s anything wrong with it (it’s quite good, actually, and contains a minimum of filler between the relevant citations), but because at least four of the briefs we’ve already read have something similar in them. We do particularly like the quote from 50 Fed. Reg. at 7470 about the effects of “substantive changes in labeling.” If you ever find yourself needing to write something similar in your own cases, remember that this is here.

Plagiarize. Let no other lawyer’s work evade your eyes (which is, in and of itself, plagiarized from Tom Lehrer).

One part of DRI’s administrative argument that is distinctive is the relatively lengthy discussion of the enhancement of the FDA’s powers by the recent FDAAA. DRI br. at 12-14. This goes to show that there’s a right way (congressional action) and a wrong way (complaining in state-law litigation) to deal with perceived deficiencies in FDA regulations. The 2007 FDAAA might not be directly relevant to regulatory actions that occurred in the 1990s and before, but it sure as heck will be relevant to new litigation that comes in the door – so we’re happy to have the analysis.

The most notable “new” argument that DRI brings to the table is the detailed discussion of why and how the FDA is inherently better suited to making society-wide safety judgments about the risks and benefits of the products it regulates. Other defense briefs have this point, but none with the thoroughness of DRI. DRI’s argument starts with judicial deference to administrative decision-making:

Congressional design requires federal courts – never mind state law and state lay juries – to accept and defer to FDA’s expert judgment and exercise of discretion about such difficult issues. Determining reliable scientific data is not the judicial function. Congress vested that responsibility in the FDA and [courts] will not preempt its presumed expertise. Indeed, the Court has observed that it is enough for us that the expert agency . . . has determined that such regulation is desirable for the public health, for we are hardly qualified to second-guess the Secretary’s medical judgment.
DRI br. at 17-18 (all sorts of citations and quotations omitted).

Using the judicial deference cases as sort of an extended a fortiori argument, DRI turns to the heart of the FDA’s administrative advantage – the point, already accepted by seven justices in Riegel, that state-law juries are “poor substitutes” for the FDA at making drug safety decisions that affect everyone in our society:

A dramatic gulf separates the competence of FDA from that of state jurors who, absent preemption, are called on to “police” prescription drugs and second-guess federal regulators. Laypersons applying state law cannot substitute for FDA, the expert agency congressionally delegated the role of meticulously balancing nuanced and sometimes competing nationwide goals. FDA’s regulation of prescription drugs is, as shown above, governed by a sweeping network of federal law individually applied to each drug. A lay jury lacks the expertise and the broader perspective of FDA and thus cannot adequately adjudicate individual patient risks in the context of population benefits – quintessentially the kind of issue FDA must confront every day. Without preemption, however, state juries are asked to do just that. See, e.g., Pet. Br. 23 (“‘Thank God we don’t rely on the FDA to . . . make the safe[ty] decision. You will make the decision.’”) (quoting JA 211).
DRI br. at 19-20. That’s the DRI’s main preemption argument in a nutshell – beginning with a paraphrase of the Supreme Court’s conclusion about juries vs. the FDA in Riegel and ending with plaintiff’s counsel’s anti-FDA tirade to the jury in the Levine trial.

Pretty powerful stuff, we think.

Good enough to win? We hope.

The next portion of DRI’s brief is devoted to analysis, much of which we haven’t seen before, that supports the propositions stated in its opening paragraph. It makes great reading for defense-side fellow-travelers like us.

  • The complexity of the FDA’s decision-making. DRI br. at 20.

  • The limitations of the tort system in dealing with unavoidably unsafe products. Id. at 20-21.

  • The limited perspective of juries. Id. at 21.

  • Research on juror tendencies to overrate low-probability risks. Id.

  • Justice Breyer’s remarks about the FDA versus jurors during the Kent argument, and similar statements. Id. at 21-22. We blogged about his little speech before.

  • Juror inability to engage in the sort of tradeoffs that the FDA is called upon to make. Id. at 23.
DRI then does something else that we were hoping to see – it puts before the Court the preemption issues presented by the SSRI-suicide litigation. DRI br. at 23-26. We’ve mentioned before that, as excellent as the Levine facts are for the defense preemption position, the SSRI cases arguably present even better facts for preemption – "because of the sheer magnitude of more than a decade of intense FDA involvement, and the Agency’s repeated conclusions (through the present day) that the plaintiffs’ warning proposals lack scientific support.”

We’re delighted that DRI took the time to explain this other preemption situation to the Court.

For good measure, DRI also discusses (br. at 26-27) the Dowhal litigation (we’ve addressed that here) – another specific situation where preemption was extremely appropriate, given the amount of consideration that the FDA had given to the relative risks of the smoking cessation devices at issue.

DRI ends its brief with policy: tort liability leading to overwarning and defensive labeling (br. at 28-30); tort liability as a disincentive to innovation (id. at 31); and tort liability as an incentive to remove valuable products from the market (at least in this country) (id. at 31-33), and the tort tax that all this litigation exacts from the health care system. Id. at 33.

The other Levine amicus brief we overlooked before was filed by the GPA – on behalf of the generic drug manufacturers. The mere fact that we did so is worrisome to us. As GPA points out, over 60% of all drug prescriptions are generic these days. GPA br. at 1.

But we don’t represent generics.

Why not?

Conflicts of interest, real or potential. The problem is that in so many areas (other than product liability), the pioneer drug manufacturers (our clients) and the generics are engaged in almost constant litigation with each other. Groups on the opposite side of that much litigation don’t tend to use lawyers who also represent the other side. There are all kinds of real or potential conflicts of interest that prevent cross-representation, and thus cross-fertilization of legal thinking. In fact, just last weekend, we jokingly referred to the pioneers and the generics in the same breath as the Hatfields and the McCoys.

But on an issue like preemption in product liability litigation, the pioneer and the generic manufacturers are almost entirely on the same side. Colacicco was an example of that – where both types of manufacturers were sued in the same case. We’ve fretted before that, because the generics are relative newcomers to product liability litigation, their lawyers might lag a bit on the learning curve on an issue like preemption, where the lawyers representing pioneer manufacturers have had to think about the issue so much more – simply because their clients have been sued so much more frequently.

Indeed, one reason we launched this blog was to create a place where all defense lawyers could exchange ideas on a wide range of defense issues – with no conflict issues to complicate that exchange, because everything here’s both public and free.

(On the other hand, you get what you pay for.)

All of that is basically a lead in to this: We’re pleased and relieved to see the generics – represented by a top drawer firm – jump fully into the fray on preemption. (Although, as we noted before, one generic did nice work in Gaeta v. Perrigo and another in Mensing v. Wyeth.) We hope to see the generics around as amici more often.

So what does GPA have to say?

What would you expect?

GPA mostly explains how preemption works in the somewhat different statutory framework that applies to generic drugs. We’d already seen some of this in Colacicco, but the Third Circuit never reached any issue peculiar to the generic manufacturer’s situation.

In this brief, the generics give it to the plaintiffs with both barrels.

GPA sees preemption in the generic drug context as “even stronger” than with the pioneer manufacturers that we represent. GPA br. at 2.

We wouldn’t go that far, but we understand why GPA would.

Why? Well, here’s what GPA argues:

  • Generic manufacturers don’t have control over their own labels. By statute, generic labels must be the “same” as the label used by the original pioneer manufacturer of the drug. 21 U.S.C. §355(j)(2)(A)(v). GPA br. at 5, 9.

  • Because of the statutory “sameness” requirement, the FDA does not allow generics to change their labels without pre-approval for any reason – there’s no “changes being effected” exception for generic products. E.g., 73 Fed. Reg. 2848, 2849 n.1 (FDA Jan. 16, 2008). GPA br. at 6, 11.

  • The FDA considered, and rejected, providing CBE procedures for generic drugs. GPA br. at 9-10. Interesting - we didn’t know that.

  • Even when the pioneer manufacturer uses the CBE exception to change its labeling without prior FDA approval, a generic manufacturer may not deviate from the last FDA-approved labeling. E.g., 57 Fed. Reg. 17950, 17961 (FDA Apr. 28, 1992). GPA br. at 6, 10.

  • It is therefore impossible for an generic manufacturer to comply with both a state law determination that its warning is inadequate and the federal “sameness” mandate. 21 C.F.R. §314.150(b)(10). GPA br. at 7, 11-12.
We give GPA a 4.0.

We’re now much better informed about the generic manufacturers’ preemption arguments than we were before. We’ll try to keep our eyes open for anything new and interesting that’s relevant to generic drug product liability litigation. And we invite attorneys who represent generics to alert us to this type of information.

Remember: If nobody tells us, we can’t share.

So that’s it. Now we’re sure we’ve looked through everything that our side has filed in Levine.

But if we’re wrong, tell us.

Wednesday, June 18, 2008

A Helpful Decision on Protective Orders

We recently saw some helpful news out of New Mexico in a case involving a protective order in a pharmaceutical product liability case.

Eon manufactures generic buproprion. The plaintiffs in Bertetto v. Eon Labs, Inc., 2008 WL 2522571 (D.N.M. May 29, 2008) (here's a link to the slip opinion), had insisted on a provision in a protective order allowing them to share confidential materials with "[a]ny attorney for claimants in other pending U.S. litigation alleging personal injury from the alleged use of buproprion manufactured by Eon for use in this or such other action, provided that the proposed recipient is (i) [a]lready operating under a protective order analogous to this one, or (ii) [a]grees to be bound by this Order and signs the certification described in Paragraph 8 of this Order."

The Magistrate Judge had determined that the defendants had failed to show that the provision would harm it and, accordingly, entered the order with that provision.

The defendants objected, and the trial court overturned the Magistrate Judge's ruling. "Because the provision would result in dissemination of Defendants' confidential information being removed from any meaningful court oversight and left completely in the hands of the Plaintiffs' attorneys, and such information would be available to any plaintiff who simply filed a suit against Defendants, regardless of the suit's merits or the relevance of the materials to the suit, the Court finds that the provision would 'tangibly prejudice substantial rights' of Defendants, as prohibited under United Nuclear [v. Cranford, 905 F.2d 1424, 1428 (10th Cir. 1990)]." Slip op. at 5.

Given the relative dearth of helpful protective order rulings, this one is worth sticking in a file folder.

Better yet, link to it from your blog, and then you'll never lose the thing.

Tuesday, June 17, 2008

Can We Type These Words? Generics Are On A Roll!

Another generic drug manufacturer picked off a preemption victory today.

In Mensing v. Wyeth et al., 562 F. Supp.2d 1056 (D. Minn. June 17, 2008) (here's a link to the slip opinion), Gladys Mensing sued both the pioneer and generic manufacturers of Reglan, prescribed to treat her diabetic gastroparesis, when she developed tardive dyskinesia.

Two generic manufacturers, Actavis and Pliva, moved for summary judgment on the ground of preemption. The court granted the motion.

The court reasoned, first, that generic manufacturers have no ability to change their package inserts unilaterally. The CBE regulation does not apply to generic manufacturers, and there is no other way for generic manufacturers unilaterally to change their labeling. Mensing, slip op. at 11-16. (The court's discussion here is quite powerful. If you represent a generic manufacturer and want to run a preemption argument, read this stuff.)

Second, the court found "no legal duty requiring a generic manufacturer to propose revised labeling." Id. at 17. Indeed -- helpfully for both generic manufacturers and pioneers -- even if the manufacturer had made such a request, "The outcome of any such request to make a revision is uncertain and would require speculation as to what the FDA might have done." Id.

Finally, the "regulatory scheme . . . does not allow for [generic] manufacturers to send 'Dear Doctor' letters," so there's no possible loophole to preemption there. Id. at 18.

Put today's win on top of the generic's win in Gaeta on Friday, and the generics are on quite a roll.

The Hatfields give a bow to the McCoys.

And we thank Linda Maichl of Ulmer & Berne for alerting us to this decision.

Will Technology Increasingly Favor Plaintiffs?

Folks on our side of the "v" complain about "asymmetrical discovery."

(Actually, the two of us complain about everything. But even fair-minded folks on our side of the "v" complain about asymmetrical discovery.)

In product liability cases, the plaintiff typically has to produce a few hundred (or few thousand) pages of medical, educational, military, insurance, and employment records. That's it.

Not so for the defense. The plaintiff may request production of millions of pages of documents related to the development and marketing of complex products over the course of decades. And, in our new e-age, the plaintiff will also request production of a gazillabyte of e-documents.

The defendant is forced to spend hundreds of thousands of dollars (or more) identifying, retaining, and reviewing for relevance and privilege the avalanche of documents that it must produce.

That's bad enough.

But wait! It gets worse!

Or, at least, we fear that it will get worse.

We fear that search technology will increasingly permit plaintiffs to identify with relative ease the specific information that they need, but the technology will be far less helpful to defendants trying to separate the wheat from the chaffe.

Why?

Famed plaintiffs' antitrust lawyer (and one-time mayor of San Francisco) Joe Alioto used to say of his strategy that, "I take the highways. I let the defense lawyers take the by-ways and cul-de-sacs." (We know; we know. It's culs-de-sac. But we swear that's not what Alioto said.)

He had a point. The plaintiff's theme at trial is typically simple. "Follow the money" or "Who knew what when?" or "This company put profits before safety."

But, whatever it is, it will be straightforward, and it won't be too hard to find the documents needed to take testimony from a witness at deposition or to cross-examine a witness at trial. A computer search for all mentions of a specific adverse reaction, or for all e-mails to or from a particular person, is likely to yield most of the critical information.

The defense lawyer's target is more amorphous. Before he defends a witness at deposition, the defense lawyer must learn not only what the witness knows (which you might find in the witness's records), but also what the witness didn't know at various times -- and might be accused, under oath, of ignoring.

When a plaintiff identifies that one "bad e-mail," the defendant must put the e-mail in context. Finding the e-mail isn't hard -- a computer search could turn it up -- but placing the e-mail in context can be a bear, requiring intuition that computers lack.

Before a deposition, every defense lawyer frets about what he doesn't know -- and it's tough to frame a computer search that will unearth that ignorance.

As we hear about (and evaluate) systems for searching documents, it seems that life keeps getting worse for the defense. We've seen gadgets that will take a requested search, review a ton of documents, and then identify a small subset of documents in their likely order of importance. But all of those contraptions assume that you know what you're looking for; they help you find a needle in a haystack.

As defense lawyers, we're often trying to discern the shape of the haystack, and computers simply aren't much help.

As the volume of e-documents that companies generate increases exponentially, we fear that search tools will increasingly be of one-sided utility, saving plaintiffs' counsel an awful lot of time and money, but not providing an equal saving to the defense.

Time, we suppose, will tell.

For the present, we'll just fret about what the future may bring.

Monday, June 16, 2008

Seen on . . .

Seen on a Father's Day card:

You're the world's greatest dad -- although my frame of reference is limited.

Seen on a birthday card:

I've been fooled by crab cakes once.
I won't be fooled again.
I mean, c'mon -- where's the frosting?

Upcoming Panel on Legal Blogging

One half of your dynamic blogging duo has been asked to speak on another panel discussing legal blogging.

Will they never learn?

The two-hour panel -- "Were You Born To Blog?" -- will take place in Chicago next Wednesday, June 25, from 3 to 5 p.m.

Joining Herrmann on the panel are John Wallbillich (who blogs at the Wired GC) and Patrick Lamb (who blogs at In Search of Perfect Client Service).

(Those guys are good. If this humble blog is better next Thursday than it is today, you'll know that we learned something from the panel.)

Here's a link to the brochure and registration materials. We'd love to see you there.

Of Pre-Service Removals, Yet Again

When we get ourselves worked up in a lather, we just won't stop.

We saw the case of Thomson v. Novartis Pharmaceuticals Corp., No. 06-6280 (JBS), 2007 WL 1521138 (D.N.J. May 22, 2007), last year, and couldn't believe that the world had overlooked the issue: Plaintiff files a complaint naming multiple defendants in, say, New Jersey state court. Only one of the defendants is a New Jersey citizen. Can the defendants remove the case before plaintiff serves the resident defendant, because -- as of that instant -- no party "properly joined and served" as a defendant "is a citizen of the State in which such action is brought"? 28 U.S.C. Sec. 1441(b). Thomson said yes.

Judge Higbee (a New Jersey state mass tort judge) was outraged.

Other judges rejected Thomson's logic.

We're back!

Judge Baylson of the Eastern District of Pennsylvania weighed in on this issue on May 30. See Allen v. GlaxoSmithKline PLC, No. 07-5045, 2008 U.S. Dist. LEXIS 42491 (E.D. Pa. May 30, 2008). There, plaintiff, a citizen of Arkansas, sued only GSK (a Pennsylvania citizen) in Pennsylvania state court. GSK removed before plaintiff served it, insisting that the parties were diverse and no defendant properly joined and served was a citizen of Pennsylvania.

Judge Baylson would have none of it.

The judge plainly doesn't like the defense interpretation of Section 1441(b). Judge Baylson acknowledged that some courts have allowed defendants to remove in this stiuation, but he found the contrary cases to be "more persuasive." Id. at *17.

But Judge Baylson also added a new wrinkle to the world's thinking on this subject. He noted that "the operative phrase" in Section 1441(b) is '''joined and served' and not 'named and served' or simply 'served.'" Id. at *12. The statute thus "contemplates a situation in which one defendant is joined to another defendant, presumably an in-state defendant joined to an out-of-state defendant. The 'joined and served' language therefore can only apply when there are multiple, named defendants." Id. at *12-*13. "Under this interpretation, GSK cannot take advantage of the 'joined and served' language, since it is the only named defendant and since it is an in-state defendant." Id. at *13. Needless to say, Judge Baylson remanded the case.

We have no clue how the courts will ultimately resolve this issue. But Judge Baylson's logic offers a chance to split the baby. If courts care to, they can allow pre-service removal in cases in which both resident and non-resident defendants have been named, but reject it if only one defendant (a resident of the forum state) has been named.

We're not sure about the logic of that approach, but it's a new wrinkle on a percolating issue, and we figured we'd draw it to your attention.

Sunday, June 15, 2008

Why Can't We Be Friends? (Gaeta v. Perrigo Pharma)

We are not the Hatfields and the McCoys.

Occasionally, even the innovators can be pleased when the generics win a victory -- at least when the case doesn't involve intellectual property, but rather the preemption defense.

On Friday, June 13, Perrigo Pharmaceuticals picked off a nice preemption victory in Gaeta v. Perrigo Pharmaceuticals Co., 562 F. Supp.2d 1091 (N.D. Cal. June 13, 2008). We're blogging from home on a weekend and so not yet in a position to provide a link, but bright and early Monday morning you'll find the opinion slip opinion here.

Augustine Gaeta allegedly suffered liver failure (and subsequent amputation of necrotic tissue on his fingers and toes) as a result of having consumed ibuprofen manufactured by the defendants, Perrigo, PAR Pharmaceutical, and BASF Corporation. The Complaint pleaded the usual causes of action -- strict liability, negligence, and breach of warranty, among others.

The court's analysis was slightly different from what we usually see, since the case involved a generic, over-the-counter drug, rather than the usual patented, prescription drug.

The Food and Drug Modernization Act of 1997 amended the Federal Food, Drug, and Cosmetic Act to provide for express preemption of state laws regarding over-the-counter drugs. The Modernization Act then has a savings clause, providing that preemption does not affect "the liability of any person under the product liability law of any state." Id. at 5, citing 21 U.S.C. Sec. 379r(e). That savings clause, however, "'does not bar the ordinary working of conflict pre-emption principles.'" Id., quoting Geier v. Am. Honda Motor Co., 529 U.S. 861 (2000).

To obtain approval of a product, a generic manufacturer must submit to the FDA an Abbreviated New Drug Application that certifies that the labeling and warnings of the generic drug are the same as those of the listed drug. Unlike innovators (who, under limited circumstances, may have the ability to add a warning about a newly-discovered risk of a drug subject only to after-the-fact FDA approval), generic manufacturers are specifically barred from adding a warning or contraindication without prior FDA approval. "'CBE changes are not available for generic drugs.'" Gaeta, slip op. at 7, quoting 73 Fed. Reg. 2848, 2849 n.1.

As readers of this blog know all too well, the FDA's Preemption Preamble says that "'FDA approval of labeling under the act . . . preempts conflicting or contrary State law.'" Gaeta, slip op. at 7, quoting 71 Fed. Reg. 3922, 3934. And the Preamble goes on to say that, "'Overwarning, just like underwarning, can . . . have a negative effect on patient safety and public health.'" Gaeta, slip op. at 8, quoting 71 Fed. Reg. at 3934-35.

"In the absence of clear authority to the contrary, a court is to give deference to an agency's interpretation of the scope if its authority to regulate." Gaeta, slip op. at 8, citing Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984).

The FDA had reviewed Perrigo's ANDA in 1987 and had again reviewed the liver toxicity issue in 2002. "The FDA concluded that warning for risk of liver injury was not scientifically supported by the available data." Gaeta, slip op. at 9, citing 67 Fed. Reg. 54139, 54145-56.

"At the time it was administered to A.G., Perrigo's ibuprofen followed the labeling for the listed drug, which contained the warnings mandated by the FDA." Gaeta, slip op. at 9. Including additional warnings would have put "Perrigo's ANDA in jeopardy for failing to conform with the FDA's approved labeling for the listed drug." Id. Gaeta's state law claims were thus preempted. Id.

Good language about overwarning, Chevron deference to the Preemption Preamble, and a preemption win in a slightly different context.

Not bad at all.

Thanks to Kelly Savage of Sedgwick Detert for alerting us to this recent victory.

Friday, June 13, 2008

Epilepsy Drugs and Suicidality

We've watched from a distance as the FDA has considered whether certain drugs indicated for epilepsy are associated with increased suicidality.

Here, for example, is a post from Pharmalot on that issue, which in turn links to the FDA's raw data.

Please don't confuse us with biostatisticians; we don't even play 'em on TV.

But we looked at the evidence that epilepsy drugs are associated with suicidality, and we're scratching our heads.

First, the FDA looked at a vanishingly small number of incidents -- 142 suicide-related events (FDA report at 22) out of 43,892 patients enrolled in the clinical trials. Id. at 17.

In that tiny data set, the FDA then saw a miniscule difference in suicidality between the drug and control groups -- .37% suicidality in the drug group versus .24% in the placebo patients. Id. at 1.

If you were reading with a skeptical eye, you'd then note a bunch of curious results -- such as there not being increased suicidality in trials conducted in North America (id. at 6) or in females. Id. at 36.

Throw in the likely ascertainment bias in clinical trials, about which we've posted previously.

And then think about the fact that the supposed "signal" for suicidality appears to be driven almost entirely by data from just two of the eleven drugs that the FDA evaluated. Id. at 23.

We're rooting for the FDA on this issue. We sure hope the Agency interprets the data correctly and requires the right warning.

Because if the FDA gets this wrong, there will be a price to pay in public health.

If the FDA requires a black box warning about suicidality on these drugs, then prescriptions are sure to plummet. Which means that people being treated for epilepsy (and others being treated off-label for bipolar disorder, which is itself a significant risk factor for suicide) will be deprived of necessary treatment, and we may once again see suicide rates increase in the wake of over-warnings.

We're on your side, FDA. Think hard, be smart, and protect the public health.

Taylor v. Sturgell (on virtual representation) Decided

A couple of months ago, we spied the Supreme Court case of Taylor v. Sturgell as being one to watch. In the words of the Mass Tort Litigation Blog, "[t]he D.C. Circuit had held that a plaintiff was barred by claim preclusion from pursuing his FOIA claim because he was virtually represented by an earlier plaintiff who had made an identical request, litigated, and lost." That issue is analogous to issues that often arise in class actions and mass torts -- where one party implicitly or expressly represents another.

Yesterday, the Supreme Court unanimously rejected this concept of non-party virtual representation. SCOTUS Blog gives the background of the case here, and the Mass Tort Litigation Blog has a nice description of yesterday's decision here.

We'll rely on those two posts as our coverage of the issue.

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.