Tuesday, March 27, 2012

Aredia/Zometa – The Punitive Dance Continues

            When last we wrote of punitive damages in the Aredia/Zometa litigation, we predicted the parties were entangled in a dance that would involve back and forth on both sides and that wasn’t likely to end anytime soon.  See prior post.   We were right on both accounts. 

Then we brought you a favorable decision by the New Jersey Superior Court that New Jersey punitive damages law applied to a case brought by a Virginia resident against a New Jersey company in New Jersey.  See Irby v. Novartis Pharmaceuticals Corp., 2011 WL 5835414 (N.J. Super. Nov. 18, 2011).  Change the plaintiff to a California resident and the forum to California and you get the exact opposite result.  Or so said the court in Hill v. Novartis Pharmaceutical Corp., 2012 U.S. Dist. LEXIS 38516 (E.D. Cal. Mar. 20, 2012).  

This is a pro-defense blog and we don’t pretend be otherwise.  Our regular readers are fully aware of our feelings on preemption, Twiqbal and personal injury class actions.  Choice of law, however, is one of those legal issues that is difficult to take a firm position on.  Primarily because as good lawyers, we naturally want whatever law is more favorable for our clients.  Plaintiffs control where a lawsuit is brought.  While defendants can’t control what law is applied, at least we can be heard.  And, where the issue is punitive damages, our clients rightfully demand we be very vocal.    The reason is as clear as comparing the punitive damages law of the two states at issue in Hill.

In prescription drug cases, New Jersey has three limits on punitive damages.  First, the New Jersey Punitive Damages Act caps punitive damages at five times compensatory damages.  N.J. Stat. Ann. §2A:15-5.14(b).  Second, the New Jersey Product Liability Act prohibits punitive damages

if a drug . . . which caused the claimant’s harm was subject to premarket approval or licensure by the [FDA] . . . and was approved or licensed. . .  [except] where the product manufacturer knowingly withheld or misrepresented information required to be submitted under the agency’s regulations, which information was material and relevant to the harm in question.

N.J. Stat. Ann. §2A:58C-5.  Third, the New Jersey appellate courts have held that the fraud on the FDA exception in the statute is preempted.  See McDarby v. Merck & Co., 949 A.2d 223, 272 (N.J. Super. A.D. 2008).  So, where a product is FDA approved, application of New Jersey law is tantamount to a dismissal of the punitive damages claim.

On the west coast, things are a bit different.  Punitive damages are available in California “in any action for breach of a non-contractual obligation – including products liability actions” and “punitive damages awards in products liability actions are not statutorily limited.”  Hill, 2012 U.S. Dist. LEXIS 38516 at *7.  Pretty much a night and day situation.  But what to do about it?

California applies the governmental interest analysis to determine choice of law.  Id. at *3.    Three steps – 1.  Do the laws of the competing states differ such that there is a true conflict?  2.  If yes, does each state have an interest in having its own law applied?  3.  If yes, which state has the greater interest (or which state would be more significantly impaired if its law was not applied)?  Id. at *4-5. 

The first two are easy.  The law is different.  And, both states have an interest in the case.  Plaintiff is a California resident and alleges she was injured in California.  Id. at *14.  Defendant is headquartered in New Jersey.  So, the crux of the case comes down to which state has the greater interest.  This is where plaintiff’s choice of forum becomes difficult to overcome.  As this court said:

[W]hen the forum state undertakes its search to find the proper law to apply based upon the interests of the litigants and the involved states, it is understood that normally, even in cases involving foreign elements, the court should be expected, as a matter of course, to apply the rule of decision found in the law of the forum. The law of the forum, will be displaced only if there is a compelling reason for doing so.  It is applicable unless either the plaintiff or the defendant has been forced into a forum devoid of any such contact as would justify application of its own law. . . . Thus, California law presumptively applies unless Defendant can present a compelling reason why it should not.

Id. at *25-27 (quotation marks and citations omitted).   Unless there is no connection to the forum, a local court wants to apply its own laws.  We get that and the Hill court had some reasons why New Jersey law should cede to California law in this case.  They are what they are – all else being equal, we’ll apply our own law.  That’s not to say that the defendants didn’t have some good arguments – they did and they made them.  But asking a local court to apply foreign law to a local plaintiff is almost always going to be an uphill battle.  (Uphill, but not impossible.  See Deutsch v. Novartis Pharmaceutical Corp., 723 F. Supp.2d 521 (E.D.N.Y. 2010) (federal court in NY willing to apply NJ punitive damages law in an Aredia/Zometa case, discussed here).

Maybe that is the more significant difference between Hill and the earlier mentioned Irby v. Novartis case from New Jersey.  In Irby a Virginia resident sued a New Jersey based company in New Jersey, while in Hill, a California resident sued a New Jersey based company in California. So, in Irby, the New Jersey court placed greater emphasis on the fact that the alleged punitive conduct would have occurred in the defendant’s New Jersey corporate headquarters and “stem[med] from [defendant’s] New Jersey business activities.”  Irby, 2011 WL 5835414, slip op. at 8-10.  And with respect to conduct outside of New Jersey, the Irby court found that the drug (Zometa) “was widely distributed throughout the United States,” and “nothing in [defendant’s] sales, marketing, or distribution practices suggests that the alleged injury was more likely to occur in Virginia than in any other state.”  Id. at 7. 

In Hill, the California court was less persuaded by the location of corporate conduct argument and more focused on activity that occurred within its borders.  
Some of Defendant's misconduct undoubtedly occurred in New Jersey. Whether the misconduct occurred primarily in New Jersey, however, is not discernible from the pleadings or the competent and admissible evidence submitted by the parties. What is discernible is the misconduct extends into California. Plaintiff alleges Defendant "markets Zometa to physicians in California," "distributes and sells Zometa . . . in California," "compensates agents who pitch the drug to doctors . . . in California" and "sends instructional materials about the drug . . . to patients and physicians in California." Plaintiff further alleges Defendant failed to communicate the known risks of Zometa to doctors and patients in California. Under these circumstances, Defendant's misconduct arguably occurred as much in California as in New Jersey, if not more so.

Hill, 2012 U.S. Dist. LEXIS 38516 at *27-28.  Same drug, same general marketing activities.  Change the forum, change the result.

            Ultimately, the Hill court boiled the issue down to one of pure economics when, ignoring McDarby v. Merck, it concluded that

applying California's punitive damages  law would not impose an entirely new rule of punitive liability on Defendant. Its effect would be to raise the upper limit on any potential award of punitive damages. But this increased economic exposure . . . is nothing more than the cost of doing business.

Id. at *34-35.    And so the dance continues  . . . .

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