Wednesday, February 02, 2011

Cheeseheads Enact Sweeping Tort Reform

We confess, between the unrest in Egypt and the unremitting hype leading up to the Super Bowl, we’ve let Wisconsin’s new tort reform law sit for a few days. But it is a potentially significant development – certainly far more significant than what Packers QB Aaron Rodgers had for breakfast this week (although Packer fans may disagree) – and the plaintiffs’ bar is unhappy with the result.

The Wisconsin legislature packed a lot into this bill, but here are the highlights that we found particularly relevant in the drug/device context:

(1) Punitive damages – capped at the greater of 2x compensatories or $200,000. (There’s a specific exception to the cap that won't apply in drug and device cases – it involves a defendant whose tortious actions included the operation of a vehicle under the influence of an intoxicant).

(2) Product liability cases – The legislature enacted a number of rules specific to products cases:

Product identification – in most cases against manufacturers, plaintiffs must prove that the defendant actually manufactured the injury-causing product. This is intended to limit the effect of Thomas v. Mallett, 701 N.W. 2d 523 (Wis. 2005) (a case Bexis unsuccessfully briefed for PLAC), where the court permitted a lead-paint case to proceed against seven manufacturers even though the plaintiff could not identify the manufacturer of the paint that caused the alleged harm.

There is a limited exception, contained in Section 895.046(4), which excuses the plaintiff from proving up product ID, but those rules should not apply in drug and device cases. Among other requirements, here’s what a plaintiff would have to prove to be exempt from establishing product ID:
(i) “no other lawful process exists for the claimant to seek any redress for any other person for the injury or harm;”
(ii) the claimant has suffered an injury that can be caused “only by a manufactured product chemically and physically identical to the specific product that allegedly caused the claimant’s injury or harm” (that’s our emphasis); and
(iii) the defendant sold a “complete integrated product” that was chemically and physically identical to the product allegedly injuring plaintiff, and sold that product without any labeling or other identifying characteristics. (our emphasis again – because this eliminates the generic drug scenario, since drugs always carry identifying labeling).

Pretty clearly, this exception is inapplicable in the drug and device context.

Special rules for strict liability cases – here’s where it gets real interesting. Plaintiffs may establish a strict liability claim against manufacturers based on a manufacturing defect, design defect, or warning defect. So far, nothing surprising. But Section 895.047(1)(a) discards the “consumer expectations test” (previously Wisconsin law under Green v. Smith & Nephew AHP, Inc., 629 N.W.2d 727, 750-51 (Wis. 2001)) in favor of a “reasonable alternative design” standard for proving design defect claims. Plaintiffs may prove a warning defect by establishing that “the foreseeable risks of harm posed by the product could have been reduced or avoided by the provision of reasonable instructions or warnings by the manufacturer and the omission of the instructions or warnings renders the product not reasonably safe.”

The statute provides a number of defenses to strict liability actions, most notably a “mini-preemption” section that states: “evidence that the product, at the time of sale, complied in material respects with relevant standards, conditions, or specifications adopted or approved by a federal or state law or agency shall create a rebuttable presumption that the product is not defective.” Section 895.047(3)(b). It’s too bad this isn't a flat-out immunity, rather than a rebuttable presumption, but this provision should significantly hamper, if not bar, design and warning claims in drug and device cases. Other statutory defenses include product misuse, an “open and obvious” defense, and a "drunk plaintiff" rebuttable presumption: where the plaintiff was intoxicated, a rebuttable presumption arises that the drug/alcohol use was the cause of the injury (apparently both plaintiffs and defendants do a lot of drinking in Wisconsin). The statute also largely conforms to the Federal Rules treatment of subsequent remedial measure evidence.

The statute establishes a detailed system for apportioning liability in strict liability cases. A plaintiff’s comparative negligence is a total bar to recovery if it exceeds the percentage fault attributable to the defective product. Otherwise, any recovery is reduced by the percentage fault attributable to the plaintiff’s comparative negligence. On the defense side of the ledger, a defendant will be jointly and severally liable for all the damages caused if the defendant is 51% or more at fault. Otherwise, the fact finder must apportion fault among all defendants.

Finally, the statute limits strict liability claims against downstream defendants. A downstream seller or distributor is liable only if it contractually assumed responsibility for the manufacture, design, or warning associated with the product, or if the manufacturer is otherwise judgment-proof/service-proof, rendering the downstream seller/distributor the only viable defendant. We like that because it limits what kind of defendants can defeat diversity jurisdiction.

(3) Expert witnesses – Wisconsin now essentially conforms to the federal Daubert standard. That’s good because there wasn’t much of any standard before.

(4) Frivolous actions – Section 895.044 contains fee-shifting mechanisms in those cases where a party commences or continues an action, counterclaim, defense, cross complaint, or appeal in one of two circumstances: (a) bad faith (i.e. malicious prosecution); or (b) the party or the party’s attorney knows or should have known that there was no reasonable basis in law or equity for the claim, or no good faith argument for the extension of the law to support the claim (essentially a Rule 11 standard). It will be interesting to see how often this section is invoked; we’d suspect that given the other limitations imposed by this new law, Wisconsin is not going to be a hotbed for plaintiffs to file thousands of drug and device lawsuits anytime soon, reducing the likelihood of substantial numbers of baseless lawsuits clogging the dockets.

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