Monday, November 26, 2012

Fraudulent Joinder of a Distributor – Consider an Affidavit

Here’s a little more on fraudulent joinder, which for those who don’t recall frequently involves a product liability plaintiff suing a non-diverse local distributor of the product to negate the  diversity that exists between the plaintiff and manufacturer and keep the case in state court.  It’s an issue that is often at the center of the first big battle in single cases, or that can shift the balance of cases pending in federal versus state courts in mass torts. 
While defendants initially raise this issue in their removal papers, the battle won’t begin, if at all, until the plaintiff files a motion to remand to state court.  We’ve already addressed here and here considerations that then arise, including whether the court will apply federal or state standards on the remand motion and, if federal, whether it will be a TwIqbal-like standard.
Today we’re addressing a tactical consideration: whether to give the court an affidavit from the distributor.  Earlier this year in Johnson v. DePuy Orthopaedics, Inc., 2012 U.S. Dist. LEXIS 74450 (N.D. Oh. May 30, 2012), the court in the hip implant MDL considered a remand motion centered on whether a non-diverse local distributor was fraudulently joined.  The dispositive issue – as is often the case – was whether the distributor satisfied the “seller’s exception” to liability, which is a state-law exception that gets distributors out of a case if they can identify the product’s manufacturer and, depending on the state, meet certain other requirements.  If they can, however, a plaintiff can still keep the distributor in the case by sufficiently alleging or showing that the distributor knew about the defect. 
The Johnson court, applying a TwIqbal-like standard, denied remand and kept the case in federal court.  The plaintiffs’ allegations to negate the seller’s exception failed to parse the wrongful acts supposedly performed by the distributor, offering only general, non-specific allegations that the distributor sold, promoted and labeled the product.  Id. at *9-11.  Interestingly, the court noted that it could have considered supplemental affidavits as part of the motion.  Id. at *5.  Of course, it turned out that the defendants didn’t need them.
Fast forward six months, however, to the same litigation and the same court considering another remand motion involving a distributor and the seller’s exception.  See Hilgers-Luckey v. DePuy Orthopaedics, Inc., 2012 U.S. Dist. LEXIS 164069 (N.D. Oh. Nov. 16, 2012).  This time the court ordered a remand.  What was different?  Well, this plaintiff, at least in the eyes of the court, made particular allegations, claiming that the distributor – Premier – knew certain facts that supported plaintiff’s defect theory:
A. Premier, at the time of the insertion of the ASR Prosthesis into the Plaintiff, knew one or more of the following:
(i) that very high revision rates were being reported in patients with the ASR Prosthesis;
(ii) that patients were experiencing high levels of metal particles or ions entering into surrounding tissues from the ASR Prosthesis;
(iii) that patients were experiencing deterioration of body tissues from metal particles or ions from the ASR Prosthesis; and
(iv) that patients were experiencing high levels of metal particles or ions from the ASR Prosthesis entering into the bloodstream through which they were distributed throughout various parts of the body.
Id. at *10-11.  To the court, this was enough to “withstand a challenge to the viability of the pleadings” and keep Premier in the case, thereby eliminating diversity and requiring remand.
Now, we don’t believe that these allegations are much, if at all, better than those in the Johnson case.  They simply take the allegations underlying plaintiff’s defect theories – the type that arise in every mass tort – and claim that the distributor knew of them.  Those strike us as boilerplate.  They can be made about any distributor in any mass tort. 
But our disagreement with the court’s reasoning is not our takeaway from this decision.  Our concern is a tactical one.  The court said, just as it did in Johnson, that the parties could have provided supplemental affidavits.  Id. at *5.  There’s often good reason to do so.  The stakes are high – federal or state court – and the task is often not difficult. 
Distributors, who generally have no meaningful knowledge of alleged defect or labeling deficiencies, want to get out of these litigations as much as we want them out, and they are often happy to provide affidavits.  Ideally, it would say something like this: the distributor knew nothing about the alleged defect, had no involvement in the design, manufacture, marketing or labeling of the product, and, instead, simply received the product fully packaged and labeled after the manufacturer had independently developed it.  We’ve written about such successful affidavits in the past.  Such an affidavit may expose the plaintiff’s allegations as boilerplate and re-focus the court on a TwIqbal-like standard that requires more from them, something they often can’t provide.
Now, we know that there could have been any number of good reasons why such affidavits weren’t used in the Hilgers-Luckey case.  This is, after all, the very same defense that has successfully fought off remand motions in this same litigation.  This is not a critique of the defense, but rather a tactical reminder of what may work in other cases.  Providing the court with appropriate affidavits and reminding it of the TwIqbal-like standards to which the plaintiffs should be held can be a powerful opposition to a motion to remand – all the more so as the allegations by the plaintiff in the complaint become more particular.

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