April 2012 - International Association of Defense Counsel

Transcription

International Association of Defense Counsel
303 West Madison, Suite 925
Chicago, Illinois 60606 USA
Address Service Requested
Periodicals
Postage Paid
at
Chicago, IL
and at Additional
Mailing Offices
The International Association of Defense Counsel is the oldest international association of lawyers
representing corporations and insurers. Its activities benefit the approximately 2,400 invitation-only,
peer-reviewed members and their clients through networking, educational and professional opportunities as well as benefiting the civil justice system and the legal profession. The IADC takes a leadership role in many areas of legal reform and professional development.
Founded in 1920, the IADC’s membership comprises the world’s leading corporate and insurance
lawyers including partners in large and small law firms, senior counsel in corporate law departments
and insurance executives. They engage in the practice and management of law involving the defense,
prosecution and resolution of claims affecting the interest of corporations and insurers. The Association maintains a comprehensive list of publications and training programs, including the quarterly
Defense Counsel Journal. It provides educational offerings including its Midyear and Annual Meetings, Regional Meetings, the Trial Academy, the Corporate Counsel College, International Corporate
Counsel College, and the Professional Liability Roundtable. The IADC founded the Defense Research
Institute (DRI) and co-founded Lawyers for Civil Justice.
IADC DEFENSE COUNSEL JOURNAL, Vol. 79, No. 2, Pages 117-242
About the International Association of Defense Counsel
APRIL 2012
Defense Counsel Journal (ISSN 0895-0016)
April 2012
Defense Counsel Journal
Vol. 79
No. 2
Pages 117-242
President’s Page
The Presidential Elbow
Manning the Daubert Gate:
A Defense Primer in Response to
Milward v. Acuity Specialty Products
New Healthcare Lien Recovery Theories by Third-Party Payors:
Strategies and Tactics for the Defense
Defending Marcellus Shale Groundwater Contamination Claims:
The Case Against Class Actions and other Theories of Liability
The Enhanced Injury Doctrine: How the Theory of Liability is
Addressed in a Comparative Fault World
A Legal Guessing Game: Does U.S. Common Law Require
Manufacturers and Suppliers of Consumer Products to Warn in
Languages other than English?
A New Argument Supporting Removal
of Diversity Cases Prior to Service
Conning the IADC Newsletters
Issued Quarterly by
International Association
of Defense Counsel
Defense
Counsel
Journal
April 2012
Volume 79, No. 2
Pages 117-242
303 West Madison
Suite 925
Chicago, IL 60606 USA
Telephone: 312.368.1494
Fax:
312.368.1854
E-mail:
[email protected]
Web site:
http://www.iadclaw.org
In this issue...
Announcements and Departments
Table of Contents....................................................................................................................117
President’s Page......................................................................................................................119
IADC Tenets of Professionalism.............................................................................................122
IADC Officers and Board of Directors..................................................................................124
Defense Counsel Journal Board and Committee Vice Chairs...............................................125
Calendar of Meetings.............................................................................................................127
Conning the IADC Newsletters.............................................................................................213
Featured Articles
MANNING THE DAUBERT GATE: A DEFENSE PRIMER IN RESPONSE
TO MILWARD V. ACUITY SPECIALTY PRODUCTS...........................................................128
By: Eric Lasker
Providing a defense primer on how to respond to plaintiffs’ attempts to use the First Circuit’s
recent decision in Milward v. Acuity Specialty Products to address novel causation issues.
NEW HEALTHCARE LIEN RECOVERY THEORIES BY THIRD-PARTY
PAYORS: STRATEGIES AND TACTICS FOR THE DEFENSE.........................................140
By: Matthew Keenan and Christopher J. Kaufman
Examining various approaches health insurers are employing to recover losses in the aggregate
and discussing strategies defense counsel should consider using to defeat such claims.
DEFENDING MARCELLUS SHALE GROUNDWATER CONTAMINATION
CLAIMS: THE CASE AGAINST CLASS ACTIONS AND OTHER THEORIES
OF LIABILITY......................................................................................................................155
By: Raymond G. Mullady, Jr., Sandra J. Doyle, Charles A. Fitzpatrick IV and Angela M.
Guarino
Considering whether groundwater contamination claims arising from development of the Marcellus Shale will meet class certification threshold requirements, and addressing the viability
of other common law claims that may be brought by Marcellus Shale plaintiffs.
THE ENHANCED INJURY DOCTRINE: HOW THE THEORY OF LIABILITY
IS ADDRESSED IN A COMPARATIVE FAULT WORLD..................................................181
By: Charles E. Reynolds and Shane T. Costello
Discussing the application of the doctrine of comparative fault to the well-established enhanced injury doctrine.
A LEGAL GUESSING GAME: DOES U.S. COMMON LAW REQUIRE
MANUFACTURERS AND SUPPLIERS OF CONSUMER PRODUCTS
TO WARN IN LANGUAGES OTHER THAN ENGLISH?.................................................192
By: David L. Luck and Douglas J. Chumbley
Addressing the existing precedent for requirements of that manufacturers and suppliers provide warnings in languages other than English.
A NEW ARGUMENT SUPPORTING REMOVAL OF DIVERSITY CASES
PRIOR TO SERVICE............................................................................................................205
By: Zach Hughes
Evaluating the Impact of the Federal Courts Jurisdiction and Venue Clarification Act of 2011
to the ongoing dispute over whether and when non-served defendants count for purposes of
the Forum Defendant Rule.
Erratum: On page 94 of Volume 79 No. 1 of the Defense Counsel Journal, author Nicholas Dugan was incorrectly identified as Nicholas Duggan.
Defense Counsel Journal (ISSN: 0895-0016) is published quarterly (January, April, July, October) by the International Association of Defense Counsel, 303 West Madison, Suite 925, Chicago, IL 60606, telephone
312.368.1494, fax 312.368.1854, e-mail: [email protected]. Periodical postage paid at Chicago, IL and additional
mailing offices. The subscription price of $90 annually is included in the dues of the members of the IADC. POSTMASTER: Please send address changes to Defense Counsel Journal, 303 West Madison, Suite 925, Chicago, IL 60606. Cite as: 79 DEF. COUNS. J. -- (2012). Copyright © 2012 by the International Association of Defense Counsel. All rights reserved. Defense Counsel Journal is a forum for the publication of topical and scholarly writings on the law, its development and reform, and on the practice of law, particularly from the viewpoint of the practitioner and litigator in the
civil defense and insurance fields. The opinions and positions stated in signed material are those of the author and
not by the fact of publication necessarily those of the International Association of Defense Counsel. Material accepted for publication becomes the property of the IADC and will be copyrighted as a work for hire. Contributing
authors are requested and expected to disclose any financial, economic, or professional interests or affiliations that
may have influenced positions taken or advocated in the efforts. Submit manuscripts to the Managing Editor at the above address in hard copy or via e-mail. Defense Counsel
Journal follows The Bluebook: A Uniform System of Citation (18th ed.), and footnotes should be placed at the
end of the article’s text.
President’s Page
The Presidential Elbow
By William J. Perry
About 3 weeks ago, I slipped while attempting a “run” on a (rather good) temporary cricket pitch
at Rancho Las Palmas at the IADC Midyear Meeting. As a result I sustained a badly broken
humerus which has required surgery. In English terms, I have suffered relatively little pain and
suffering and if rehabilitation is not completed it will be largely my own fault for not doing physiotherapy properly; in Californian terms, I think I have suffered serious trauma, I shall probably
never have the courage to play cricket again and my personal and social life will accordingly be
seriously restricted even if I do recover full flexion in the arm.
The question, of course, is: who should I sue? A number of targets present themselves. First, of
course, are those who prepared the cricket pitch on which I slipped. It seems self-evident that
the grass was not properly cut, was left too wet and slippery for cricket after watering or was in
some way uneven or otherwise predisposed to make me trip. There is the man who called on me
to run: he should have noticed that I was not properly poised ready to run and that the sudden
effort needed to do so would mean I had to make a desperate effort of the type likely to lead to
accidents of this nature. Perhaps it was my shoes: obviously they did not grip the ground as they
should have done (running is obviously something trainers should be made to take into account
when their soles are designed). And so the list could go on.
Fortunately for all concerned, I am a reasonably phlegmatic person prepared to accept that accidents sometimes happen and that with the best will in the world people occasionally trip up just
because that is what happens. I am not proposing to sue anyone. But the fact that it is so easy to
reel off a serious list of potential defendants and reasons for suing them is symptomatic of a serious ill in our (by which I mean the whole of what is usually called “the Western World”) society.
We live in a “blame culture.” People are, far too often, unwilling to accept that life is a series of
risks, that risk taking is something which the young have to be taught (perhaps failing to teach
them is itself a cause of action against parents and/or schools?) and that, even when everything
has been done properly, accidents and/or damage/loss will sometimes occur for which no one
other than one’s self can be blamed.
This is actually a sick society. It is part of the same malaise which means that parents no longer
let children go to school on their own, even though within easy walking distance, or otherwise
use public transport. It is the same society where parents equip their children with mobile phones
with GPS systems so that they know exactly where they are at all times. A society where slides
are either banned or must have earth heaped-up level with the edge of the slide all the way to the
top. A society where an (especially male) adult dare not pick up a small child which has fallen
over in a playground, least of all hug it better.
This is actually both a cruel (what lesson does that child learn? That no one cares or is prepared to
help when it really needs love and help?) and an infantilised society. No one can make their own
decisions – all decisions about caring and risk must be made by “them:” the authorities, the state.
No risks are allowed – even if suffering is the result.
Page 120
The result is that children develop no self-reliance, no ability to assess the minor risks associated
with every activity, let alone the greater ones of recognising the signs of where someone can be
trusted and where (s)he cannot. They are thus unequipped for the greater risks that adults are
expected to shoulder as a matter of course. Another result is thus an increased tendency to blame
others for mistakes which people in fact made themselves.
Similarly, it is a society where junior legal employees use emails and mobile telephones to obtain
partner sign-off (and partners insist on signing-off everything because with these communication
links they no longer have to trust their juniors to take decisions on the spot) in situations they
used to have to decide for themselves, for example in Court or in negotiations. To be fair, this
is not just born out of a belief in partner infallibility (something in which, as a partner for the
last 25 years, I am indeed a great believer.) It is also rooted in the requirements of insurers that
everything be signed off at a higher level now that modern communications make that possible.
But in the long term, it can only be pernicious: those juniors who have never made a difficult or
risky decision because it has always been referred up to partners will themselves be partners in 10
or 20 years time. They will then have no one to go to - and will have no experience in making the
minor decisions which will enable them to risk assess the major decisions. This will lead both to
wrong decisions being made and to worse client lawyer relationships, because the lawyers will be
trying to push ever more decisions off onto the clients rather than either taking them themselves
or giving advice, just at the time when the clients (whose employees have come up the same way
with the same problems within their own businesses) are demanding ever more advice from their
lawyers. So the lawyers in other words will be trying to pass the blame to the clients and vice
versa even more than nowadays – blame culture again.
And the same is, of course, true with product liability law, medical device practice law, and all
the areas in which IADC’s lawyers strive to defend their clients against the increasing numbers of
lawsuits brought by those who now consider themselves victims, when 100 years ago they would
have considered themselves unfortunate. We all know about chronically infantilised warning labels: the packet of peanuts warning that it may contain nuts; the shirt label warning that it should
not be ironed while being worn; and so on.
This aversion to risk and systemic wish to impose any responsibility on others rather than accept
it oneself is also fundamentally incompatible with an entrepreneurial, capitalist society. The
whole ethos of a free enterprise economy is the willingness to take risks, knowing that while on
the one hand there is the potential for disaster, on the other there is that for reward. A society
which is risk averse, which seeks always to blame others for unfortunate outcomes is a society in
which entrepreneurship cannot flourish.
I remember a “BC” strip cartoon in which fire had just been invented. Peter at the patent boulder
was sadly saying: “Great idea, but the liability suits will kill you.” It is an unpleasant reminder
that there are many things from which we benefit today which were invented and first put into
general use in an era which, had we had the same approach to “health and safety” rules, and the
liability of those who create products, they would never have become the everyday items which
they now are. We may have been able in recent years to improve the health and safety aspects
of things like gas, gasoline, electricity, the automobile, the aeroplane and so on. One is bound to
suspect that if our current standards relating to product liability had been around when these were
first introduced, they would rapidly have had to been withdrawn under the welter of lawsuits that
would have followed. And where would we have been?
Page 121
I am sure that many of our clients could tell us stories of products, drugs, surgical procedures and
the like which could improve vast numbers of lives, but which they have not been able to launch
because of the safety requirements and potential liability suits. If ours were not such a “blame
culture” those could be introduced. Certainly there would be some unpleasant consequences for
some, which one cannot shirk, but I strongly suspect that balance of utility, the general happiness,
would be significantly greater if this were possible.
My favourite story on this, which is absolutely true, relates to a rail crash in England about 25
years ago. A large number of people were killed in that crash. A public enquiry was duly mounted which made a number of safety recommendations for the railways to ensure that such a crash
could never happen again. Under public pressure, the government duly ordered all the relevant
safety improvements. Due to government policy, the cost of those safety improvements had to
be recouped in ticket revenue. Ticket prices accordingly rose. There was (and is) a well-known
algorithm which establishes the rate at which people swap rail for road transport depending upon
the way rail prices rise. There is also a well-known algorithm setting out the number road deaths
and injuries per mile driven. Based on these well-known algorithms, it was therefore easy to
establish (and the Economist magazine duly did) that as a result of the rail ticket price increase
caused by the extra safety measures, more deaths were now being caused on an annual basis on
the roads than had been caused in the one accident on the railways. It was just that nobody was
noticing these in quite the same way. “Safety culture” was, unnoticed, costing lives and happiness on a large scale.
All too often, a combination of media hysteria and people’s willingness to pander to it means
that the general public welfare is in fact reduced, not increased, by “health and safety” rules and
requirements, that is to say by the “blame culture,” the unwillingness to accept that unpleasant
accidents sometimes occur and that risks need to be taken. The maxim that “hard cases make
bad law” is increasingly forgotten: ultimately lawmakers’ and (judges’ and) juries’ wish to compensate victims of sad accidents, where money could help, makes for an infantilised, rule-ridden,
poorer and less advanced society.
As defence lawyers we are well placed to see the bad results of this attitude at work. Our clients
suffer increased costs, launch fewer products, take fewer risks and generally leave us all worse
off than we would be if people were prepared to be a bit more robust at their attitude to risk. It is
time that we used our unique perspective to help bring home to people that in a whole variety of
ways it is essential to the health, welfare and well-being of our society and of the individuals who
comprise it that we get a bit more “hard nosed” in our approach to risk. We need to allow more
risk, and take greater responsibility for our own lives and happiness. We shall (collectively and
individually) be in every way better off for it.
The Presidential Elbow is fortunately recovering and, with a bit of good luck, hard work and, yes,
pain (for after all there is no gain without pain) will, it is to be hoped, be as good as new by the
time this article appears! And I am working on others’ law suits rather than my own.
Page 122
IADC Tenets
of Professionalism
The International Association of Defense Counsel is aware that applicable rules or codes of
professional responsibility generally provide only minimum standards of acceptable conduct.
Since we aspire to the highest ideals of professionalism, we hereby adopt these tenets and agree
to abide by them in the performance of our professional services for clients.
1. We will conduct ourselves before the court in a manner which demonstrates respect for the
law and preserves the decorum and integrity of the judicial process.
2. We recognize that professional courtesy is consistent with zealous advocacy. We will be civil
and courteous to all with whom we come in contact and will endeavor to maintain a collegial
relationship with our adversaries.
3. We will cooperate with opposing counsel when scheduling conflicts arise and calendar
changes become necessary. We will also agree to opposing counsel’s request for reasonable
extensions of time when the legitimate interests of our clients will not be adversely affected.
4. We will keep our clients well-informed and involved in making the decisions that affect their
interests, while, at the same time, avoiding emotional attachment to our clients and their activities which might impair our ability to render objective and independent advice.
5. We will counsel our clients, in appropriate cases, that initiating or engaging in settlement
discussions is consistent with zealous and effective representation.
6. We will attempt to resolve matters as expeditiously and economically as possible. 7. We will honor all promises or commitments, whether oral or in writing, and strive to build a
reputation for dignity, honesty and integrity.
8. We will not make groundless accusations of impropriety or attribute bad motives to other
attorneys without good cause.
9. We will not engage in discovery practices or any other course of conduct designed to harass
the opposing party or cause needless delay. 10. We will seek sanctions against another attorney only when fully justified by the circumstances and necessary to protect a client’s lawful interests, and never for mere tactical advantage.
11. We will not permit business concerns to undermine or corrupt our professional obligations.
12. We will strive to expand our knowledge of the law and to achieve and maintain proficiency
in our areas of practice.
13. We are aware of the need to preserve the image of the legal profession in the eyes of the
public and will support programs and activities that educate the public about the law and the
legal system.
Page 123
The
2012 Annual Meeting
July 8 - 13
Grove Park Inn, Asheville, NC USA
HIGHLIGHTS
Open Forum Speaker:
Right Honourable Jack Straw, MP, Former UK Foreign Secretary,
Home Secretary, Lord Chancellor and Justice Minister
Tech Savvy Jurors in a High Tech World:
Strategies for Addressing Juror Misconduct
Judicial Independence: Alive and Well or on the Rocks?
Can the Clash Between Ethics and Corporate Investigations
Land Your Client in Prison?
The Ethics of Data and Social Media in the New Electronic Age
View from the Chief Counsel and Lessons Learned from the
Deepwater Horizon Oil Disaster
Register Today!
www.iadclaw.org
Page 124
Officers
and Board of Directors
President
William J. Perry, London, England
President-Elect
Quentin F. Urquhart, Jr., New Orleans, Louisiana USA
Vice President of Corporate
Connie Lewis Lensing, Memphis, Tennessee USA
Vice President of International
Pamela McGovern, Montreal, Quebec Canada
Immediate Past President
Joseph W. Ryan, Jr., Columbus, Ohio USA
Vice President of Insurance
Timothy J. Gephart, Minneapolis, Minnesota USA
Secretary-Treasurer
Joseph E. O’Neil, Philadelphia, Pennsylvania USA
Directors
Terms ending July 2012
Molly H. Craig
Charleston, South Carolina USA
Lela M. Hollabaugh
Nashville, Tennessee USA
George J. Murphy
Philadelphia, Pennsylvania USA
Daniel K. Cray
Chicago, Illinois USA
Fred M. (Tripp) Haston, III
Birmingham, Alabama USA
Susan C. Roney
Buffalo, New York USA
Anton G. Maurer
Stuttgart, Germany
Kathleen J. Maus
Tallahassee, Florida USA
W. Thomas Siler, Jr.
Jackson, Mississippi USA
Past Presidents
1920-23
1923-26
1926-32
1932-34
1934-35
1935-36
1936-37
1937-38
1938-39
1939-40
1940-41
1941-43
1943-44
1944-46
1946-47
1947-48
1948-49
1949-50
1950-51
1951-52
1952-53
1953-54
1954-55
1955-56
1956-57
1957-58
1958-59
Myron W. Van Auken
Martin P. Cornelius
Edwin A. Jones
George W. Yancey
Walter R. Mayne
J. Roy Dickie Marion N. Chrestman
P. E. Reeder
Milo H. Crawford
Gerald P. Hayes
Oscar J. Brown
Willis Smith
Pat H. Eager, Jr.
F. B. Baylor
Paul J. McGough
Lowell White
Kenneth P. Grubb
L. Duncan Lloyd
Wayne E. Strichter
Joseph A. Spray
Alvin R. Christovich
J. A. Gooch
Stanley C. Morris
Lester P. Dodd
John A. Kluwin
Forrest A. Betts G. Arthur Blanchet
1959-60
1960-61
1961-62
1962-63
1963-64 1964-65
1965-66
1966-67
1967-68
1968-69
1969-70
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81 1981-82
1982-83
1983-84
1984-85
1985-86
Charles E. Pledger, Jr.
Denman Moody
Payne Karr
William E. Knepper
Richard W. Galiher
Kraft W. Eidman
Wallace E. Sedgwick
Harley J. McNeal
Egbert L. Haywood
Gordon R. Close
W. Ford Reese
Samuel J. Powers, Jr.
Edward J. Kelly
Alston Jennings
Walter A. Steele
Theodore P. Shield
Jerry V. Walker
Henry Burnett
Darrell L. Havener
Robert E. Leake, Jr.
John R. Hoehl
Neil K. Quinn
William K. Christovich
Robert D. Norman
Grant P. DuBois
Thomas H. Sharp, Jr.
William H. Wallace
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04 2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Henry B. Alsobrook, Jr.
W. Richard Davis
George B. McGugin
Morris R. Zucker
Jay H. Tressler
David J. Beck
Henry A. Hentemann
Michael A. Pope
Kevin J. Dunne
Edward J. Rice, Jr.
George Gore
Charles F. Preuss
Rex K. Linder
George H. Mitchell
Gregory C. Read
William C. Cleveland
Joan Fullam Irick
J. Walter Sinclair
George S. Hodges
Gregory M. Lederer
Bruce R. Parker
L. Gino Marchetti, Jr.
Robert D. Hunter
James M. Campbell Joseph W. Ryan, Jr.
Page 125
Defense Counsel Journal
Board and Committee Vice Chairs
Editor and Chair of the Board of Editors
Richard L. Neumeier, Esq., Morrison Mahoney LLP, 250 Summer Street, Boston, MA 02210
Managing Editor
Robert F. Greenlee, Esq., IADC, 303 West Madison, Suite 925, Chicago, IL 60606
Michael F. Aylward
Shaun McParland Baldwin
Keith N. Bond
Fred E. Bourn, III
David G. Brock
Christopher D. Brown
Michael E. Brown
Charles W. Browning
John G. Browning
D. Jeffrey Campbell
Gray T. Culbreath
Peter M. Durney
Jeffrey J. Ellis
Michael J. Farrell
Daniel W. Gerber Leta E. Gorman
Board of Editors
Fred M. (Tripp) Haston, III
Michael J. Holland
Annette Christine Warfield Hughes
Kevin T. Jacobs
Andrew Kopon, Jr.
Mitchell Lee Lathrop
John P. Lavelle, Jr.
James K. Leader
Carl A. Maio
S. Gordon McKee
Nicholas C. Nizamoff
Mark S. Olson
John C. S. Pierce
Richard T. Pledger
Todd Presnell
Walter J. Price, III
Douglas R. Richmond
G. Edward Rudloff, Jr.
Elizabeth Haecker Ryan
Scott W. Sayler
Thomas F. Segalla
Fernando Eduardo Serec
Lawrence D. Smith
Mary Christine Sungaila
Emilia L. Sweeney
Robert T. Veon
Dennis J. Wall
J. Calhoun Watson
Rebecca J. Wilson
Rachel E. Yarch
Committee Vice Chairs of Journal Articles and Publications
Alternative Dispute Resolution
Joseph P. Esposito
Appellate Practice
John B. Drummy
Aviation and Space Law
Tia Christine Ghattas
Business Litigation
Jennifer P. Henry
Class Actions and Multi-Party
Litigation
Kara T. Stubbs
Construction Law and Litigation
Tamara L. Boeck
Corporate Counsel
Kevin M. Brill
Drug, Device and Biotechnology
Michelle M. Fujimoto
Employment Law
Mac B. Greaves
Environmental, Energy and
Maritime Law
William Ruskin
Fidelity and Surety
C. Allen Gibson, Jr.
Insurance and Reinsurance
Gary L. Johnson
International
Paul Lefebvre
Legislative, Judicial and Government
Affairs
Pat Long Weaver
Medical Defense and Health Law
Christopher S. Berdy
Product Liability
Mary G. Pryor
Professional Liability
John B. Drummy
Technology
A. Edwin Stuardi, III
Toxic And Hazardous
Substances Litigation
Elizabeth Haecker Ryan
Trial Techniques and Tactics Matthew D. Keenan
White Collar Defense and
Investigations
Douglas S. Brooks
Back issues of Defense Counsel Journal are available from William S. Hein & Co., 1285 Main St., Buffalo, N.Y. 14209 ●
Defense Counsel Journal is indexed in Index to Legal Periodicals, published by H.W. Wilson Co., 950 University Ave.,
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from University Microfilms Inc., 300 Zeeb Road, Ann Arbor, Mich., and in CD-ROM form from ABI/Inform, also a service
of University of Microfilms Inc. ● Defense Counsel Journal is included in the online and CD-ROM services of Westlaw,
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Insurance Printing & Underwriting Co., 50 E. Palisade Ave., Englewood, N.J. 07631; in Serials Directory: An International
Reference Book, published by EBSCO Industries Inc., Box 1943, Birmingham, Ala. 35201; in INSURLAW/Insurance
Periodicals Index Thesaurus & User’s Guide, published by NILS Publishing Co., P.O. Box 2507, Chatsworth, Calif. 91311;
and in INFOSERV, an online service of Faxon Co., 15 Southwest Park, Westwood, Mass. 02090
Page 126
40th annual trial academy
July 28 - August 3, 2012
Stanford Law School Palo Alto, CA USA
The IADC Trial Academy is the Only
Defense-focused Civil Trial Academy
A Week of Investment for Immediate and Lifelong Benefits
• Instant results in an accelerated learning environment
that covers every major aspect of trial
• Hands on learning exercises that are videotaped and
critiqued by an elite faculty of defense attorneys
For more information, Trial Academy video, and registration
visit www.iadclaw.org.
Or
scan the code to watch
the
Trial Academy
video
on your mobile device.
Page 127
Calendar
of Meetings
Corporate Counsel College
April 26 - 27, 2012
The Ritz-Carlton
Chicago, IL USA
Professional Liability Roundtable
May 17, 2012
The Gleacher Center
Chicago, IL USA
Annual Meeting
July 8-13, 2012
Grove Park Inn
Asheville, North Carolina USA
40th Annual Trial Academy
July 28 - August 3, 2012
Stanford Law School
Palo Alto, CA USA
International Corporate Counsel College
October 11 - 12, 2012
The Royal Horseguards and One Whitehall Place
London, England
The full schedule for IADC Regional Meetings
and Webinars is at www.iadclaw.org.
Manning the Daubert Gate: A Defense Primer in
Response to Milward v. Acuity Specialty Products
By Eric Lasker
O
N JANUARY 9, 2012, the United
States Supreme Court denied
certiorari in Milward v. Acuity Specialty
Prods. Group, Inc.1 and, in so doing, let
stand a First Circuit holding that a
plaintiff expert‘s medical causation
opinion resting solely on a selfproclaimed ―weight of the evidence‖
analysis
satisfied
the
Daubert
requirements of scientific reliability and
relevance. Even prior to the Supreme
Court‘s certiorari decision, the plaintiff
bar and its allies heralded Milward as
holding out the ―promise of reshaping
toxic tort causation law,‖2 and the newlyissued Restatement (Third) of Torts had
labeled Milward ―[o]ne of the most
significant toxic tort causation cases in
recent memory.‖3 With Milward now
final,
defendants
in
toxic
tort,
pharmaceutical, and other science-based
litigation can anticipate confronting
Milward in response to any future
Daubert challenge to plaintiff causation
experts.
In the author‘s opinion, Milward was
wrongly decided and flies in the face of
the Supreme Court‘s holdings in Daubert
v. Merrell Dow Pharms., Inc.4 and
1
639 F.3d 11 (1st Cir. 2011).
Steve C. Gold, The “Reshapement” of the
False Negative Asymmetry in Toxic Tort
Causation, 37 WM. MITCHELL L. REV. 1507,
1580 (2011).
3
Michael D. Green, Introduction: The Third
Restatement of Torts in a Crystal Ball, 37
WM. MITCHELL L. REV. 993, 1010 n.53 (2011).
4
509 U.S. 579 (1993).
2
Eric Lasker is a
partner
in
the
Washington, D.C. law
firm,
Hollingsworth
LLP, and is Chair of
the
Toxics
&
Hazardous Substances
Committee
of
the
International
Association of Defense Counsel. Mr.
Lasker was amicus counsel for a coalition
of industry associations that supported
Petitioners’ efforts to secure certiorari
review of Milward in the U.S. Supreme
Court.
General Elec. Co. v. Joiner.5 However,
any discussion of the Milward opinion
also cannot be divorced from the factual
pattern from which it arose. In Milward,
the plaintiffs‘ expert was opining on
causation with respect to a very rare form
of cancer, and each side acknowledged
there currently was—and perhaps could
only ever be—limited scientific evidence
on causation. While Daubert clearly
cautions that ―[l]aw lags science‖ 6 and
that ―the balance … struck by the Rules
of Evidence‖ requires exclusion even of
potentially ―authentic insights and
innovations,‖7
Daubert
decisions
involving such potentially unprovable
scientific issues have repeatedly proved
the adage that ―bad facts make bad law.‖
The Milward should be properly
understood in this limiting context.
5
522 U.S. 136 (1997).
Rosen v. Ciba-Geigy Corp., 78 F.3d 316,
319 (7th Cir. 1996).
7
Daubert, 509 U.S. at 597.
6
Manning the Daubert Gate
Defendants must, of course, continue
to hold courts to their proper gate-keeping
responsibilities under Daubert even in
cases involving novel causation issues.
By definition, however, the type of
claimed-unprovable causation question at
issue in Milward is more the exception
than the rule. In most cases, including
those involving an FDA- or EPAregulated product, plaintiff experts will be
offering causation opinions regarding
relatively more common diseases and
potential exposures as to which there is an
established body of scientific evidence.
Milward has little to say about these
cases. Indeed, based upon the author‘s
experience in prior litigation handled by
his firm, Milward may not be predictive
even of how the First Circuit will address
expert causation testimony in future
cases.
This article will provide a defense
primer on how to respond to plaintiffs‘
use of Milward, both in cases involving
novel causation issues and in the more
common situation in which the plaintiff‘s
expert is faced with an existing body of
scientific knowledge. Section I reviews
the Milward opinion, both at the district
court and the First Circuit. Section II
focuses on the numerous legal flaws in
Milward, which should limit its
applicability in other federal circuits that
properly apply the Daubert gatekeeping
standards.
Section III addresses the
narrow factual setting in which Milward
arose, which also should limit its
applicability in future cases, even within
the First Circuit. Finally, Section IV
recounts how the author‘s law firm
addressed and negated a similarly flawed
Daubert ruling from the Eighth Circuit
Court of Appeals in successfully
Page 129
defending a Daubert victory in a
pharmaceutical products liability action in
the same Court less than a year later.
I.
The Flawed Milward Ruling
Milward is a products liability case in
which the plaintiff alleges that workplace
exposures to benzene-containing products
caused a rare type of acute myeloid
leukemia
(AML)
called
acute
promyelocytic leukemia (APL). As the
defendants‘ own experts acknowledged
before the district court, there is no
dispute that scientific and medical
evidence supports a causal link between
benzene and the development of AML.8
However, as the defendants‘ experts also
explained, ―clear differences exist among
AML subtypes that may make
inappropriate a broad extrapolation from
AML generally to APL specifically.‖ 9
Plaintiffs‘ expert acknowledged that there
are
no
epidemiological
studies
demonstrating a causal link between
benzene and APL, but he argued that the
rarity of APL made it very difficult to
perform such an epidemiological study.10
Instead, plaintiffs‘ expert argued that
causation could be inferred from an
analogy between APL and other types of
AML known to be associated with
benzene, experimental research on AML
etiology, and toxicological studies of
chromosomal impacts of benzene
exposure through the inhibition of an
enzyme called topoisom erase II (topo II).
While none of these pieces of evidence
8
Milward v. Acuity Specialty Prods. Group,
Inc., 664 F. Supp.2d 137, 144 (D. Mass.
2009), rev’d, 639 F.3d 11 (1st Cir. 2011).
9
Id.
10
See Milward, 639 F.3d at 24.
Page 130
provided reliable support of causation in
and of itself, plaintiffs‘ expert opined that
the
―weight
of
the
evidence‖
demonstrated that benzene could cause
APL.11
After carefully reviewing each of the
plaintiff experts‘ different lines of
scientific evidence, the district court
excluded the expert‘s causation opinion
under Daubert.
The district court
explained that the plaintiffs‘ expert‘s
opinion
―that
because
benzene
metabolites inhibit topo II and because
some classes of topo II inhibitors appear
to have a causal relationship to APL,
therefore benzene has a causal
relationship to APL is at best a theory and
at worst an error.‖ 12 The district court
held that while the plaintiffs‘ expert
causation hypotheses were ―‗plausible,‘
they remain hypotheses, the validity of
which has not been reliably established.
As such, they are not admissible as
‗scientific knowledge‘ under Rule 702.‖13
The First Circuit reversed. The First
Circuit did not directly dispute any of the
district court‘s conclusions with respect to
the individual lines of causation evidence.
The Court held, however, that the district
court ―erred in reasoning that because no
one line of evidence supported a reliable
inference of causation, an inference of
causation based on the totality of the
evidence was unreliable.‖14 The district
court‘s error – according to the First
Circuit –
derived from a mistake in its
understanding of the weight of the
DEFENSE COUNSEL JOURNAL–April 2012
evidence methodology employed by
[plaintiffs‘ expert]. The court treated
the separate evidentiary components
of
[the
expert‘s]
analysis
atomistically, as though his ultimate
opinion was independently supported
by each. … [But in the expert‘s]
weight of the evidence approach, no
body of evidence was itself treated as
justifying an inference of causation.
Rather, each body of evidence was
treated as grounds for the subsidiary
conclusion that it would, if combined
with other evidence, support a causal
inference.15
The First Circuit explained that the
plaintiffs‘ expert‘s ―weight of the
evidence‖ approach employed the
methodology of abductive inference or
inference to the best explanation,
whereby rather than drawing conclusions
through logical inferences from known
propositions or from a range of known
particulars, conclusions ―are drawn about
a particular proposition or event by a
process of eliminating all other possible
conclusions to arrive at the most likely
one, the one that best explains the
available data.‖16 The Court further
explained that ―[b]ecause no scientific
methodology exists for this process …
reasonable scientists may come to
different judgments about whether such
an inference is appropriate.‖17
In reversing the district court
opinion, the First Circuit held that ―[n]o
serious argument can be made that the
weight of the evidence approach is
11
See id. at 19-20.
Milward, 664 F. Supp.2d at 148.
13
Milward, 664 F. Supp.2d at 149.
14
Milward, 639 F.3d at 23.
12
15
Id.
Id. at 18 n.7.
17
Id. at 18 (internally quotations omitted).
16
inherently unreliable.‖18
The Court
allowed, however, that the ―admissibility
[of weight of the evidence testimony]
must turn on the particular facts of the
case.‖19 One of the key ―particular facts‖
in Milward was the rarity of the disease at
issue.20 This fact was central in the First
Circuit‘s discussion of the lack of
epidemiological support for the plaintiffs‘
expert‘s causation opinion: ―[T]his is a
case in which there is a lack of
statistically significant epidemiological
evidence, and in which the rarity of APL
and difficulties of data collection in the
United States make it very difficult to
perform an epidemiological study of the
causes of APL that would yield
statistically significant results.‖21 In this
context, the First Circuit‘s findings of a
―near-consensus among government
agencies, experts, and active researchers
in the field that benzene can cause AML
as a class‖ undoubtedly carried even more
weight.22
II. Attacking Milward on the Law
The First Circuit‘s opinion in
Milward is premised on legal holdings
that are contrary to the Supreme Court‘s
clear instructions in Daubert and Joiner.
As such, Milward should have only
limited value to plaintiffs and plaintiffs‘
18
Id. at 17.
Id.
20
As the First Circuit noted, APL ―is an
extremely rare disease. APL accounts for only
five to ten percent of all cases of AML, which
is itself rare, with an annual incidence of 3.5
cases per 100,000 people.‖ Id. at 16.
21
Id. at 24.
22
Id. at 19.
19
Page 131
experts confronting Daubert challenges in
other jurisdictions.
Milward‘s central legal error lies in
its failure to address the inherently ipse
dixit nature of the plaintiffs‘ expert‘s
―weight of the evidence‖ methodology.
In
endorsing
plaintiffs‘
expert‘s
―inference to the best explanation‖
approach, the First Circuit readily
acknowledged
that
―no
scientific
methodology exists for this process.‖ 23
But Daubert expressly holds that ―in
order to qualify as ‗scientific knowledge,‘
an [expert‘s] inference or assertion must
be derived by the scientific method.‖ 24
And Daubert explains that ―scientific
methodology today is based on generating
hypotheses and testing them to see if they
can be falsified; indeed, this methodology
is what distinguishes science from other
fields of human inquiry.‖25 While a trial
court can—as the district court did in
Milward—review individual lines of
scientific evidence to determine whether
they meet this admissibility threshold,
there is no way for a court to so evaluate
the ―weight of the evidence‖ approach
followed by the Milwards‘ expert. An
―inference to the best explanation‖ cannot
be tested, it cannot be falsified, and it
cannot be validated against known or
potential rates of error. Ultimately, then,
the court is left with nothing but the
expert‘s self-serving assurances that he
has weighed the evidence in a
scientifically appropriate manner.
In Joiner, the Supreme Court made
clear that such expert assurances are not
enough. In reversing an Eleventh Circuit
23
Id. at 18.
Daubert, 509 U.S. at 590 (emphasis added).
25
Id. at 593.
24
Page 132
opinion very much like the First Circuit
opinion in Milward, the Court first
examined each line of evidence proffered
by the plaintiffs‘ causation expert to
determine
whether
that
evidence
supported the expert‘s opinion under the
scientific method, and the Court
concluded that each line of evidence was
deficient.26
The Court then rejected
plaintiffs‘ argument that a court must
nonetheless defer to an expert‘s
conclusion based on an undefined
weighing of this same evidence,
explaining
that
―conclusions
and
methodology are not entirely distinct
from one another.‖27 As the Court
explained, ―nothing in either Daubert or
the Federal Rules of Evidence requires a
district court to admit evidence that is
connected to existing data only by the
ipse dixit of an expert.‖ Accordingly, the
―weight of the evidence‖ approach
advocated by Mr. Joiner‘s experts—the
same methodology improperly endorsed
by the First Circuit in Milward—was only
able to garner a single vote on the
Court.28 Remarkably, the First Circuit
does not even note the Joiner majority‘s
holding in its opinion.
While the First Circuit now stands in
direct contravention of Joiner, courts in
other jurisdictions properly have followed
the Supreme Court‘s guidance. The Fifth
and Tenth Circuits, along with numerous
courts in other jurisdictions, have
expressly rejected causation opinions in
which experts sought to aggregate
individually unreliable lines of scientific
26
Joiner, 522 U.S. at 144-145.
Id. at 146.
28
See id. at 153-154 (Stevens, J., dissenting).
27
evidence into a purportedly reliable
―weight of the evidence.‖29
29
See Allen v. Pa. Eng‘g Corp., 102 F.3d 194,
198 (5th Cir. 1996) (―We are also unpersuaded
that the ‗weight of the evidence‘ methodology
these experts use is scientifically acceptable
for demonstrating a medical link between
Allen‘s EtO exposure and brain cancer.‖);
Hollander v. Sandoz Pharms. Corp., 289 F.3d
1193, 1216 n.21 (10th Cir. 2002) (plaintiffs
―maintain that even though each individual
category of evidence may be insufficient, all
of the evidence considered as a whole raises
factual questions as to whether Parlodel
caused her stroke. [Plaintiffs] cite no legal
authority in support of this approach, and in
our view, this argument is inconsistent with
Daubert.‖); Magistrini v. One Hour
Martinizing Dry Cleaning, 180 F. Supp.2d
584, 608 (D. N.J. 2002) (―Where, as here,
elements
of
judgment
pervade
the
methodology, it is essential that the expert set
forth the method for weighing the evidence
upon which his opinion is based. Absent that,
this Court's role as gatekeeper to assess the
reliability of the methodology applied in this
case is nullified.‖); Caraker v. Sandoz Pharms.
Corp., 188 F. Supp.2d 1026, 1040 (S.D. Ill.
2001) (plaintiffs‘ experts‘ reliance on the
totality of individually deficient lines of
scientific evidence ―amounts to a hollow
whole of hollow parts‖); Siharath v. Sandoz
Pharms. Corp., 131 F. Supp.2d 1347, 1371
(N.D. Ga. 2001) (―one cannot lump together
lots of hollow evidence in an attempt to
determine what caused a medical harm‖), aff’d
Rider v. Sandoz Pharms. Corp., 295 F.3d 1194
(11th Cir. 2002). For similar rulings in states
that have adopted Daubert, see also Merck &
Co. v. Garza, 347 S.W.3d 256, 268 (Tex.
2011) (―The totality of the evidence cannot
prove general causation if it does not meet the
standards for scientific reliability ....
A
plaintiff cannot prove causation by presenting
different types of unreliable evidence.‖);
Estate of George v. Vermont League of Cities
& Towns, 993 A.2d 367, 379-380 (Vt. 2010)
Moreover, the First Circuit‘s
Milward ―weight of the evidence‖
analysis is in no way bolstered by the use
of the weight of the evidence approach by
regulatory agencies. Regulatory agencies
are governed by a preventative
perspective, in which regulators will often
err on the side of caution in the absence
of clear scientific evidence. In this
context, the weight of the evidence
approach can be a useful tool because it
aids
regulators
in
developing
precautionary
standards
whereby
hypothetical risks then can be tested in a
more effective manner. But the scientific
methodology set forth in Daubert requires
that testing and validation occur before
evidence is admissible in court. Thus, a
number of courts have rejected the
argument that a regulatory decisionmaking constitutes admissible scientific
evidence of causation in a tort case.30
(affirming exclusion of ―weight of the
evidence‖
causation
testimony
where
plaintiffs‘ expert ―did not specify the precise
weight he gave each study or how he reached
his conclusion when the studies, taken
together,
demonstrated
a
statistically
significant result, when seventy-five percent
of the studies, individually, failed to reach that
conclusion.‖).
30
See, e.g., Rider, 295 F.3d at 1201 (―A
regulatory agency such as the FDA may
choose to err on the side of caution. Courts,
however, are required by the Daubert trilogy
to engage in objective review of the evidence
to determine whether it has sufficient
scientific basis to be considered reliable.‖);
Glastetter v. Novartis Pharms. Corp., 252
F.3d 986, 991 (8th
Cir.
2001)
(―The
methodology employed by a government
agency results from the preventive perspective
that the agencies adopt in order to reduce
exposure to harmful substances. ... The FDA's
Page 133
Notably, regulatory decision makers
agree.31
The First Circuit also erred as a
matter of law to the extent that it lowered
the admissibility bar based upon a
perceived difficulty in the case of an
extremely rare disease to obtain the
scientific evidence that would normally
be required to establish causation. 32
Under the scientific method, an expert
witness cannot reliably opine based upon
the assumption that missing evidence, if it
existed, would support a causal
hypothesis.
Rather,
―[p]roposed
testimony must be supported by
appropriate validation – i.e., ‗good
grounds,‘ based on what is known.‖ 33 In
apparently following the contrary rule of
allowing law to lead science, the First
Circuit once again broke from the
holdings of other federal circuits that
have more faithfully hewed to the
Supreme Court‘s teachings.34
1994 decision that Parlodel can cause strokes
is unreliable proof of medical causation in the
present case because the FDA employs a
reduced standard (vis-a-vis tort liability) for
gauging causation when it decides to rescind
drug
approval.‖)
(internal
quotations
omitted).
31
See Labeling of DiphenhydramineContaining Drug Products for Over-theCounter Human Use, 67 Fed. Reg. 72,555, at
72,556 (Dec. 6, 2002) (―FDA's decision to act
in an instance such as this one need not meet
the standard of proof required to prevail in a
private tort action. ... To mandate a warning
or take similar regulatory action, FDA need
not show, nor do we allege, actual causation.‖)
(citing Glastetter).
32
Milward, 639 F.3d at 24.
33
Daubert, 509 U.S. at 590.
34
See, e.g., Wells v. SmithKline Beecham
Corp., 601 F.3d 375, 381 (5th Cir. 2010)
Page 134
III. Limiting Milward On Its Facts
While the First Circuit erred as a
matter of law in factoring the lack of
existing science into its Daubert analysis,
defendants should take pains in future
Daubert challenges to explain the limiting
factual context from which Milward
arose. There certainly will continue to be
cases like Milward in which defendants
are confronted with speculative expert
causation opinions on novel or uncharted
(―Perhaps Requip is a cause of problem
gambling, but the scientific knowledge is not
yet there. [Plaintiff] urges the law to lead
science – a sequence not countenanced by
Daubert. And while the possibilities of their
relationship properly spark concerns sufficient
to warrant caution, the courts must await its
result.‖); Rider, 295 F.3d at 1202 (―Given
time, information, and resources, courts may
only admit the state of science as it is. Courts
are cautioned not to admit speculation,
conjecture, or inferences that cannot be
supported by sound scientific principles.‖);
Rosen, 78 F.3d at 319 (―The courtroom is not
the place for scientific guesswork, even of the
inspired sort. Law lags science; it does not
lead it.‖) See also, e.g., Perry v. Novartis
Pharms. Corp., 564 F. Supp.2d 452, 468 (E.D.
Pa. 2008) (―In cases where no adequate study
shows the link between a substance and a
disease, expert testimony will generally be
inadmissible, even if there are hints in the data
that some link might exist. This may mean
that early victims of toxic torts are left without
redress because they are unable to prove their
cases with the scientific data that exists. While
this is a regrettable result in those individual
cases, it is an unavoidable reality of the
structure of our legal system and is necessary
to protect the interests of defendants who
might otherwise be subject to crippling
verdicts on the basis of slender scientific
evidence.‖).
scientific issues. However, toxic tort and
pharmaceutical litigation today is driven
by mass, serial claims against deep pocket
manufacturers of FDA- and EPAregulated products. By their nature, these
claims often involve relatively more
common
medical
conditions
and
purported causative agents that have been
extensively tested for human safety.
Accordingly, in most cases, plaintiffs‘
experts will not be able to hide behind a
lack of existing scientific knowledge as a
defense for their speculative causation
theories. Milward does not speak to these
cases.
In Milward, plaintiffs had at least a
facially plausible argument to explain
away the lack of statistically significant
epidemiological
studies
associating
benzene with APL. While the First
Circuit‘s conclusion that APL is so rare as
to
preclude
any
meaningful
epidemiological
study
is
likely
mistaken,35 it is certainly the case that one
would expect less scientific evidence to
exist for a disease with an annual
incidence of 1 in a million than for more
common medical ailments like heart
disease, stroke, diabetes, or more
common cancers. But it is often these
more common diseases that predominate
in toxics and pharmaceutical liability
litigation, both because of the inherently
larger potential plaintiff pool and the
governing litigation model in which
35
See, e.g., Mandegary A., et al., GluthationeS-Transferase T1-null Genotype Predisposes
Adults to Acute Promyelocytic Leukemia; a
Case-Control Study, 12(5) ASIAN PAC. J.
CANCER PREV. 1279-1282 (2011) (finding
statistically significant increased risk of APL
associated with certain polymorphisms of
GST proteins).
plaintiffs‘ counsel aggregate claims
through mass marketing and other forms
of solicitation. For similar reasons, toxics
and
pharmaceutical
litigation
is
comprised primarily of claims against
products as to which there are (at least
arguably) widespread exposures.
In a case involving a relatively more
common medical condition and a
relatively more common exposure, a
plaintiff expert‘s argument that he should
not be required to proffer existing,
reliable scientific evidence in support of
his causation theory is unavailing.
Certainly, in cases in which there is an
existing body of epidemiological
evidence, Milward is inapposite on its
face.36 But Milward apparently turned
not only on the lack of existing
epidemiological studies, but on the
perceived inequity in requiring scientific
studies that the Court believed because of
the rarity of APL would be extremely
difficult to conduct.37 No such arguable
inequity exists in cases involving more
common diseases and exposures. In this
more frequent, the lack of existing
epidemiological
or
other
reliable
scientific studies instead suggests that
there is no causal association or, at the
very least, provides a court with greater
comfort in requiring an expert to proffer
such studies before bringing a causation
claim before a jury.
36
See Milward, 639 F.3d at 24 (―To be clear,
this is not a situation in which the available
epidemiological studies found that there was
no causal link.‖).
37
See id. at 24-25 (citing case law for the
proposition that epidemiological evidence
should not be required where such studies
―would be almost impossible to perform‖).
Page 135
Moreover, where—as is often the
case—the product that has allegedly
caused a plaintiff‘s injury is regulated by
the FDA or EPA for human health safety,
there will be a significant body of
scientific evidence that may speak to the
causation issue before the court. For
example, to obtain FDA approval of a
prescription drug, a pharmaceutical
company must submit voluminous
scientific evidence to the agency in
accordance with statutory requirements
set forth in the Food, Drug and Cosmetic
Act.38
Likewise, the EPA requires
manufacturers to submit extensive
scientific studies demonstrating that
chemicals, pesticides, and other FDA
regulated products do not pose
unreasonable human health risks.39 Even
under the reasoning of Milward, it cannot
be enough in the face of such extensive
scientific testing for a causation expert to
rely solely on speculative inferences in
support of a weight of the evidence causal
hypothesis. Rather, the expert must show
that the existing scientific evidence
38
21 U.S.C. § 355. See U.S. FDA, The FDA’s
Drug Review Process: Ensuring Drugs Are
Safe
and
Effective,
available
at
http://www.fda.gov/drugs/resourcesforyou/con
sumers/ucm143534.htm (last visited February
18, 2012).
39
See Toxic Substances Control Act, 15
U.S.C. § 2601, et seq., see also U.S. EPA,
Chemical Testing and Date Collection,
available
at
http://www.epa.gov/oppt/chemtest/index.html.
Federal
Insecticide,
Fungicide,
and
Rodenticide Act, 7 U.S.C. § 136, et seq. See
also U.S. EPA, Assessing Health Risks from
Pesticides,
available
at
http://www.epa.gov/pesticides/factsheets/riska
ssess.htm (last visited February 18, 2012).
Page 136
provides a reliable basis for his causation
opinion.
IV. Turner Redux: A Case Study for
Defendants in Responding to
Milward
While the Milward opinion marks a
step back in the proper application of the
Daubert
standards
for
expert
admissibility,
the
plaintiff
bar‘s
proclamation that Milward will reshape
toxic tort causation law is overblown.
The legal battles over the Daubert
admissibility standards have been hard
fought for nearly 20 years, and until and
unless resolved by future rulings from the
Supreme Court, there will most certainly
be continued battles over the foreseeable
future. Milward is but one (wrongly
decided) case, and if properly addressed
by defendants in future Daubert
litigation, its impact can and should be
minimized.
To place Milward in its proper
context, it is useful to look back at
another appellate court opinion that
likewise departed from the Supreme
Court‘s Daubert teachings and that
likewise—for a short time at least—was
heralded by plaintiffs‘ counsel as a
harbinger of things to come. In Turner v.
Iowa Fire Equipment,40 a plaintiff sought
review of a district court opinion
excluding his expert‘s opinion that
exposure to discharge from a fire
extinguisher caused a hyperreactive
airway disorder. The Eighth Circuit
ultimately affirmed, holding that the
plaintiffs‘ expert did not even purport to
support his causation opinion with
40
229 F.3d 1202 (8th Cir. 2000).
scientific evidence or a differential
diagnosis.41 In discussing the Daubert
standard, however, the Eighth Circuit
seemingly went out of its way to endorse
a liberal rule favoring admissibility of
expert causation opinions in other cases.
The Court began its analysis by
announcing that it did ―not believe that a
medical expert must always cite
published studies on general causation in
order to reliably conclude that a particular
object caused a particular illness.‖ 42 The
Court then explained its view that ―[t]he
first several victims of a new toxic tort
should not be barred from having their
day in court simply because the medical
literature, which will eventually show the
connection
between
the
victims‘
condition and the toxic substance, has not
yet been completed.‖43 Finally, the Court
reasoned, ―[i]f a properly qualified
medical expert performs a reliable
differential diagnosis through which, to a
reasonable degree of medical certainty,
all other possible causes of the victim‘s
condition can be eliminated, leaving only
the toxic substance as the cause, a
causation opinion based on that
differential
diagnosis
should
be
admitted.‖44 Plaintiffs‘ counsel promptly
heralded the Turner opinion, announcing
41
See id. at 1208, 1209.
Id. at 1208 (citation omitted).
43
Id. at 1209.
44
Id. See also id. at 1208 (―a differential
diagnosis is a tested methodology, has been
subjected to peer review/publication, does not
frequently lead to incorrect results, and is
generally accepted in the medical community.
… We agree that a medical opinion about
causation, based upon a proper differential
diagnosis, is sufficiently reliable to satisfy
Daubert.‖).
42
that the Eighth Circuit ―is a differential
diagnosis friendly circuit.‖ 45
It was in the immediate wake of
Turner that the author‘s law firm sought
to defend the exclusion of another
plaintiff expert causation opinion in a
pharmaceutical products liability case
arising out of the Parlodel litigation. In
Glastetter v. Novartis Pharms. Corp.,46
issued roughly one month prior to the
Eighth Circuit ruling in Turner, the
district court excluded plaintiffs‘ experts‘
opinion that Parlodel had caused the 36year
old
plaintiff‘s
postpartum
intracerebral
hemorrhage
(ICH).
Plaintiffs‘ experts based their causation
opinion on a number of different lines of
evidence, including case reports, animal
studies, chemical analogies, and FDA
regulatory actions. In excluding the
experts‘ testimony, the district court
concluded that none of these individual
lines of evidence provided a reliable basis
for a causation opinion, that the experts
could not cite to any supportive
epidemiological studies, and that the
experts‘ purported differential diagnosis
did not provide a reliable scientific basis
to rule in Parlodel as a cause of the
plaintiff‘s stroke.47
Plaintiffs appealed, and the 3-judge
panel assigned to hear the case for the
Eighth Circuit included two of the judges
that had served on the Turner panel. Not
surprisingly, plaintiffs relied heavily on
Turner in their appeal, arguing that the
district court erred in requiring plaintiffs‘
45
M. Dunleavy, The Darwin Guide to
Survival at a Daubert Challenge, ATLA
Annual Convention Reference Materials, 2
Ann.2001 ATLA-CLE 2775 (July 2001).
46
107 F. Supp.2d 1015 (E.D. Mo. 2000).
47
See id. at 1044-1045 & n.29.
Page 137
experts to cite published studies on
general causation and that, because their
experts had professed to use a
―differential diagnosis‖ methodology,
their opinions must pass Daubert
scrutiny.48 The plaintiffs also challenged
the district court‘s Daubert ruling on the
same grounds accepted by the First
Circuit in Milward, arguing that the
district court erred in looking ―at each
piece of evidence in isolation … without
considering the cumulative effect….‖49
In our opposition brief for the
defendant, we squarely confronted
plaintiffs‘ assertion that the district court
had erred in separately analyzing each of
the plaintiffs‘ experts‘ different lines of
evidence, noting that this was the exact
approach that had been taken by the
Supreme Court in Joiner.50 We then
defended in detail each of the district
court‘s findings on these separate lines of
evidence, explaining not only that the
same type of evidence repeatedly had
been rejected under Daubert by other
courts but also why the particular studies
and analogies relied upon by plaintiffs‘
experts in our case did not support their
causal hypotheses.51 We then explained
why, without reliable scientific evidence
48
Brief for Plaintiff-Appellant at 38, 51-52,
Glastetter v. Novartis Pharms. Corp., Nos. 003087/00-3467 (8th Cir. Nov. 30. 2000) (on file
with author).
49
Id. at 43.
50
Brief for Defendant-Appellee at 22-23, 28,
Glastetter v. Novartis Pharms. Corp. Nos. 003087/00-3467 (8th Cir. Jan. 19. 2001) (on file
with author).
51
Id. at 29-49. In discussing the plaintiffs‘
putative causation evidence, defendant‘s brief
drew heavily as well on the concession that
secured from plaintiffs‘ experts during a four
day evidentiary Daubert hearing.
Page 138
to ―rule in‖ Parlodel as a cause of the
plaintiff‘s stroke, the experts‘ purported
differential diagnoses could not support a
reliable general causation opinion.52 And,
importantly, we presented the Court with
the overarching factual context of the
causation issue in our case that
distinguished it from the purportedly
novel causation issue in Turner. We
explained
that
that
there
are
―approximately 700,000 [strokes] a year
in the United States,‖ that ―stroke in
young adults is not a rare event,‖ and that
the postpartum period is a known risk
factor for stroke.53 We also noted that
there had been ―millions of Parlodel
prescriptions written for all indications.‖ 54
The Eighth Circuit unanimously
affirmed the district court‘s ruling. 55 The
Court began its opinion by reasserting its
holding in Turner that ―a medical opinion
about causation, based upon a proper
differential diagnosis, is sufficiently
reliable to satisfy Daubert,‖ and it
explained that ―[b]ecause a differential
diagnosis is presumptively admissible, a
district court may exercise its gatekeeping
function to exclude only those diagnoses
that are scientifically invalid.56 But the
Court ―agreed with the district court‘s
conclusion‖ in our case that the
differential diagnoses performed by Ms.
Glastetter‘s expert physicians were not
scientifically valid ―because they lacked a
proper basis for ‗ruling in‘ Parlodel as a
potential cause of ICH in the first
place.‖57
The Eighth Circuit then
reviewed with particularity and affirmed
the district court‘s findings on each of the
separate lines of causation evidence
proffered by the plaintiffs‘ experts. This
analysis turned not only on the generally
unreliable nature of the types of evidence
at issue but on the Court‘s proper
understanding of why the particular
studies relied upon by the plaintiffs‘
experts did not support their causation
opinions.58 Finally, the Court rejected
plaintiffs‘ argument that the district court
had failed to properly consider the
―cumulative
effect‖
of
plaintiffs‘
causation evidence: ―Viewed in isolation,
Glastetter‘s different pieces of scientific
evidence do not substantiate her experts‘
conclusion that Parlodel can cause ICHs.
Likewise, we do not believe the aggregate
of this evidence presents a stronger
scientific
basis
for
Glastetter‘s
supposition that Parlodel can cause
ICHs.‖59
In the over ten years since Turner
and Glastetter were decided, the
analytical debate framed by the two
opinions has continued in courts around
the country.
Although an inexact
measure to be sure, the significance of the
two opinions can be partially gauged by
the extent to which the cases have been
cited by other courts. By this measure,
Turner certainly has been significant,
with 102 judicial citations as of the date
57
Id.
See id. at 991 n.5 (―We do not discount the
value of animal studies per se. Rather, we
find that the particular animal studies
submitted in this case do not present
scientifically
compelling
evidence
of
causation.‖).
59
Id. at 992.
58
52
Id. at 57-61.
Id. at 7-8.
54
Id. at 11.
55
See Glastetter v. Novartis Pharms., 252 F.3d
986 (8th Cir. 2001).
56
Id. at 989 (internal citations omitted).
53
this article is being prepared.
But
Glastetter has been even more significant,
with 122 judicial citations to date. The
history of Milward over the next ten years
is yet to be written, but there is every
reason to believe that with continued and
focused defense efforts in support of
Daubert, Milward‘s influence over other
courts in future Daubert litigation will be
similarly countered.
V.
Conclusion
With its unquestioning endorsement
of ―weight of the evidence‖ reasoning and
law-leads-science analysis, the First
Circuit‘s Milward opinion represents a
significant departure from the expert
admissibility standards set forth by the
Supreme Court in the Daubert trilogy.
But while plaintiffs‘ counsel may hear in
Milward a call to victory, for the defense
bar, Milward is but a call back to the
trenches. Daubert remains—much as it
has been for the past 19 years—a
powerful weapon in the fight against
frivolous litigation and junk science in the
courtroom. Milward does not and cannot
change this fact.
Page 139
New Healthcare Lien Recovery Theories by ThirdParty Payors: Strategies and Tactics for the Defense
By Matthew Keenan and
Christopher J. Kaufman
M
OST ATTORNEYS remember the
―good ole days‖ when health care
liens on recoveries were simple and
generally
speaking,
the
―plaintiff
attorneys‘ problem‖ since no funds were
ever paid until plaintiff‘s counsel had
settled the lien. And while this traditional
model of third-party payor (―TPP‖)
recovery remains viable, in these days of
mass tort, suddenly, health insurance
carriers have identified a far more
threatening, expensive and dangerous
means of recovering all of their losses in
one fell-swoop: suing the alleged
tortfeasors directly. With this strategic
shift, defense counsel must stay attuned to
the ever-changing complexity of TPP
litigation. This article examines various
approaches health insurers are employing
to recover losses in the aggregate and also
discusses strategies defense counsel
should consider using to defeat such
claims.
I.
The Role of Third Party Payors in
the American Health Care System
Today‘s health care system is one in
which employers provide, either in the
form of their own funds or through
insurance, for their employees‘ medical
needs. To operate, insurers charge their
enrollees an upfront fee, i.e. a ―premium‖,
in exchange for insurance coverage.1 The
1
Ironworkers Local Union 68 v. Astrazeneca
Pharms., LP, 634 F.3d 1352, 1364 (11th Cir.
Matt Keenan is a
partner in Shook, Hardy
&
Bacon's
pharmaceutical
and
medical device practice
group where he has
practiced for 26 years.
Recently he successfully
defended a major medical device
manufacturer against TPP claims in state
and federal court.
Christopher J. Kaufman
is an associate in the
firm. He is a member of
the
firm's
pharmaceutical
and
medical device practice
group and represents
manufacturers in individual and complex
product liability litigation.
value of the premium is continually
adjusted by the insurer over time to
compensate for known risks assumed
under that coverage, such as the estimated
costs for prescription drugs covered under
a policy2 or for the implantation of a
2011) (―In general, health insurers enter into a
contractual bargain with enrollees in which, in
exchange for their service—assuming the risk
of payment for enrollees‘ future health care
costs—they receive a ‗premium‘, an up-front
fee that represents the price of the insurance
policy.‖) (citing BARRY R. FURROW ET AL.,
HEALTH LAW: CASES, MATERIALS, AND
PROBLEMS, 643 (6th ed. 2008)).
2
TPPs maintain drug formularies, which is a
list of medications approved for coverage
under an insurance policy. Once a drug is
placed on a formulary, the TPP is
contractually obligated to its insurers to pay
New Heathcare Lien Recovery Theories by Third-Party Payors
prescription medical device.
Eleventh Circuit Court of
recently explained:
As the
Appeals
Because the value of the estimated
claims drives the premium rate, the
premium charged for a policy largely
depends on the scope of the coverage
under that policy. The broader the
coverage offered—i.e., the more
health care services indemnified by
the insurer—the higher the premiums
charged for that policy. In other
words, covering more health care
services creates a likelihood of more
claims and, correspondingly, a greater
projected claims value. The insurer
will fund these higher costs through
escalated premiums.3
The premium is essential to the
insurer‘s goal of profitability.
If
calculated properly,4 from the insurer‘s
the drug‘s price anytime the drug is
prescribed, regardless of its use. The TPP has
to pay if the drug is prescribed for an FDA
approved use or an off-label use.
See
Ironworkers, 634 F.3d at 1366.
3
See id. at 1365.
4
See id. (―Because of how paramount
premiums are to their profitability, insurers
engage in a technical actuarial analysis to
price them. Through this ratemaking process,
insurers aim to ‗predict[ ] future losses and
future expenses and allocat[e] those costs
among the various classes of insureds.‘
Insurers predict losses on the basis of
predicted claims costs. This prediction
involves an assessment of (1) the likely
number of times a covered event—e.g., a
prescription of a covered drug—will occur and
(2) the average cost of each covered event. If
there is any uncertainty surrounding projected
claims, insurers will raise the premium to
Page 141
perspective, the insurer will collect more
in premiums than it pays out in claims.
However, when the claims exceed the
insurer‘s projections, the insurer bears the
risk of loss and, if those losses are due to
an event, such as a medical device recall
that impacts a significant number of
insureds, the TPP will most certainly seek
out ways to be made whole.5
II. Recovering Aggregate Losses
Traditionally, TPPs have sought to
recoup their losses by asserting their
rights to subrogation on a case-by-case
basis. Under this approach, a TPP‘s liens
are paid only if and when their insureds
recover from their alleged tortfeasors, i.e.,
prescription drug and medical device
manufacturers. TPPs are now trying to
recover their losses in the aggregate
pursuant to two different theories of
direct liability, depending on whether
prescription drugs or medical devices are
involved. In the context of prescription
drugs, the TPPs argue that, as a direct
result of the drug manufacturer‘s
fraudulent conduct—falsely touting the
off-label benefits of a particular
prescription drug—6 their insureds‘
reflect that uncertainty. The final premium
charged consists of this adjusted estimate plus
administrative expenses projection that
includes estimates for all those expenses that
the insurance company charges that are not for
claims, such as overhead.‖) (internal citations
omitted).
5
See id.
6
The FDA prohibits the marketing of FDAapproved drugs for off-label uses – those for
which the drug was not approved. See Health
Care Serv. Corp. v Olivares, No. 2:10-CV221-TJW-CE, 2011 WL 4591913, at *1 (E.D.
Tex. Sept. 2, 2011). However, the practice of
Page 142
treating physicians were induced to
prescribe the drug more frequently when
cheaper
alternative
options
were
available.7 Under this theory, the insurers
seek to recover, in the aggregate, the
difference between the amount actually
prescribing a drug for an off-label use ―is both
legal and commonplace in the medical
community.‖ Ironworkers Local Union 68,
634 F.3d at 1356. This is because ―[o]nce a
drug has been approved by the FDA and
placed on the market, physicians may
prescribe it for any purpose. . . . Examples of
‗off-label‘ uses include prescriptions of the
drug for a condition not indicated on the label,
treating an indicated condition at a different
dose or frequency than specified on the label,
or treating a different patient population than
approved by the FDA.‖ Id. at 1356 n.4.
7
See, e.g., Olivares, 2011 WL 4591913;
District 1199 Health & Welfare Plan v.
Janssen, L.P., 784 F. Supp.2d 508 (D. N.J.
2011); In re Yasmin & Yaz (Drospireone)
Mktg., Sales Practices & Prods. Liab. Litig.,
Nos. 3:09-md-02100-DRH-PMF, 3:09-cv20071-DRH-PMF, 2010 WL 3119499 (S.D.
Ill. Aug. 5, 2010); In re Neurontin Mktg. &
Sales Practices Litig., 677 F. Supp.2d 479 (D.
Mass. 2010); Southern Ill. Laborers‘ &
Employers Health & Welfare Fund v. Pfizer,
Inc., No. 08 CV 5175, 2009 WL 3151807
(S.D.N.Y. Sept. 30, 2009); Southeast Laborers
Health & Welfare Fund v. Bayer Corp., 655 F.
Supp.2d 1270 (S.D. Fla. 2009), aff’d, No. 1013196, 2011 WL 5061645 (11th Cir. Oct. 24,
2011); In re Schering-Plough Corp.
Intron/Temodar Consumer Class Action, No.
2:06-cv-5774, 2009 WL 2043604 (D. N.J. July
10, 2009); Ironworkers Local Union 68 v.
Astrazeneca Pharms., LP, 585 F. Supp.2d
1339 (M.D. Fla. 2008), aff’d, 634 F.3d 1352
(11th Cir. 2011); In re Zyprexa Prods. Liab.
Litig., 493 F. Supp.2d 571 (E.D.N.Y. 2007);
Prohias v. Pfizer, Inc., 490 F. Supp.2d 1228
(S.D. Fla. 2007); Desiano v. Warner-Lambert
Co., 326 F.3d 339 (2d Cir. 2003).
paid and the amount that would have been
paid for the less expensive alternative.
Conversely,
when
prescription
medical devices are at issue, these same
insurers allege that, as a direct result of a
manufacturer‘s
wrongful
conduct—
designing, manufacturing, and selling
allegedly
defective
devices—their
insureds incurred physical and/or
emotional harm, for which otherwise
unnecessary medical treatment became
necessary.8 TPPs seek to recover these
―otherwise unnecessary‖ expenses, in the
aggregate, directly from the device
manufacturers.
TPPs are filing these aggregate
recovery suits with increased frequency
and most are doing so on behalf of a
proposed class of similarly situated
insurers, which, collectively, potentially
covered tens of thousands of drug and
medical device prescriptions. Since 2000,
plaintiffs have filed more than twenty of
these TPP direct liability actions in the
federal courts, with nearly a dozen of
those arising during or immediately
following an MDL proceeding. 9 And
while the drug and device manufacturers
have found some success in dismissing
these claims on a Rule 12(b)(6) motion to
8
See Kinetic Co. v. Medtronic, Inc., 672 F.
Supp.2d 933 (D. Minn. 2009); In re Guidant
Corp. Implantable Defibrillators Prods. Liab.
Litig., 484 F. Supp.2d 973 (D. Minn. 2007).
9
See e.g., Southeast Laborers Health &
Welfare Fund v. Bayer Corp., No. 10-13196,
2011 WL 5061645, at *2 (11th Cir. Oct. 24,
2011); Ironworkers Local Union 68, 634 F.3d
at 1357 n.9; In re Yasmin & Yaz, 2010 WL
3119499; In re Neurontin, 677 F. Supp.2d
479; Kinetic Co., 672 F. Supp.2d at 939 n.2; In
re Zyprexa Prods. Liab. Litig., 253 F.R.D. 69,
78 (E.D.N.Y. 2008); In re Guidant Corp., 484
F. Supp.2d 973; Desiano, 326 F.3d 339.
dismiss for lack of Article III standing,
the decisions are hardly uniform. Indeed,
some federal courts have refused to reject
these TPP claims at the initial pleading
stage, which has ultimately resulted in a
handful of million dollar settlements and
one $237 million judgment. 10
III. Overview of Defense Strategies
Successful defense counsels have
directed the courts‘ attention early in the
litigation to the practical proof problems
and inefficiencies that are involved with
establishing Article III standing. By
emphasizing the various considerations
that may influence each insured‘s treating
physicians‘ judgment in selecting a
particular course of treatment for each
individual patient, manufacturers have
been able to demonstrate why generalized
proof of injury and causation is
inadequate to confer standing on these
TPPs. Drug and device manufacturers
should therefore insist that TPPs be
required to present evidence of their
alleged injuries on an individualized,
insured-by-insured basis.
Page 143
A. Legal Principles Of Article III
Standing
The
―irreducible
constitutional
minimum‖ of Article III standing requires
every party invoking federal jurisdiction
to bear the burden of establishing three
essential elements to show that a
justicable case or controversy exists: (1)
injury in fact, (2) a causal connection
between the injury and the challenged
conduct, and (3) redressability of the
injury.11 Described as more than mere
pleading requirements, these elements are
considered an ―indispensible‖ aspect of
every plaintiff‘s case and, therefore, must
be supported ―with the manner and
degree of evidence required at the
successive stages of the litigation.‖12
This means that at the initial pleading
stage, plaintiffs must allege enough facts
to demonstrate a ―plausible‖ entitlement
to relief.13
To satisfy the first Article III
standing requirement, plaintiffs must
show that they suffered an ―invasion of a
legally protected interest‖ which is
concrete and personal—not conjectural or
hypothetical.14
Next, plaintiffs must
show through their factual allegations that
their alleged injuries are causally linked
to the challenged conduct of the
10
See Thom Weidlich, Lilly’s $4.5 Million
Zyprexa Agreement With Health Providers
Wins Approval, BLOOMBERG, Jan. 12, 2012,
available at www.bloomberg.com/news/201201-12/lilly-s-4-5-million-zyprexa-agreementwith-health-providers-wins-approval.html (last
visited February 20, 2012). See also In re
Neurontin Mktg. & Sales Prac. Litig. (Kaiser
Found. Health Plan, Inc. v. Pfizer, Inc.), No.
04-cv-10739-PBS, 2011 WL 3852254, at *1-2
(D. Mass. Aug. 31, 2011).
11
See Lujan v. Defenders of Wildlife, 504
U.S. 555, 560-562 (1992).
12
Id. at 561.
13
See Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555, 570 (2007) (―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.‖).
14
Lujan, 504 U.S. at 560.
Page 144
defendant.15 Their injuries cannot be the
result of the ―‗independent actions of
some third party not before the court.‘‖16
Finally, it must also be ―‗likely‘‖ that the
plaintiffs‘ alleged injuries will be
redressed if the court were to render a
favorable decision.17
B. Aggregate Recovery Theory
#1: Fraudulent Over-Pricing
Of Prescription Drug Caused
Injuries To TPPS
In an attempt to defeat drug
manufacturers‘
lack
of
standing
arguments, TPPs argue that they have
suffered a direct financial injury because
they are the ―purchasers‖ of fraudulently
overpriced drugs.18 In this context, TPPs
claim that they would not have purchased
the drugs at issue had they or their
insureds‘ treating physicians not been
misled by manufacturer‘s off-label
misrepresentations, especially when safer,
15
Id. To assert a federal RICO claim there
must be some ―direct relation between the
injury asserted and the injurious conduct
alleged. Thus, a plaintiff who complained of
harm flowing merely from the misfortunes
visited upon a third person by the defendant‘s
acts was generally said to stand at too remote a
distance to recover.‖ Holmes v. Sec. Investor
Protec. Corp., 503 U.S. 258, 268-269 (1992).
16
Lujan, 504 U.S. at 560.
17
Id. at 561.
18
See, e.g. In re Warfarin Sodium Antitrust
Litig., 391 F.3d 516, 531 (3d Cir. 2004) (―it is
well recognized that a purchaser in a market
where competition has been wrongfully
restrained has suffered an antitrust injury, and
in this case, TPPs are such purchasers‖);
Desiano, 326 F.3d at 350 (noting that ―several
other courts‖ have recognized that TPPs are
―buyers‖ of the prescription drugs they cover).
more effective, and cheaper alternatives
were available on the market. Under this
theory, TPPs contend that their economic
injuries are sufficiently direct because
they are unaffected by whether any given
insured suffered harm through use of the
product.19
Drug
manufacturers
have
successfully defeated these ―direct
purchaser‖ allegations at the motion to
dismiss stage by challenging (1) the TPPs
assertion that they have alleged a
sufficiently direct economic injury, and
(2) whether the alleged injury was
proximately caused by the manufacturer‘s
alleged misconduct. Success on either
issue, or both, constitutes grounds for
immediate dismissal of the action for lack
of Article III standing in federal court.
1.
Injury in Fact
As to the direct injury issue, defense
counsel is encouraged to demonstrate the
likelihood that the TPPs‘ insureds, in
most cases, received at least some
medical benefit from using drug. This is
because, unless TPPs can allege that the
prescriptions they paid were ―medically
unnecessary or inappropriate‖ (as
determined by the standards of practice in
the medical profession), at least some
federal courts have held that these TPPs
have not incurred a plausible economic
injury.20 As the Fifth Circuit Court of
19
See Desiano, 326 F.3d at 349.
Ironworkers Local Union 68, 634 F.3d at
1360, 1362-1364 (―To allow recovery based
purely on the fact that the prescription was
comparatively more expensive than an
alternative drug—but otherwise safe and
effective—would mean that physicians owe
their patients a professional duty to consider a
20
Appeals recognized, ―[m]erely asking for
money does not establish an injury in
fact.‖21
To make this showing, TPPs will be
forced to investigate why each of their
insureds were prescribed the drugs they
received—an endeavor their direct
liability theory of recovery was designed
to avoid. Since ―[s]everal considerations
shape the physician‘s medical judgment,
including both individual patient concerns
and drug-specific information regarding
the propriety of a drug‘s use for treatment
of a patient‘s given condition,‖22 each
TPP should be required to demonstrate
through individualized proof that its‘
economic
injuries
were
actually
realized.23 Certainly, no TPP can
demonstrate an economic injury if it did
not pay for a single off-label prescription
or if the prescriptions it did pay for were
medically necessary and appropriate.
drug‘s price when making a prescription
decision. No such duty exists.‖); see also
District 1199 Health & Welfare Plan v.
Janssen, L.P., Nos. 06-3044(FLW), 072224(FLW), 07-2608(JAP), 07-2860(GEB),
2008 WL 5413105, at *8 (D. N.J. Dec. 23,
2008) ((―[TPPs] do not plead a concrete
financial loss in the form of overpayment,
absent allegations that the drug was inferior on
some level and worth less than what they paid
for it.‖).
21
Rivera v. Wyeth-Ayerst Labs., 283 F.3d
315, 319 (5th Cir. 2002).
22
Ironworkers Local Union 68, 634 F.3d at
1362 (citations omitted).
23
See id. at 1362-1363 (―The physician learns
about a drug through multiple sources, only
one of which might be the drug
manufacturer‘s promotions and literature. For
instance, physicians typically obtain additional
information about a drug‘s putative uses from
journals, meetings, and conventions.‖).
Page 145
In an effort to circumvent this
individualized inquiry, TPPs assert that
their economic injuries can be established
through aggregate damages models
showing that a manufacturer‘s fraudulent
marketing caused a ―sharp increase‖ in
the number of prescriptions that TPPs
paid for.24 And while courts have
acknowledged that this approach has
―strong intuitive appeal,‖ they also note
that it still fails to indicate which doctor‘s
prescriptions were caused by the
manufacturers‘ alleged misconduct. 25 As
one federal district court explained:
[T]rial courts have almost uniformly
held that in a misrepresentation
action
involving
fraudulent
marketing of direct claims to
doctors, a plaintiff TPP or class must
show
through
individualized
evidence that the misrepresentation
caused specific physicians, TPPs, or
insureds to rely on the fraud, and
cannot rely on aggregate or
statistical proof.26
Defense counsel should therefore
reject TPP attempts to use aggregate
damages models as a substitute for
establishing demonstrable economic
injuries.27
24
See, e.g., In re Neurontin, 677 F. Supp.2d at
494; In re Zyprexa, 493 F. Supp.2d at 577578.
25
In re Neurontin, 677 F. Supp.2d at 494-495.
26
Id. at 494 (citing Southern Ill. Laborers’,
2009 WL 3151807).
27
See In re Neurontin Mktg. & Sales Practices
Litig., 754 F. Supp.2d 293, 310 (D. Mass.
2010) (holding that TPP plaintiffs do not
allege an injury where they ―have put forth no
facts as to which, if any, doctors were tainted
Page 146
2.
Causation
Because TPP attempts at aggregate
recovery present significant practical
evidentiary proof obstacles,
drug
manufacturers have also successfully
defeated these claims by arguing that the
TPPs
cannot
establish
proximate
causation.28 In this context, defense
counsel should again emphasize the role
of the treating physician in deciding
which drugs to prescribe to which
patients.29 This way, manufacturers can
illustrate how TPPs‘ alleged injuries are
entirely dependent on the answers to the
following insured-specific questions,
none of which they will be able to address
in the aggregate:
by misleading information like ‗Dear Doctor‘
letters or other marketing material.‖).
28
See id. at 310-311.
29
In re Neurontin, No. 1:04-cv-10981-PBS,
2011 WL 18882870, at *4 (D. Mass. May 17,
2011) (―[I]n order to differentiate those
prescriptions that were caused by fraud from
those that were attributable to non-fraudulent
off-label marketing or other independent
factors, a factfinder would have to perform a
granular doctor-by-doctor analysis.
This
would be unmanageable‖ for purposes of class
certification); Southeast Laborers, 655 F.
Supp.2d at 1280-1281 (―There are many
factors that a doctor may consider in
determining what medication to administer to
a given patient. Doctors are presumed to go
beyond advertising medium and use their
independent knowledge in making medical
decisions.‖); In re Yasmin & Yaz, 2010 WL
3119499, at *7 (―The role of the prescribing
physician is problematic because it is an
additional factor that could have contributed to
the Plaintiff‘s alleged injury (demonstrating
remoteness).‖).
For which medical condition(s)
did each insureds‘ physician
prescribe the drug;
How
many
doses
were
prescribed for a particular
insured, and how many of those
were tied to alleged fraudulent
marketing;30
Did any of the insureds‘
physicians receive the allegedly
false information;31
Did any of the insureds‘
physicians rely on the allegedly
false information;32
30
Southeast Laborers, 655 F. Supp.2d at
1280-1281 (noting that loss calculation would
―require a determination as to how many doses
a patient received, and whether or not the
number of doses was tied to any fraudulent
marketing.‖).
31
Southern Illinois Laborers’, 2009 WL
3151807, at *6 (holding that TPP plaintiffs‘
theory of causation based on physician
reliance on fraudulent marketing fails because
―Plaintiffs do not cite a single instance in
which a physician received the fraudulent
information and decided to prescribe [the drug
at issue] based on the information she
received. Plaintiffs do not even explicitly
allege the more general claim that physicians
in
general
relied
on
Defendant‘s
misrepresentations.
Accordingly,
this
causation argument fails as currently pled.‖);
In re Schering-Plough Corp., 2009 WL
2043604, at *25 (noting that some doctors
who prescribed the drug at issue ―may have
never received any information from
[defendant].‖); In re Actimmune Mktg. Litig.,
614 F. Supp.2d 1037, 1051-1052 (N.D. Cal.
2009) (holding that to establish causation, TPP
―[p]laintiffs need to allege what specific
information the individual plaintiffs or their
physicians had about the drug‖).
32
Olivares, 2011 WL 4591913, at *7
(―[Plaintiff] fails to allege that any doctors or
Would any of the insureds‘
physicians, knowing the true
risks and benefits associated
with the drug, have prescribed
the drug anyway;33
other health care professional relied on any
[defendant] misrepresentation promoting offlabel use, as opposed to relying on the
professional‘s own judgment and expertise,
when prescribing the drugs.‖); In re
Neurontin, 2011 WL 18882870, at *4 (noting
that since the TPPs did not rely on the alleged
misrepresentations themselves, ―they would
need to show that the prescribing physicians
relied on fraudulent communications or
suppression of evidence by [defendant]‖);
Dist. 1199, 784 F. Supp.2d at 524 (―Plaintiffs‘
allegations are too remote to satisfy the
causation prong because they noticeably fail to
allege that physicians . . . relied on any
specific misrepresentation made by the
Defendants.‖); In re Neurontin, 754 F.
Supp.2d at 311 (―Because the Class TPP
Plaintiffs have not directly relied on
misrepresentations by defendants, and because
they have presented no evidence as to how
many or which physicians who prescribed [the
drug] to their members relied on fraud, they
cannot establish causation.‖); So. Illinois
Laborers’, 2009 WL 3151807 (―Because the
Plaintiffs do not expressly allege that
physicians
relied
upon
Defendant‘s
misrepresentations, the Court finds that
Plaintiffs have not alleged the necessary
causal connection, and thus have not
established Article III standing.‖); Southeast
Laborers, 655 F. Supp.2d at 1280-1281 (―Loss
calculation necessarily would depend on
whether or not a particular physician ever
received or relied on [defendant‘s] allegedly
fraudulent statements‖).
33
1280-1281 (―Loss calculation necessarily
would depend on . . . whether or not a
physician, knowing the risk vs. benefit of [the
drug at issue], would still have used it during
Page 147
Did any of the insureds receive
any medical benefit from using
the drug;34
Which alternative drugs would
the insureds‘ physicians have
prescribed for each insureds‘
particular treatments;35 and
How much would those
alternative drugs have cost?36
By focusing the court‘s attention on
these case-specific inquiries, drug
manufacturers have been able to show
why generalized proof cannot be used to
show the existence of an economic injury
that was proximately caused by the
alleged misconduct.37
Indeed, the
an operation.‖); In re Actimmune Mktg. Litig.,
614 F. Supp.2d at 1051-1052 (holding that to
establish causation, TPP ―[p]laintiffs need to
allege . . .when the drug was prescribed,
purchased and administered, and whether
these actions would have been taken if not for
the concealment/misrepresentations of facts
made regarding the efficacy or leave thereof
about [the drug at issue]‖).
34
1280-1281 (noting that loss calculation
―would entail determining those patients who
received [the drug at issue] who did not suffer
any adverse reactions, and who might have
actually been helped by use of the drug.‖).
35
Id. (noting that loss calculation would
―require speculation as to what alternative
medications a particular physician would have
ordered in a particular surgery‖).
36
Id. (noting that loss calculation would
―require speculation as to . . . how much th[e]
alternative medication would have cost.‖).
37
See In re Neurontin, 2011 WL 18882870, at
*4 (―Aggregate proof has generally been held
not to be sufficient to prove causation.‖)
(citing UFCW Local 1776 v. Eli Lilly & Co.,
620 F.3d 121, 133-136 (2d Cir. 2010)); Dist.
1199, 784 F. Supp.2d at 524 (―Plaintiffs may
Page 148
damages calculations under such an
approach would be purely speculative and
completely unmanageable.38
3.
Favorable Precedent for TPPs
Despite their successes, drug
manufacturers remain vulnerable to
not aver ‗causation by way of generalized
allegations and aggregate proof because there
are numerous factors that could influence a
physician when deciding to prescribe a certain
drug.‖); In re Neurontin, 754 F. Supp.2d at
310 (noting that while aggregate proof of
causation ―demonstrates the likelihood of
some injury . . . it does not suffice to
demonstrate the extent of harm caused by the
fraud . . . Most courts have rejected such
aggregate proof.‖); In re Schering-Plough
Corp., 2009 WL 2043604, at *26 (―The TPP
plaintiffs may not establish the requisite
proximate cause through aggregate proof or
generalized allegations of fraudulent conduct
and resulting harm.‖).
38
See, e.g., In re Yasmin & Yaz, 2010 WL
3119499, at *7 (―To assess damages, the
Court would have to delve into the specifics of
each
physician-patient
relationship
to
determine what damages were caused by [the
manufacturer‘s] alleged fraudulent conduct, as
opposed to what damages were caused by the
physician‘s independent medical judgment.
After all, a physician is permitted to use
prescription medication to treat conditions
other than those stated on the labeling
approved by the FDA when, in his or her best
medical judgment, use of the drug will benefit
the patient. . . . Attempting to ascertain
damages in this scenario would result in the
type of speculative damages analysis the direct
proximate cause requirement is intended to
prevent.‖) (internal citations omitted);
Southeast Laborers, 655 F. Supp.2d at 12801281 (noting that the ―[c]alculation of [TPP]
Plaintiff‘s
losses
would
be
purely
speculative.‖).
adverse rulings where (1) state law
standing and proximate cause standards
are less stringent,39 and/or (2) the insurers
are able to adequately allege that they
relied on a manufacturer‘s alleged
fraudulent representations. Under these
circumstances, drug manufacturers could
become exposed to potentially massive
liability, especially if the prevailing TPP
also represents a class of similarly
situated insurers, all of whom provide
coverage to thousands of affected
individuals.
For example, the Second Circuit in
Desiano v. Warner-Lambert, reversed the
district court‘s Rule 12(b)(6) dismissal of
TPP plaintiffs‘ New Jersey state-law
claims because it found that the TPPs
were the ―direct victims‖ of the
manufacturer‘s fraudulent marketing
campaign under New Jersey law.40 The
district court had previously concluded
that TPPs could not establish proximate
cause because, under Second Circuit
precedent (Laborers Local 17 Health &
Welfare Benefit Fund v. Philip Morris,
Inc.41), this type of claim was
―foreclosed.‖42 Under that precedent, the
39
Standing under state law is not equivalent to
standing under federal law. See In re Guidant
Corp., 484 F. Supp.2d at 982 (―Standing under
state law is not equivalent to standing under
federal law.‖) (citing Metro. Express Servs.,
Inc. v. City of Kansas City, 23 F.3d 1367,
1369 (8th Cir. 1994)); Group Health Plan
Inc., 86 F. Supp.2d 912, 917 n.2 (D. Minn.
2000) (explaining that Article III standing
requirements are a ―wholly separate
determination‖ from state standing).
40
Desiano, 326 F.3d at 351.
41
191 F.3d 299 (2d Cir. 1999).
42
See In re Rezulin Prods. Liab. Litig., 171 F.
Supp.2d 299, 300-302 (S.D.N.Y. 2001) (citing
Laborers Local 17, 191 F.3d 299).
Second Circuit held that TPP plaintiffs
asserting a federal RICO violation could
not establish proximate cause because
their alleged injuries—the costs they
incurred as a result of paying for the
tobacco-related healthcare costs of their
insureds as a result of the defendant
tobacco companies‘ alleged deception
concerning the risks of smoking were:
were similar, the court also found the
claims in Laborers Local 17 to be
―significantly different‖ from those in
Desiano. Specifically, the court noted
that:
[i]n the instant case . . . Plaintiffs
allege an injury directly to
themselves; an injury, moreover,
that is unaffected by whether any
given patient who ingested [the drug
at issue] became ill. Plaintiffs‘
claim is that the Defendants‘
wrongful
action
was
their
misrepresentation of the [drug at
issue‘s] safety, and that this fraud
directly caused economic loss to
them as purchasers, since they
would not have bought Defendants‘
product, rather than cheaper
alternatives, had they not been
misled
by
Defendants‘
misrepresentations.
Thus, the
damages the
excess
money
Plaintiffs paid Defendant for the
[drug at issue] that they claim they
would not have purchased ‗but for‘
Defendants‘ fraud were in no way
‗derivative of damage to a third
party.‘45
entirely derivative of the harm
suffered by plan participants as a
result of using tobacco products.
Without injury to the individual
smokers, the Funds would not have
incurred any increased costs in the
form of payment of benefits, nor
would they have experienced the
difficulties of cost prediction and
control that constituted the crux of
their infrastructure harms. Being
purely contingent on harm to third
parties, those injuries are indirect.43
Finding the claims in Laborers Local
17 to be ―closely analogous‖ to those
asserted in Desiano, the district court
granted the defendant manufacturer‘s
motion to dismiss.
In reversing the district court, the
Second Circuit first noted that the
relevant legal standard of proximate cause
governing the case was not the law of
RICO, as in Laborers Local 17, but rather
the law of New Jersey, which the court
suggested did not have ―the relatively
narrow directness requirements‖ as a
claim under RICO.44 But even assuming
that the two proximate cause standards
Concluding that ―the insurers were
directly harmed by the deception
practiced on them,‖ the court established
a precedent that TPPs have since
continued to rely upon to justify their
theory of aggregate recovery. 46
The more ―atypical‖ means of
defeating a drug manufacturer‘s motion to
dismiss, however, is for the insurer to
43
Id. at 300-302 (citing Laborers Local 17,
191 F.3d 299).
44
Desiano, 326 F.3d at 348-349.
Page 149
45
46
Id. at 349.
Id. at 351 & n.9.
Page 150
allege exactly what the manufacturers ask
them to allege—facts sufficient to
demonstrate that it relied on the
manufacturer‘s fraudulent representations
and, as a result, suffered an economic
injury.47 In the Neurontin MDL, one such
TPP, Kaiser Foundation Health Plan, Inc.
and
Kaiser
Foundation
Hospitals
(collectively ―Kaiser‖), did just that and
ended up with a $142 million jury verdict
and a $95.2 million restitution award.48
In finding that Kaiser had standing to
pursue its direct liability theory of
recovery, the district court focused on the
following key factual allegations:
Kaiser added Neurontin to its
formulary in 1994 with certain
restrictions that limited its use.49
As the drug‘s approved uses
expanded over time, Kaiser‘s
―Drug Information Service‖
(―DIS‖)
would
prepare
monographs summarizing all
available studies and information
related
to
the
particular
indications in question.
Kaiser‘s DIS would often solicit
information from Neurontin‘s
manufacturer
and,
when
responding to one of these
requests, the
manufacturer
provided information that was
―‗materially misleading.‘‘
Kaiser alleged that its DIS did
not have access to studies
known to the manufacturer that
showed the drug‘s negative or
negligible effects.
When news reports first
surfaced
revealing
the
manufacturer‘s
alleged
fraudulent marketing campaign,
Kaiser distributed information
to physicians in an ―attempt to
correct and mitigate the effect
of the misinformation and to
reduce utilization of Neurontin
for indications where the
Kaiser utilized committees
comprised of physicians that
would determine which drugs
would be placed on its
formularies.
Before a drug
could appear on the formulary,
the insurer would prepare a
monograph on the drug, which
would be reviewed by the
committee;
47
See In re Neurontin, 2011 WL 1882870, at
*2-3.
48
In re Neurontin Mktg. & Sales Prac. Litig.
(Kaiser Found. Health Plan, Inc. v. Pfizer,
Inc.), No. 04-cv-10739-PBS, 2011 WL
3852254, at *1-2 (D. Mass. Aug. 31, 2011).
The court initially entered judgment on
November 2, 2010, see In re Neurontin Mktg.
& Sales Prac. Litig. (Kaiser Found. Health
Plan, Inc. v. Pfizer, Inc.), 748 F. Supp.2d 34
(D. Mass. 2010), but later amended its
findings to correct a citation error that it made
in its original findings. See In re Neurontin
Mktg. & Sales Prac. Litig. (Kaiser Found.
Health Plan, Inc. v. Pfizer, Inc.), No. 04-cv10739-PBS, 2011 WL 4026804, at *8 (D.
Mass. Aug. 31, 2011).
49
―Kaiser‘s formulary restrictions are advisory
to physicians, following the plan‘s philosophy
that physicians are in the best position to make
individual prescribing decisions for patients.
In order to prescribe ad drug that is either not
on the formulary or restricted by the formulary
. . . physicians need only check a box on the
prescription form indicating that the drug is
necessary for the care of a patient.‖ In re
Neurontin, 677 F. Supp.2d at 486.
evidence
suggested
other
treatments were of equal or
greater efficacy.‖
Kaiser alleged that by June
2004, the number of Neurontin
prescriptions written for its
members had dropped by 34%
since the news first broke about
the manufacturer‘s alleged
misconduct.50
The district court concluded that
these alleged ―activities represent direct
interaction between Kaiser and [the
manufacturer], providing the evidence of
causation alluded to by the Desiano
court.‖51 The court also noted that the
reduction in Neurontin prescriptions after
Kaiser discovered the fraudulent conduct
and took remedial action is ―strong
evidence of a causal link between [the
manufacturer‘s] misrepresentations and
Kaiser‘s alleged injuries.‖52
Although Kaiser was able to
overcome the manufacturer‘s motion to
dismiss, its success certainly ―represents
the atypical situation.‖53 Indeed, as the
above-referenced authorities suggest, the
vast majority of TPPs cannot plead facts
sufficient to establish standing and
recover their losses in the aggregate.
Instead, they must resort to recovering
50
See In re Neurontin, 677 F. Supp.2d at 486487, 496-497. Kaiser also produced statements
from physicians stating that ―had they known
of [the manufacturer‘s] allegedly fraudulent
marketing practices, they would have acted to
change Neurontin‘s status on the Kaiser
formularies.‖ Id. at 487.
51
In re Neurontin, 677 F. Supp.2d at 496.
52
Id. at 497.
53
In re Neurontin, 2011 WL 1882870, at *3.
Page 151
their losses the traditional way—via
subrogation.
4.
Aggregate Recovery Theory
#2: TPPs Incurred “Otherwise
Unnecessary” Medical
Expenses Due To Allegedly
Defective Medical Devices
In addition to covering prescription
drug costs, TPPs are also obligated to pay
the costs associated with the implantation
and monitoring of their insureds‘
implantable prescription medical devices.
And when products like pacemakers and
defibrillators are involved—complex
devices powered by an internal battery
that naturally depletes over time—their
coverage obligation also extends to
routine device removal and replacement
surgeries. What is less clear, however, is
whether TPPs are financially responsible
for the removal and replacement of a
medical device that is subject to a
voluntary, manufacturer-issued product
advisory, i.e. a recall.
TPPs recently began testing their
ability
to
sue
medical
device
manufacturers directly in an effort to
recover the costs they incurred to (1)
remove and replace allegedly defective
devices, and (2) provide medical
treatment for the resulting physical and/or
emotional harm caused to their insureds.
Their theory is that these manufacturers
fraudulently kept their products on the
market, despite knowing of their
defective nature, which in turn led doctors
to select and insurers to pay for allegedly
faulty devices.54 To establish standing,
54
See Kinetic Co., 672 F. Supp.2d 933; In re
Guidant Corp., 484 F. Supp.2d 973.
Page 152
they extrapolate their perceived ―direct
purchaser‖
status
from
favorable
decisions in the anti-trust and fraudulently
over-priced prescription drug contexts to
allege a direct financial injury by
implication—once a purchaser, always a
purchaser. From there, they contend that
their economic injuries are sufficiently
direct because they bore the ―otherwise
unnecessary costs‖ that would not have
occurred but for the manufacturer‘s
misconduct.
A review of the applicable case law
reveals a split of authority on the issue.
From the defense perspective, In re
Guidant
Implantable
Defibrillators
Products Liability Litigation should be
the controlling authority. In that case, the
U.S. District Court for the District of
Minnesota held that TPP plaintiffs lacked
Article III standing on two separate
grounds. First, the court held that TPPs
did not allege sufficiently direct economic
injuries because they provided no support
for their assertion that they were
―purchasers‖ of the devices at issue.55
Specifically, the court noted that the
insures (1) never agreed to pay for the
devices based on their relationship with
the manufacturer or representations the
manufacturer made to it, (2) played no
role in selecting which devices their
insureds should receive, and (3) were
contractually bound to pay for their
insureds‘ medical expenses, including
those related to the recalled devices. 56
Since the TPPs had no direct relationship
with the manufacturer, they could not
demonstrate that they were the direct
―purchasers‖ of the recalled devices. 57
Second, the court determined that
TPP plaintiffs lacked standing because no
causal connection existed between their
alleged injuries and the manufacturer‘s
The court
explained that:
[i]n essence, the TPP Plaintiffs
allege that [the manufacturer]
committed a tort on their insureds,
causing injury and resulting in the
injureds seeking medical treatment,
which in turn caused economic harm
to the TPPs because they were
contractually obligated to pay for
their injureds‘ medical care.
Without more, these claims are too
speculative to establish a causal link
between the alleged injury and the
Since the TPPs‘ purported standing
rested on the independent choices of
doctors (who prescribed the devices) and
their patients (who chose to receive the
devices in lieu of other treatment
options), the court granted the
manufacturer‘s motion to dismiss,
without prejudice.60
Less than three years later, another
judge from the same district court
confronted the TPP standing issue again
in Kinetic v. Medtronic, Inc., but declined
to follow the Guidant rationale.61
Instead, the Kinetic decision focused
57
Id.
Id. at 984.
59
Id.
60
Id.
61
672 F. Supp.2d 933.
58
55
56
In re Guidant Corp., 484 F. Supp.2d at 983.
Id.
entirely on the state of the ―Nation‘s
present health care regime,‖ finding that
it:
almost always requires third-party
payors to shoulder a significant
portion of the [insureds‘] costs of
medical services. To deny this fact,
and to extract legal conclusions from
the denial, denies reality, and real
financial injuries occurring in the real
world. . . .62
By paying to remove and replace its‘
insured‘s recalled device, the court
explained that the TPP in Kinetic incurred
an ―extra, early, and additional cost‖
which amounts to an ―actual injury; there
is nothing remote, speculative or
hypothetical about it.‖63 It also noted that
intermediaries should not be used by
device
manufacturers
to
shield
themselves from liability to their
―ultimate and true financial victim.‖ 64
As to causation, the court held that
the role of the treating physician is not
necessarily fatal to TPP standing so long
as the insurer alleges facts ―‗showing that
[the physicians‘] choices have been . . .
made in such manner as to produce
causation and permit redressibility of
injury.‘‖65 That showing was apparently
made by the TPP in Kinetic: the devices
at issue were purchased by hospitals, the
hospitals were reimbursed by the TPPs,
the manufacturer recalled the devices; and
the TPPs covered the replacement
expenses.66 The TPP‘s success on the
62
Id. at 940.
Id.
64
Id. at 941.
65
Id. at 942-943.
66
Id. at 943.
63
Page 153
standing issue was short-lived, though, as
the court subsequently dismissed all but
one of its claims as preempted by federal
law,67 a defense brand-name prescription
drug manufacturers are not entitled to
assert.68
5.
Other Strategic
Considerations: Class
Certification
Another area of uncertainty for drug
and device manufacturers is whether
these types of TPP lawsuits should be
certified as class actions, assuming they
survive the manufacturers‘ initial Article
III standing challenge. In the prescription
drug context, the court in Neurontin held
that a class of TPP plaintiffs could
become certified under Rule 23(b)(3)
upon one of two showings.69 First, if the
proposed TPP class could demonstrate
that the defendant manufacturer‘s alleged
fraudulent conduct caused each TPP to
approve the drug‘s use and reimburse for
off-label indications in a manner that was
different from what would have occurred
67
Kinetic Co. v. Medtronic, Inc., No. 08-CV6062, 2011 WL 1485601 (D. Minn. Apr. 19,
2011). Relying on the express preemption
provision of MDA, 21 U.S.C. § 360k(a), and
the U.S. Supreme Court‘s recent decision in
Riegel v. Medtronic, Inc., 552 U.S. 312
(2008), medical device manufacturers have
successfully argued that most state-law claims
are preempted by federal law.
68
See Wyeth v. Levine, 555 U.S. 555 (2009).
69
Success on either theory presumes that the
TPP would have satisfied the initial
certification requirements of FED. R. CIV. P.
23(a).
Page 154
absent the fraud, class treatment would be
appropriate.70 To make this showing:
[TPPs] would have to present
individualized evidence about what
information [each TPP‘s drug
approval committee] was exposed to
regarding [the drug at issue] and
how the absence of fraudulent
information would have altered [the
drug at issue‘s] placement within
[the TPP‘s] formulary and how that
alternative classification of [the drug
at issue] would have saved the TPP
money.71
The Neurontin court also noted that,
due to the ―heterogeneity‖ of each TPPs‘
formularies, such a showing cannot be
made through generalized proof.72
Second, if TPP plaintiffs cannot
establish that they directly relied on the
manufacturer‘s
alleged
misrepresentations, they would need to
show that their insureds‘ prescribing
physicians
relied
on
the
misrepresentations.73
This approach
would require each TPP to conduct a
―granular doctor-by-doctor analysis,‖ that
the TPPs aggregate liability theory sought
to avoid.74 Thus, even after the initial
pleadings stage, Defense counsel should
continue to insist on individualized proof
of reliance and causation in order to
defeat liability and, if necessary, to
minimize the scope of potential damages.
70
In re Neurontin Mktg. & Sales Practices
Litig., 257 F.R.D. 315, 333 (D. Mass. 2009).
71
Id.
72
Id.
73
In re Neurontin, 2011 WL 1882870, at *4.
74
Id. at *5.
III. Conclusion
Although federal courts have been
reluctant to allow TPPs to proceed with a
direct liability theory of aggregate
recovery, prescription drug and medical
device manufacturers remain susceptible
to adverse dispositive motion rulings,
class certification, and even multi-million
dollar judgments. Given this reality,
defense counsel are encouraged to keep
abreast of the landscape of this type of
TPP litigation and become familiar with
the strategies manufactures are utilizing
to dispose of these actions in their
infancy. If drug and device manufacturers
are ultimately successful in their attempt
to halt this form of aggregate recovery at
the initial pleadings stages, TPPs will
have no choice but to return to the
conventional method of recovering liens
on a case-by-case basis via subrogation.
Defending Marcellus Shale Groundwater
Contamination Claims: The Case Against Class
Actions And Other Theories Of Liability
By Raymond G. Mullady, Jr.,
Sandra J. Doyle,
Charles A. Fitzpatrick IV and
Angela M. Guarino
R
ECENT ADVANCES in drilling and
hydraulic fracturing techniques have
led to dramatic increases in the
accessibility of the Marcellus Shale
natural gas reserve. Although the benefits
of Marcellus Shale production are
numerous, increased drilling activity has
elevated concerns of potential harm to
both public health and the environment.
Lawsuits have been filed in Pennsylvania,
New York and West Virginia claiming
the drilling, storage, and containment
process and procedure in the Marcellus
Shale have caused contamination of
groundwater and/or the water supply. 1
Raising the stakes even higher, plaintiffs
in other parts of the country are
attempting to aggregate groundwater
contamination claims from natural gas
drilling activity into class action lawsuits.
These cases—which may provide a model
for subsequent class litigation relating to
the Marcellus Shale—propose to certify a
putative class of landowners and residents
in proximity to natural gas operations.
1
See Fiorentino v. Cabot Oil & Gas Corp.,
No. 09-CV-2284 (M.D. Pa); Berish v.
Southwestern Energy Production Co., No.
3:10-CV-01981 (M.D. Pa.); Baker v.
Anschutz Exploration Corp., No. 6:11-cv06119 (W.D.N.Y.); Hagy v. Equitable
Production Co., No. 2:10-cv-0137 (S.D. Va.).
Ray Mullady is a partner
in
Blank
Rome’s
Washington, DC office,.
Mr. Mullady is a trial
lawyer with more than
25 years of commercial
litigation
experience,
including more than 20 jury trials. He
has tried cases to verdict in state and
federal courts throughout the country and
before arbitration panels, and has briefed
and argued cases before numerous
federal and state appellate courts. Mr.
Mullady is an active member of the
International Association of Defense
Counsel, where he serves on the Drug,
Device and Biotechnology Committee and
the Toxic and Hazardous Substances
Litigation Committee.
Sandra
Doyle,
Charles Fitzpatrick
and Angela Guarino
are associates in
Blank
Rome’s
Philadelphia office. Ms.
Doyle, Mr. Fitzpatrick
and Ms. Guarino are
each members of the
firm’s
general
litigation
practice
group with specialties
litigation.
in
complex
Page 156
The class plaintiffs seek injunctive relief
in the form of ―air, soil, groundwater and
atmosphere‖ monitoring for the presence
of hazardous chemicals and compounds,
as well as medical monitoring
―to
determine
the
extent
to
which
Defendants‘ operations pose a health risk
to persons exposed thereto.‖2
This article addresses the likelihood
that
Marcellus
groundwater
contamination plaintiffs can meet Rule 23
class certification threshold requirements,
with particular focus on claims that
common issues of fact and law
predominate over issues affecting only
individual class members and that class
action is superior to other methods for
adjudication. This article also considers
the viability of common law claims that
either have been asserted or may be
asserted in the future by Marcellus Shale
plaintiffs in Pennsylvania, New York and
West Virginia courts. These include
causes of action typically seen in
environmental and toxic tort litigation:
public nuisance, strict liability for
abnormally dangerous activities, medical
monitoring, gross negligence, and
diminution of property value.
2
See Complaints in Tucker v. Southwestern
Energy Company, No. 1:11-CV000044-DPM
(E.D. Ark.) (filed May 17, 2011) (voluntarily
dismissed July 15, 2011); Berry v.
Southwestern Energy Company, No. 1-11-cv0045 DPM (E.D. Ark.) (filed May 17, 2011);
and Lester v. Frontier Gas Services, LLC, No.
4-11-cv-0420 BRW (E.D. Ark.) (filed May 17,
2011).
I.
The Marcellus Shale Formation
And Hydraulic Fracturing
Pennsylvania—sitting on top of an
enormous natural gas reserve called the
Marcellus Shale—has been called the
―Saudi Arabia of natural gas.‖3 The
formation, which is about the size of
Greece, extends from Virginia through
the southern half of New York beneath
the Appalachian landscape, and contains
a significant quantity of natural gas. 4 The
reserve is so large in fact that some
experts believe it holds enough gas to
supply the heating and electricity needs of
the United States (at current consumption
rates) for at least the next 15 years.5
Advances in hydraulic fracturing—
the practice of injecting water, mixed
with chemicals and propping agents like
sand, under high pressure, into wells to
release oil and natural gas trapped in
underground rock formations—have led
to dramatic increases in the accessibility
of this natural gas reserve in recent
3
Chad Pergram, Pennsylvania District Turns
Into ‘Saudi Arabia of Natural Gas’ Ahead of
Tuesday Primary, FOXNEWS.COM, May 17,
2010, available at http://www.foxnews.
com/politics/2010/05/17/pennsylvania-districtturns-saudi-arabia-natural-gas-ahead-tuesdayprimary/ (accessed March 2, 2012).
4
Daniel J. Soeder and William M. Krappel,
Water Resources and Natural Gas Production
from the Marcellus Shale, U.S.G.S. Fact Sheet
2009-3032, at 1 (USGS West Trenton
Publishing Services Center 2009).
5
Andrew Maykuth, Firms find more gas
beyond the Marcellus field; The discovery
gives hope to drillers for extending the life of
Pa. mining efforts, PHILADELPHIA INQUIRER,
May 23, 2010.
Defending Marcellus Shale Claims
years.6
Drilling
production
in
Pennsylvania‘s
Marcellus
Shale
formation during the last half of 2010
exceeded the amount of drilling
production for the entire preceding year. 7
Although these statistics have lead some
to incorrectly conclude that hydraulic
fracturing is a ―new‖ and ―unsafe‖
process, hydraulic fracturing has been
used safely in Pennsylvania since the
1950s.8 In fact, all Pennsylvania wells
drilled since the 1980s have been
fractured.9 Hydraulic fracturing is also
regulated by the state oil and gas boards
or state natural resource agencies10 as
well as by the EPA, which regulates
many issues relating to hydraulic
fracturing under environmental statutes
such as the Clean Water Act and the Safe
Drinking Water Act.11
6
EPA Office of Research and Development,
Draft Plan to Study the Potential Impacts of
Hydraulic Fracturing on Drinking Water
Resources, at 11 (Feb. 7, 2011).
7
FracTracker,
Updated Pennsylvania
Marcellus Shale Production Information,
available
at
http://www.fractracker.org/
2011/02/updated-pennsylvania-marcellusshale_25.html (accessed Jul. 18, 2011).
8
Pennsylvania Department of Environmental
Protection,
Pennsylvania
Hydraulic
Fracturing State Review, at 10 (STRONGER
Sept. 2010).
9
Id.
10
Protection, DEP Marcellus Shale Fact Sheet,
at 1, 3 (PADEP 0100-FS0DEP4217 Jan.
2010), available at http://www.elibrary.
dep.state.pa.us/dsweb/Get/Document85999/0100-FS-DEP4217.pdf; Pennsylvania
Department of Environmental Protection,
Pennsylvania Hydraulic Fracturing State
Review, at 10 (STRONGER Sept. 2010).
11
Page 157
Current drilling practices for natural
gas have advanced to the point where it is
now not only feasible to drill deeper, but
also to drill vertical, horizontal and
directional (S-shaped) wells.12 These
recent advances in drilling techniques
have also led to increases in the required
water volumes, typically withdrawn from
local surface and groundwater sources. 13
Hydraulic fracturing works as follows:
following well construction, hydraulic
fracturing fluid is injected into the well,
causing the formation to crack and
releasing the natural gas.
Next the
pressure is reduced and the direction of
the fluid flow is reversed, allowing the
natural gas to flow back to the surface. 14
A portion of the injected fracturing fluid
also returns to the surface. 15 Carried in
the returning fracture fluid are fracturing
chemicals, salts and naturally occurring
radioactive material brought back from
these deep wells.16 Radioactivity levels
Resources, at 12-13 (Feb. 7, 2011).
12
Id.
13
Protection, DEP Marcellus Shale Fact Sheet,
at 1 (PADEP 0100-FS0DEP4217 Jan. 2010).
14
Resources, at 11 (Feb. 7, 2011); Ian Urbina,
Regulation Lax as Gas Wells’ Tainted Water
Hits River, NEW YORK TIMES, Feb. 26, 2011,
available
at
http://www.nytimes.com/2011/02/27/us/27gas
.html (accessed Mar. 2, 2012).
15
16
Protection, Hydraulic Fracturing Overview, at
Page 158
in the used hydraulic fracturing fluids can
and sometimes do exceed the maximum
levels allowed by federal drinking water
standards.17 Next, the fracturing liquid is
reused or sent to a wastewater treatment
unit or an underground injection well. If
it is treated in a wastewater plant, the
wastewater flow should be discharged
into surface water in accordance with
federal Clean Water Act regulations.
There are many public benefits of
drilling in the Marcellus Shale formation:
thousands of new jobs created in
Pennsylvania alone, five-figure incomes
to residents who lease their land to the
drillers and substantial revenue increases
for the Commonwealth of Pennsylvania. 18
Like any natural resource development,
harnessing the reserves in the Marcellus
Shale formation also has drawbacks, as
drilling derricks and waste pits have
popped up across the rural landscape.
Concerns
about
groundwater
contamination from the fracturing fluid
have accompanied the increased drilling.
Landowner
complaints
about
contamination of water wells from
neighboring Marcellus Shale operations
are plentiful.19
3 (PADEP) available at http://www.dep.
state.pa.us/dep/deputate/minres/oilgas/new_fo
rms/marcellus/Reports/DEP%20Hydraulic
fracturing%20overview.pdf (accessed March
2, 2012).
17
18
Marcellus Shale Coalition–Marcellus Shale,
http://marcelluscoalition.org/marcellusshale/production-processes/ (accessed March
2, 2012).
19
Lynn Kerr McKay and Lauire Alberts
Salita, Marcellus groundwater claims: A case
Inevitably, drilling in the Marcellus
Shale formation already has produced
litigation. In Pennsylvania, thirteen Lenox
Township families filed a lawsuit in
Susquehanna County Court alleging that
hydraulic fracturing fluids contaminated
their water supply and made them sick. 20
In Dimock, Pennsylvania, seventeen
families filed suit claiming that drilling
and gas well operations near their homes
contaminated their drinking water wells
with methane and other chemicals.21 In
Washington Township, a resident claims
that the hydraulic fracturing of gas wells
on his property caused elevated levels of
arsenic, benzene and naphthalene in
groundwater.22
Although plaintiffs‘
counsel have yet to attempt to aggregate
groundwater contamination claims within
the Marcellus Shale into a class action
lawsuit, such cases have been filed
elsewhere in the country, 23 and it may be
for scientifically informed decisions, 231
WORLD OIL ONLINE 12 (Dec., 2010).
20
Berish v. Southwestern Energy Production
Co., No. 3:10-CV-01981 (M.D. Pa.) (removed
from Susquehanna County Court of Common
Pleas, Commonwealth of Pennsylvania, No.
2010-1882CP) Complaint, ¶¶ 16 and 18.
21
Fiorentino v. Cabot Oil & Gas Corp., No.
09-CV-2284 (M.D. Pa.); see also Residents
Charge Natural Gas Company with Chemical
and Methane Releases, 24 TOXIC LAW REP.
(BNA) 1349 (Dec. 3, 2009).
22
Janice Crompton, Residents reported gas
odors before explosion, PITTSBURGH POSTGAZETTE, Apr. 1, 2010.
23
See Tucker v. Southwestern Energy Co.,
No. 1:11-cv-00044 (E.D. Ark.) (plaintiffs
propose a class consisting of ―all those
citizens and/or residents and/or property
owners of the State of Arkansas who live
and/or own property within a three (3) mile
radius of any bore holes, wellheads, or other
reasonably anticipated that class litigation
arising out of hydraulic fracturing activity
in the Marcellus Shale will be filed in
courts in New York, Pennsylvania and
West Virginia.
II. The Case Against Class Action
Treatment For Marcellus Shale
Groundwater Contamination
Claims
Class action practice developed to
address situations where it was not
practical or feasible for a single plaintiff
to bring his suit individually, or where it
was not feasible for all relevant plaintiffs
to be joined in a single action. Class
action practice benefits the judiciary by
preserving court resources, such as
judicial time and preventing piecemeal
litigation.24 In light of these concerns and
benefits, the 1966 Amendments to the
Federal Rules of Civil Procedure
established the basis for Federal Rule of
Civil Procedure 23, which authorizes
certifications of class actions. Rule 23
has two relevant sets of requirements that
must be met to achieve class certification,
the threshold requirements of Rule 23(a),
gas extraction operations‖ where defendants
―are in the process of natural gas production. .
.‖); Ginardi v. Frontier Gas, No. 4-11-cv-0420
(E.D. Ark.) (Plaintiffs filed class action on
behalf of ―all persons who reside or own
property within (one) mile of a natural gas
compressor station operated or constructed by
[the defendants] in Arkansas.); Hearn v. BHP
Billiton Petroleum (Ark.), Inc. No. 4:11-cv00474 (E.D. Ark.) (seeking class certification
for all residents of five counties during the
period that defendants owned and operated
specific gas wells).
24
American Law Institute, Preliminary Study
of Complex Litigation, 61-70 (1967).
Page 159
and the additional class certification
requirements of Rule 23(b)(3), including
that (1) class-wide common issues of fact
and law must predominate over issues
affecting only individual class members;
and (2) the class action must be superior
to other methods for the fair and efficient
adjudication of the controversy. 25
Groundwater contamination claims face
challenges surmounting either of these
requirements.
A. Challenges to Class
Certification for Marcellus
Shale Groundwater
Contamination Cases
A class may only be certified if the
purported class members are ―so
numerous that joinder of all members is
impracticable.‖26 Although there is no
25
―The purpose of the predominance
requirement is to ensure that the proposed
class is sufficiently cohesive to warrant
adjudication by representation, and it is a far
more demanding requirement than the
commonality requirement of Rule 23(a)(2).‖
Bell Atlantic Corp. v. AT & T Corp., 339 F.3d
294, 301 (5th Cir. 2003), citing Amchem
Products, Inc. v. Windsor, 521 U.S. 591, 62324 (1997). The rule provides that the factors a
court should consider relevant in deciding
these two requirements include: (a) the interest
of members of the class in individually
controlling the prosecution or defense of
separate actions; (b) the extent and nature of
any litigation concerning the controversy
already commenced by or against members of
the class; (c) the desirability or undesirability
of concentrating the litigation of the claims in
the particular forum; and (d) the difficulties
likely to be encountered in the management of
a class action. FED. R. CIV. P. 23(b).
26
FED. R. CIV. P. 23(a)(1).
Page 160
one fixed test for determining whether the
―numerosity‖ requirement has been met,
courts will typically examine the sheer
number of members included in the class
as well as other factors such as: the
geographic dispersion of class members;
the ease of identifying and locating class
members; and the claimants‘ ability to
institute individual suits.27 Class size is
the most important factor in determining
whether joinder is impracticable. There
are no hard-and-fast rules regarding the
exact number necessary; however,
typically a class of 20 or fewer is
insufficiently numerous,28 and a class of
41 or more is sufficiently numerous to
meet numerosity requirements.29
Because
hydraulic
fracturing
activities generally, and in the Marcellus
Shale region in particular, occur in rural
areas where people draw their water from
privately-owned wells, the number of
people
exposed
to
purportedly
contaminated water supplies may be
small, and potentially insufficiently
numerous. Even if the class size is
pleaded so as to be extremely large,
courts have held that the numerosity
requirements have not been met when
other factors mitigate against a finding
that joinder is impracticable. A class that
might otherwise satisfy the numerosity
27
Robidoux v. Celani, 987 F.2d 931, 935 (2d
Cir. 1993); Ardney v. Federal Kemper Ins.
Co., 142 F.R.D. 105, 109 (E.D. Pa. 1992).
28
See, e.g., CL-Alexanders Laing &
Cruickshank v. Godfeld, 127 F.R.D. 454, 457458 (S.D.N.Y. 1989); Marino v. Sports Auth.,
940 F. Supp. 792, 796-797 (E.D. Pa. 1996).
29
See, e.g., McMahon Brooks, Inc. v. Willow
Grove Assocs., 108 F.R.D. 32, 35 (E.D. Pa.
1985); Rodger v. Electronic Data Sys. Corp.,
160 F.R.D. 532, 535 (E.D.N.C. 1995).
requirements may not be certified if the
presumed class members are all from the
same general area and/or easily
identifiable.30
Thus, if a group of
plaintiffs claim that a Marcellus Shale
defendant has contaminated their
underground drinking water supply,
defendants may argue that all class
members live within a small defined
geographic area and, as a result, joinder
would not be impracticable.
The claimants‘ ability to institute
individual suits also should caution courts
against
certifying
groundwater
contamination claims brought against
Marcellus Shale defendants. Courts are
more likely to certify a claim when each
class member would be unlikely to file a
separate action because each member‘s
individual claim involves only a small
amount of damages.31 If a claimant has a
larger financial stake in the dispute,
30
Daigle v. Shell Oil Co., 133 F.R.D. 600, 603
(D. Colo. 1990) (numerosity not satisfied in
case based on claims for personal injury and
property damage allegedly caused by activities
associated with toxic waste disposal pond
even though plaintiff claimed 4,000 members
because the precise geographic boundaries
involved made ascertaining the identities of all
potential class members not difficult);
Christiana Mortg. Corp. v. Delaware Mortg.
Bankers Ass‘n, 136 F.R.D. 372, 377-378 (D.
Del. 1991); Garica v. Gloor, 618 F. 2d 264,
267 (5th Cir. 1980).
31
Phillips Petroleum Co. v. Shutts, 472 U.S.
797, 809, 105 S. Ct. 2965 (1985) (―Class
actions also may permit the plaintiffs to pool
claims which would be uneconomical to
litigate individually. For example, this lawsuit
involves claims averaging about $100 per
plaintiff; most of the plaintiffs would have no
realistic day in court if a class action were not
available‖).
courts are more likely to conclude that
joinder is not impracticable.32 In an
action filed in the Eastern District of
Arkansas, the plaintiffs asked the court to
certify as a class all residents who live
within a three- mile radius of the
defendants‘ gas wells and requested
compensatory damages of $1,000,000 and
punitive damages of $5,000,000.33 Given
the high stakes alleged in these types of
disputes, courts may fairly conclude that
the individual claimants are able to bring
suit and that therefore, joinder is
practicable.
B. Individualized Issues of
Liability Will Predominate
Beyond the threshold requirements of
Rule 23(a), any Marcellus Shale class will
need to meet additional class certification
requirements of Rule 23(b)(3), including
particularly
predominance
and
superiority. Predominance requires that
class-wide common issues of fact and law
must predominate over issues affecting
only individual class members.34 Courts
have also described the predominance
requirement as a test of whether proposed
class members are sufficiently cohesive to
warrant adjudication by representation. 35
By adding the predominance requirement,
the Advisory Committee responsible for
Rule 23 was attempting to safeguard
Page 161
―procedural fairness‖ and to avoid ―other
undesirable results.‖36
Defendants can muster strong
arguments that the predominance
requirement has not been met by
proposed groundwater contamination
classes. A key issue in the Marcellus
groundwater contamination cases will be
whether plaintiffs can demonstrate that a
single, proximate cause of contamination
applies to each class member and each
defendant. As acknowledged by the
Pennsylvania
Department
of
Environmental Protection, there are
numerous potential impacts to both
groundwater and the environment from
hydraulic fracturing. Potential pathways
for impacts to drinking water from
hydraulic fracturing activity include:
(1) pollution through diminution of
water resources;
(2) surface spills during transport of
fracturing material to the well
site, container leaks, and/or
mishandling at the site;
(3) leaking pits or tanks;
(4) cross-contamination with an
abandoned
well
during
stimulation;
(5) fracturing coal bed methane
wells with substances other than
freshwater and sand;
(6) defective casing or cementing
that permit hydraulic fracturing
to occur in unintended zones or
formations;
(7) direction-contamination
of
groundwater through the target
formation.37
32
Block v. First Bloos Assoc., 125 F.R.D. 39,
42 (S.D.N.Y. 1989) (joinder of 57 class
members practicable where members each
claimed between $50,000 and $400,000 in
damages).
33
Tucker, No. 1:11-CV-00044-DPM.
34
FED. R. CIV. P. 23(b)(3).
35
Amchem Products, Inc. v. Windsor, 521
U.S. 591, 623 (1997).
36
In re LifeUSA Holding Inc., 242 F.3d 136,
144 (3d Cir. 2001).
Page 162
Simply demonstrating that Marcellus
Shale drilling occurred in the vicinity of
the plaintiffs‘ property may be
insufficient to demonstrate that classwide, common issues of law and fact
predominate over individualized issues.
For, each plaintiff will need to identify
the unique pathway between the
Marcellus Shale gas well and his water
well.
This will require site-specific
modeling of specific pathways of the
hydraulic fracturing fluids or natural gas
from the drilling location to the water
well.
These determinations require
unique considerations of the materials
used in the drilling or production
operations, individual examination of gas
well records and permits for operational
issues, flow rate determinations, and
characteristics of rock formations in the
area. Other potential sources of
contamination will need to be considered.
Variations in naturally occurring soil
conditions, including naturally occurring
radioactive material, are also critical. As
noted by the Sixth Circuit, in ―complex,
mass tort accidents‖ where ―no single
proximate cause equally applies to each
potential class member and each
defendant,‖ the appropriateness of a class
action is doubtful.38 The Sixth Circuit‘s
reasoning is equally applicable to
groundwater contamination claims. 39
37
Protection,
Pennsylvania
Hydraulic
Fracturing State Review (Sept. 2010).
38
Sterling v. Velsicol Chemical Corp.,
855.F.2d 1188, 1197 (6th Cir. 1988).
39
Similarly, in Thomas v. FAG Bearings
Corp., Inc., 846 F. Supp. 1400, 1404 (W.D.
Mo. 1994), a case involving TCEcontamination of groundwater, the trial court
C. Groundwater Contamination
Cases and the Superiority
Requirement
Marcellus Shale plaintiffs face
additional challenges in meeting the class
certification requirement of superiority.
For a class action to be maintained under
denied class certification because the
individual issues of causation and damage
were so numerous and complex that they
overshadowed the common issues:
The Court anticipates that plaintiffs‘ proof
of causation . . . will require
individualized proof for each plaintiff. As
an example, a test of the well water of
nominal plaintiffs Steven Lee and
Rebecca Luebber failed to disclose the
presence of TCE. Not only does this
indicate that their proof of contamination
will be different from other plaintiffs, but
it underlines the complex nature of
hydrogeology. Because the results vary
markedly from well-to-well, expert
testimony on the actual source of
contamination for each well may be
required. Assuming causation is proved,
each plaintiff must prove entitlement to
damages. The measure of damages is
dependent
almost
exclusively
on
individual factors. . . [D]amages claims,
such as . . . diminution in property value,
loss of use and enjoyment, and
annoyance,
would
also
require
individualized proof. This would start
hundreds or thousands of individual minitrials on complex causation and damages
issues while the only benefit of a class
would be that the ruling of several
common, but not particularly daunting
issues, would be made applicable to the
entire class. The Court does not believe
that result is consistent with the language
or spirit of Rule 23(b)(3)(C),(D).
Rule 23(b)(3), the court must find that ―a
class action is superior to other available
methods for fairly and efficiently
adjudicating the controversy.‖ 40
In
making this determination, courts are
called ―to balance, in terms of fairness
and efficiency, the merits of a class action
against those of ‗alternative available
methods‘ of adjudication,‖ and find class
action the ―superior‖ method only if ―no
realistic alternative exists.‖41
In the
context of mass tort cases, the class action
is generally not superior because such
cases are often rife with individualized
issues of liability.42 Given the prevalence
of the individualized issues of causation
40
FED. R. CIV. P. 23(b)(3) (emphasis added).
Millett, No. C-V-98-555, 2000 Me. Super
LEXIS 39, at *66 (quoting Georgine v.
Amchem Products, Inc., 83 F.3d 610, 623 (3d
Cir. 1996), aff’d sub nom. Amchem Products,
Inc., 521 U.S. 591; Valentino v. CarterWallace, 97 F.3d 1227, 1234 (9th Cir. 1996)).
42
The Fifth Circuit has advised the following
as to the effect of the predominance inquiry on
superiority in mass tort cases:
41
A ―mass accident‖ resulting in injuries to
numerous persons is ordinarily not
appropriate for a class action because of
the likelihood that significant questions,
not only of damages but of liability and
defenses to liability, would be present,
affecting the individuals in different
ways. In these circumstances an action
conducted nominally as a class action
would degenerate in practice into
multiple lawsuits separately tried.
Williams v. Union Pacific R.R. Co., No. 2:06CV-562, 2009 U.S. Dist. LEXIS 29986, at *28
(W.D. La. Jan. 19, 2009) (quoting Steering
Comm. v. Exxon Mobil Corp., 461 F.3d 598,
604 (5th Cir. 2006) (quoting Advisory
Committee Note, FED. R. CIV. P. 23 (b)(3))).
Page 163
and damages inherent to drinking water
contamination claims, defendants may
argue persuasively that the superior
method of adjudicating groundwater
contamination
claims
is
through
individual cases.43
Potential class action plaintiffs face
difficulties
demonstrating
common
interests with respect to damages.
Individualized issues would pervade
measurements of damages, given that
each plaintiff would be required to prove
actual damages to his person or property,
and the extent of that damage, on an
individual basis.44 For example, plaintiffs
in pending Marcellus Shale cases are
seeking damages for diminution in
property value stemming from alleged
groundwater contamination, and future
plaintiffs are likely to do the same. 45 In
43
The onus is on plaintiffs to demonstrate the
superiority of the class action method and
provide the court with a structural proposal as
to the manner in which the case could be tried
as a class action. See Alan J. Hoffman et al.,
Millett v. Atlantic Richfield Co., The Future
of MTBE Litigation Is Unlikely to Include
Rule 23(b)(3) Classes, CLASS ACTION
LITIGATION, June 23, 2000, at 178-179.
44
See Steering Comm., 461 F.3d at 602, 604605 (noting that the predominance of
individual issues relating to damages, such as
different alleged periods and magnitudes of
exposure and different symptoms, ―detract[ed]
from the superiority of the class action device
in resolving [the] claims‖); Perrine v. E.I.
DuPont De Nemours & Co., 694 S.E.2d 815,
924 (W. Va. 2010) (holding that diminished
value claims must be supported with actual
proof of the lost value of a specific parcel of
property, rather than based on a random
sampling of properties belonging to others).
45
See, e.g., Berish v. Southwestern Energy
Production Co., 763 F. Supp.2d 702 (M.D. Pa.
2011); see also infra. Part IV.E.
Page 164
order to prevail on such a claim, however,
these plaintiffs not only must first
establish liability, they must also provide
proof of actual harm on a parcel-byparcel basis.46
Furthermore, measuring damages in
an environmental or toxic tort case is
generally ―not subject to any sort of
formulaic calculation,‖ as each plaintiff in
a proposed class is likely exposed to a
contaminant to a varying degree.47 When
seeking compensation for personal
injuries or property damage, the proposed
class of Marcellus Shale plaintiffs would
need to offer individualized proofs as to
the different alleged periods and levels of
exposure and the different symptoms
experienced.48
Also weighing against a finding of
superiority is that Marcellus Shale
groundwater litigation represents an
―immature tort.‖49 Class action is less
likely to be considered the ―superior‖
method for handling a mass tort when it is
considered ―immature,‖ meaning the
court lacks ―a prior record of trials from
which [it] can draw the information
necessary to make the predominance and
superiority analysis required by Rule
23[(b)(3)].‖50 When such a track record is
lacking, the court may not be sure of
manageability of the case as a class action
that will best preserve judicial resources,
and might therefore be reluctant to certify
it as such.51 A district court might be
more apt to adopt the approach of the
Castano court, which recognized the
advantages of ―allow[ing] individual
trials to proceed, before a district court
engages in the complicated predominance
and superiority analysis.‖52
III. Common Law Claims Raised In
Marcellus Shale Litigation
Marcellus Shale plaintiffs are
pursuing various common law tort
theories and seeking damages for alleged
injuries to both their persons and
property. This section discusses common
law claims that either have been asserted
or may be asserted in the future by
Marcellus
Shale
plaintiffs
in
Pennsylvania, New York and West
Virginia courts53 and provides a brief
46
See Perrine, 694 S.E.2d at 924 (holding that
diminished value claims must be supported
with actual proof of the lost value of a specific
parcel of property, rather than based on a
random sampling of properties belonging to
others).
47
See Robertson, 287 Fed. Appx. at 362
(quoting Steering Comm., 461 F.3d at 602).
48
See Steering Comm., 461 F.3d at 602, 604605 (concluding that the predominance of
individualized damages issues such as the
above-mentioned
―detract[]
from
the
superiority of the class action device in
resolving [plaintiffs‘ compensatory and
punitive damages] claims‖).
49
See Wall v. Sunoco, Inc., 211 F.R.D. 272,
281 (M.D. Pa. 2002).
50
See Wall, 211 F.R.D. at 281 (quoting
Castano v. Am. Tobacco Co., 84 F.3d 734,
747 (5th Cir. 1996)).
51
Jacobs v. Osmose, Inc., 213 F.R.D. 607, 618
(S.D. Fla. 2003) (―With the universe of
outcomes for this type of litigation still largely
unknown, it would not be appropriate for this
Court to make a blind guess as to the matter‘s
manageability.‖).
52
Castano, 84 F.3d at 748.
53
Most causes of action typically asserted by
plaintiffs in these cases are based upon
common law theories or common law which
has been codified by statute (such as the
theory of contribution under the Uniform
Contribution Among Joint Tortfeasors Act).
Importantly, there are state and federal
statutory causes of actions that may be raised
in environmental and toxic tort litigation and
which have been typically incorporated in
private party complaints in litigation involving
the recovery of response costs for releases of
contaminants or pollutants into the
environment. These statutory claims may
include, among others, those arising under:
Sections 107 and 113 of the Comprehensive
Environmental Response, Compensation and
Liability Act (―CERCLA‖), 42 U.S.C. §§
9607 and 9613; Section 7002 of the Resource
Conservation and Recovery Act (―RCRA‖),
42 U.S.C § 6972; and Section 505 of the
Federal Water Pollution Control Act
(―FWPCA‖), 33 U.S.C § 1365. Additionally,
most states have analogues to federal
environmental laws such as the Pennsylvania
Clean Streams Law (similar to the
FWPCA) and the Hazardous Pennsylvania
Substances Cleanup Act (―HSCA‖) (similar to
CERCLA), which provide for private party
actions. State laws may be more stringent than
federal laws with respect to liability for
releases of contaminants or pollutants into the
environment (accessed March 2, 2012).
Moreover, it is particularly necessary to
recognize that although the focus of the
present article is the common law tort claims
that Marcellus Shale plaintiffs are likely to
bring in relation to alleged groundwater
contamination, suits may also be rooted in
statutory claims relating to other aspects of
shale operations. For instance, a recent
complaint filed in Citizens for Pennsylvania‘s
Future v. Ultra Resources, Inc., No. 11-CV01360 (M.D. Pa. July 21, 2011), alleging shale
gas operator violations of the U.S. Clean Air
Act (―CAA‖), may serve as a model for other
citizen suits. See Cynthia Stroman et al., Air
and Water Woes in the Marcellus Shale, LAW
360, Sept. 1, 2011, http://www.kslaw.
com/imageserver/KSPublic/library/publication
/2011articles/9-11Law360StromanBellSalek.
pdf.
Page 165
Under the CAA, all states must create and
submit a ―state implementation plan‖ (―SIP‖)
for the EPA‘s review and approval. Ultra
Resources Inc. Mem. Supp. Mot. Dismiss
(―Motion‖) at 4. SIPs must provide for
permitting programs, known as New Source
Review (―NSR‖) programs, which apply to the
construction of new, or modification of
previously existing, emission sources.
Citizen‘s for Pennsylvania‘s Future Complaint
(―Complaint‖) at 24; Ultra Resources Inc.
Motion at 4. Under Pennsylvania‘s NSR
program, a permit must be acquired by an
emissions source if that source is one that may
emit more than 100 tons a year of nitrogen
oxides, sulfur dioxide, carbon monoxide, soot,
or lead. Don Hopey, Environmental Group
Suit Says Shale Efforts Pollute, PITTSBURGH
POST-GAZETTE, July 22, 2011, available at
http://www.post-gazette.com/pg/11203/11621
18-503.stm; Complaint at 31. The plaintiff in
the aforementioned action, the environmental
advocacy group Citizen‘s for Pennsylvania‘s
Future (―PennFuture‖), alleges that Ultra
Resources, Inc. (―Ultra Resources‖)‘s shale
gas operations in Pennsylvania qualify as a
single source of emissions exceeding the 100
ton-per-year limit, thereby requiring an NSR
permit which Ultra Resources failed to obtain.
Stroman et al., supra. Ultra Resources‘ shale
gas operations rely on drilling stations,
compressor sites, and pipelines which are
located within a 558-square-mile area across
Tioga and Potter Counties. Id.; Jason
Gallagher, Environmental Group Sues
Pennsylvania Fracking Company, YAHOO!
NEWS, July 22, 2011, available at
http://news.yahoo.com/environmental-groupsues-pennsylvania-fracking-company214000085.html; Hopey, supra. Despite the
extent of these operations, PennFuture‘s
Complaint asserts that Ultra Resources‘
facilities represent a connected network which
emits over 100 tons of nitrogen dioxide per
year, and thus must be viewed as a single
source. Hopey, supra; Stroman et al., supra.
Page 166
overview of how defendants in Marcellus
Shale litigation can use established law
and science to refute these claims.
A. Public Nuisance Claims
The common law tort of public
nuisance has become highly visible in
modern tort jurisprudence.54 Recently,
the U.S. Supreme Court reversed the
The key issue to be determined in Citizens
for Pennsylvania’s Future is, therefore,
whether Ultra Resources‘ facilities constitute a
single source of emissions. Stroman et al.,
supra. Although not cited in PennFuture‘s
Complaint, the EPA‘s most recent guidance
document relating to source determination, the
2009 ―McCarthy Memorandum,‖ calls
authorities to consider the following three
factors: 1) whether the facilities are under
common control; 2) whether the facilities are
on ―contiguous or adjacent‖ properties; and 3)
whether the activities belong to the same
industrial grouping. Id. (citing Memorandum,
Withdrawal of Source Determinations for Oil
and Gas Industries, from Gina McCarthy,
Assistant
Administrator
to
Regional
Administrators (Sept. 22, 2009)). The outcome
of this single-source question could potentially
have major ramifications on shale operators
with interconnected facilities within the State
of Pennsylvania. Id. If the facilities are indeed
considered a single source, a shale operator
would have to obtain an NSR permit, which
may take up to eighteen months to acquire. Id.
Additionally,
both
Pennsylvania-based
operators, as well as those in other states,
could very well need to prepare themselves to
face citizen suits in the mold of Citizen’s for
Pennsylvania’s Future. Id.
54
Richard Faulk, Uncommon Law:
Ruminations on Public Nuisance, available at
www.nuisancelaw.com/articles/uncommonlaw-ruminations-public-nuisance
(last
accessed March 2, 2012).
precedent-setting decision in Connecticut
v. American Electrical Power Company,
Inc.,55 a public nuisance case seeking to
abate carbon-dioxide emissions from
fossil-fuel power plants. The Connecticut
decision had given standing to several
U.S. states, the city of New York and
private land trusts to sue AEP for public
nuisance. The Supreme Court held that
any common law rights of the plaintiffs
had been displaced by the authority of the
federal Clean Air Act and the U.S.
Environmental Protection Agency to
regulate carbon dioxide emissions. 56
Historically, public nuisance has
been used by governmental authorities to
stop conduct that was considered quasicriminal because, although not strictly
illegal, requiring it to cease was deemed
reasonable in view of the conduct‘s
likelihood to injure someone in the
general public.57 In the environmental
arena, public nuisance cases have been
brought in mostly localized controversies
traceable to specific actions by
identifiable defendants, such as the
discharge of sewage or chemicals into
waterways;58 emission of noxious fumes
from copper foundries that destroyed
forests, orchards, and crops;59 dumping
55
Connecticut v. Am. Elec. Power Co., 582
F.3d 309 (2d Cir. 2009).
56
American Electric Power Co., Inc. v.
Connecticut, slip opinion at 10, 564 U.S.
(2011).
57
John Gray, Public Nuisance: A Historical
Perspective,
available
at
www.
nuisancelaw.com/learn/historical
(last
58
See, e.g., Illinois v. City of Milwaukee
(Milwaukee I), 406 U.S. 91 (1972).
59
Georgia v. Tenn. Copper Co., 206 U.S. 230
(1907).
garbage into the ocean that fouled
beaches;60 irrigation projects that
contributed to flooding;61 construction
bridges that interfered with navigation; 62
and pollution of lakes by vessels
transporting oil. 63 As one commentator
has noted, public nuisance remains a ―tort
of choice‖ for plaintiffs seeking broad
relief in environmental litigation.64
Marcellus Shale plaintiffs have not
yet claimed public nuisance in
groundwater contamination litigation
arising out of natural gas production
activity.65 In Pennsylvania, New York
and West Virginia, however, Marcellus
Shale plaintiffs will have difficulty
demonstrating sufficient standing to bring
public nuisance claims against shale gas
producers,
contractors
and
other
defendants owing to the difficulty of
demonstrating ―special damages‖ as
required for a private citizen to bring a
public nuisance claim.
In Pennsylvania, a public nuisance is
defined as an unreasonable interference
with a right common to the general
60
New Jersey v. City of New York, 283 U.S.
473, 476 (1931).
61
North Dakota v. Minnesota, 263 U.S. 365,
371 (1923).
62
Pennsylvania v. Wheeling & Belmont
Bridge Co., 54 U.S. 518, 526 (1851).
63
United States v. Bushey & Sons, Inc., 363
F. Supp. 110, 120-121 (D. Vt. 1973), aff’d
without opinion, 487 F.2d 1393 (2d Cir.
1973).
64
Faulk, supra at note 54.
65
Public nuisance is, however, one of the
plaintiffs‘ causes of action in Hearn v. BHP
Billiton Petroleum (Ark.), Inc., No. 4:11-cv00474 (E.D. Ark.), where the plaintiffs claim
the defendants‘ oil and gas drilling activities
caused earthquakes.
Page 167
public.66 West Virginia and New York
have similar public nuisance definitions. 67
Unlike a private nuisance, a public
nuisance is an inconvenience or
troublesome offense that annoys a whole
community in general.68 Although the
normal remedy for a public nuisance is in
the hands of the state, a public nuisance
may also be a private nuisance when it
interferes with private land. 69 When this
takes place, a private individual may have
standing to bring a public nuisance claim.
66
RESTATEMENT (SECOND) TORTS 821 (B)(1);
Philadelphia Electric Co. v. Hercules, Inc.,
762 F.2d 303, 315-316 (3d Cir. 1996); In re
Joshua Hill, Inc., 199 B.R. 298 (E.D. Pa.
1996), order aff’d in part, rev’d in part on
other grounds, 151 F.3d 1025 (3d Cir. 1998).
67
West Mount Airy Neighbors, Inc. v.
Cottman Transmission, 67 Pa. D. & C.2d 530,
532 (Pa. Commn. Pls. 1974) (citing Pa.
S.P.C.A. v. Bravo Enterprises, 237 A.2d 342
(1968); Rhymer v. Fretz, 206 Pa. 230, 232
(1903)). In New York, a public nuisance
consists of conduct or omissions which
offend, interfere with, or cause damage to the
public in the exercise of rights common to all
in a way that offends public morals, interferes
with use by the public of a public place, or
endangers or injures the property, health,
safety, or comfort of a considerable number of
people. In West Virginia, a public nuisance is
an act or condition that unlawfully operates to
hurt or inconvenience an indefinite number of
people. Hark v. Mountain Fork Lbr. Co., 127
W.Va. 586 (1945); Keystone Bridge Co. v.
Summers, 13 W. Va. 476 (1878) (holding to
constitute a public nuisance, the act done or
duty omitted must affect injuriously some
thing or right in which the community at large
have a common interest).
68
Feeley v. Borough of Ridley Park, 551 A.2d
373 (Pa. Cmwlth. 1988).
69
William L. Prosser, Private Action for
Public Nuisance, 52 VA. L .REV. 997, 999
(1966) (footnotes omitted).
Page 168
In Pennsylvania (and similarly in
West Virginia and New York), a private
citizen has standing to complain about a
public nuisance only if the citizen is
specifically injured by the nuisance over
and above the injuries suffered by the
public generally or suffers harm of a kind
different from that suffered by other
members of the public.70 Private citizens
must ―make out a clear case of special
damages to themselves, apart from the
rest of the public, and of a different
character, so that they cannot fairly be
said to be a part of the common injury
resulting therefrom.‖71
Pennsylvania defendants should also
benefit from several cases which have
limited the ability of private individuals
to bring a public nuisance claim based on
groundwater
contamination.
For
example, the plaintiffs in the Eastern
District case of Philadelphia Electric Co.
v. Hercules, Inc., brought suit for public
nuisance (among other claims) against a
prior owner alleging the prior owner‘s
operation of a chemical plant on the
property caused groundwater and river
water contamination.72 After noting that
in an individual action to recover for
public nuisance, the individual plaintiff
―must have suffered harm of a kind
different from that suffered by other
members of the public exercising the
right common to the general public that
was the subject of the interference,‖ the
court rejected PECO‘s position that the
expenses incurred in cleaning up
contaminated water were sufficient to
constitute the harm requisite for
standing.73 The court reasoned that the
public right interfered with was the right
to ―pure water.‖74 Because the plaintiff
could not allege a unique harm, such as
use of water for an established business or
commercial use, PECO lacked standing to
bring a public nuisance claim. 75
Similarly, two New York cases are
instructive as to how a New York court
may handle a public nuisance claim by a
Marcellus Shale plaintiff. In Allen v.
General Electric Co., plaintiffs brought
suit for money damages as compensation
for reduction in value of their properties
because of their proximity to a toxic
waste
environmental
spill
and
remediation effort near their respective
properties
and
asserted
―stigma
73
Id. at 315-316.
Id. at 316.
75
Id.; see also In re Joshua Hill, Inc., 199
B.R. at 322-323 (holding that ―because the
plaintiff‘s clearly intended to make
commercial use of the soil and groundwater on
the premises where the nuisance is alleged to
exist, the resulting injury to plaintiffs was
sufficiently unique‖); West Mount Airy
Neighbors, Inc., 67 Pa. D. & C.2d at 533
(stating that although residents used the
sidewalks and highways of the area more than
nonresidents, this was insufficient to establish
injury of a different ―character‖ and ―not such
as is common to every person who exercises
the right that is injured.‖).
74
70
Philadelphia Electric Co., 762 F.2d at 315316; West Mount Airy Neighbors, Inc., 67 Pa.
D. & C.2d at 532. For West Virginia, see
Davis v. Spragg, 79 S.E. 652 (W. Va. 1913).
For New York, see Copart Indus., Inc.v.
Consol. Edison Co. of N.Y., 362 N.E.2d 968
(N.Y. 1977).
71
West Mount Airy Neighbors, Inc., 67 Pa. D.
& C.2d at 532 (citing Pa. S.P.C.A. v. Bravo
Enterprises, 237 A.2d 342 (1968); Rhymer v.
Fretz, 206 Pa. 230, 232 (1903)).
72
Philadelphia Electric Co., 762 F.2d at 306307.
damages.‖76
The
court
reasoned
insufficient standing existed to bring a
public nuisance claim because the type of
harm—diminution of property value—
only varied in degree to the harm suffered
by other property owners.77 Also
instructive is the New York case of Booth
v. Hanson Aggregates New York where
the court did, in fact, find sufficient
special injury for public nuisance. 78 In
this New York Appellate Division case,
the court held plaintiffs had sufficiently
alleged special injury beyond that
suffered by the community at large by
alleging injury to their private water wells
where the rest of the community relied on
public water supply.79
B. Strict Liability – Abnormally
Dangerous Activity
In Pennsylvania, New York and West
Virginia, strict liability will be imposed
on defendants who engage in activities
that are determined by the courts to be
―abnormally dangerous.‖80 In all three
jurisdictions, courts determine whether an
activity is an abnormally dangerous
activity by weighing a list of factors
76
Allen v. General Electric Co., 2003 WL
22433809 (N.Y. Sup. Ct. Sept. 29, 2003).
77
Id.
78
Booth v. Hanson Aggregates New York,
Inc., 16 A.D.3d 1137, 1138 (N.Y. App. Div.
2005).
79
Id.
80
See Melso v. Sun Pipe Line Co., 576 A.2d
999, 1003 (Pa. Super. Ct. 1990);
Doundoulakis v. Hempstead, 368 N.E.2d 24,
27 (N.Y. 1977); Peneschi v. Nat‘l Steel Corp.,
295 S.E.2d 1, 10-11 (W. Va. 1982).
Page 169
provided in Section 520
Restatement (Second) of Torts:
of
the
(a) existence of a high degree of risk
of some harm to the person, land
or chattels of others;
(b) likelihood that the harm that
results from it will be great;
(c) inability to eliminate the risk by
the exercise of reasonable care;
(d) extent to which the activity is
not a matter of common usage;
(e) inappropriateness of the activity
to the place where it is carried
on; and
(f) extent to which its value to the
community is outweighed by its
dangerous attributes.81
Plaintiffs in Pennsylvania, New
York, and West Virginia have argued
strict liability should be imposed on
companies engaged in gas extraction in
the Marcellus Shale,82 but no court in any
of these jurisdictions has definitively
addressed whether hydraulic fracturing
and other extraction activities should be
considered
abnormally
dangerous.83
81
Melso, 576 A.2d at 1003; Doundoulakis,
368 N.E.2d at 27; Peneschi, 295 S.E.2d at 1011.
82
3:10-CV-01981 (M.D. Pa.); Baker v.
83
In two hydraulic fracturing cases pending in
the Middle District of Pennsylvania, the court
has denied defense motions to dismiss
plaintiffs‘ claims for strict liability
abnormally dangerous activity, reasoning that
the determination of whether or not an activity
Page 170
Nonetheless, both the Restatement and
prior precedent provide defendants with
arguments against the application of strict
liability for Marcellus Shale operations.
The Restatement explains that it is
impossible
to
reduce
abnormally
dangerous activities to any one definition
and that courts are free to find certain
factors outweigh others in making a
determination about a given activity. 84
By focusing their arguments on the
Restatement factors that weigh most in
their favor—(1) the appropriateness of
their activities to the place where they are
carried on; and (2) the value of these
activities to the community—Marcellus
Shale defendants stand an excellent
chance of convincing courts to hold that
hydraulic fracturing and other extraction
activities are not abnormally dangerous.
1.
Location Appropriate
Activities
When a court is asked to hold a
Marcellus Shale defendant strictly liable
for its activities, one of the factors the
court
must
consider
is
the
―inappropriateness of the activity to the
is abnormally dangerous is fact-intensive and
better assessed after discovery is complete.
See Berish, 2011 U.S. Dist. LEXIS 10626 *8;
Fiorentino v. Cabot Oil & Gas Corp., 2010
U.S. Dist. LEXIS 120566. The Berish court
predicted, however, that ―meeting the
‗common usage,‘ ‗inappropriateness of the
activity,‘ and ‗value to the community‘ prongs
of [Restatement] § 520 will likely create
difficulty for Plaintiffs at the summary
judgment stage . . .‖. Berish, 2010 U.S. Dist.
LEXIS at 10626 *9.
84
RESTATEMENT (SECOND) TORTS §520 cmt. f.
place where it is carried on.‖85 The
comments accompanying the Restatement
provide
further
clarification
of
appropriate activities, ―There are some
highly
dangerous
activities
that
necessarily involve a risk of serious harm
in spite of all possible care that can be
carried on only in a particular place.‖86
For example, the Restatement explains,
―Coal mining must be done where there is
coal; oil wells can be located only where
there is oil. . . If these activities are of
sufficient value to the community, they
may not be regarded as abnormally
dangerous when they are so located . .
..‖87
2.
The Value of Extraction
Activities Outweighs the
Dangers
The Restatement also explains that
although some activities involve a serious
risk of harm that cannot be eliminated
with reasonable care, their ―value to the
community may be such that the danger
will not be regarded as an abnormal
one.‖88
As an illustration, the
Restatement explains, ―in Texas and
Oklahoma, a properly conducted oil or
gas well, at least in a rural area, is not
regarded as abnormally dangerous.‖89
Marcellus Shale defendants will have
a wide variety of facts to draw upon to
highlight the benefits that their activities
provide to the communities in which they
are based. According to a February 2012
report by the Pennsylvania Department of
85
Id.
Id.
87
Id.
88
RESTATEMENT (SECOND) TORTS §520 cmt. k.
89
Id.
86
Labor and Industry, employment is
exploding
in
communities
where
Marcellus development is taking place. 90
The Department reports that the Northern
Tier Workforce Investment Area (WIA)
has experienced an increase of over
1,500% in employment rates since 2007
and that the Commonwealth‘s Central
WIA has experienced an increase of
nearly 1,000% over that same period.91
In addition, according to the Pennsylvania
Department of Revenue, companies
engaged in natural gas drilling activities
have paid over $1.1 billion in state taxes
since 2006, including $214.12 million in
the first quarter of 2011.92
The
Department of Revenue also reports that
the industry has contributed billions of
dollars to local economies in the nature of
infrastructure
investments,
royalty
payments, and permit fees.93
Courts have found that other
seemingly dangerous activities should not
be considered abnormally dangerous in
light of their value to the community. For
example, in Albig v. Municipal Authority
of Westmoreland Co., the plaintiffs
sustained property damage when water
escaped from a reservoir owned by
Westmoreland County as a result of
Page 171
mining operations conducted beneath the
reservoir by a third party.94 Noting that
the reservoir provided a water reserve for
the community and enhanced the local
fire department‘s capabilities, the court
concluded that the maintenance of the
reservoir was not an abnormally
dangerous activity because the ―value of
the reservoir to the community
outweighed its potentially dangerous
qualities.‖95 Similarly, in Diffenderfer v.
Staner, the court held that the storage of
pesticides on a farm was not an
abnormally dangerous activity, in part
because the benefits to the community in
terms of lower prices for produce and
better crop yields outweighed the
dangers.96
3.
Medical Monitoring
Marcellus
Shale
groundwater
plaintiffs have repeatedly asserted
medical monitoring as a cause of action in
lawsuits against natural gas extractors.97
Medical monitoring is a non-traditional
common law tort which in recent years
has increasingly been used by plaintiffs‘
attorneys seeking to hold defendants
liable for purportedly exposing their
90
PENNSYLVANIA DEPARTMENT OF LABOR &
INDUSTRY, MARCELLUS SHALE FAST FACTS
FEBRUARY 2012 EDITON (2012), available at
http://www.paworkstats.state.pa.us/admin/gsip
ub/htmlarea/uploads/Marcellus_Shale_Fast_F
acts_Viewing.pdf (last accessed March 2,
2012).
91
Id.
92
Press Release, Pennsylvania Department of
Revenue, Drilling Industry Paid More Than
$1 Billion in State Taxes Since 2006 (May 2,
2011).
93
Id.
94
502 A.2d 658, 661 (Pa. Super. Ct. 1985).
Id. at 663-664.
96
722 A.2d 1103, 1107-1108 (Pa. Super. Ct.
1998).
97
3:10-CV-01981 (M.D. Pa.); Baker
v.
95
Page 172
clients to hazardous substances.98
Plaintiffs claim this cause of action is
necessary because injuries caused by
exposure to hazardous substances may
take years to manifest themselves
physically.99 They argue that as a result
of this exposure, plaintiffs must undergo
regular medical testing to facilitate early
detection and diagnosis and should not be
forced to bear such a burden and expense
without compensation.100
Generally, courts in Pennsylvania,101
New York102 and West Virginia103 require
98
Abbatiello v. Monsanto Co., 522 F. Supp.2d
524, 536 (S.D.N.Y. 2007).
99
Id.
100
Id.
101
Redland Soccer Club, Inc. v. Dept. of the
Army, 696 A.2d 137, 145-146 (Pa. 1997)
(recognizing claim for medical monitoring).
102
New York‘s highest court, the New York
Court of Appeals, has never addressed the
issue of medical monitoring claims.
Abbatiello, 522 F. Supp.2d at 537. New
York‘s intermediate appellate and trial courts,
however, have recognized that asymptomatic
plaintiffs can recover for medical monitoring.
See e.g., Askey v. Occidental Chemical Corp.,
447 N.Y.S.2d 242 (N.Y. App. Div. 1984);
Abusio v. Consolidated Edison Co., 656
N.Y.S.2d 371 (N.Y. App. Div. 1997); Allen v.
Gen. Elec. Co., 821 N.Y.S.2d 692 (N.Y. App.
Div. 2006). In addition, several federal courts
have predicted the New York Court of
Appeals would recognize a cause of action for
medical monitoring and will adopt the
elements articulated above. See Caronia v.
Philip Morris USA, Inc., 2011 U.S. Dist.
LEXIS 12610 (E.D.N.Y. 2011); Abbatiello,
522 F. Supp.2d at 536.
103
Bower v. Westinghouse Electric Corp., 522
S.E.2d 424, 431-433 (W. Va. 1999) (holding
that West Virginia recognizes a claim for
medical monitoring and adopting a
substantially similar test to that described
a plaintiff to prove the following elements
in order to prevail on a claim for medical
monitoring: (1) exposure greater than
normal background levels; (2) to a proven
hazardous substance; (3) caused by the
defendant‘s negligence; (4) as a
proximate result of the exposure, plaintiff
has a significantly increased risk of
contracting a serious latent disease; (5) a
monitoring procedure exists that makes
the early detection of the disease possible;
(6) the prescribed monitoring regime is
different
from
that
normally
recommended in the absence of the
exposure; and (7) the prescribed
monitoring
regime
is
reasonably
necessary according to contemporary
scientific principles.
Proof of these
elements will require expert testimony. 104
No court in Pennsylvania, New York,
or West Virginia has been asked
definitively to apply these elements to a
medical monitoring claim based on a
plaintiff‘s allegations that hydraulic
fracturing or other oil and gas production
activity has resulted in contamination of a
water supply and exposure to hazardous
substances. However, because proof of
each of the elements in a medical
above which requires a plaintiff to prove: (1)
significant exposure; (2) to a proven
hazardous substance; (3) through the tortious
conduct of the defendant; (4) as a proximate
result of the exposure, plaintiff has suffered an
increased risk of contracting a serious latent
disease relative to the general population; (5)
the increased risk of disease makes it
reasonably necessary for the plaintiff to
undergo
periodic
diagnostic
medical
examinations different from what would be
prescribed in the absence of the exposure; and
(6) monitoring procedures exist that make the
early detection of disease possible).
104
Redland, 696 A.2d at 146.
Page 173
monitoring claim will require expert
testimony,105 Marcellus Shale defendants
will have many arrows in their quiver if
they are faced with such a claim.
For example, if a plaintiff brings a
claim based on exposure to contaminated
drinking water as a result of a defendant‘s
drilling activities, under the third element
discussed above, the plaintiff must prove
through scientific evidence that the
defendant caused the plaintiff to be
exposed to a hazard through some
tortious conduct.106 This will be a
particularly difficult obstacle for the
plaintiff. In order to prevail, the plaintiff
will have to demonstrate the existence of
a potential pathway between the
defendant‘s operations and the water
well.107 To do so, the plaintiff will have
to commission studies which model the
movement of Marcellus Shale fluids or
gas to the water well.108 They will also be
required to provide reasonable and
reliable scientific findings regarding the
path that the fluids or gas followed, how
that path was created and the rate at
which fluids or gas are capable of moving
through rock formations or soil.109 In
addition, the plaintiff will have to prove
the defendant‘s activities are a source of
the contaminants by comparing the
contaminants found in the water to
materials and compounds found in the
Marcellus Shale formation or used in the
defendant‘s operations.110 These are
obviously difficult undertakings and will
provide
ample
opportunities
for
defendants to argue that (1) the scientific
methods used by the plaintiff are
unreliable or not generally accepted in the
relevant scientific communities; or (2) the
specific findings of the plaintiff‘s experts
are not correct.
In
addition,
Marcellus
Shale
defendants can respond that a significant
body of scientific evidence suggests that
their activities did not cause the plaintiff‘s
exposure. For example, the Pennsylvania
Department of Environmental Protection
(DEP) has stated: ―Disruption of water
quality or flow in water wells from
drilling activities is often rare and
generally
temporary.‖111
Moreover,
according to former DEP Secretary John
Hanger, problems with gas migration into
water wells are not new, nor are they
uniquely caused by Marcellus Shale
drilling.112
105
110
106
111
Id.
Bower, 522 S.E.2d at 433 (the plaintiff
must establish underlying liability ―based
upon a recognized tort—e.g., negligence, strict
liability, trespass, intentional conduct, etc‖).
107
McKay and Salita, Marcellus groundwater
claims: A case for scientifically informed
decisions, WORLD OIL ONLINE, Vol. 231 No.
12
(Dec.
2010),
available
at
http://www.worldoil.com/
Marcellusgroundwater-claims-A-case-for-scientificallyinformed-decisions.html (last accessed March
2, 2012).
108
Id.
109
Id.
Id.
Pennsylvania
Department
of
Environmental Protection, Marcellus Shale
Fact Sheet, 0100-FS-DEP4217 (Jan. 2010
rev.) available at http://www.elibrary.dep.
state.pa.us/dsweb/Get/Document-85899/0100FS-DEP4217.pdf (last accessed March 2,
2012).
112
Donald Gilliad, Pennsylvania Department
of Environmental Protection chief defends
regulation of Marcellus Shale drilling, THE
PATRIOT NEWS, Sept. 11, 2010, available at
http://www.pennlive.com/midstate/index.ssf/2
010/09/pennsylvania_department_of_env_1.ht
ml (last accessed March 2, 2012).
Page 174
An investigation by the U.S.
Environmental Protection Agency (EPA)
concluded there is no evidence that
fracturing of shallow Coalbed Methane
wells contaminated drinking water
wells.113 Further, the EPA has found that
many of the substances which plaintiffs
claim are present in their water at
elevated levels due to Marcellus Shale
operations occur naturally or as the result
of other common activities such as
farming, the handling and disposal of
common materials such as gasoline,
household trash or sewage, or other
industrial activities near the property,
including coal mining.114
Opponents of hydraulic fracturing
have been particularly vocal about the
claimed potential harm to health and the
environment from chemicals used by
hydraulic fracturing companies during the
drilling process. Numerous studies have
determined, however, that the fluids used
in hydraulic fracturing are safe, pose no
risk to public health and that engineering
practices ensure that they do not enter the
water supply.
113
Fact Sheet, United States Environmental
Protection Agency, Evaluation of Impacts to
Underground Sources of Drinking Water by
Hydraulic Fracturing of Coalbed Methane
Reservoirs, National Study Final Report, 2
(June
2004)
available
at
http://www.epa.gov/safewater/uic/pdfs/cbmstu
dy_attach_uic_final_fact_sheet.pdf
(last
114
See, e.g., United States Environmental
Protection Agency, Human Health, U.S. EPA
Drinking Water Consumer Information,
Private Wells web page, (Aug. 9, 2010)
available at http://water.epa.gov/drink/info/
well/health.cfm (last accessed March 2, 2012).
The main ingredient in fracturing
fluid is water, which accounts for
approximately 90% of the mixture.
Proppants, such as sand, are used to keep
the fractures open and constitute 8-9%.
Approximately 1% or less of the
fracturing fluid contains generally
harmless and common substances such as
salt and citric acid, and trace chemicals.115
Although some of the chemicals used in
fracturing fluid could be toxic if an
individual is exposed to high doses, the
concentration of these elements is far
below the levels necessary to pose a
threat to human health.116 Moreover,
there has never been a documented
instance of water contamination caused
by hydraulic fracturing fluids. 117 Even if
115
116
Blank Rome LLP, Marcellus Shale Alert:
Congressional
Democrats’ Report
on
Hydraulic Fracturing Chemicals Provides No
Evidence of Chemicals’ Potential Harm to
Human Health or the Environment, April
2011 No. 4, available at www.blankrome.com.
117
See, e.g. Stephen G. Osborne et al.,
Methane contamination of drinking water
accompanying gas-well drilling and hydraulic
fracturing, PROCEEDINGS OF THE NATIONAL
ACADEMY OF SCIENCE, 2011, available at
http://www.biology.duke.edu/jackson/pnas201
1.html (last accessed March 2, 2012) (finding
no evidence of contamination due to hydraulic
fracturing fluid, despite evidence of methane
contamination). Indeed, while some claim
that the environmental perils of hydraulic
fracturing include contamination of drinking
water, wastewater pollution of rivers,
groundwater depletion, air emissions of toxic
pollutants and greenhouse gases, radiation and
even earthquakes, with the exception of
groundwater depletion, no causal connection
such events occur in the future, in order
for Marcellus Shale plaintiffs to prove
they suffered bodily harm, they will need
to prove that the chemicals used in
hydraulic fracturing pose a threat to
human health.118 No scientific study to
date has so concluded, and although the
EPA is actively engaged in such a study,
initial results are not expected until late
2012.119 Until the EPA‘s results are
released, it is premature for courts to
conclude that hydraulic fracturing fluid
poses a danger to humans.
Marcellus Shale plaintiffs may also
argue that their health has been put at risk
from exposure to radium and other
radioactive materials, and that this health
risk also warrants medical monitoring. In
early 2011, three New York Times articles
were published which focused on
environmental issues in connection with
the development of Marcellus Shale. The
most significant environmental claim
raised in the Marcellus Shale series was
that elevated radium and other naturally
occurring radioactive materials (which
are naturally present in water coming
from oil and gas formations underground)
pose a danger to the environment and
human health when they are discharged to
public wastewater treatment plants and,
between hydraulic fracturing itself and of
these environmental problems has been
demonstrated. Kathleen H. White, The Fracas
about Fracking Low risk, high reward but
the EPA is against it, NATIONAL REVIEW
ONLINE (June, 2011).
118
Id.
119
United States Environmental Protection
Agency, Hydraulic Fracturing, http://water.
epa.gov/type/groundwater/uic/class2/hydraulic
fracturing/index.cfm (last accessed March 2,
2012).
Page 175
ultimately, to surface waters which are
used as drinking water sources.
The potential threat to health and the
environment from Naturally Occurring
Radioactive Materials (―NORM‖) has
been researched for nearly a century.
NORM, including radium, is present in
our soil, air, and water, and in the rock
formations from which oil and gas are
produced. Natural gas drilling and
production
operations
can
bring
formation, or ―produced,‖ water (which is
wastewater once it is elevated to the
surface for disposal) along with the gas.
Studies have shown ingesting radium at
extremely high doses can cause bone and
head cancers.120 There is, however, no
evidence that hydraulic fracturing
operations have exposed drinking water
to such high doses of radiation. Exposure
to elevated levels of radiation from
drillers‘ wastewater has been studied in
the surface waters where it is discharged
following treatment at the wastewater
treatment plant.121 Tests of drinking water
supplies from the Chester Water
Authority in September 2008 and the
York Water Company in 2009, both of
which are partially downstream from the
Susquehanna River, where treated
wastewater had been discharged, showed
that gross alpha, gross beta, radium-226
and radium-228 were well below the Safe
120
Shirley A. Fry, Studies of U.S. Radium Dial
Workers: An Epidemiological Classic, 150
RADIATION RESEARCH 5, S21-S29 (1998).
121
Wastewater plants do not remove
radioactive material to a level that meets
federal drinking water standards. That is
because wastewater plants are not required
and do not attempt to meet federal drinking
water standards. Drinking water treatment
plants bear that responsibility.
Page 176
Drinking Water Act limits for those
constituents.122
Finally, Marcellus Shale plaintiffs
may argue that medical monitoring is
necessary due to migration of methane
into their potable water supply as a result
of hydraulic fracturing activity. Methane
is not regulated as a contaminant in public
water systems by any state nor by the
EPA, because methane is not known to
affect water‘s potability.123 In fact,
methane gas alone does not cause health
problems.124 Methane is only recognized
as a danger in rare situations where a high
concentration of the gas is located in a
confined and poorly ventilated area, thus
creating a risk of explosion or
asphyxiation.125
Even in these rare
situations, however, the danger can often
be averted relatively easily and
inexpensively through the installation of
well vents or aeration techniques.126
122
Don Hopey, High Radioactivity for
Marcellus not found in 7 Pa. Rivers,
PITTSBURGH POST-GAZETTE, Mar. 7, 2011.
123
Robert B. Jackson, Research and Policy
Recommendations for Hydraulic Fracturing
and Shale-Gas Extraction, http://www.
biology.duke.edu/jackson/pnas2011.html (last
124
Penn State College of Agricultural
Sciences, Water Fact #24: Methane Gas and
Its Removal from Wells in Pennsylvania,
http://pubs.cas.psu.edu/FreePubs/pdfs/XH001
0.pdf (last accessed March 2, 2012).
125
Id.
126
Id.
D. Gross Negligence: Evidence of
Causation, Actual Damages,
and “Reckless Disregard” Will
be Elusive
If faulty well construction, breaches
in cemented and heavy-steel-encased
wellbores or accidents in Marcellus Shale
drilling lead to adverse environmental
impacts, future plaintiffs may claim that
those responsible were grossly negligent.
However, case law suggests that claims
for gross negligence will face steep
challenges in Pennsylvania, New York
and West Virginia.
First, as the Fiorentino plaintiffs
discovered, Pennsylvania law does not
recognize gross negligence as a separate
cause of action.127 Therefore, any cause of
action
for
gross
negligence
in
Pennsylvania will be dismissed. 128
Although both New York and West
Virginia recognize gross negligence as a
separate cause of action, Marcellus Shale
plaintiffs will encounter two significant
roadblocks in attempting to raise such
claims. First, as with any negligence
cause of action, plaintiffs suing in New
York or West Virginia must establish the
elements of causation and actual injury in
both states.
In addition to the requirement that
plaintiffs prove that contamination of
their
groundwater
was
directly
127
Id. at *7; see also Spence v. ESAB Group,
Inc., 623 F.3d 212, 215 n.2 (3d Cir. 2010)
(citing Hunter v. Squirrel Hill Assocs., L.P.,
413 F. Supp. 2d 517, 520 n.2 (E.D. Pa. 2005)
(―While Pennsylvania courts acknowledge
differing standards of care, they do not
recognize degrees of negligence as separate
causes of action.‖)).
128
Fiorentino, 2010 WL 4595524, at *7.
attributable to hydraulic fracturing, 129
New York demands concrete proof of
―actual injury‖ in a tort action. The state
maintains a clear general standard that
―[c]onsequences which are contingent,
speculative or merely possible are not
properly considered in ascertaining
injury,
damages
and
appropriate
remedy.‖130 While New York courts will
consider a threatened injury to be an
actual injury, the courts will only do so on
the limited occasions where plaintiffs
offer evidence that such a threat is
―impending‖ and ―sufficiently real and
immediate.‖131 The Plainview Water Dist.
v. Exxon Mobil Corp. court particularly
noted the challenges inherent to
scientifically projecting contaminant
migration in subterranean groundwater,
and predicting whether any potential
contaminant impact would indeed be
immediate.132
West Virginia similarly requires a
plaintiff alleging negligence or gross
negligence to prove that he or she
suffered an actual injury that was caused
by a defendant‘s allegedly negligent
Page 177
conduct.133 In fact, Rhodes v. E.I. DuPont
de Nemours & Co., represents a case
highly illustrative of the difficulties
Marcellus Shale plaintiffs are likely to
encounter in attempting to establish
claims of gross, or even traditional,
negligence.134 In Rhodes, plaintiffs
alleged that the defendant, a water
supplier, was grossly negligent in
discharging
perfluorooctanoic
acid
(PFOA) into the water supply. Although
plaintiffs were able to show that PFOA
was detectable in their water supply and
present in their blood, the court held that
such PFOA presence alone was
insufficient to support a negligence claim.
The court reaffirmed the grant of
summary judgment to defendants,
stressing that the plaintiffs failed to
produce evidence of a ―detrimental effect
to the plaintiffs‘ health that actually ha[d]
occurred or [was] reasonably certain to
occur due to a present harm.‖ 135 Given
that even a recent congressional report on
hydraulic fracturing failed to cite any
scientific data proving that the chemicals
used in fracturing pose a risk to human
health, plaintiffs would likely be unable
to produce the definitive scientific
evidence required.136
129
See Kara Holding Corp. v. Getty Petroleum
Mktg., Inc., No.-99 Civ. V-0275, 2004 U.S.
Dist. LEXIS 15864, at *48 (S.D.N.Y. Aug. 13,
2004) (partly dismissing plaintiff-office
owner‘s trespass claim because no evidence
was offered indicating that petroleum found in
cellar of building resulted from residual
contamination).
130
Plainview Water Dist. v. Exxon Mobil
Corp., No. 009975-01, 2006 N.Y. Misc.
LEXIS 3730, at *9-10 (Sup. Ct. Nassau Co.
Nov. 27, 2006) (quoting Askey, 477 N.Y.S.2d
at 247).
131
Id. at *11.
132
Id. at *16.
133
Rhodes v. E.I. DuPont de Nemours & Co.,
636 F.3d 88 (4th Cir. 2011).
134
See id.
135
Id. at 95.
136
See Committee Democrats Release New
Report Detailing Hydraulic Fracturing
Products, U.S. HOUSE OF REPRESENTATIVES
COMM. ON ENERGY AND COMMERCE
(DEMOCRATS) (Apr. 16, 2011), available at
http://democrats.energycommerce.house.gov/i
ndex.php?q=news/committee-democratsrelease-new-report-detailing-hydraulicfracturing-products (last accessed March 1,
2012).
Page 178
Marcellus Shale plaintiffs also must
overcome gross negligence standards in
both New York and West Virginia. New
York case law defines ―grossly negligent‖
conduct as that which ―evinces a reckless
disregard for the rights of others or
‗smacks‘ of intentional wrongdoing.‖ 137
Acts merely causing injury attributable to
ordinary negligence do not rise to the
level of intentional wrongdoing necessary
to constitute gross negligence.138
Although the West Virginia Supreme
Court of Appeals has not provided its
own definition of gross negligence, as
Rutecki v. CSX Hotels observes, it has
interpreted Virginia law defining gross
negligence.139 Rutecki thus applied the
following definition of gross negligence
from Virginia case law to a West
Virginia-based case: ―an utter disregard
of prudence, amounting to complete
neglect of safety of another, such as to be
shocking
to
reasonable
men.‖ 140
Hydraulic fracturing operations acting in
compliance with state and federal oil, gas,
and environmental regulations, and who
treat wastewater prior to human
consumption, are unlikely to constitute a
―reckless disregard‖ for the safety of
others ―smacking of intentionality.‖ 141
137
Kara Holding Corp., 2004 U.S. Dist.
LEXIS 15864, at *50 (citing Colnaghi,
U.S.A., Ltd. v. Jewelers Protection Svcs., Ltd.,
81 N.Y.2d 821, 823-824 (N.Y. 1993)).
138
Kara Holding Corp., 2004 U.S. Dist.
LEXIS 15864, at *50; Barton v. 157
Chambers Dev. Owner, LLC, No. 114150/07,
2009 N.Y. Misc. LEXIS 5482, at *4 (Sup. Ct.
N.Y. Co. July 30, 2009).
139
Rutecki v. CSX Hotels, Inc., 290 Fed.
Appx. 537, 542-543 (4th Cir. 2008).
140
Id. at 543.
141
See Barton, 2009 N.Y. Misc. LEXIS 5482,
at *5-6 (noting that where defendants took
E. Property Value Diminution:
Marcellus Shale Plaintiffs Will
be Challenged to Prove
Causation and Actual Harm
Plaintiffs whose groundwater or
blood contains heightened levels of
chemicals or radioactive material
associated with hydraulic fracturing—
whether
genuinely
connected
to
fracturing or not—as well as those simply
claiming ―stigma‖ damage, or loss of
market value due to public fear of
contaminant exposure may also seek
damages for diminution of real property
value resulting from their properties‘
alleged exposure to contaminants.142 As
with gross negligence claims, such
plaintiffs will struggle to prove
diminution of value claims due to the
difficulty of proving causation and actual
damages.
In all three jurisdictions, Marcellus
Shale plaintiffs are faced with the initial
challenge of proving causation. Property
damages in general, whether of the
temporary variety or for diminution in
value, will not be awarded unless
concrete proof is offered that such
various safety measures, gross negligence
could not be sustained, as there would be no
fact supporting the allegation of failing ―to use
even
slight
care‖
or
―complete[ly]
disregard[ing] [ ] the rights and safety of
others‖); McKay and Salita, Marcellus
Groundwater
Claims:
A
Case
for
Scientifically Informed Decisions, 231 WORLD
OIL ONLINE, at 4 (2010).
142
See e.g., Fiorentino v. Cabot Oil & Gas
Corp., No. 09-CV-2284 (M.D. Pa); Berish v.
3:10-CV-01981 (M.D. Pa.); Hagy v. Equitable
damages are indeed the result of a
defendant‘s
tortious
act.143
Each
individual groundwater contamination
plaintiff must identify the specific
pathways through which the hydraulic
fracturing fluids or natural gas entered his
or her groundwater from the drilling
site.144
Plaintiffs must also provide
evidence that heightened concentrations
of the hazardous substances of which they
are complaining actually resulted from
Marcellus Shale operations, and did not
simply represent substances occurring
naturally or as the result of other common
activities.145
143
See, e.g., Mehlenbacher v. Akzo Nobel
Salt, Inc., 71 F. Supp.2d 179, 183 (W.D.N.Y.
1999) (noting that if A owns a house with a
scenic view, and B builds a house blocking
that view, B would not be liable to A absent
some tortious act on B‘s part), vacated in part
on other grounds, 216 F.3d 291 (2d Cir.
2000).
144
See Stenger v. Hope Natural Gas Co., 80
S.E.2d 889, 892 (W. Va. 1954) (reversing
judgment where plaintiffs failed to offer any
direct evidence tending to show that gas from
any direct source or leak in defendant‘s lines
or fixtures followed any definite course or
channel into the dwelling damaged by
explosion); McKay and Salita, Marcellus
groundwater claims: A case for scientifically
informed decisions, WORLD OIL ONLINE, Vol.
231
No.
12
(Dec.
2010),
http://www.worldoil.com/Marcellusgroundwater-claims-A-case-for-scientificallyinformed-decisions.html (last accessed March
2, 2012).
145
See Mateer v. U.S. Aluminum, No. 882147, 1989 U.S. Dist. LEXIS 6323, at *13
(E.D. Pa. June 6, 1989) (―When a plaintiff
alleges that chemicals have migrated
underground from another site, the plaintiff
must establish that the second site was in fact
the source of the pollutants at issue.‖);
Page 179
Marcellus Shale plaintiffs also must
provide evidence of actual harm to
receive damages for diminution in
property value.146 In West Virginia, each
Marcellus Shale plaintiff, even in a class
action, will be required to support a
diminished value claim with actual proof
of the lost value of his or her real
property. Damages will not be awarded
based on a random sampling of properties
belonging to others.147 Proof of ―actual
harm‖ in the case of diminution of
property value claims not only requires
evidence of the diminished value, but also
that this diminished value stems from
physical damage to the individual
property in question. The prevailing
standard in Pennsylvania, New York and
nationwide is that plaintiffs must
demonstrate something more than merely
a defendant‘s tortious act caused property
value to diminish.148 They must also
provide concrete proof that their property
has been physically damaged, or,
alternatively in New York, that their use
McKay and Salita, Marcellus groundwater
claims: A case for scientifically informed
decisions, WORLD OIL ONLINE, Vol. 231 No.
12 (Dec. 2010) (noting that contamination
might be the result of farming, handling and
disposal of gasoline or waste materials, or
other industrial operations near the property).
146
See, e.g., Fusco v. State Farm Fire and
Casualty Co., 871 N.Y.S.2d 295, 296 (N.Y.
App. Div. 2008) (reversing judgment where
plaintiffs relied on an appraisal of their
properties alone, rather than providing
evidence of sales of properties that had oil
leaks compared to properties that did not).
147
Perrine, 694 S.E.2d at 924.
148
Gates v. Rohm & Haas Co., No. 06-1743,
2008 U.S. Dist. LEXIS 58036, at *7-8 (E.D.
Pa. Jul. 31, 2008); Mehlenbacher, 71 F.
Supp.2d at 188.
Page 180
and enjoyment of their property has been
unreasonably
interfered
with. 149
Moreover, in Pennsylvania, plaintiffs will
need to demonstrate that the physical
effects suffered are permanent, while in
New York, they must demonstrate that
the effects cannot be fully remediated or
that the cost of remediation would exceed
the amount by which the value of the
property has been diminished.150 Thus, it
is evident that courts will not be willing
to recognize a claim for damages arising
solely
from
the
stigma
of
contamination.151
IV. Conclusion
Along with the benefits of Marcellus
Shale development come concerns of
potential groundwater contamination and
associated personal injury and property
damage litigation, potentially including
class action lawsuits. Regardless of the
legitimacy of individual claims, strong
arguments exist against aggregating
Marcellus groundwater contamination
claims through the class action device.
Although all claims will likely allege
groundwater contamination, these actions
149
Gates, 2008 U.S. Dist. LEXIS 58036, at
*7-8; Mehlenbacher, 71 F. Supp.2d at 188.
150
Gates, 2008 U.S. Dist. LEXIS 58036, at
*12-13; Mehlenbacher, 71 F. Supp.2d at 188.
151
See, e.g., Mehlenbacher, 71 F. Supp.2d at
189 (granting defendant‘s motion for
summary judgment where plaintiffs presented
no evidence of physical surface damage
supporting their claim for stigma damages);
O‘Neal v. Dep‘t of the Army, 852 F. Supp.
327, 336-337 (M.D. Pa. 1994) (finding that
plaintiffs failed to sustain burden with respect
to property-value diminution claim where only
evidence of diminution was expert testimony
referring to stigma damage).
will be highly individualized and illsuited for aggregated treatment in the
court system.
Marcellus Shale plaintiffs also will
face challenges to recover under a
number of common law tort claims that
they have asserted or have commonly
been asserted in environmental toxic tort
actions. A survey of case law from
Pennsylvania, New York and West
Virginia shows that Marcellus Shale
plaintiffs seeking damages grounded in
public nuisance, strict liability, medical
monitoring,
gross
negligence,
or
diminution of real property value may
have trouble establishing essential
elements of these causes of action, such
as causation, actual harm and standing.
The Enhanced Injury Doctrine: How the Theory of
Liability is Addressed in a Comparative Fault
World
By Charles E. Reynolds and
Shane T. Costello
I
N CERTAIN motor vehicle accidents,
there may be several potentially
negligent actors, as well as several
contributing causes to the injury of the
plaintiff. The plaintiff himself may have
been negligent, and this negligence could
have contributed to causing some aspect
of the injury. In addition, there are
accidents in which an individual and
discrete defect in the vehicle may have
caused or enhanced the injury. One
problem that courts have encountered in
such cases is whether to isolate the action
against the motor vehicle manufacturer
for this individual defect and the injury
alleged to be caused by the defect, or to
allow a jury to hear all of the evidence
regarding how the accident happened in
the first place.
This article discusses the application
of the doctrine of comparative fault to the
well-established
enhanced
injury
doctrine. It analyzes and compares the
fundamental principles and reasoning
behind both the enhanced injury and
comparative fault doctrines. This article
also reviews case law from jurisdictions
that have addressed this issue, finding that
the vast majority of courts have held that
comparative fault applies in enhanced
injury cases. The article concludes that
the enhanced injury theory of liability
continues to be viable, even when
incorporated within the comparative fault
doctrine.
Charles Reynolds
is a member of
IADC
and
a
partner
with
Butler
Pappas
Weihmuller Katz
&
Craig
in
Tampa, Florida.
His
practice
focuses on defense
litigation involving products liability,
premises liability, toxic torts and medical
malpractice. He is past chair of IADC’s
Construction Law Committee and a
present member of the Products Liability
Committee.
Shane Costello is
an associate with
Butler
Pappas
Weihmuller Katz
& Craig with a
defense practice
dedicated
to
personal injury,
products liability
and
premises
liability.
I.
Theory of Enhanced Injury
Under the ―enhanced injury,‖
doctrine, also sometimes called the
―crashworthiness‖ or ―second collision"
doctrine, a manufacturer or seller of a
product may be liable under strict
liability, negligence, or breach of
warranty principles for injuries sustained
in an accident where a defect in the
product either aggravated or caused
Page 182
additional injury to the plaintiff, even
though the defective product did not
cause the initial harm. Under the theory,
the manufacturer is not held liable for
injuries arising out of the initial collision,
but is instead liable for enhanced injuries
over and above the injuries caused by the
initial collision—in other words, those
injuries that probably would not have
occurred due to the initial collision in the
absence of a defective design.
While the terms ―enhanced injury,‖
―crashworthiness,‖ and ―second collision‖
are often used interchangeably, the term
―enhanced injury‖ perhaps best captures
the theory of liability. ―Crashworthiness‖
relates to the protection that a vehicle
provides to its occupants against injuries
arising from accident. The term ―second
collision‖ refers to, for example, the
impact between the occupant and the
interior of the vehicle, or the ejection of
the occupant from the vehicle, while the
first or initial collision is the vehicle‘s
impact with another object. The majority
of ―enhanced injury‖ cases involve motor
vehicle accidents.
The ―enhanced injury‖ doctrine was
first established by the decision of the
Eighth Circuit Court of Appeals in Larsen
v. General Motors.1 Prior to this seminal
decision, courts rejected the notion that a
product manufacturer could be held liable
for a defective product where another‘s
negligence was the cause of the
underlying accident.2 The rationale was
that manufacturers could only be held
1
391 F.2d 495 (8th Cir. 1968).
Evans v. Gen. Motors Corp., 359 F.2d 822
(7th Cir.1966), overruled by Huff v. White
Motor Corp., 565 F.2d 104, 110 (7th
Cir.1977).
liable for the intended use of the product,
and collisions were not an intended use.
The Larsen court reasoned that
automobile
collisions
are
clearly
foreseeable and statistically inevitable,
and therefore car manufacturers have the
duty to design vehicles to avoid
subjecting the user to an unreasonable
risk of injury in the event of a collision.3
Therefore, the Larsen court established
liability on the automobile manufacturer
when an injury was caused or enhanced
by a design or manufacturing defect and
was
reasonably
foreseeable
and
reasonably could have been avoided.4
Larsen
was
subsequently
widely
approved and adopted.
II. Comparative Fault
The enhanced injury doctrine was
established and developed largely under
the then-existing tort systems of joint and
several
liability
and
contributory
negligence. However, many jurisdictions
have since developed a comparative fault
system applicable to negligence and
products liability cases, either completely
abolishing joint and several liability or
specifically limiting it to particular
situations. Under a system of comparative
fault, each party, including the plaintiff, is
apportioned that percentage of plaintiff‘s
damages which were proximately caused
by that party‘s negligence.
The courts have since been
confronted with the question of how best
to apply the principles of comparative
fault to enhanced injury cases. The
principal question presented is whether
2
3
4
Larsen, 391 F.2d at 502.
Id. at 503.
The Enhanced Injury Doctrine
evidence of the comparative fault of the
plaintiff and other negligent parties in
causing the ―initial collision‖ may be
presented to the jury to apportion
plaintiff‘s damages with respect to both
the ―initial collision‖ and ―second
collision‖ due to design defect. The key
to answering this question lies in
proximate cause analysis, which plays an
extremely significant role in both
comparative fault and the enhanced injury
doctrine.
Page 183
Stated generally, the minority view
holds that it is impermissible in enhanced
injury cases to allow the fact finder to
compare the fault or negligence of the
plaintiff and other potentially liable
parties and nonparties in causing the
accident with the fault or negligence of
the manufacturer in designing or
manufacturing a motor vehicle. The cause
of the initial impact and injury is treated
as entirely separate and distinct from the
cause of the second impact and injury (the
―enhanced injury‖). This results in the
conclusion that the causative factors are
not joint tortfeasors.5
Under this view, the comparative
negligence of the plaintiff and other third
party tortfeasors in causing the accident is
deemed irrelevant and inadmissible. The
plaintiff only must show that there existed
a product defect and that the defect
caused an enhanced injury. This allows
plaintiffs to prevent juries from hearing
evidence concerning the cause of the
initial crash, such as the intoxication or
negligence of the plaintiff or a third party
tortfeasor. The rationale is that, since the
crashworthiness doctrine proceeds from
the belief that a vehicle manufacturer has
a duty to minimize the injurious effect of
a crash no matter how the crash is caused,
any participation by persons in bringing
about the accident is irrelevant.
In D'Amario v. Ford Motor
Company,6 a minor under the influence of
alcohol drove his car into a tree and the
vehicle subsequently caught fire, resulting
in the plaintiff passenger burning to
death.7 The plaintiff claimed enhanced
injuries due to the fire being caused by a
defective fuel system in the vehicle. 8 The
Florida Supreme Court held that
comparative negligence would not
ordinarily apply in enhanced injury cases,
ruling that the tortfeasor who caused the
crash was not a joint tortfeasor with the
manufacturer and could not be on the
verdict form.9 The court distinguished
between fault in causing the accident and
5
6
III. The Shaky and Shrinking Minority
See, e.g., Robert C. Reichert, Limitations on
Manufacturer Liability in Second Collision
Actions, 43 MONT. L. REV. 109, 117–118
(1982) (stressing that accident-causing fault
must be distinguished from injury-enhancing
fault; otherwise manufacturers of a defective
product will be shielded from liability in every
second injury case, a result contrary to the
holding in Larsen and contrary to the purpose
for which the crashworthiness doctrine was
first recognized).
806 So.2d 424, 426 (Fla. 2001).
D’Amario, 806 So. 2d at 427.
8
Id. at 428.
9
Id. at 426. In so holding, the Court held that
Fabre v. Marin, 623 So.2d 1182 (Fla. 1993),
did not apply in crashworthiness cases. Fabre
held that all joint tortfeasors may be placed on
a verdict form so that fault could be
apportioned among all persons (parties or nonparties) who may have contributed to an
accident.
7
Page 184
fault in causing the enhanced injuries as a
result of the product defect, reasoning that
the manufacturer was only being held
liable for injuries sustained from the fire,
or ―second collision,‖ and not for injuries
sustained as a result of the impact with
the tree, or ―first collision.‖10
The court was aware of the potential
for successive tortfeasors being held
liable for damages caused by the initial
tortfeasor, but was of the opinion that this
issue was sufficiently addressed by the
crashworthiness doctrine's legal rationale
limiting a manufacturer's liability only to
those damages caused by the defect. 11
The court held that the defendant
manufacturer would be entitled to a jury
instruction that no claim was being made
for damages arising out of the initial
accident and that the manufacturer should
be held liable only for the damages
caused by the initial collision.12 Such an
instruction, in the court‘s opinion, would
ensure each defendant was held
responsible for the damages it
proximately caused, and would avoid
juror confusion related to the retrying of
the cause of the underlying action in the
crashworthiness case.13
In a footnote,14 the court recognized
that under certain circumstances damages
would not be capable of apportionment
between the initial and secondary
collision, in which case the jury would be
able to apportion all the damages to the
10
Id. at 436-437.
Id. at 439-440 (citing Jimenez v. Chrysler
Corp., 74 F. Supp.2d 548 (D. S.C.1999),
reversed in part and vacated, 269 F.3d 439
(4th Cir. 2001)).
12
Id. at 440.
13
Id.
14
Id. at 440, n. 16.
11
defendant in accordance with Gross v.
Lyons.15 Gross provides that when the
tortious conduct of more than one
defendant contributes to one indivisible
injury, the entire amount of damage
resulting from all contributing causes is
the total amount of damages recoverable
by the plaintiff.16
In support of its reasoning and
conclusion, the D’Amario court cited
authority from various jurisdictions,
including Reed v. Chrysler Corp.,17 Cota
v. Harley Davidson,18 Jimenez v. Chrysler
Corp.,19 Andrews v. Harley Davidson,20
and Green v. General Motors.21
In Reed, the Supreme Court of Iowa
addressed
the
question
of
the
admissibility of the intoxication of the
vehicle driver and the plaintiff passenger
in a one-vehicle accident.22 The court
held that the evidence was inadmissible,
holding that comparative fault should not
be assessed in a crashworthiness case
unless it is shown to be a proximate cause
of the enhanced injury. 23 The rationale in
Reed was that the fault of the plaintiff in
causing the accident was irrelevant
because the theory of an enhanced injury
presupposes the occurrence of an accident
and focuses solely on the enhancement of
15
763 So.2d 276 (Fla. 2000).
Gross, 763 So.2d at 280.
17
494 N.W.2d 224 (Iowa 1992).
18
141 Ariz. 7, 684 P.2d 888, 895–986 (Ariz.
Ct. App. 1984).
19
74 F. Supp.2d 548 (D. S.C.1999), reversed
in part and vacated, 269 F.3d 439 (4th Cir.
2001).
20
106 Nev. 533, 796 P.2d 1092, 1095 (Nev.
1990).
21
310 N.J. Super. 507, 709 A.2d 205, 212–
213 (N.J. Sup. Ct. App. Div. 1998).
22
Reed, 494 N.W.2d at 229–230.
23
Id. at 230.
16
the resulting injuries.24 Because Reed
involved negligence of the driver of the
vehicle as well as the plaintiff, the
holding applied to apportionment among
defendants and to apportionment between
the plaintiff and the manufacturer.25
However, in Jahn, the Supreme
Court of Iowa revisited the question of
whether comparative fault applied in
enhanced injury cases. The court focused
on the proximate cause issue, finding that
it was foreseeable to an initial tortfeasor
that equipment in a vehicle may
malfunction and cause further injuries.26
The court also relied on its interpretation
of the Iowa comparative fault statute,
which provided that ―[i]n determining the
percentages of fault, the trier of fact shall
consider both the nature of the conduct of
each party and the extent of the casual
relation between the conduct and the
damages claimed.‖ The court concluded
that by this language the legislature
directed that causal relation between the
conduct of the product manufacturer and
the resulting damages were elements to
be considered in assigning a percentage
of liability in enhanced injury cases. 27
The Jahn court additionally recognized
that there may be cases where the fact
finder finds divisible injury, in which case
the product manufacturer would only be
liable for the amount of divisible injury
subject to comparative fault principles. 28
In Cota, the plaintiff motorcyclist
was intoxicated and was burned when one
of the motorcycle's gasoline tanks
24
Id.
See Jahn v. Hyundai Motor Co., 773
N.W.2d 550, 559 (Iowa 2009).
26
Id. at 559-560.
27
Id. at 560.
28
Id.
25
Page 185
ruptured during a collision. 29 He sued the
manufacturer under the enhanced injury
theory, claiming the motorcycle was
defective in its design. 30 The court held
that evidence of the plaintiff‘s
intoxication was properly excluded as
irrelevant, because the manufacturer was
only liable for the enhancement of
damages, and the real purpose for
wanting the evidence introduced was to
inflame the jury against the plaintiff.31
However, Cota was decided before
the legislative adoption of comparative
fault in Arizona. In Zuern v. Ford Motor
Co.,32 the court overruled Cota,
specifically based upon the application of
the comparative fault statute to enhanced
injury cases.33 The court interpreted the
statute to require comparison of all types
of fault.34 This process involved the
determination of proximate causation and
also the determination and apportionment
of the relative degrees of fault of all
parties and nonparties.35
In Andrews, the Nevada Supreme
Court held that the comparative
negligence of the plaintiff was not
admissible in enhanced injury cases. 36
However, one aspect of the rationale for
this holding was that enhanced injury
cases fell within the realm of strict
liability, and that comparative negligence
was not a defense in such cases under
Nevada law.37
29
Cota, 684 P.2d at 889.
Id.
31
Id. at 895-896.
32
937 P.2d 676 (Ariz. Ct. App. 1996).
33
See Zuern, 937 P.2d at 680.
34
Id. at 681.
35
Id.
36
796 P.2d at 1095 (Nev. 1990).
37
Id.
30
Page 186
In Green v. General Motors Corp.,
the court pointed out that it was in the
minority on the issue and that this was
due to New Jersey‘s rules of limited
comparative fault.38 Specifically, the
court noted that if New Jersey abrogated
its quasi-assumption of risk rule in favor
of a pure form of comparative negligence,
then the result might be different. 39
Ten years after the D’Amario
decision, the Florida Legislature has
amended the comparative fault statute to
expressly provide that a jury must
apportion damages amongst all persons or
entities contributing to an accident in
products liability cases in which the
plaintiff alleges an additional or enhanced
injury,40
expressly
overruling
D’Amario.41
Therefore, several courts which
refused to apply comparative fault to
enhanced injury cases in legal systems of
pure comparative negligence have since
been expressly overruled. In addition,
several of the other aforementioned
38
709 A.2d at 224, n.23.
Id.
40
FLA. STAT. § 768.81(3)(b) (2011).
41
Note 1A to §768.81 states, ―Section 2, ch.
2011-215, provides that ‗[t]he Legislature
intends that this act be applied retroactively
and overrule D‘Amario v. Ford Motor Co.,
806 So. 2d 424 (Fla. 2001), which adopted
what
the
Florida
Supreme
Court
acknowledged to be a minority view. That
minority view fails to apportion fault for
damages consistent with Florida‘s statutory
comparative fault system, codified in s.
768.81, Florida Statutes, and leads to
inequitable and unfair results, regardless of the
damages sought in the litigation. The
Legislature finds that, in a products liability
action as defined in this act, fault should be
apportioned among all responsible persons.‘‖
39
decisions are distinguishable based on the
fact that they were made in legal systems
which did not apply pure comparative
negligence.
IV. The Great and Growing Majority
The majority view holds that the
principle of concurrent causation applies
to cases involving enhanced injuries and,
as a result, the principles of comparative
fault apply. Concurrent causes are two or
more separate and distinct causes that
operate contemporaneously to produce a
single injury or damage. Thus, under the
majority view, a plaintiff may still
recover against a manufacturer for the
enhanced injury caused by the product
defect, but evidence is permitted as to the
cause of the initial impact and injuries in
addition to the defect and enhanced
injuries, and the jury is tasked with
apportioning fault to each responsible
party for the damages proximately caused
by that party. It can therefore be said that
the enhanced injury doctrine, under the
majority view, is incorporated into the
comparative fault doctrine.
In Montag by Montag v. Honda
Motor Co., the plaintiff stopped her
vehicle on the railroad tracks and was hit
by a train.42 The impact caused her door
to open, which automatically caused her
seatbelt to retract, and she was
subsequently ejected from the vehicle.43
The plaintiff admitted her negligence in
driving in front of the train, but argued
that the initial accident and her own
negligence were irrelevant to the cause of
action for damages for enhanced injuries
42
43
75 F.3d 1414, 1415 (10th Cir. 1996).
Id.
due to the defective design of the
seatbelt.44
The Tenth Circuit addressed the
application of the Colorado comparative
fault statute, which provided that the fault
of the person suffering the harm and the
fault of all other parties of the action shall
be compared in a products liability
action.45 The court broadly construed the
term ―fault,‖ stating that it was a general
term encompassing a broad range of
behavior, including negligence.46 It held
that the jury could compare the fault of
the plaintiff in determining damages from
the second collision.47 The court reasoned
that, in making a determination regarding
―enhanced injury,‖ the jury was
comparing which of the plaintiff‘s
injuries were caused by the first collision
versus the second collision, and thus the
jury was essentially ―already comparing
the plaintiff‘s and the defendant‘s
behavior in order to determine
causation.‖48 Hence, requiring the jury to
make a similar determination regarding
damages was deemed consistent with
Colorado‘s comparative fault statute.49
In Meekins v. Ford Motor Co.,50 the
plaintiff was involved in an intersectional
collision, and there was a dispute as to
whether the plaintiff stopped at the stop
sign.51 The plaintiff argued that he would
not have been injured but for a defective
airbag which crushed his fingers upon
Page 187
inflating.52 Defendant car manufacturer
denied the air bag caused the injuries and
alleged that the injuries were caused
when the steering wheel spun as a result
of the collision.53
Regarding the application of the
enhanced injury doctrine and comparative
negligence, the court remarked, ―One
must be careful to resist the temptation to
view this issue in an isolated, over
simplified way.‖54 While some cases
might have clearly distinguishable
injuries as a result of the initial collision
compared to injuries from the defect,
most cases are not clear cut and involve
―several acts of negligence, all of which
might be proximate causes of the
plaintiff‘s injuries.‖55 The Meekins court
held that the comparative negligence
statute applied in enhanced injury cases
and that the negligence of the plaintiff
was a defense.56 In addition, while the
specific issue was not before the court,
the court in dicta stated that the
negligence of all parties whose conduct
proximately caused the injuries could be
considered by the jury.57
Within the past two years, the state
supreme courts of Utah and Indiana have
addressed the application of comparative
fault in enhanced injury cases. In Egbert
v. Nissan Motor Co.,58 the Egberts were
involved in an accident while trying to
avoid another vehicle.59 The car rolled
and the front passenger window shattered,
44
Id.
Id. at 1419 (citing COL. REV. STAT. § 13-21406).
46
Id.
47
Id.
48
Id.
49
Id.
50
699 A.2d 339 (Del. Super. Ct. 1997).
51
Id. at 340.
45
52
Id.
Id.
54
Id.
55
Id.
56
Id. at 346.
57
Id.
58
228 P.3d 737 (Utah 2010).
59
Id. at 738.
53
Page 188
causing Mrs. Egbert, who was eight
months pregnant at the time, to be ejected
through the window.60 She suffered
serious injuries and had an emergency Csection, and her child was born with a
serious brain injury.61 The Egberts
alleged, under the enhanced injury theory,
that the passenger window was
defectively designed because it was made
with tempered glass as opposed to
laminated glass, and had the window been
designed properly the accident would not
have caused such serious injuries to Mrs.
Egbert or the brain injury to the child.62
Pointing to the Utah legislature‘s
abolition of joint and several liability in
favor of a comparative fault scheme, the
court explained, ―Utah's statute contains
an explicit legislative intent and
declaration that fault, in all its broadly
defined forms, is always apportionable.
Thus, even when a plaintiff suffers what
is generally thought to be an indivisible
injury,
our
statute
calls
for
apportionment.‖63
The court held that a defendant
product seller is liable only for the
enhanced injury as determined by a factfinder's
apportionment
under
the
comparative fault statute, and that, under
this rule of apportionment, when there is
evidence of a defect and evidence that the
defect is a factor in enhancing the injury,
the jury must apportion fault between the
defendant original tortfeasor and the
defendant product seller.64
In Green v. Ford Motor Co.,65
answering a certified question from the
United States District Court, the Indiana
Supreme Court ruled that, in a
crashworthiness case alleging enhanced
injuries under the Indiana Products
Liability Act, the finder of fact must
apportion fault to the person suffering
physical harm when that alleged fault is a
proximate cause of the harm for which
damages are being sought.66
The underlying federal lawsuit
asserted that the defendant was negligent
in the design of the 1999 Ford Explorer
vehicle‘s restraint system.67 The plaintiff
drove the vehicle off the road and it
struck a guardrail, rolled down an
embankment, and came to rest upside
down in a ditch.68 The plaintiff alleged
that his injuries were substantially
enhanced because of the alleged defects
in the vehicle's restraint system. 69
The court addressed the minority
view‘s theory that any negligence in
causing the ―first collision‖ is irrelevant
to determining liability for the ―second
collision,‖ and found that this theory
failed to address two considerations
which lead to a contrary conclusion. 70
First, the court pointed out that most of
the early crashworthiness decisions arose
under common law or statutory product
liability law that imposed strict liability
for which a plaintiff's contributory
negligence was not available as a defense,
making it irrelevant in those cases to
65
60
Id.
61
Id.
62
Id.
63
Id. at 746.
64
Id.
942 N.E.2d 791 (Ind. 2011).
Id. at 796.
67
Id. at 793.
68
Id.
69
Id.
70
Id. at 794.
66
consider a plaintiff's contributory
negligence.71
Second, and more importantly, the
court noted that the Indiana Product
Liability Act expressly required liability
to be determined in accordance with the
principles of the comparative fault
statute.72 The court examined the Indiana
Product
Liability
Act
and
the
Comparative Fault Act, finding that the
legislature had employed expansive
language to describe the breadth of
causative conduct that may be considered
in determining and allocating fault. 73 The
court concluded that it was the function of
the fact finder to consider and evaluate
the conduct of all relevant actors who are
alleged to have caused or contributed to
cause the harm, determine whether such
conduct satisfies the requirement of
proximate cause, allocate as comparative
fault only such fault that it finds to have
been a proximate cause of the claimed
injuries, and, if the fault of more than one
actor is found to have been a proximate
cause of the claimed injuries, the fact
finder may consider the relative degree of
proximate causation attributable to each
of the responsible actors.74
Courts in many other jurisdictions75
have reached the same conclusion that the
71
Id.
Id.
73
Id. at 793.
74
Id. at 795-796.
75
Hinkamp v. American Motors Corp., 735 F.
Supp. 176 (E.D. N.C. 1989), judgment aff'd
without opinion, 900 F.2d 252 (4th Cir. 1990)
(applying North Carolina law); Huffman v.
Caterpillar Tractor Co., 645 F. Supp. 909 (D.
Colo. 1986), decision aff'd, 908 F.2d 1470
(10th Cir. 1990), reh'g denied, (June 12,
1990); General Motors Corp. v. Farnsworth,
72
Page 189
principles of comparative fault apply to
enhanced injury cases.76
V. The Right Result?
As demonstrated by the foregoing
case analysis, most courts addressing the
enhanced injury doctrine within a system
965 P.2d 1209 (Alaska 1998); Keltner v. Ford
Motor Co., 748 F.2d 1265 (8th Cir. 1984)
(applying Arkansas law); Doupnik v. General
Motors Corp., 225 Cal.App.3d 849 (Cal. Ct.
App. 1990); Day v. General Motors Corp.,
345 N.W.2d 349 (N.D. 1984); Whitehead v.
Toyota Motor Corp., 897 S.W.2d 684 (Tenn.
1995); Payne v. Ford Motor Co., 223 Wis. 2d
265, 588 N.W.2d 927 (Wis. Ct. App. 1998),
review denied (Wis. 1999); Norwest Bank
New Mexico, N.A. v. Chrysler Corp., 127
N.M. 397, 981 P.2d 1215 (N.M. Ct. App.
1999), cert. denied (May 25, 1999);
Dannenfelser v. DaimlerChrysler Corp., 370
F. Supp.2d 1091 (D. Haw. 2005) (applying
Hawaii law); McNeil v. Nissan Motor Co.,
Ltd., 365 F. Supp.2d 206 (D.N.H. 2005)
(applying New Hampshire law); Estate of
Hunter v. Gen. Motors Corp., 729 So.2d 1264,
1273–1275 (Miss.1999); Harsh v. Petroll, 584
Pa. 606, 887 A.2d 209, 218 (Pa. 2005);
Duncan v. Cessna Aircraft Co., 665 S.W.2d
414, 428 (Tex.1984); Zuern v. Ford Motor
Co., 937 P.2d 676 (Ariz. Ct. App. 1997)
(discussed supra); Jahn v. Hyundai Motor Co.,
773 N.W.2d 550, 559 (Iowa 2009) (discussed
supra).
76
Regarding the application of comparative
fault, the Restatement (Third) section 17(b)
indicates that comparative fault principles
should apply among multiple defendants. The
official comments to section 17, however,
address only the issue of apportionment of the
fault of the plaintiff, but do not discuss the
issue of applying comparative fault principles
among defendants. RESTATEMENT (THIRD) OF
TORTS: PRODUCTS LIABILITY § 17, reporter's
note to cmt. a, at 259–260.
Page 190
of comparative fault have held that the
comparative negligence of the plaintiff
and other parties applies. Based upon a
purely legal analysis, the majority
approach is arguably the correct
approach. The key to the issue is the
principle of proximate cause, which is the
focus of both the enhanced injury
doctrine and the comparative fault
doctrine. The
majority viewpoint
recognizes that enhanced injury cases can
involve several proximate causes and that
the best way to address this is through the
universal application of comparative
fault.
Comparative fault systems in place in
many states broadly define the term fault
and envision a scheme in which the fact
finder is able to hear evidence regarding
all potential proximate causes of injury
and apportion responsibility accordingly.
The jury under this system may still
consider the evidence and find that the
entire injury was caused by the defect, or
that a specific injury would not have been
caused but for the defect. Thus, the
majority viewpoint properly brings the
enhanced injury theory of liability within
the system of comparative fault.
In contrast, many of the decisions
advocating the minority position were
from states which retain some aspects of
joint and several liability. For legal
systems with pure comparative fault,
there are two major criticisms of the
minority position‘s approach of not
applying comparative fault in enhanced
injury cases.
The first is that this approach ignores
well-established principles of proximate
cause—that the injury would not have
occurred but for the negligent conduct,
and that the injury was a natural and
probable consequence of that conduct
which should have been foreseen.
Generally, in enhanced injury cases, the
defect would not have manifested itself
but for the negligence of the person
causing the initial injury. There are also
usually several acts of negligence (i.e.
negligence of the plaintiff or third
parties), all of which may be proximate
causes of the injuries the plaintiff
sustained, whether they are limited to
those sustained in the initial collision or
enhanced by a defective product in a
subsequent collision. Further, in many
enhanced injury cases, the injuries
suffered are not sufficiently separate and
distinct to be able to differentiate between
or among them. The minority viewpoint
relies on the presumption that the ―first
collision‖ and ―second collision‖ are
completely unrelated and severable,
which is oftentimes not the case in motor
vehicle accidents.77
From an application and policy
perspective, proponents of the minority
viewpoint express the concern that
allowing the jury to hear facts relating to
the initial cause of the accident will cause
confusion among jurors in assessing the
negligence of multiple parties and
determining the extent to which a
person‘s negligence caused injury. This
concern is misplaced. Jurors have
historically been assigned a civic
responsibility of seeking the truth and
applying law to the relevant facts.
Moreover, the minority approach prevents
jurors from hearing all the material facts
related to the cause of the accident, which
77
See Charles T. Wells, Douglass B. Lampe
and Larry M. Roth, D‘Amario v. Ford: Time
to Expressly State the Decision Is No Longer
Viable, 85 FLA. BAR. J. 10 (2011).
itself creates juror confusion, as jurors do
not have any knowledge regarding how
the accident occurred.
Another argument often presented in
association with the minority viewpoint
suggests that hearing evidence regarding
the cause of the initial accident may
prejudice jurors, resulting in defenseoriented verdicts, for example, in
situations in which the plaintiff is
intoxicated and speeding. These concerns
seem to be anticipated by Rule 403 of the
Rules of Evidence, which addresses the
balancing of prejudice and relevance. In
some cases, where it can be shown that
there is an enhanced injury which is
clearly distinguishable from the cause of
the initial crash and where there is a
plaintiff whose actions in causing the
crash were particularly loathsome, it may
be appropriate for the judge to limit
evidence related to the cause of the initial
crash under this Rule.
The majority viewpoint balances the
competing public policy concerns of
holding manufacturers responsible for
placing defective products on the market
and encouraging those who use the
product to do so in a responsible manner.
In enhanced injury cases, this public
policy concern is often related to
negligent or reckless driving by the
plaintiff. The majority perspective also
appropriately addresses the responsibility
of a negligent third party driver.
Manufacturers are still held responsible,
but liability is fairly and equitably divided
amongst all responsible persons.
VI. Conclusion
The enhanced injury doctrine lives
on, but has been incorporated within the
Page 191
broader umbrella of the comparative fault
system in those states which apply
comparative fault. Essentially, a claim for
enhanced injury is nothing more than a
claim for an injury that was actually and
proximately caused by a defective
product, which is the portion of the total
damages for which the manufacturer is
potentially liable under the product
liability component of the action.
Comparative fault appropriately addresses
the issue of proximate cause and the
apportionment of damages for which each
party is responsible.
A Legal Guessing Game: Does U.S. Common Law
Require Manufacturers and Suppliers of Consumer
Products to Warn in Languages Other Than
English?
By David L. Luck and
Douglas J. Chumbley
O
VER the last 30 years, the United
States has become increasingly
diverse.1 In turn, this increased cultural
variety—much due to immigration—has
coincided with a rise in the number of
households that speak primary languages
other than English.2 According to U.S.
Census
Bureau
estimates,
while
approximately 80%
of
American
households still speak English only,
12.8% speak Spanish, and 7.8% speak a
foreign language other than Spanish. 3
Further, members of almost 9% of
American households report speaking
English less than ―very well.‖ 4 Estimates
vary, but it appears relatively clear that
1
Glenda Labadie-Jackson, Warning: Silence
Can Cause Severe Harm: Spanish Language
and Civil Liability for Inadequate Warnings
and Instructions, 11 HARV. LATINO L. REV.
85, 98 (2008) (―Between 1980 and 2000, the
population of the United States grew twentyfive percent; however, the number of people
who do not speak English in their homes
doubled.‖).
2
Id.
3
U.S. CENSUS BUREAU, AMERICAN FACT
FINDER, Language Spoken at Home 2010
American
Community
Survey
1-Year
Estimates, available at http://factfinder2.censu
s.gov/faces/tableservices/jsf/pages/productvie
w.xhtml?pid=ACS_10_1YR_S1601&prodTyp
e=table (last accessed February 18, 2012).
4
Id.
David L. Luck is an
associate
with
Carlton
Fields,
P.A., in Miami,
Florida. Mr. Luck
focuses his practice
on trial support and
appellate litigation
in state and federal
courts located in Florida. Prior to
joining Carlton Fields, Mr. Luck clerked
with Justice R. Fred Lewis of the Florida
Supreme
Court.
Douglas
J.
Chumbley is of
counsel
with
Carlton
Fields,
P.A., in Miami,
Florida,
and
focuses
his
practice on products liability and toxic
tort litigation representing manufacturers
and insurers.
well over 100 languages are spoken in the
United States.5
Nevertheless, the
dominant and de facto common language
of the United States remains English,
which is recognized as the official
language of over 30 states, including
states with large Hispanic populations
like California and Florida.6
5
See, e.g., Ramirez v. Plough, Inc., 863 P.2d
167, 170 (Cal. 1993) (placing this number at
over 148 languages).
6
See U.S. ENGLISH, U.S. States with Official
English
Laws,
http://www.us-
A Legal Guessing Game
Why is this background significant
when discussing product liability issues?
Failure-to-warn theories of liability are a
regular feature in these lawsuits, 7 and as
the percentage of the U.S. population that
do not speak English with fluency rises, it
is probable that so too will the number of
cases in which plaintiffs premise liability
on an alleged failure to warn in their
native languages.
Specifically, with
regard to Spanish, at least one legal
scholar would like to provide plaintiffs
with three ―hooks‖ on which to premise
alleged warnings liability: (1) the product
was sold or used in a geographic area of
dense Hispanic population; (2) the
product has been marketed toward
Hispanics through Spanish-language
media; or (3) the product is used in an
industry with a large percentage of
Hispanic
workers (e.g., unskilled
agricultural or industrial jobs).8
As discussed below, it remains to be
seen whether U.S. common law imposes
a general duty on consumer product
manufacturers and suppliers to warn in
english.org/view/13 (last accessed February
18, 2012); CAL. CONST. Art. III, § 6; FLA.
CONST. Art. II, § 9; ARIZ. CONST. Art.
XXVIII, § 2.
7
Douglas R. Richmond, When Plain English
Isn’t: Manufacturers’ Duty to Warn in a
Second Language, 29 TORT & INS. L.J. 588,
589 (1994) (―The duty to warn is the most
widely employed theory in modern products
liability litigation.‖).
8
Keith Sealing, Peligro!: Failure to Warn of a
Product’s Inherent Risk in Spanish Should
Constitute a Product Defect, 11 TEMP. POL. &
CIV. RTS. L. REV. 153, 154, 169, 178 (2001);
see also Martinez v. Triad Controls, 593
F. Supp.2d 741, 764-765 (E.D. Pa. 2009)
(acknowledging but failing to adopt Professor
Sealing‘s three-part liability paradigm).
Page 193
languages other than English, particularly
where the product is marketed in English
and sold on a national basis, and where
the manufacturer(s) and supplier(s) do not
target minority-language groups.9 The
Restatement (Third) of Torts: Products
Liability does not directly address the
issue of foreign-language warnings;
although, in assessing the reasonableness
of a particular warning, it does discuss as
relevant factors ―comprehensibility‖ and
―the characteristics of expected user
groups.‖ Specifically, section 2(c) and its
comments exemplify the usual commonlaw rule used to assess the adequacy of
consumer product warnings:
A product . . . is defective because of
inadequate instructions or warnings
when 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 seller or other distributor, or a
predecessor in the commercial chain
of distribution, and the omission of
the instructions or warnings renders
the product not reasonably safe.
Product warnings and instructions can
rarely communicate all potentially
relevant information, and the ability
of a plaintiff to imagine a
hypothetical better warning in the
aftermath of an accident does not
establish that the warning actually
9
See, e.g., Farias v. Mr. Heater, Inc., 757 F.
Supp.2d 1284, 1289-1293 (S.D. Fla. 2010)
(holding that such a duty does not exist under
Florida common law and entering a defense
summary judgment); Medina v. Louisville
Ladder, Inc., 496 F. Supp.2d 1324, 1328-1330
(M.D. Fla. 2007) (same).
Page 194
accompanying the product was
inadequate. No easy guideline exists
for courts to adopt in assessing the
adequacy of product warnings and
instructions.
In making their
assessments, courts must focus on
various factors, such as content and
comprehensibility,
intensity
of
expression, and the characteristics of
expected user groups.10
In many economic endeavors—
including the manufacture, sale, and
support
of
consumer
products—
consistency and predictability in the rules
of the market are often essential to
attaining
preferred
outcomes. 11
Unfortunately, extant U.S. case law
addressing if and when product
manufacturers and suppliers are required
to provide bilingual or multilingual
product warnings does not lend much
certainty for those seeking a clear
compliance strategy.12
10
AMERICAN LEGAL INSTITUTE, RESTATEMENT
(THIRD) OF TORTS: PRODUCTS LIABILITY, §
2(c) & cmt. i (1998).
11
See, e.g., Ramirez, 863 P.2d at 174
(explaining
that
by
―defining
the
circumstances under which a foreign language
must be used, the [California] Legislature has
drawn clear lines so that affected persons and
entities know exactly what is expected of
them‖).
12
In comparison, Canada, which has two
official languages—English and French—
provides relatively clear guidance to consumer
product manufacturers, distributors, and
sellers
regarding
Canadian
bilingual
packaging requirements.
See CANADIAN
CONSTITUTION ACT OF 1982, part I, § 16.1,
available
at
http://laws.justice.gc.ca/eng/Const/PRINT_E.
PDF (last accessed February 18, 2012)
(―English and French are the official
languages of Canada and have equality of
status . . . .‖); COMPETITION BUREAU OF
CANADA, Guide to the Consumer Packaging
and Labelling Act and Regulations, available
at
http://www.competitionbureau.
gc.ca/eic/site/cb-bc.nsf/eng/01248.html (last
accessed February 18, 2012) (outlining, inter
alia, Canada‘s English and French bilingual
packaging regulations). As the Competition
Bureau resource explains,
Subsection 6(2) of the [Canadian]
Consumer Packaging and Labelling
Regulations requires that ―all‖ mandatory
label information be shown in English and
French except the dealer‘s name and
address which can appear in either
language.
Any label information in addition to the
mandatory requirements discussed above
(i.e. directions for use, promotional
statements, etc.) does not have to appear
in a bilingual manner. Dealers are,
however, encouraged to include such
information in English and French.
Limited exemptions from the bilingual
labelling requirement are provided in
subsections 6(3) and 6(7) of the
Regulations for test market products
(temporary exemption of up to one year;
see Section 2.4.2 below), local products,
and specialty products. In such instances,
the
applicable
mandatory
label
information may appear in either official
language.
Subsection 6(9) of the Regulations
provides an exemption from the bilingual
labelling requirements when the product
requires knowledge of a language for its
proper use (i.e. greeting cards, books,
talking toys, and games). The label
information for these products may be
Page 195
The body of reported case law
addressing an alleged failure to warn in a
foreign language is relatively sparse, and
many of these cases come from federal
district courts, not state or federal
appellate courts.13
Recently, federal
district courts sitting in Florida have
taken center stage in addressing this
issue.14 While the trend appears to be that
the provision of product warnings in a
foreign language will generally not be
required, there might still be certain
situations under which a product
manufacturer or supplier has assumed a
duty to provide such warnings (in
addition to English-language product
information). For example, when the
manufacturer or supplier has engaged in
concerted product advertising in the given
foreign language—thereby targeting
consumers that the manufacturer or
supplier knows do not speak English well
or at all—the court might allow a foreignlanguage warnings claim to proceed to
the jury for its consideration. 15
Farias v. Mr. Heater, Inc.16 is the
most recent case to address whether
product manufacturers and suppliers owe
a duty to warn in a language other than
English.17 There, during an unusually
cold winter for South Florida, a
naturalized U.S. citizen originally from
Cuba, who spoke Spanish but little
English, decided to purchase space
heaters for use in her Miami home. 18 To
do so, she visited a national retailer,
where she purchased two outdoor,
propane-fired heaters.19 These heaters
were designed and manufactured in Ohio
and sold throughout the United States. 20
The accompanying packaging, labeling,
and instructions were in English only.21
Further, the retailer and manufacturer had
not advertised the product in a language
other than English and did not otherwise
target any minority-language group for
sales of the subject product.22
Despite recognizing that the heaters
included product warnings regarding
potential dangers, the woman failed to
discover the subject of these English
warnings by having someone translate
displayed in the language appropriate to
the use of the product.
13
See generally Marjorie A. Caner, Products
Liability: Failure to Provide Product Warning
or Instruction in Foreign Language or to Use
Universally Accepted Pictographs or Symbols,
27 A.L.R. 5th 697 (1995); AMERICAN LAW OF
PRODUCTS LIABILITY 3D § 33:10 (Timothy E.
Travers ed.).
14
See Farias, 757 F. Supp.2d at 1284;
Medina, 496 F. Supp.2d at 1324; Stanley
Industries, Inc. v. W.M. Barr & Co., Inc., 784
F. Supp. 1570 (S.D. Fla. 1992).
15
See Stanley, 784 F. Supp. at 1574-1576; but
see Ramirez, 863 P.2d at 177 (largely
overlooking the use of such advertising where
there was no indication that the given
consumer saw or relied on the defendant‘s
foreign-language ads).
16
757 F. Supp.2d 1284 (S.D. Fla. 2010).
17
Along with Gregory M. Cesarano, the
authors of this article were counsel for the
Farias defendants in the United States District
Court for the Southern District of Florida.
The plaintiff has appealed the entry of a
defense summary judgment to the United
States Eleventh Circuit Court of Appeals. Mr.
Cesarano and the authors continue as counsel
for the Farias appeal, which remains pending.
18
Farias, 757 F. Supp.2d at 1287-1288.
19
Id.
20
Id.
21
Id.
22
Id. at 1290-1291.
I.
Existing Precedent
Page 196
them for her.23 Instead, she relied on six
labeled illustrations appearing on the side
of the product box that depicted potential
product use in well-ventilated areas—
―Loading Docks,‖ ―New Construction,‖
―Warehouses,‖
―Splitting
Wood,‖
―Patios,‖ and ―Home Auto Repair‖—to
reach the conclusion that it was safe to
use the heaters inside her home. 24 None
of these illustrations depicted product use
inside a dwelling, and, further, the
heaters‘ packaging and owner‘s manual
warned that the product was for outdoor
use only and that improper use inside a
dwelling or other enclosed space risked
death or serious injury due to fire, burn,
explosion, and asphyxiation.25
That night, the woman used the
heaters inside her home, and one of the
heaters ignited her living room sofa. As a
result, her residence suffered severe fire
and smoke damage, but, thankfully, the
woman exited uninjured.26 After her
first-party property insurer reimbursed
her for the damage to her home, the
insurer
brought
a
products
liability/subrogation suit in the woman‘s
name
against
the
retailer
and
manufacturer.
The suit sounded in
negligence and strict liability, with the
primary allegation being a failure to warn
in Spanish.27
The defendants later
moved for summary judgment, inter alia,
based on the contention that Florida did
not impose a general duty to provide
Spanish-language
warnings
with
consumer products sold in the state.28
The district court agreed, and, in the
process, distinguished and questioned the
validity of a potentially contrary decision
issued nearly two decades earlier by the
same court: Stanley Industries, Inc. v.
W.M. Barr & Co., Inc.29
Specifically, the Farias court
distinguished and limited Stanley to
situations in which the defendant engages
in Spanish-language product marketing
but then fails to provide Spanish
instructions and warnings with the
product. Agreeing with and relying on an
earlier case from the Middle District of
Florida, Medina v. Louisville Ladder,
Inc.,30 the Farias court reasoned as
follows:
. . . [S]ince Stanley . . . was decided,
not one published Florida case in
either federal or state court has
relied on the decision to conclude
that
bilingual
warnings
and
instructions may be necessary under
Florida law. . . . [T]here is no
indication that Florida law imposes a
duty on manufacturers and sellers to
provide bilingual warnings on
consumer products. . . . It would
therefore be improper for this Court
to expand the bounds of product
liability or negligence beyond what
Florida courts themselves have
found appropriate in this regard.
Insomuch as Stanley . . . stands for
23
Id. at 1287-1288, 1290, 1292-1293.
Id. at 1292-1293 (note, however, that the
district court‘s order does not specify the
illustrations‘ labeling).
25
Id.
26
Id. at 1288.
27
Id. at 1286-1288 & n.1.
24
28
Id. at 1286-1287.
84 F. Supp. 1570 (S.D. Fla. 1992); see
Farias, 757 F. Supp.2d at 1289-1293.
30
496 F. Supp.2d 1324 (M.D. Fla. 2007).
29
the contrary proposition, this Court
refuses to follow in its footsteps.31
Following its rejection of an
expansive reading of Stanley, the Farias
court granted summary judgment in the
defendants‘ favor since (1) it was
undisputed that they had not advertised or
otherwise marketed the heaters in
Spanish, and (2) the court found the
heaters‘
English
warnings
clear,
unambiguous, and adequate as a matter of
law.32
Medina, the Middle District of
Florida case on which Farias relied,
involved a similar fact pattern and
holding.
There, a Spanish-speaking
plaintiff purchased an attic ladder, which
included English instructions and
warnings.33 Neither the plaintiff nor his
handyman understood much English, and
rather than have someone translate or
explain the product‘s instructions and
warnings, they ignored the product
information. As a result, they improperly
installed the ladder in the plaintiff‘s
home, and the ladder later collapsed,
injuring the plaintiff.34 The plaintiff later
sued
the
product
retailer
and
manufacturer, contending that Spanish
warnings were required because the
product was sold in a region with a high
concentration of Spanish speakers.
However, there was no indication that the
defendants advertised the ladder in
Spanish.35 On these facts, the district
Page 197
court determined that Florida does not
impose a common-law duty to warn in
Spanish and likewise refused to follow
Stanley.36
In contrast, Stanley, the only Florida
case (state or federal) that appears to
presume that a duty to warn in Spanish
might exist under some circumstances,
did so based on distinct facts.37 There,
the subject product, flammable linseed oil
used for industrial cleaning, included
English instructions and warnings. 38
However,
the
manufacturer
and
distributor engaged in a joint Spanishlanguage marketing campaign in Miami‘s
Hispanic media, including Spanish radio,
television, and print ads. 39 Based on this
targeting of Spanish-only speakers
through product advertisements, the
Stanley court assumed the defendants had
undertaken a duty to warn in Spanish, and
concluded that—in those circumstances—
foreseeability, adequacy, and proximate
cause were issues for the jury:
In light of the defendants‘ joint
advertising in Miami‘s Hispanic
media and the nature of the product,
this court . . . finds that it is for the
jury to decide whether the defendant
could have reasonably foreseen that
the boiled linseed oil would be used
by persons such as [plaintiff‘s
employees],
Spanish-speaking
unskilled laborers.40
31
Farias, 757 F. Supp.2d at 1290-1291 & n.7
(internal citations, divisions, and quotation
marks omitted).
32
Id. at 1289-1293.
33
Medina, 496 F. Supp.2d at 1326.
34
Id.
35
Id. at 1325-1326.
36
Id. at 1328-1330.
Stanley, 784 F. Supp. at 1570-1576.
38
Id. at 1572-1573.
39
Id. at 1573-1574.
40
Id. at 1576. After trial, however, the Stanley
case resulted in a defense verdict and
37
Page 198
Similar to Farias and Medina, a 2009
case applying Pennsylvania law, Martinez
v. Triad Controls,41 likewise refused to
apply Stanley where the manufacturer did
not market its product to, or otherwise
target, Spanish speakers. Indeed, the
product involved in Martinez, an
industrial power press, was manufactured
and sold in Ontario, Canada in 1978
without any apparent expectation that it
would be used by individuals who spoke
only Spanish.42 In finding no duty to
warn in Spanish, the court reasoned: ―If
the Court allowed liability here, it would
suggest the need for too many warnings
in too many languages when it would not
be foreseeable that such warnings would
be useful.‖43 Therefore, the court entered
a defense summary judgment on the
plaintiff‘s warnings claim while allowing
various design defect theories to
proceed.44
The ongoing theme thus
appears to be that Stanley is limited to
situations in which the manufacturer,
supplier and/or seller targets foreignlanguage speakers through product
marketing presented in their native
languages.
The California Supreme Court issued
perhaps the most well-known decision in
this area—Ramirez v. Plough, Inc.45—but
its holding is expressly limited to the
context of over-the-counter medicine. In
Ramirez, a mother purchased and used a
corresponding judgment, which determined
that the product‘s English-only warnings were
adequate and non-defective. See Sealing,
supra note 8, at 162.
41
593 F. Supp.2d 741 (E.D. Pa. 2009).
42
Martinez, 593 F. Supp.2d at 764-765.
43
Id. at 765.
44
Id.
45
863 P.2d 167 (Cal. 1993).
particular brand of children‘s aspirin to
treat her infant son‘s upper respiratory
infection. After using this medication,
the infant developed Reye‘s syndrome, a
rare condition suspected to be linked to
aspirin use in children and adolescents
that results in severe neurological
damage.46 The aspirin‘s package insert
warned of this potential link, but did so
only in English.47 In contrast, the child‘s
mother spoke only Spanish. Similar to
the Farias plaintiff, however, she
recognized that the aspirin included
English product warnings but failed to
have them translated or otherwise
explained.48 The mother later brought
suit against the aspirin manufacturer
alleging various theories, including a
failure to warn in Spanish of her son‘s
risk of developing Reye‘s syndrome. 49
The trial court entered summary judgment
for the defendant based on a lack of duty
to warn in Spanish.
However, the
intermediate appellate court reversed the
trial court.50
On review, the California Supreme
Court analyzed the issue as one
implicating the appropriate standard of
care rather than whether the defendant
owed a legal duty.51 Based on the
extensive level of federal and state
regulation
of
over-the-counter
medicines—which required that drug
information be communicated in English
(but did not prohibit identical warnings
and instructions in foreign languages)—
the Court held that these federal and state
46
Ramirez, 863 P.2d at 168-170.
Id.
48
Id. at 169-170, 177.
49
Id. at 168.
50
Id.
51
Id. at 171-178.
47
regulations established the appropriate
standard of care and mandated that the
pharmaceutical manufacturer provide
warnings regarding the risk of Reye‘s
syndrome in English, not Spanish.
Accordingly, it reversed and directed the
intermediate appellate court to affirm the
entry of summary judgment in favor of
the defendant.52
In addition, the Ramirez court
provided reasoning that might prove
helpful in cases outside the over-thecounter drug context. Specifically, it
observed that legislatures and related
regulatory agencies are better suited at
establishing the circumstances under
which product warnings and information
should
be
provided
in
foreign
languages—including the determination
of which foreign languages should be
used:
Defining the circumstances under
which warnings or other information
should be provided in a language
other than English is a task for
which
the
legislature
and
administrative
bodies
are
particularly well suited.
. . . [T]he Legislature and concerned
administrative agencies are able to
provide the appropriate forum to
consider
the
arguments
for
multilingual warnings.
.
. . . The extent to which special
considerations should be given to
persons who have difficulty with the
English language is a matter of public
policy for consideration by the
52
Id.
Page 199
appropriate legislative bodies and not
by the Courts.53
In Torres-Rios v. LPS Laboratories,
Inc.,54 a case involving the Federal
Hazardous Substances Act,55 the United
States First Circuit Court of Appeals
reached a substantially similar holding.
There, the plaintiff who was working in
Puerto Rico—a U.S. territory whose
primary official language is Spanish—
suffered severe burns when a flammable
cleaner he was using ignited because of
nearby welding activity. 56 The metal
drums containing the cleaner included
warnings thoroughly explaining the fire
risk in English and also carried universal
flame symbols indicating flammability. 57
Similar to the California Supreme Court
in Ramirez, the Torres-Rios court
interpreted the implicated legislation and
associated
federal
regulations
as
mandating
English
warnings
and
permitting—but not requiring—warnings
in other languages.58 In addition, the
court reasoned that the flame symbol
filled any language gap that may have
existed. Consequently, the court affirmed
the entry of a defense summary judgment
on the plaintiff‘s warning claim. 59
Interestingly, the two cases perhaps
most frequently discussed as supporting a
duty to warn in a foreign language did not
reach such a holding. Rather, the courts
in Hubbard-Hall Chemical Co. v.
53
Id. at 174, 177-178 (internal citations,
divisions, and quotation marks omitted).
54
152 F.3d 11 (1st Cir. 1998).
55
15 U.S.C. §§ 1261-1277.
56
Torres-Rios, 152 F.3d at 12-13.
57
Id. at 12-15.
58
Id. at 13-15.
59
Id.
Page 200
Silverman60 and Campos v. Firestone Tire
& Rubber Co.61 recognized that in
addition to English warnings, the
defendants should have included symbols,
not foreign language warnings, to indicate
significant product dangers.
Silverman involved the spraying of a
highly poisonous pesticide, Parathion, on
a New England farm.
Plaintiffs‘
decedents, two Puerto Rican farm
employees who spoke and read little or no
English, sprayed Parathion dust without
oral, eye, or skin protection and died as a
result.62 In affirming a jury verdict and
judgment in favor of the plaintiffs on their
warnings claims, the First Circuit Court
of Appeals explained that despite the
manufacturer‘s compliance with federal
labeling requirements, liability was still
supportable based on the failure to
include a skull-and-crossbones symbol
indicating the poison danger for those
who could not read the written product
warnings:
[D]efendant should have foreseen
that its admittedly dangerous
product would be used by, among
others, persons like plaintiffs‘
intestates, who were farm laborers,
of limited education and reading
ability, and that a warning even if it
were in the precise form of the label
submitted to the Department of
Agriculture would not, because of its
lack of a skull and bones or other
60
340 F.2d 402 (1st Cir. 1965).
485 A.2d 305 (N.J. 1984).
62
Silverman, 340 F.2d at 403-404. The
deceased workers‘ employer testified that he
informed them of the poison risk. However, it
appears that the jury did not credit this
testimony. See id.
61
comparable
symbols
or
hieroglyphics,
be
adequate
instructions or warnings of its
Parathion‘s dangerous condition.
The approval of the label given by
the Department of Agriculture
merely satisfied the conditions laid
down by Congress for the shipment
of the product in interstate
commerce.63
63
Id. at 405 (internal quotation marks
omitted).
As another commentator has
explained regarding the particular risk
involved in Silverman:
In response to situations such as this, the
U.S. Environmental Protection Agency
(EPA) has adopted a mandatory
approach for the labeling of toxic
pesticides. The EPA has identified four
levels of toxicity. For categories I and
II, which are the highest level, the rule
requires that the ―signal word‖ be in
Spanish. A signal word is that word
contained in the warning or instructions
that is intended to catch the user's
attention. This would include such
words as: "Danger," "Warning,"
"Poison" or "Caution." The label is also
required to contain a statement in
Spanish instructing anyone who does not
understand the label to find someone to
explain it in full detail. This rule serves
to assure that the consumer is aware of
the need to understand the label, but it
does not go so far as to require the
manufacturer to provide a full translation
of the label.
S. Mark Mitchell, A Manufacturer’s Duty to
Warn in a Modern Day Tower of Babel, 29
GA. J. INT‘L & COMP. L. 573, 585 (2001)
(citation footnotes omitted).
Significantly, this reasoning from
Silverman might be in tension with the
more recent First Circuit decision in
Torres-Rios, discussed above, which held
that the fact that the Federal Hazardous
Substance Act and related regulations
required labeling only in English
supported a conclusion that only English
warnings were required.64
However,
unlike Silverman, the product involved in
Torres-Rios also included a symbolic
representation of the relevant product
danger (a flame symbol demonstrating
flammability).65
In similar fashion, Campos involved
an illiterate plaintiff who could not read
in English or his native Portuguese. As a
result, he could not read a placard
prominently displayed in the truck-tire
assembly operation where he worked that
informed him and other workers of the
risk of explosion of improperly mounted
tires.66 He was later severely injured
when a truck wheel and tire he was
inflating exploded. However, he was
already independently aware of this risk,
having previously experienced such an
incident. Indeed, the risk was open and
obvious given that the rim and tire were
assembled and inflated inside a metal
64
Torres-Rios, 152 F.3d at 12-15; see also
Ruiz Diaz v. R.J. Reynolds Tobacco Co., 340
F. Supp.2d 106, 107-108 (D. P.R. 2004)
(holding that the Federal Cigarette Labeling
Act only requires English product information
and warnings, even for cigarettes sold within
Puerto Rico).
65
Torres-Rios, 152 F.3d at 13-14.
66
Campos, 485 A.2d at 307-308, superseded
by statute on other grounds as stated in
Dewey v. R.J. Reynolds Tobacco Co., 577
A.2d 1239, 1253 (N.J. 1990).
Page 201
cage for this very reason.67 Nevertheless,
the New Jersey Supreme Court remanded
the plaintiff‘s warnings claim for a new
trial so that the jury could consider
whether the defendant should be liable for
failing
to
provide
a
symbolic
representation of the explosion risk
notwithstanding
the
plaintiff‘s
preexisting, independent awareness of the
relevant danger.68
In sum, despite their frequent citation
when discussing a potential duty to warn
in a foreign language, neither Silverman
nor Campos held that the defendant had a
duty to warn in a language other than
English.
Instead, each is better
understood as requiring pictorial safety
symbols to supplement English-only
warnings when it is foreseeable that a
large portion of likely product users is
illiterate or otherwise unable to read
English.
II. Conclusion
Potential
Defendants
and Lessons for
Product
Liability
In reviewing the precedent discussed
above, there are no reported cases from
U.S. jurisdictions that explicitly require
the inclusion of bilingual or multilingual
product warnings. However, at least
when manufacturer(s) and/or supplier(s)
advertise a particular product in a foreign
language within the United States, they
should consider providing full product
information in the applicable foreign
language—including
product
safety
warnings—along with the product. But
what of the two other potential liability
67
68
Campos, 485 A.2d at 307-308.
Id. at 308-312.
Page 202
―hooks‖ discussed in legal scholarship:
(1) that the product was sold or used in a
geographic area of a dense foreignlanguage population (although, one must
consider whether the manufacturer of a
widespread, nationally distributed product
has any control over this circumstance);
or (2) that the product is used in an
industry with a large percentage of
foreign-language workers?
In such
circumstances, cases like Stanley,
Silverman, and Campos raise a specter of
liability and might caution in favor of
adding
language-neutral
symbols
representing significant product dangers.
However, symbols are necessarily of
limited utility due to their non-uniform
nature69
and
their
inability
to
69
The American National Standards Institute
(―ANSI‖) and the International Organization
for Standardization (―ISO‖) have developed
voluntary standards addressing pictorial or
symbolic warnings. However, adherence to
theses voluntary standards does not
necessarily insulate manufacturers, suppliers,
and sellers from potential liability. See, e.g.,
Forrest City Mach. Works, Inc. v. Aderhold,
616 S.W.2d 720, 723 (Ark. 1981) (evidence
regarding compliance with industry standards
is relevant but not dispositive regarding the
issue of liability); Elsasser v. Am. Motors
Corp., 265 N.W.2d 339, 342 (Mich. Ct. App.
1978) (substantially similar); but see Holst v.
KCI Konecranes Int‘l Corp., 699 S.E.2d 715,
723 (S.C. Ct. App. 2010) (holding that
plaintiff‘s warnings claim failed as a matter of
law, inter alia, because the product‘s written
warnings and warning labels complied with
relevant industry standards). Further, there
does not appear to be a truly uniform
international consensus regarding the formats
used for pictorial product warnings. See
Mitchell, supra note 63, at 594; R. Geoffrey
Dillard, Note, Multilingual Warning Labels:
Product Liability, “Official English,” and
communicate only basic information,
such as that using the pertinent product
might entail risks like fire, explosion, and
poisoning/toxicity.
Symbols cannot
communicate complex use instructions or
more nuanced explanations of significant
product risks.70
Other solutions apart from providing
fully
duplicative
foreign-language
product information have also been
proposed, such as:
Consumer Safety, 29 GA. L. REV. 197, 237239 (1994).
70
See Ramirez, 863 P.2d at 171 n.3
(―[A]lthough symbols and pictograms can be
used effectively to warn that a substance is
flammable or toxic, or to explain its
preparation and use . . . , it is doubtful that
they are at present able to convey the more
complex warning information typically
required for nonprescription drugs.‖); Kenneth
Ross, The Duty to Warn Illiterate or NonEnglish-Reading Product Users, IN-HOUSE
DEFENSE Q., Winter 2008, at 32 (explaining
that a symbol or pictorial generally cannot
―communicate the probability of an incident
occurring and/or how to avoid the hazard‖);
Sealing, supra note 8, at 174 (―A simple
symbol representing ‗danger‘ is only a partial
solution. . . . The symbol cannot explain the
nature and extent of the danger presented or
give instructions as to how to operate the
device in a safe manner.‖); Mitchell, supra
note 63, at 594 (―The use of symbols raises
more questions such as: when should they be
used, who would develop these symbols, and
would they be adopted internationally?‖)
(footnote citation omitted); Dillard, supra,
note 69, at 237-239 (describing symbols as an
inherently limited solution due to (1) their
inability to communicate complex, detailed
information, and (2) a lack of international
uniformity).
Symbols accompanied by key
foreign-language signal words
that communicate basic hazard
information. E.g., a skull-andcrossbones symbol accompanied
by the foreign words for
―danger‖ and ―poison.‖71
Short, conspicuous statements in
widely spoken foreign languages
(e.g., Spanish) cautioning the
consumer that the product
should never be used without
fully consulting its use directions
and safety warnings, which
should therefore be explained by
someone available to the
consumer before use.72
Product hotlines identified on
the product‘s packaging that
exist to provide translated
product information on an asneeded basis.73
Product pamphlets available on
request at retailers located in
regions with significant foreignlanguage
communities.
Presumably, retailers know their
customers best and can therefore
notify the manufacturer when
such information is needed or
wanted.74
There are always risks with such
abridged efforts, including that plaintiffs,
in retrospect, will characterize them as
falling short of the full foreign-language
product information they claim should
71
See, e.g., Ross, supra note 70, at 32.
See, e.g., Dillard, supra note 69, at 240.
73
See, e.g., id. at 240-241.
74
See, e.g., id. at 242-243.
72
Page 203
have been provided.75 Further, what
happens when the manufacturer or
supplier decides voluntarily to warn in
one foreign language, for example
Spanish, but a Chinese, Arabic,
French/Creole, Portuguese, or Korean
speaker is later injured after failing to
understand product information that was
only provided in English and Spanish?
While recent legal scholarship seems to
scoff at the idea that foreign-language
warnings other than Spanish might have
to be included if Spanish warnings are
added,76 counsel for an injured plaintiff
who speaks a foreign language other than
Spanish is unlikely to share these
sentiments. This is one area where the
lack of clarity on this issue becomes
particularly concerning.
Even if product manufacturers,
suppliers, consumers, and the legal
system could agree with the general
proposition
that
Spanish
product
information should be included in
addition to English, where does the
principle that foreign-language warnings
might be necessary end? What other
languages from the 100+ spoken in the
U.S. would make the cut? How could
manufacturers and suppliers reasonably
gauge liability and plan to provide safety
information in those languages required
75
For example, in Torres-Rios, despite the
presence of English warnings and a
universally recognized symbol indicating a
fire hazard, the plaintiff sued contending that
the manufacturer failed to warn of the risk of
fire in Spanish. 152 F.3d at 11-15.
76
See Labadie-Jackson, supra note 1, at 100101
(discounting
as
comparatively
insignificant the perceived need to warn in
foreign languages other than Spanish);
Sealing, supra note 8, at 175-176 (same).
Page 204
by a legal judgment rendered only in
hindsight? Perhaps the answer should not
be left to case law development or
volunteerism, and perhaps the California
Supreme Court was correct in Ramirez
when it explained that legislatures and
regulatory agencies are better suited to
determine whether foreign-language
product information should be included
(and in which languages). 77
This might be one area in which
more, not less, regulation is preferred in
order to promote reasonable certainty as
to which languages should be represented
in the information provided with
consumer products sold in the United
States.
Further, to ensure national
uniformity for our national market, and to
avoid potential Commerce Clause
concerns, perhaps that regulation should
come from Congress, not the legislatures
of the several states.78 That way, all
players will know the rules of the game:
warn in English and whatever other
languages the federal government
identifies as sufficiently widespread, and
you will be insulated from liability for
declining to warn in other languages. At
present, however, in areas not already
subject to language-based governmental
regulation, manufacturers, suppliers, and
legal advocates will have to make do with
the limited case law discussed above in
crafting their compliance strategies.
77
See Ramirez, 863 P.2d at 174, 177-178.
Cf. Bibb v. Navajo Freight Lines, Inc., 359
U.S. 520, 529-530 (1959) (holding that an
Illinois law mandating a specific type of semitruck rear fender mudguard—which differed
from those required in the majority of other
states—imposed a serious burden on national
commerce and violated the Commerce Clause
of the U.S. Constitution).
78
A New Argument Supporting Removal of Diversity
Cases Prior to Service
By Zach Hughes
P
LAINTIFFS AND DEFENDANTS in
complex litigation have always
battled over the forum in which a case
will be tried, with plaintiffs generally
preferring state courts and defendants
generally preferring federal courts. When
complete diversity exists among the
parties, one strategy plaintiffs seeking to
avoid federal jurisdiction may employ is
to file their case away from their home
state in a perceived favorable state court
forum in which one of the defendants is a
citizen in an effort to trigger the so-called
“forum defendant rule” found in 28
U.S.C. § 1441(b).1 In some instances, this
can serve as a barrier to removal in cases
that otherwise meet all the requirements
of federal diversity of citizenship
jurisdiction under 28 U.S.C. § 1332.
The forum defendant rule prohibits
removal to federal court if any of the
“properly joined and served defendants”
is a citizen of the State in which the case
is filed. Although this language has been
codified since 1948, it has drawn
increasing judicial scrutiny in recent years
as electronic case monitoring has
enhanced defendants‟ abilities to learn
about cases before they have been
formally served, which has, in turn,
1
Section 1441(b) is irrelevant to cases in
which the plaintiff files in his or her home
state. When the plaintiff files a lawsuit in his
or her home state, any resident defendant is,
by definition, a non-diverse citizen under 28
U.S.C. § 1332, which renders the forum
defendant rule in Section 1441(b) moot.
Zach Hughes is a partner
in the New York office of
Baker Botts L.L.P. His
practice focuses on Life
Sciences litigation and
complex
commercial
disputes. Mr. Hughes is
a graduate of Vanderbilt
University and the Notre Dame School of
Law. He is a member of the State Bars of
New York and Texas.
increased the number of cases being
removed before the forum defendant has
been served.
The majority of federal district courts
have continued to apply the plain
language of the statute, ignoring the
residency of the unserved forum
defendant for purposes of Section
1441(b), and denying plaintiffs‟ motions
for remand.2 However, a minority of
courts have countered that the plain
language should be ignored because it
produces “absurd” results that are
contrary to Congress‟ presumed intent in
2
The citizenship of unserved defendants
cannot be ignored for purposes of determining
whether complete diversity exists under 28
U.S.C. § 1332. Complete diversity is a
substantive requirement of federal subject
matter jurisdiction that cannot be waived.
However, the majority of federal circuits to
consider the question have held that Section
1441(b) is non-jurisdictional, and it can be
waived voluntarily or involuntarily (e.g., by
failing to serve the forum defendant or failing
to timely move to remand the case). See, e.g.,
Coto Settlement v. Eisenberg, 593 F.3d 1031,
1034 (9th Cir. 2010); but see Hurt v. v. Dow
Chem. Co., 963 F.2d 1142 (8th Cir. 1992).
Page 206
drafting the statute. The argument is
typically framed as one of plain language
versus presumed Congressional intent.
This debate between plain language
and presumed Congressional intent is sure
to be impacted by the Federal Courts
Jurisdiction and Venue Clarification Act
of 2011 (the “Act”), which became
effective on January 6, 2012.3 In the Act,
Congress revised the law of removal to
address several splits of authority that had
developed in the modern jurisprudence of
removal, but notably, left unchanged the
“properly joined and served” language of
Section 1441(b).
The absence of
amendment severely undercuts the notion
that Congress intended something other
than the plain language that requires
proper joinder and service of a forum
defendant in order for Section 1441(b) to
prohibit removal.
which the forum defendant(s) were
“properly joined and served.”5 The
historical reason for the amended
language is unclear. In fact, one court
conducted a thorough search of the
published legislative history and was
“able to locate neither a specific
statement from Congress nor from the
advisory Committee on Revision of the
Judicial Code, regarding the addition of
the „properly joined and served‟
language.”6 As discussed below, some
have speculated that the new language
was intended solely to prevent
fraudulently joined resident defendants
from
thwarting
otherwise
proper
removals, but this argument is
unconvincing because the fraudulent
joinder argument was already available to
defendants seeking removal prior to
1948.7 Moreover, this explanation of
I.
5
Brief History of Section 1441(b)
The forum defendant rule pre-dates
the original enactment of Section 1441(b)
in 1948. Under the previous statute,
removal was available based on diversity
of citizenship only “by the defendant or
defendants therein, being nonresidents of
that state.”4 This language lent itself to a
black and white rule that made service on
a forum defendant irrelevant for purposes
of the forum defendant rule.
In 1948, Congress amended the
removal statute and created Section
1441(b), which limited the prohibition of
the forum defendant rule to instances in
3
Federal Courts Jurisdiction and Venue
Clarification Act of 2011, Pub. L. No. 112-63,
§ 105, 125 Stat. 762 (2011).
4
28 U.S.C. § 71 (1946) (current version at 28
U.S.C. § 1441 (2011)).
28 U.S.C. §1441, ch. 646, 62 Stat. 937
(1948); see also Windac Corp. v. Clarke, 530
F. Supp. 812, 813 (D. Neb. 1982) (finding that
an unserved forum defendant should be
ignored for purposes of removability under the
new Section 1441(b), but holding that the
forum defendant‟s general appearance in that
case operated in lieu of service on the
defendant for purposes of removability under
Section 1441(b)).
6
Sullivan v. Novartis Pharms. Corp., 575 F.
Supp.2d 640, 644 (D. N.J. 2008).
7
See Pullman Co. v. Jenkins, 305 U.S. 534,
541, 59 S.Ct. 347, 351 (1939) (“It is always
open to the non-resident defendant to show
that the resident has not been joined in good
faith and for that reason should not be
considered in determining the right to
remove.”). In Pullman, the Court held that
removal by a non-resident defendant was not
proper because the unserved forum defendant
would destroy diversity. The result would be
no different under the current version of
Section 1441(b) because non-service of a
A New Argument Supporting Removal of Diversity Cases Prior to Service
Congress‟ presumed intent completely
ignores the “and served” language in
Section 1441(b). Whatever the reason for
the change in 1948, despite multiple
amendments by Congress to various part
of the removal statute, the “properly
joined and served” language has remained
unchanged for more than fifty years. 8
II. The
Majority
View:
Plain
Language of the Statute Must be
Followed
One of the first district courts to
analyze thoroughly the issue of removal
under Section 1441(b) despite the
presence of an unserved forum defendant
was Wensil v. E.I. Dupont de Nemours
and Company.9 Wensil involved plaintiffs
from West Virginia bringing claims
against
Dupont,
Blount
Brothers
Corporation, and eight other defendants
in a South Carolina state court. Plaintiffs
served the complaint on Dupont and
defendant cannot be used as a basis to ignore
citizenship for purposes of determining
diversity under Section 1332. See supra note
2.
8
See Pub. L. No. 94-583, § 6, 90 Stat. 2898
(1976); Pub. L. No. 99-336, § 3(a), 100 Stat.
637 (1986); Pub. L. No. 100-702, § 1016(a),
102 Stat. 4669 (1988); Pub. L. No. 101-650, §
312, 104 Stat. 5114 (1990); Pub. L. No. 102198, § 4, 105 Stat. 1623 (1991); Pub. L. No.
107-273, § 11020(b)(3), 116 Stat. 1827
(2002); Pub. L. No. 112-63, §§ 103(a), 105,
125 Stat. 759-760 (2011).
9
792 F. Supp. 447 (D. S.C. 1992). It is not
surprising that this issue did not come to the
forefront until the realities of modern litigation
made it economically feasible and often
strategic for plaintiffs to file cases away from
their home state and in the home state courts
of one or more of the defendants.
Page 207
Blount Brothers, both of which were
residents of neither West Virginia nor
South Carolina, but Plaintiffs failed to
serve any of the other eight defendants,
all of whom were residents of South
Carolina. Dupont and Blount Brothers
removed the case to federal court based
on diversity jurisdiction.
Plaintiffs
moved to remand the case under Section
1441(b) based on the presence of the
unserved forum defendants. In denying
the motion for remand, the Wensil court
articulated what has become the majority
rule.
Courts are obligated to give effect, if
possible, to every word used by the
legislature. Here, Congress chose the
phrase “properly joined and served”
and this Court should not adopt an
interpretation of the statute which
renders the “and served” provision
superfluous.
In the absence of clearly expressed
legislative intent to the contrary,
unambiguous statutory language must
be given its plain meaning. Section
1441(b) unambiguously states that
diversity actions “shall be removable
only if none of the parties in interest
properly joined and served as
defendants is a citizen of the State in
which such action is brought.” The
statute is clear. The presence of
unserved resident defendants does not
defeat removal where complete
diversity exists.10
10
Id. at 448 (emphasis in original) (citations
omitted).
Page 208
Since the decision in Wensil, more
than fifty federal district courts have
followed this plain language approach
and ignored the residency of unserved
defendants
when
analyzing
the
removability of a case under Section
1441(b).11
III. The
Minority
View:
Plain
Language of the Statute Should be
Ignored
In contrast to the majority view, a
minority of courts argue that the plain
language should be ignored because
application of the plain language can
produce absurd results that are contrary to
Congress‟ presumed intent in drafting the
forum defendant rule.
In Ethington v. General Electric
Company,12 for example, the Plaintiffs
sued three General Electric entities in
New Jersey state court for injuries
allegedly sustained following the
injection of a contrast agent used in an
MRI procedure. Plaintiffs, who were
residents of Utah, provided a courtesy
copy of their complaint to the defendants
11
See, e.g., In re Fosamax Prods. Liab.
Litig., No. 1:06-md-1789, 2008 WL 2940560,
at *2 (S.D.N.Y. July 29, 2008) (“Courts
almost uniformly have read this [„properly
joined and served‟ language] to allow removal
where an in-state defendant has not been
served by the time the removal petition is
filed.”); Massey v. Cassens & Sons, No. 05CV-598, 2006 WL 381943, at *2 (S.D. Ill.
Feb. 16, 2006) (“Under the statute‟s plain
language, therefore, if a resident defendant is
not both joined and served, the forum
defendant rule does not apply. This is the
conclusion that has been reached „virtually
uniformly‟ by federal courts.”).
12
575 F. Supp.2d 855 (N.D. Ohio 2008).
on the day it was filed. The next business
day, Defendants, two of which were
residents of New Jersey, removed the
case to the District of New Jersey before
any of the Defendants could be served.
The case was eventually transferred and
consolidated into a Multi-District
Litigation proceeding in the Northern
District of Ohio.
The Ethington Court acknowledged
that the plain language of Section 1441(b)
made the removal permissible, but
nonetheless remanded the case back to
the New Jersey state court because the
Court believed that allowing the case to
proceed in federal court would run
contrary to Congress‟ intent in drafting
the forum defendant rule.
Congress intended the “joined and
served” part of the forum defendant
rule to prevent gamesmanship by
plaintiffs, who might name an in-state
defendant against whom he or she
does not have a valid claim in a
complaint filed in state court to defeat
otherwise permissible removal by the
non-forum defendant(s). The tactics
employed by defendants such as in
the instant case turn Congressional
intent on its head by allowing
defendants to employ gamesmanship,
specifically by rushing to remove a
newly filed state court case before the
plaintiffs can perfect service on
anyone.
Given that Congress
intended the “properly joined and
served” language to prevent litigation
gamesmanship, it would be especially
absurd to interpret the same joined
and served requirement to actually
condone
a
similar
kind
of
gamesmanship from defendants in
instances such as the case at bar. In
other words, a literal interpretation of
the provision creates an opportunity
for gamesmanship by the defendants,
which could not have been the intent
of the legislature in drafting the
properly
joined
and
served
language.13
The Court also noted that “a literal
application of § 1441(b) would allow
defendants to always avoid the
application of the forum defendant rule as
long as they are monitoring state court
dockets and avoiding service.”14
In an effort to give credence to this
position that the plain language of Section
1441(b) was at odds with Congressional
intent, the Court in Sullivan v. Novartis
Pharmaceuticals Corporation15 scoured
the legislative history of Section
1441(b)‟s “properly joined and served”
language. In a telling admission, the
Sullivan Court acknowledged “the fact
that the legislative history is all but silent
on the issue.”16 Nonetheless, the Court
remanded the case, despite the fact that
the forum defendant had not been served
at the time of the removal, based on
Congress‟ presumed intent in drafting
Section 1441(b) rather than its plain
language. The Court concluded that its
view of Congressional intent was
“abundantly clear in light of the historical
development of the policy of the remand
provisions, the practical application of the
„joined and served‟ provision by district
13
Id. at 861-862 (emphasis in original)
(citations omitted).
14
Id. at 862 (emphasis in original).
15
575 F. Supp.2d 640 (D. N.J. 2008).
16
Id. at 645.
Page 209
courts in recent decades, and common
sense.”17
Although
not
always
clearly
articulated, and despite the fact that
Section 1441(b) makes no distinction in
this regard, a key factor for courts
advocating for presumed Congressional
intent over the plain language of Section
1441(b) is often whether the removing
party is the non-forum defendant(s) or the
unserved forum defendant(s).18 The
removing party in almost every case
applying the minority rule is the unserved
forum defendant(s). This was the case in
both Ethington and Sullivan discussed
above. In fact, several of the cases
following the minority view when a
forum defendant removes the case
explicitly acknowledge that the plain
language of Section 1441(b) should be
applied when the removing party is a nonforum defendant.19
17
Id. at 644 - 645.
By contrast, the plain language view
supports removal by unserved forum
defendants as well. See, e.g., Bivins v.
Novartis Pharms. Corp., No. 09-1087, 2009
WL 2496518 (D. N.J. Aug. 10, 2009);
Thomson v. Novartis Pharms Corp., No. 066280, 2007 WL 1521138 (D. N.J. May 22,
2007) (denying remand in case removed by a
forum defendant).
19
See, e.g., Allen v. GlaxoSmithKline PLC,
NO. 07-5045, 2008 WL 2247067, at *5 (E.D.
Pa. May 30, 2008) (distinguishing its facts
from another case and finding that “[t]he
removal in Vanderwerf was actually in
accordance with the rationale behind the
“joined and served” requirement because the
removing party was an out-of-state resident.”);
Fields v. Organon USA, Inc., No. 07-2922,
2007 WL 4365312 (D. N.J. Dec. 12, 2007)
(remanding a case removed by the unserved
forum defendant but acknowledging that it is
18
Page 210
Indeed, it is a very small minority of
the minority of courts that do not follow
the plain language of the statute when the
facts present a served non-forum
defendant removing a case with unserved
forum defendants.20 And those are often
cases in which the facts surrounding the
non-service of the forum defendant are
dubious.21
“well settled that a non-forum defendant will
not necessarily be barred from removal by the
forum defendant rule when a forum defendant
is joined, but not served”).
20
There are isolated cases in which motions
to remand have been granted regardless of the
removing party because the removal took
place before any of the defendants (forum or
non-forum) had been served.
See, e.g.,
Holmstrom v. Harad, No. 05 C 2714, 2005
WL 1950672, at *2 (N.D. Ill. Aug. 11, 2005)
(recognizing the “tension between this result
and the literal language of §1441(b)”).
However, the Holmstrom rationale – that a
lack of service makes the removal premature
and therefore requires remand – has failed to
gain much traction. See, e.g., Delgado v. Shell
Oil, 231 F.3d 165, 177 (5th Cir. 2000)
(holding that service of the state court
complaint was not a prerequisite to removal
and finding support in 28 U.S.C. §§ 1446 and
1448, which explicitly contemplate removal
prior to service). Moreover, Holmstrom itself
acknowledged that removal by the non-forum
defendant would be permissible if the nonforum defendant had been served in the case.
“Once served, a defendant may immediately
remove an otherwise removable case without
regard to the unserved forum defendant, but
the protection afforded by the „joined and
served‟ requirement is wholly unnecessary for
an
unserved
non-forum
defendant.”
Holmstrom at *2.
21
See, e.g., Ibarra v. Protective Life Ins. Co.,
No. CV-09-049, 2009 WL 1651291, at *1, 4
(D. Ariz. June 12, 2009) (remanding case
removed by the non-forum defendant after
IV. Impact of the Federal Courts
Jurisdiction
and
Venue
Clarification Act of 2011
As articulated in Sullivan, those
courts who have been willing to ignore
the plain language of Section 1441(b)
have based their decisions, at least in part,
on the idea that “Congress [in 1948]
could not possibly have anticipated the
tremendous loophole that would one day
manifest from technology enabling forum
defendants to circumvent the forum
defendant
rule
by,
inter
alia,
electronically monitoring state court
dockets. Thus Congress would have had
no thought to wording the statute with
this modern problem in mind.”22
This line of reasoning has been
undermined by the Federal Courts
noting that the forum defendant was a proper
party, the plaintiff attempted to serve the
forum defendant eleven times before the case
was removed, and the forum defendant‟s
statement that it did not avoid service was
“weak”).
22
Sullivan, 575 F. Supp.2d at 645. Even prior
to the Federal Courts Jurisdiction and Venue
Clarification Act of 2011, at least one court
following the majority view directly
confronted this argument about Congressional
intent being distorted by modern technology.
See North v. Precision Airmotive Corp., 600
F.Supp.2d 1263, 1269-1270 (M.D. Fla 2009)
(“Although Congress may not have
anticipated the possibility that defendants
could actively monitor state court dockets to
quickly remove a case prior to being
served…such a result is not so absurd as to
warrant reliance on „murky‟ or non-existent
legislative history in the face of an otherwise
perfectly clear and unambiguous statute.”).
of 2011, in which Congress thoroughly
reviewed and revised the modern
jurisprudence of removal. Highlights of
the Act include changes to the statutory
language that clarify long-running
disagreements among the federal circuits
regarding the time period in which a
defendant may remove a case to federal
court, determinations of the amount in
controversy for purposes of removal, and
the proper way for federal courts to deal
with removed cases that include both
federal and unrelated state claims.23 But
most relevant to this discussion, an
important part of the Act is the statutory
language that went unchanged. Congress
amended and rewrote several statutory
provisions dealing with removal, but left
undisturbed the “properly joined and
served” language of Section 1441(b).
The new language of Section 1441(b)
provides as follows:
(b) Removal Based on Diversity of
Citizenship.
(1) In determining whether a
civil action is removable on the
basis of the jurisdiction under
section 1332(a) of this title, the
citizenship of defendants sued
under fictitious names shall be
disregarded.
(2) A civil action otherwise
removable solely on the basis of
the jurisdiction under section
1332(a) of this title may not be
removed if any of the parties in
interest properly joined and
served as defendants is a citizen
23
Pub. L. No. 112-63, §§ 103(a), 103(b), 125
Stat. 759-760 (2011).
Page 211
of the State in which such action
is brought. (emphasis added)
When Congress passed the Act in
2011, it was well aware of the modern
technology and practice of electronic case
monitoring, and equally aware of the
debate and split of authority that has been
brewing in the district courts regarding
unserved forum defendants and the forum
defendant rule. Indeed, the purpose of the
Act was to clarify a number of judicially
created splits of authority interpreting the
rules of removal. Yet Congress did
nothing to indicate that its intent with
regard to the forum defendant rule was
anything other than the plain language of
Section 1441(b). In fact, its reaffirmation
of the “properly joined and served”
language in light of the way that plain
language has been interpreted is a clear
expression of Congress‟ intent that it
meant what it wrote back in 1948.24
Thus, the Act provides defendants who
remove cases based on diversity
jurisdiction with persuasive additional
support for keeping cases in federal court
despite the presence of an unserved forum
defendant.
V. Conclusion
There is little dispute that under the
plain language of Section 1441(b) the
presence of an unserved forum defendant
24
See Negusie v. Holder, 555 U.S. 511, 547548 (2009) (in a different context noting that
“This Court must assume, absent textual proof
to the contrary, that Congress was aware of the
[judicial interpretations of the statute] when it
reenacted the [statute] and thus adopted that
interpretation when it reenacted the statute
without change.”).
Page 212
does not prevent removal of an otherwise
removable case. Yet a minority of district
courts have disapproved of defendants
removing cases that include unserved
forum defendants based on the presumed
intent of Congress in drafting the forum
defendant rule. With the Federal Courts
of 2011, Congress has made a clear
statement by continuing to endorse the
“properly joined and served” language,
that its intent is, in fact, expressed by the
plain language of the Act. The Act
should further strengthen the majority
view and allow defendants to remove
cases in which forum defendants are
joined but unserved, regardless of
whether the removing party is a nonforum defendant or the unserved forum
defendant itself.
CONNING
Conning the
IADC Newsletters
Committee members prepare newsletters on a
monthly basis that contain a wide range of
practical and helpful material. This section of the
Defense Counsel Journal is dedicated to
highlighting interesting topics covered in recent
newsletters so that other readers can benefit from
committee specific articles.
THE ADMISSIBILITY OF
GRAPHICS AND PRESENTATIONS
AS DEMONSTRATIVE AIDS IN
CANADIAN COURT PROCEEDINGS
By: S. Gordon McKee, Jill M. Lawrie,
Robin L. Reinertson and Nicole
Henderson1
This article originally appeared in the
April 2012 Trial Techniques and Tactics
Committee Newsletter.
1
This article is based in part on the authors’
recent experience defending a leading medical
device manufacturer in a lengthy class action
trial in Toronto, Canada. We appreciate the
comments received on a draft of this
article from
our
U.S.
colleagues
who assisted with the trial, Steven M. Kohn, J.
David Bickham, and Gary Jeffrey of Reed
Smith's San Francisco office, from Andrew
Spingler of The Focal Point, and from
Elizabeth Porter, Senior Corporate Attorney,
St. Jude Medical, Inc. The authors take sole
responsibility for the final content.
The authors are with the
Canadian firm Blake,
Cassels, & Graydon
LLP, and were members
of a team of lawyers that
represented a multinational medical device
manufacturer in the first class action of
its kind to go to trial in
Canada. Gord McKee
and Jill Lawrie are
partners in the Blakes
Toronto
office
and led
the trial team, which
included
Robin
Reinertson, an associate
in the Blakes Vancouver
office and Nicole Henderson, an
associate in the Blakes
Toronto office.
Gord
and Jill focus on class
action
and
product
liability
defence,
regularly
defending
leading manufacturers of
drugs, medical devices
and consumer products in serious product
liability claims and class actions in
Canada. Robin and Nicole are also
developing a focus in these areas within
their more general commercial litigation
Page 214
practices.
We are often asked by our
international colleagues and clients what
use, if any, can be made of computer
graphics
and
presentations
as
demonstrative aids during Canadian court
proceedings.2 The use of simple
demonstrative
aids3
is
becoming
commonplace in Canadian trials. But
even very recently, Canadian counsel
may have advised that the use of
computer graphics and presentations is
unusual, and largely limited to criminal
and complex personal injury cases. While
this is a valid perception, it is our view
that the traditional reluctance to use
demonstrative
aids
in
Canadian
courtrooms outside of that context is no
longer warranted. There is a sparse, yet
expanding, body of case law that can be
applied to support new and effective uses
2
Computer graphics and slide presentations
are uncommon in motion practice in Canada
for a variety of reasons, though judicious use
of such demonstrative aids may be appropriate
in some cases.
3
The term ―demonstrative aids‖ is used in this
article to refer to visual or graphical aids that
are used to help illustrate, explain, or
summarize other oral or documentary
evidence adduced at trial. Demonstrative aids,
such as graphs, charts, chronologies,
illustrations, diagrams, scale models, and
PowerPoint or other computer generated
presentations are derivative of other evidence
and are conceptually distinct from ―real‖
evidence, such as unannotated photographs, xrays, diagnostic imaging, or a piece of an
engine in a defective products case. Unlike
with demonstrative aids, a trier of fact can
draw inferences and conclusions from real
evidence directly, and in that sense real
evidence is equivalent in evidentiary value to
oral evidence and documentary evidence.
of computer graphics and presentations at
trial. The growing complexity of
litigation, combined with cases involving
complex scientific, medical, financial and
other technical issues, have led to a
growing acceptance among the bench to
innovative, electronic forms of organizing
and presenting evidence and argument at
trial.
However, the movement towards
increasing use of trial graphics and
presentations has not changed the very
formal nature of Canadian trial practice.
All demonstrative aids are potentially
subject to strict requirements as to their
admissibility and use, particularly in jury
trials.4 Counsel and clients from outside
Canada should be aware of the nuances of
this emerging area of Canadian law and
practice, as well as the potential pitfalls,
in order to maximize the power of
graphics and presentations. Ultimately,
counsel may not be able to simply import
or use graphics or presentations from
other jurisdictions "as is", but may be
able to use such aids with appropriate
revisions for the Canadian context.
In this article, we address the
following issues: (1) the admissibility and
use of graphics and presentations as
demonstrative aids, (2) presenting factual
evidence
using
these
types
of
demonstrative aids, (3) presenting expert
evidence
using
these
types
of
demonstrative aids, (4) the use of
demonstrative aids in opening argument,
and (5) the use of demonstrative aids in
closing argument.
4
It should be noted that in Canada, bench
trials are far more common than jury trials for
civil cases. Jury notices are rarely served in
commercial disputes, class actions and
complex matters.
Newsletters
1.
The Admissibility of
Demonstrative Aids
Demonstrative aids can be utilized in
Canadian trials to present, illustrate,
simplify or summarize other evidence. In
order to be admissible, demonstrative aids
must:
1. be relevant to the issues,
2. assist the trier of fact to better
understand the evidence, and
3. have probative value that is not
outweighed by the potential
prejudicial effect.5
Additionally, a proper evidentiary
foundation must be established. There are
some specific requirements for certain
types of demonstrative aids (e.g.
computer animated reconstructions), but
generally, a demonstrative aid must be
authenticated by a witness, either factual
or expert, who can testify as to the
method of preparation of the aid, verify
that the aid in question is a fair and
accurate representation of what it purports
to represent, and affirm that the aid was
created without any intention to mislead.6
In some circumstances, counsel may be
able to have the demonstrative aid
admitted into evidence as a summary of
other information or data already
admitted as evidence.7
There is a significant difference in
practice, if not in law, in the approach to
Page 215
demonstrative evidence in a judge-alone
trial than in a jury trial. In a jury trial, the
prejudicial effect and usefulness of the
demonstrative aid are the primary,
competing factors to be considered in
determining whether to allow its use.
More extensive scrutiny of the nature and
preparation of the aid are warranted,
because even a simple demonstrative aid,
such as a chart or a diagram, may give the
evidence ―an aura of cogency which on
close analysis it does not deserve‖.8
However, civil jury trials are uncommon
in Canada, particularly in complex cases.
A trial judge sitting alone has substantial
discretion to determine whether to admit
demonstrative aids based upon whether
he or she finds it helpful and whether
there
are
any
concerns
about
misrepresentation of the evidence.9 In
judge-alone trials, a judge’s willingness
to allow the use of graphics and
presentations may depend in part on the
individual judge’s comfort level and
experience with technology. Although in
our experience, most Canadian judges
will permit the use of graphics and
presentations that are helpful in
understanding the evidence or argument.
There is no existing rule of general
application requiring pre-trial disclosure
of demonstrative aids. In some cases, the
court may impose a pre-trial requirement
that demonstrative aids be disclosed to
opposing counsel in advance. This most
often occurs as part of the case
8
5
Draper v. Jacklyn, [1970] S.C.R. 92.
6
Jenkyns v. Kassam, infra at note 9; Andersen
v. St. Jude Medical, [unreported], October 7,
2010.
7
R. v. Scheel, [1978] O.J. No. 888, 42 C.C.C.
(2d) 41 (C.A.).
R. v. Portillo, [2003] O.J. No 3030, 176
C.C.C. (3d) 467 (C.A.) at para. 36.
9
Jenkyns v. Kassam, [2006] O.J. No. 5494, 47
C.P.C. (6th) 71 (S.C.J.) at para. 3-4; Marchand
v. The Public General Hospital Society of
Chatham, [2000] O.J. No. 4428, 51 O.R. (3d)
97 (C.A.) at para. 109.
Page 216
management process if requested by one
party or raised by the court. The practice
of providing demonstrative aids to
opposing counsel in advance ensures the
efficient conduct of the trial and is usually
in the best interests of both parties,
assuming that both parties intend to use
demonstrative aids. Otherwise, a recess or
adjournment may be required to allow
opposing counsel to review and assess the
content of graphics or presentations prior
to
making
submissions
on
the
appropriateness of their use or their
admissibility.
Different considerations arise when
demonstrative aids are used in opening or
closing argument, however. Strategic
concerns, such as remaining flexible to
respond to the plaintiff’s submissions and
avoiding advance disclosure of the
content of the argument, may dictate that
demonstrative aids not be provided to
opposing counsel in advance. There
remains a debate as to whether counsel
ought to provide advance disclosure of
demonstrative aids to opposing counsel in
advance, where it is not required by a pretrial direction. This needs to be assessed
based on the particular circumstances of
each case. Generally, counsel should err
on the side of disclosure in jury trials and
with respect to demonstrative aids to be
used with witnesses.
Both the relative novelty of the use
of computer graphics at trial in Canada
and the fact that most Canadian trials are
by judge alone import other practical
considerations about the content of
demonstrative aids. Generally, counsel
will find the use and content of graphics
in Canadian trials more conservative than
may be common in some other
jurisdictions. Precision and accuracy in
every element of the graphic or
presentation, and completeness on the
matters addressed, are critical to the
admissibility of the demonstrative aid
itself and to the credibility of the witness
and counsel using the aid. Canadian
judges sitting alone are also likely to
appreciate more detail than might
ordinarily be appropriate for a jury. On
the other hand, the use of clip art or icons,
for example to emphasize key points,
should generally be avoided unless they
are necessary to explain the evidence, as
these may inadvertently come across as
condescending to a trial judge.
2.
Presenting Factual Evidence
Simple demonstrative aids, such as
graphs, charts, illustrations, drawings, and
photographs are routinely admitted
through factual witnesses, provided that
the witness can give evidence that
provides
sufficient
foundation
to
authenticate and verify the aid. However,
it can be harder to use text-based graphics
or comprehensive slide presentations
(such as PowerPoint) with factual
witnesses. The use of such aids may raise
concerns that the witness’ evidence has
been scripted, which would amount to a
form of leading the witness.10
Although there is some precedent for
the use of computer presentations with
factual witnesses,11 it is much more likely
to result in objections from opposing
counsel, and the court is also more likely
to scrutinize such presentations carefully
10
R. v. Sandham, [2009] O.J. No. 4517
(S.C.J.) at paras. 16-17.
11
See e.g. In R. v. M.N., [2004] O.J. No.
4895, 2004 ONCJ 307; R. v. Mohamed,
[2009] O.J. No. 398 (S.C.J.).
Newsletters
to assess whether they are prejudicial or
undermine the ability of opposing counsel
to test the reliability or veracity of the
witness’ evidence or the trier of fact’s
ability to assess it. Depending on time
limitations for a witness’ evidence
(especially independent witnesses not
under a subpoena), the time required to
argue a motion for leave to use text-based
graphics or a slide presentation with a
factual witness and the attendant delay
and interruption in the witness’ evidence,
may not be worth any potential advantage
over
less
contentious
traditional
demonstrative aids, particularly when
such graphics or presentations can be
used later during closing argument.
3.
Presenting Expert Evidence
Demonstrative aids are frequently
used at trial to illustrate the evidence of
expert witnesses and to assist the trier of
fact in understanding the opinions that are
given. The scope of aids that may be
utilized with expert witnesses is broader
than
with
factual
witnesses.
Comprehensive presentations of the
expert’s testimony – which may set out
the expert’s opinion, methodology or
approach, background assumptions, the
information relied upon and summarize
the key points of the expert’s evidence –
are an increasingly important, influential
tool to effectively present expert evidence
and educate the trier of fact with respect
to complex scientific, medical or financial
matters.12
Canadian
judges
have
repeatedly recognized the value of
Page 217
graphics and presentations in this
regard.13
The use of demonstrative aids during
expert evidence does not give rise to the
same concerns about leading the witness’
testimony that arises from their use with
fact witnesses. The credibility of experts’
recollections of facts that may form the
basis of their opinions is generally not at
issue. The role of experts, by design, is to
educate the trier of fact on issues beyond
the expertise and knowledge of others and
to ensure that the judge or jury
understands the expert evidence. As one
Canadian judge has noted, there is no
―leading‖ of an expert witness in the
classic sense because the expert witness
prepares or directs the content of their
own presentation: ―they are putting words
in their own mouth. It is analogous to an
expert's report, which is prepared in
advance by the expert and disclosed to the
defence. ... Having the report synthesized
in Power Point format and presented to
the jury is essentially no different." 14
Further, using a presentation that notes
the key evidence of the expert is no
different than having that witness testify
slowly, and allowing the jurors to make
their own notes of those findings. 15
There is no requirement that the
expert must have prepared the
presentation, only that he or she is
familiar with and directed the content of
the presentation. This ensures that the
demonstrative aids that can be used to
illustrate an expert's evidence are not
artificially limited by his or her
13
12
Sandham, supra at note 10, at paras. 15 and
23.
See e.g. Sandham, supra at note 10, at
paras. 22-23; Jenkyns v. Kassam, supra at note
9, at paras. 8-11.
14
Sandham, supra at note 10, at para. 24.
15
Id. at para. 26.
Page 218
knowledge of various presentation
programs or software. A presentation
prepared by counsel or a third-party
professional may be used at trial provided
that the expert also testifies that he or she
dictated the content and that it accurately
represents his or her evidence. 16 Concerns
about the input of counsel or others in the
preparation of demonstrative aids used by
an expert or the subjective opinions
incorporated therein are generally matters
that affect the weight rather than the
admissibility of the demonstrative aid.17
However, there are concerns and
pitfalls to be aware of when using
graphics or presentations with expert
witnesses. There is a danger that a
comprehensive
presentation
may
minimize the role of counsel in eliciting
the evidence and that counsel will lose
control over the content and flow of the
expert’s testimony. Even with an
eminently qualified expert, this may
reduce the effectiveness of the testimony
and the ability of counsel to be flexible
and responsive to questions from the
judge or the body language of the trier of
fact. Counsel should remain an active
participant in presenting the expert’s
evidence, framing the questions to focus
the expert’s testimony and the trier of
fact’s attention on the central points that
need to be made.
Another frequent difficulty is that
presentations and graphics should avoid
mixing fact and opinion. They should
clearly
differentiate
between
the
information and facts that are relied upon
16
See e.g. Jenkyns v. Kassam, supra at note 9,
at para. 6; McCutcheon v. Chrysler Canada,
[1998] O.J. No. 5818, 32 C.P.C. (4th) 61
(Gen. Div.).
17
Id. at para. 17.
for the expert’s opinion, which must be
proved separately, and the expert’s own
opinion or interpretation. 18
Demonstrative aids used to present
expert testimony may not be admissible
as evidence of the truth of their contents,
absent agreement of the parties. The
information or data contained in expert
presentations technically constitutes
hearsay. Hearsay evidence is admissible
in Canada to show the information on
which the expert’s opinion is based, but
not as evidence proving the existence of
the facts on which the opinion is based.19
For example, if an expert’s presentation
includes charts that graphically illustrate
data from a clinical study, but the data
upon which the graphic is based is not in
evidence, that particular chart, if
admissible at all, may only be used to
show the basis for the expert’s opinion,
not to establish the truth of the data. In
some cases, where the data or information
has not been published or entered into
evidence, but presented as factual
evidence rather than merely the basis for
the expert’s opinion, concerns about the
reliability
and
veracity
of
the
demonstrative aid may render it
inadmissible.20
18
Sandham, supra at note 10, at para. 26. We
note that the separation of fact and the expert’s
opinion is particularly important in the
circumstance where an expert was involved in
the contemporaneous events at issue in the
litigation and gives both opinion and factual
evidence at trial (e.g. where the witness has
previously consulted for one of the parties).
19
R. v. Lavallee, [1990] 1 S.C.R. 852 at para.
66.
20
Andersen v. St. Jude Medical, supra at note
6.
Newsletters
In a judge-alone trial, the use of
graphics or a presentation by an expert
during his or her evidence that do not
satisfy the admissibility requirements to
be formally marked as an exhibit is rarely
problematic. Where there is insufficient
foundation for the graphic or presentation
to be entered into the trial record as
evidence, it may nonetheless be marked
for identification and used as an aide
memoire by the judge. In a jury trial,
however, the court is likely to take a more
strict approach to the use of graphics that
do not have a sufficient foundation, given
that graphics tend to give information an
aura of truthfulness that may not be
warranted.
4.
Opening Argument
The most critical consideration in
preparing demonstrative aids for opening
is that counsel must be careful to only use
aids that contain facts that they are certain
can later be proved through admissible
evidence. If the content of the graphic
cannot later be proven or an aid is found
to be inadmissible, this will undermine
counsel’s credibility at the very least, and
in a jury trial, could potentially result in a
mistrial.21 In order to use a demonstrative
aid as part of opening argument, counsel
should be prepared to undertake to prove
the information in text-based aids and the
accuracy of any graphic aids. Significant
issues as to the admissibility or fairness of
the proposed demonstrative aid should be
avoided. If there is any concern that the
21
J.A. MCLEISH AND R.G. OATLEY, THE
OATLEY-MCLEISH GUIDE TO DEMONSTRATIVE
ADVOCACY, 211 (Markham: LexisNexis
Canada Inc., 2011).
Page 219
aid will mislead or misrepresent matters
to the trier of fact, it may be excluded. 22
While leave of the court is necessary
to use a demonstrative aid in opening to a
jury,23 leave does not need to be expressly
requested in a judge-alone trial.24 The
requirements to use demonstrative aids
during opening are also applied more
stringently in a jury trial. In our
experience, judges find demonstrative
aids that are relevant and helpful to be of
great assistance to them in opening.
Provided that the aid is not misleading or
inflammatory, judges sitting alone will
rarely refuse the use of a demonstrative
aid in opening.
Graphics that provide an outline or
overview of the argument can be effective
and helpful, particularly if opening
argument is lengthy. (It is not unusual in a
long Canadian trial for opening argument
to exceed one or two days.) Without any
demonstrative aids, the trier of fact may
have difficulty understanding the
framework for the argument and placing
specific points into their larger context.
Judicious use of computer graphics and
presentations should be encouraged to
help hold the trier of fact’s attention and
interest. However, due to the limitations
on opening argument generally, and a
desire to avoid interruption of the opening
caused by objections and argument as to
the appropriateness of such demonstrative
aids, there is more restraint in their use in
22
Whitford v. Swan, [1995] O.J. No. 4189
(Gen. Div.) at para. 3; Jenkyns v. Kassam,
supra at note 9, at para. 16.
23
This is one of the reasons that demonstrative
aids should generally be disclosed to opposing
counsel in advance in a jury trial.
24
MCLEISH AND OATLEY, supra at note 21, at
210 and 214.
Page 220
the opening argument of Canadian trials
than during closing or while presenting
the evidence.
5.
Closing Argument
At closing, counsel knows exactly
what graphics have been made exhibits
and what facts have been proved, so there
is significantly less risk in summarizing
the evidence with graphics during closing
argument than in opening. In a judgealone trial, counsel can also use graphics
to present their legal argument on the
theory of the case, but should be cautious
and differentiate between the evidence
and argument.
The golden rule for the use of
demonstrative
aids
and
graphics
presentations during closing is that any
evidence referred to must either be in
testimony or marked as an exhibit.
However, this does not prevent counsel
from combining exhibits or using
evidence from more than one exhibit into
a single graphic during closing. When
done properly, this can be a very effective
way of synthesizing various pieces of
evidence for the court and illustrating the
conclusion that counsel wants the trier of
fact to draw. Combining evidence from
different sources can also be a powerful
tool to compare and contrast the evidence
of
competing
witnesses
or
to
demonstrating gaps in the evidence.
Further, graphics or a presentation
used during closing argument functions as
a useful compendium of counsel’s
argument, which the trier of fact may
refer to during deliberations. 25 This is an
25
One effective approach is to incorporate
evidence citations, exhibit numbers, and
often
overlooked
opportunity
for
advocacy, whether the trial is heard by a
judge alone or jury. A judge sitting alone
will almost invariably request a copy of
the presentation, and it is likely to be a
resource that the judge returns to while
writing the decision. In a jury trial, use of
a presentation or graphics that summarize
key evidence from the trial may not only
improve the jury’s understanding of the
closing argument, but may also be
available for reference later during
deliberations, unlike the oral evidence. 26
In a long, complex trial, the trier of fact
will likely find demonstrative aids assist
in dealing with the evidence and legal
argument effectively and expeditiously.
6.
Conclusions
Canadian courts are receptive to the
use of demonstrative aids such as
computer graphics and presentations
during trial, but care must be taken to
ensure that the aids utilized are
admissible and assist the trier of fact to
understand the evidence and theory of the
case. The primary consideration of
Canadian courts in assessing whether
demonstrative aids are appropriate is
whether they are a fair and accurate
representation of the evidence. Graphics
must be exceedingly faithful to the
evidence.
Graphics used to present evidence and
legal argument during closing argument
should be prepared in a way that
maximizes their effectiveness as a
compendium or an aide memoire,
transcript references into the graphics or
presentation.
26
R. v. Bengert (1980), 53 C.C.C. (2d) 481
(B.C.C.A.) at para. 144.
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Page 221
especially in a judge-alone trial where
there is considerable discretion and
latitude for a trial judge to allow the use
of demonstrative aids that assist in
understanding the evidence and argument.
***
Page 222
MONEY TALKS: EXPOSING BIAS
USING EXPERT WITNESS FEE
ARRANGEMENTS
By: John F. Kuppens and
Jessica Peters Goodfellow
January
2012
Products
Liability
Expert witnesses play a more critical
role than ever in the outcome of product
liability litigation. Indeed, in many
jurisdictions a sustainable opinion from a
qualified expert witness is required to
establish plaintiff's prima facie case.
Therefore, it is increasingly important to
explore issues that may challenge the
credibility of an opposing party's expert
witnesses. An important factor in
assessing credibility is bias, and a source
of bias that lawyers should carefully
investigate is an opponent's expert
witness fee arrangement.
Some forms of expert compensation,
such as contingency fees, inherently
reveal a conflict-of-interest or an
appearance of bias. For that reason,
consider not only what an opponent's
expert witness is paid, but also how the
expert is paid. Uncovering an expert's
financial stake in the outcome of
litigation to expose bias can seriously
undermine the witness's credibility.
Do your homework
Before deposing an expert witness,
learn what you can about the expert's
business relationships and history of
serving as an expert witness. Begin with
John F. Kuppens is a
partner in Nelson Mullins
Riley & Scarborough LLP’s
Columbia, S.C., office. Mr.
Kuppens practices in the
areas of product liability
litigation and counseling, complex
litigation, and state procurement protests.
He is a member of the boards of directors
of DRI and the South Carolina Defense
Trial Attorneys’ Association.
Jessica Peters Goodfellow
is an associate and practices
in general litigation and
products liability in Nelson
Mullins
Riley
&
Scarborough
LLP’s
Columbia, S.C., office.
informal research on the internet,
including the expert's own website, blogs,
or discussion board posts. Then speak
with your own expert, who is often
familiar with others in the field and may
be aware of existing alternative fee
arrangements. Also check the expert's
professional association for disciplinary
proceedings against the expert or records
of professional misconduct which may be
available on the internet.
Your firm's librarian can research
cases in which the expert has previously
worked, or research tools such as Daubert
Tracker can be used to determine if the
expert has ever been excluded or
challenged for having a financial stake in
the outcome of litigation. Your client's
trade association might also track the use
of experts and maintain a database of
useful information about an expert
witness.
Some jurisdictions and the Federal
Rules of Civil Procedure require pre-
Newsletters
deposition disclosures including a
statement of an expert's compensation. 1
Use this statement as a starting point to
build questions to ask about the expert's
method of payment during the deposition.
In some cases, serving a subpoena duces
tecum with the expert's deposition notice
requesting all pertinent documents may
be an appropriate first step in gathering
expert bias evidence if the information is
needed to prepare for a deposition, but
has not been disclosed by the expert or
hiring attorney.
Dig deep during the deposition
During the deposition, vigorously
question the expert regarding the terms of
his fee agreement with opposing counsel.
Specifically, inquire beyond the amount
of compensation and determine the
particular method used to calculate the
expert's fee. An expert's compensation
should never be conditioned upon, or
measured by, the amount of the recovery
in damages in the litigation. The
presumption is, and research has proven,2
that such fees naturally compromise the
integrity of the testimony of the witness. 3
Page 223
Note that contingent compensation
can take many forms. The most obvious
contingency fee is a percentage of the
settlement or recovery from a lawsuit. But
contingent fees may also consist of
retrospective higher hourly rate payments
for
favorable
outcomes,
"success
bonuses", fringe benefits, premiums, or
any form of financial incentive or reward
conditioned on the outcome of litigation.
Another form is a split-fee arrangement
whereby an expert agrees to accept a
lower hourly rate than his normal rate,
conditioned upon receiving a percentage
of recovery in the event of successful
resolution of the case.
Also explore fee agreements in place
prior to litigation, as an expert's activity
leading to testimony should not be
compensated on a contingent basis. For
example, experts may be retained in an
advisory role prior to litigation, and then
subsequently called upon to offer opinion
testimony at trial. Even if a contingency
fee arrangement is in place before an
expert's involvement in a particular case,
any opinions rendered specific to the
litigation are tainted with bias.4
Financial advantages can extend
beyond the compensation received for
testifying in a particular case. The more
extensive the financial relationship
1
FED. R. CIV. P. 26(a)(2).
Daylian M. Cain et al., The Dirt on Coming
Clean: Perverse Effects of Disclosing
Conflicts of Interest, 34 J. LEGAL STUD. 1, 9,
14 (2005) (describing biasing effect of
incentives when expert is paid according to
value of factfinder's estimates).
3
Straughter v. Raymond IV, 2011 WL
1789987 at *3 (C.D. Cal.) (raising serious
questions about the integrity of expert's
testimony where the expert’s opinions were
rendered when she had a direct financial
interest in the outcome of the action).
2
4
Everett Cash Mutual Ins. Co. v. Bonnie Sue
Gibble et al, 2004 WL 5149339 (Pa. Com. Pl.
2004) (precluding a public adjuster initially
retained in an advisory role from giving expert
opinion because "preparation of the expert
report followed the commencement of
litigation" and he "will be entitled under the
contingent fee agreement to a percentage of
any damages awarded," therefore the opinion
rendered in the report is ―so undermined as to
be deprived of any substantial value.‖).
Page 224
between a party and a witness, the more
likely it is that the witness has a vested
interest in that relationship continuing. 5
An expert should neither lose nor gain
financially as a result of the success of
testimony given in litigation.
If an expert is uncooperative or
untruthful in responding to deposition
questions and providing information in
response to initial discovery requests, a
trial court has discretion to permit more
comprehensive discovery into bias-related
evidence and financial documentation. 6
For example, in Noffke v. Perez,7 the
Alaska Supreme Court required an expert
to produce tax returns because the expert
was a part owner of, and worked for, an
independent medical evaluation company.
The court required both the witness and
his company to disclose records to
ascertain if there is potential bias because,
if there is a ―plausible argument that the
witness generates such a significant
portion of his or her income from a
particular side or particular attorney, the
expert’s impartiality can be reasonably
questioned.‖
5
See Leslie I. Boden and David Ozonoff,
Litigation-Generated Science: Why Should We
Care?, 116 ENVTL. HEALTH PERSP. 117, 118
(2008) (―Often it is not just the lump sum . . .
that is the economic incentive. Future business
or continued employment may be even more
powerful.‖).
6
See Primm v. Isaac, 127 S.W.3d 630, 639
(Ky. 2004) ("If, after taking the deposition, a
party can demonstrate that additional
information is necessary to undertake
reasonable bias impeachment, it may seek
leave of court to take additional discovery.").
7
178 P.3d 1141 (Alaska 2008).
Hard work pays off
Many jurisdictions exclude expert
testimony that is subject to a fee
arrangement which gives the expert a
pecuniary interest in the outcome of the
proceedings.8 In Straughter v. Raymond
IV, for example, the U.S. District Court
for the Central District of California
noted favorably that courts have adopted
a per se rule of excluding expert
testimony ―whose compensation is
contingent on the outcome of the case" as
void against public policy.9 Courts also
note the ―long established rule of law‖
that ―a special contract to pay more than
the regular witness fees in ordinary cases
is void for want of consideration and as
being against public policy.‖10
Even in jurisdictions that do not
expressly exclude testimony arising from
contingency fees, the expert is still
subject to impeachment through crossexamination at trial. Evidence that
8
See, e.g., City & County of Denver, Colo. v.
Bd. of Assessment Appeals of State of Colo.,
947 P.2d 1373, 1374 (Colo. 1997) (person
may not act as appraiser or expert witness and
present expert testimony under contingent fee
agreements); Cresswell v. Sullivan &
Cromwell, 922 F.2d 60, 73 (2d Cir. 1990)
(excluding an expert's testimony as a result of
the fact that he had been retained by the
plaintiff on a contingency fee basis); Farmer v.
Ramsay, 159 F. Supp.2d 873 (D. Md. 2001)
(excluding an expert's report and testimony as
a result of his improper contingency fee
arrangement with the plaintiff).
9
2011 WL 1789987 at *3 (C.D. Cal.).
10
Belfonte v. Miller, 243 A.2d 150, 152 (Pa.
Super. 1968); Swafford v. Harris, 967 S.W.2d
319 (Tenn. 1998) (contingent-fee contract for
services of physician acting as medical-legal
expert is void as against public policy).
Newsletters
suggest a witness might have a financial
incentive to color his testimony is, of
course, classic evidence of bias, which is
routinely
permitted
on
crossexamination.11 An expert's relationships
with the hiring party and its counsel are
also proper subjects of cross-examination
and the scope of expert cross-examination
is generally "expansive" and "freeranging."12
To circumvent these challenges to
their credibility for having a stake in the
outcome of litigation, some experts
operate as "consulting companies" and
accept contingency fees to analyze the
strengths and weaknesses of a case, and
then select from a panel of experts a
witness for use at trial or depositions who
enters into a separate, hourly fee
arrangement. Several cases state that
paying consulting firms involved in
providing expert witnesses for litigants on
a contingent-fee basis is improper, even if
the expert witness himself is not directly
involved in the different payment
schemes of his affiliated company. 13
11
Crowe v. Bolduc, 334 F.3d 124 (1st Cir.
2003) (―Where witnesses under contingent fee
agreements are permitted to testify,
examination on the contingent fee is
considered vital.‖); Wheeler v. United States,
351 F.2d 946, 947 (1st Cir.1965) (finding it is
"clear that inquiry into the possible financial
stake of a witness in a particular outcome of a
case in which the witness is testifying is a
proper subject for cross-examination").
12
Emergency Care Dynamics, Ltd. v. Superior
Court, 932 P.2d 297, 300-301 (Az. Ct. App.
1997).
13
See First National Bank of Springfield v.
Malpractice Research, Inc., 688 N.E.2d 1179
(Ill. 1997) (contingent-fee contract between
plaintiffs and consulting firm they hired to
find expert witnesses-who were to be paid flat
Page 225
In jurisdictions where the law is
unclear, ethical rules governing lawyers
might be a source of authority against
outcome-determinative expert witness fee
agreements.
The
American
Bar
Association Model Rules of Professional
Conduct provide an evaluation tool. Rule
3.4(b) of the Model Rules provides that a
lawyer shall not "counsel or assist a
witness to testify falsely, or offer an
flee-void as against public policy); Fla. Ethics
Op. 98-1 (1998) (lawyer may not enter
agreement with medical-legal consulting firm
on contingent-fee basis to provide services and
expert witness); Pa. Ethics Op. 2001-24
(2001) (lawyer should not have clients enter
contingent-fee contract with physician who
would help prepare negligence cases and
procure experts to testify in matters, even
though the experts who testified would not be
paid on contingency); W. Va. Ethics Op. 97-2
(1997) (lawyer may not use services of entity
that, for 15 percent contingent fee, provides
medical expert who is paid non-contingent
fee). Some courts do, however, permit
contingent-fee arrangements between lawyers
and expert "consultants" in limited
circumstances. In Ojeda v. Sharp Cabrillo
Hosp., 10 Cal. Rptr. 2d 230 (Ct. App. 1992),
the court acknowledged the validity of a
contingent-fee contract between a medical
malpractice plaintiff and a medical legal
consulting service, under which the service
agreed to review relevant medical records and
locate expert witnesses to testify, in exchange
for 20 percent of any recovery received. Under
the contract, any experts consulted in
anticipation of trial were to be paid by the
litigant on an hourly, flat basis, and would
have been similarly compensated for
testimony at trial. The court held that to the
extent such a contract complied with the
statutory limitations of reasonableness, the
contract did not have the effect of
impermissibly providing expert testimony for
a contingent fee.
Page 226
inducement to a witness that is prohibited
by law." Guidance on the meaning of this
rule is contained in the comments section,
which states:
[I]t is not improper to pay a
witness's expenses or to compensate
an expert witness on terms permitted
by law. The common law rule in
most jurisdictions is that it is
improper to pay an occurrence
witness any fee for testifying and
that it is improper to pay an expert
witness a contingent fee.
The purpose of Rule 3.4(b) is "to
assure that a court and jury will hear the
honest conclusions of the expert
unvarnished by the temptation to share in
the recovery."14 Rule 7-109(C) of the
ABA's Model Code of Professional
Responsibility is even more explicit,
providing that "a lawyer shall not pay,
offer to pay, or acquiesce in the payment
of compensation to a witness contingent
upon the content of his testimony or the
outcome of the case."
In Formal Opinion 87-354, the ABA
considered an arrangement whereby a
medical-legal consulting firm would
provide an initial report, medical
consultation, assistance with depositions
and trial, and make available expert
witnesses for a percentage fee, but pay
the expert witness a flat fee. The ABA
14
Penn. Ethics Op. 95-79 (1995); but see D.C.
Ethics Op. 233 (1993) (as D.C.'s version of
Rule 3.4 permits payments of contingent fees
to expert witnesses as long as they are not
based upon percentage of recovery, law firm
may contract with non-lawyer consultants to
share "success fee" that client pays law firm in
event of favorable outcome of client's case).
noted issues in that the consultant
retained too much authority over which
and how many experts to use, and
because the client may commit to pay the
consultant part of the recovery before the
lawyer even knows what the expert
witnesses will say or who they will be.
The ABA found problems under Model
Rules of Professional Conduct 3.4(b)
which forbids a lawyer from offering an
"inducement" to a witness that is
"prohibited by law", and 5.4(a), which
forbids sharing fees with a non-lawyer,
and 5.4(c), which requires the lawyer to
exercise independent judgment on the
client’s behalf, and 1.5, which requires a
reasonable fee.
Further, the expert's professional
association
might
publish
ethical
guidelines regarding fee arrangements
and thus provide a source for
impeachment of its member expert
witness. For example, the American
Medical Association Code of Medical
Ethics states that "[p]hysician testimony
must not be influenced by financial
compensation" and that "it is unethical for
a physician to accept compensation that is
contingent upon the outcome of
litigation."15 The American Society of
Civil Engineers (ASCE) addresses expert
fees in the ASCE Code of Ethics, Canon
#5, item c: ―Engineers may request,
propose
or
accept
professional
commissions on a contingent basis only
under circumstances in which their
professional judgments would not be
compromised.‖ The National Society of
Professional Engineers Code of Ethics
states ―[e]ngineers shall not request,
15
AMA Code of Medical Ethics § 9.07 (20082009).
Newsletters
Page 227
propose, or accept a commission on a
contingent basis under circumstances in
which
their
judgment
may
be
compromised‖16 and the Society of Fire
Protection Engineers (SFPE) Canon of
Ethics provides a general reference to the
need for members to, ―… uphold and
advance the honor and integrity of their
profession . . . by being impartial . . .‖.
Conclusion
The obvious credibility issues arising
from a witness's financial stake in the
outcome of litigation warrants a close
examination of your opponent's expert
witness fee arrangements. Be prepared to
dig deep to ascertain the true nature of an
expert's fee. These fee arrangements are
a valuable source of information that can
be used to impeach, or even exclude, an
expert witness.
***
16
NSPE Part III Professional Obligations,
Code of Ethics for Engineers #6(a).
Page 228
A NEW APPROACH TO CROSSBORDER DISCOVERY: THE
SEDONA CONFERENCE’S
INTERNATIONAL PRINCIPLES
By: Tripp Haston and Lindsey Boney
February 2012 International Committee
Newsletter.
Of all issues in modern litigation,
discovery of electronically stored
information (ESI) remains one of
momentous
and
ever-growing
significance. Collection, processing and
production of ESI can be timeconsuming, and its cost crushing. It is no
surprise, then, that the scope of ediscovery is often a central point of
contention between parties. But those
challenges grow exponentially when
international entities are involved. It is
then that parties and American courts
must contend not only with liberal
American discovery rules but also with
data privacy laws like those implemented
in the European Union. In view of these
unique
challenges,
the
Sedona
Conference—an organization ―dedicated
to the advancement of law and policy in
the areas of antitrust law, complex
litigation and intellectual property
rights‖1—has proposed a framework to
help American courts and their
multinational
litigants
successfully
navigate
these
often
conflicting
obligations.
1
The Sedona Conference: Frequently Asked
Questions,
http://www.thesedonaconference.org/content/f
aq (last visited January 27, 2012).
Tripp Haston is a partner
with Bradley Arant Boult
Cummings LLP where he
serves as Co-Chair of its Life
Sciences Industry Team.
Lindsey Boney is an associate
with Bradley Arant Boult
Cummings LLP where he
practices in the general
litigation group, with a
particular focus on pharmaceutical
litigation.
This article proceeds in three parts.
First, we offer a brief overview of EU
data protection laws and how they can
conflict with U.S. discovery rules.
Second, we briefly survey how U.S.
courts have applied data privacy laws.
Finally, we provide a glimpse of the
Sedona Conference’s new, innovative
suggestions for the complexities of crossborder discovery—the International
Principles.2
Published in December
2011, the International Principles
advocate cooperation between parties not
only to avoid any potential conflicts but
also to resolve them when they arise and
propose a number of specific suggestions
for cross-border discovery.
2
WORKING GROUP 6, THE SEDONA
CONFERENCE, INTERNATIONAL PRINCIPLES ON
DISCOVERY,
DISCLOSURE
&
DATA
PROTECTION:
BEST
PRACTICES,
RECOMMENDATIONS & PRINCIPLES FOR
ADDRESSING
THE
PRESERVATION
OF
DISCOVERY OF PROTECTED DATA IN U.S.
LITIGATION (European Union ed. 2011).
Newsletters
I.
The Conflict
EU Data Protection Laws
Three sources of international law, in
particular, can create conflicts when a
company with an EU-presence must
respond to discovery in American
litigation.
First, the EU Data Protection
Directive has led many countries to enact
data privacy laws.3 Directive 95/46/EC
cements data privacy as a fundamental
human right. In relevant part, it requires
EU-member States to protect their
citizens’ ―right to privacy with respect to
the processing of personal data.‖ Data
privacy laws do that by specifically
restricting the ways in which personal
information can be stored, used, and
disseminated.
Even applying the Directive—and
the data privacy laws that it has
spawned—can be challenging for U.S.
courts because terms like ―personal data‖
and ―processing‖ do not have common
meanings between the EU and U.S. legal
systems. ―Personal data,‖ for example, as
used in the Directive, references more
than a social security number, national
identification number or medical records.
Instead, it much more broadly includes
―any information relating to an identified
or identifiable natural person.‖4 And the
term ―processing‖ includes not only
common functions like formatting
conversions, de-duplication, filtering, and
3
Directive 95/46 of the European Parliament
and of the Council on the Protection of
Individuals with Regard to the Processing of
Personal Data and on the Free Movement of
Such Data, 1995 O.J. (L 281) (EC).
4
Id. art. 2(a).
Page 229
indexing, but also any collection or
manipulation of data, including the
storage of data as required in a routine
litigation hold.5
As a practical matter, the Directive
prohibits the transfer of a broad range of
data.
No personal data may be
transferred to a non-EU State unless that
country ―ensures an adequate level of
protection‖ for the data. 6 There are some
exceptions. Data that is ―necessary or
legally required on important public
interest grounds‖ may be transferred, as
can any data that a party needs ―for the
establishment, exercise or defence of
legal claims.‖7 But still, local laws may
preclude transfer, and even though there
are some ―safe harbor‖ principles that the
EU and the U.S. have developed, those
safe harbors are limited in scope and
often fail to facilitate discovery.
Second,
although
the
Hague
Convention on the Taking of Evidence
provides a procedure to facilitate the
discovery of information sought in
transnational litigation, its application is
fraught with problems.
Fifty-four
countries, including the United States,
have agreed that judicial authorities in the
contracting states ―may … request the
competent
authority
of
another
Contracting State … to obtain evidence,
or to perform some other judicial act.‖8
But the Convention contains an important
opt-out: a State can ―declare that it will
not execute letters of request issued for
5
Id. art. 2(b); see also Data Protection
Working Party, Working Document 1/2009
art. 29 (describing this tension).
6
Directive 95/46, art. 25.
7
Id. art. 26(1)(d).
8
Id. art. 1.
Page 230
the purpose of obtaining pre-trial
discovery of documents.‖9
Third, numerous EU-member States
employ ―blocking statutes‖ to require
parties to use the procedure established
by the Hague Convention, or otherwise to
restrict the production of documents
within their borders. That process can be
complicated. Switzerland, for example,
requires that parties use its local courts to
facilitate document production for
litigation abroad.10 Other EU-member
States—including Germany, Spain, and
Belgium—have adopted similar laws.11
And France has even authorized criminal
sanctions against private parties that
conduct discovery within its borders for
litigation abroad.12
U.S. Discovery Rules
In stark contrast to these discovery
limits are the liberal discovery rules that
are, in many ways, the hallmark of the
modern American legal system. The
Federal Rules of Civil Procedure—and
the many state-based rules of procedure
patterned on them—give a requesting
party the basis to obtain a broad range of
another party’s data.13 Although some
9
Id. art. 23.
Swiss Penal Code Art. 271, 273.
11
See generally WORKING GROUP 6, THE
SEDONA CONFERENCE, FRAMEWORK FOR
ANALYSIS OF CROSS-BORDER DISCOVERY
CONFLICTS 17–22 (2008) (discussing blocking
statutes worldwide); Carla L. Reyes, The U.S.
Discovery–E.U. Privacy Directive Conflict:
Constructing a Three-Tiered Compliance
Strategy, 19 DUKE J. COMP. & INT’L L. 357
(2009).
12
French Penal Law No. 80-538.
13
Fed. R. Civ. P. 26(b)(1) (―Parties may
obtain discovery regarding any nonprivileged
10
limitations exist, in practice, U.S.
discovery often requires the production of
mountains of data, even though that data
may, at times, bear only tangential
relevance to the case. The Federal Rules
are expansive in this regard. Litigants
need not establish that the requested
information will be admissible evidence;
discoverability expands to anything
―reasonably calculated to lead to the
discovery of admissible evidence.‖ 14
These burdens extend beyond production.
Parties to U.S. litigation are required to
preserve any potentially responsive data
from the moment they reasonably
anticipate litigation.15 With these liberal
discovery rules, U.S. litigation subjects a
tremendous amount of data to possible
management or production.
In today’s world of multinational
companies doing business (and, as a
result, litigating) across the globe, the
U.S. and EU laws are bound to conflict.
And it is still an open question whether
conflicts may arise simply by a party’s
data cache in the cloud or stored on
servers housed overseas, or by
outsourcing document review to a
foreign-based company. In any event,
multinational companies
must be
cognizant of the two systems’ discovery
obligations and endeavor to comply with
both. Unfortunately, the current approach
by many U.S. courts frustrates such
compliance.
matter that is relevant to any party’s claim or
defense . . . .‖ (emphasis added)).
14
Id.
15
See INTERNATIONAL PRINCIPLES, supra note
2, at 2.
Newsletters
II. The Current Approach:
Aerospatiale
In light of these liberal discovery
rules, American courts have not always
given deference to EU data protection
laws. The Supreme Court has provided
some guidance for American courts to
apply other nations’ discovery laws, but
interpretive problems remain. 16
Aerospatiale involved a productliability action brought by the plaintiff
against two French-government-owned
corporations in an Iowa federal court.
Both sides exchanged initial discovery
under the Federal Rules. When the
plaintiffs served additional requests,
however, the defendants moved for a
protective order on two bases. First, they
raised a procedural objection that the
plaintiffs had not complied with the
procedures established by the Hague
Convention before serving the requests.
Second, and more significantly, the
defendants argued that any response
would violate France’s blocking statute.
The
magistrate
judge
ultimately
compelled production of the requested
discovery, a decision that the Eighth
Circuit upheld.17
The Supreme Court also affirmed in
relevant part, holding that although the
procedures of the Hague Convention
apply to discovery demands made of
foreign companies, they are but ―one
method of seeking evidence that a court
16
See Societe Nationale Industrielle
Aerospatiale v. U.S. Dist. Court for the S.
Dist. of Iowa, 482 U.S. 522 (1987).
17
Id. at 524–530.
Page 231
may elect to employ.‖18 The Court held
that the Convention procedures are
neither a mandatory nor a required first
step before resort to the procedure
provided in the Federal Rules of Civil
Procedure because they set only the
―minimum standards‖ for cross-border
discovery.19 As for the French blocking
statute, the Court held that ―such statutes
do not deprive an American court of the
power to order a party subject to its
jurisdiction to produce evidence even
though the act of production may violate
that statute.‖20 In powerful language, the
Court exhorted other courts not ―to
adhere blindly to the directives of such a
statute‖ because to hold otherwise would
lead to the ―incongruous‖ result that
―nationals of such a country [would hold]
a preferred status in our courts.‖21
Predictably, other American courts
heeded the Court’s admonition. As noted
above however, because of the complex
interplay between these various laws,
interpretive problems remain.22 It is in
18
Id. at 541.
Id. at 537 n.23.
20
Id. at 544 n.29.
21
Id.
22
Compare In re Perrier Bottled Water Litig.,
138 F.R.D. 348 (D. Conn. 1991), Linde v.
Arab Bank, PLC, 2009 WL 1456573
(E.D.N.Y. 2009), Old Ladder Litig. Co. v.
Investcorp Bank, 2008 WL 2224292
(S.D.N.Y. 2008), and Volkswagen, A.G. v.
Valdez, 909 S.W.2d 900 (Tex. 1995) with
United States v. First Nat’l City Bank, 396
F.2d 897, 903 (2d Cir. 1968), In re Global
Power Equip. Grp., 418 B.R. 833 (Bankr. D.
Del. 2009), Strauss v. Credit Lyonnais, S.A.,
249 F.R.D. 429, 442–443 (E.D.N.Y. 2008).
For a more detailed discussion of these cases
and other problems with cross-border
discovery, see generally Tripp Haston &
19
Page 232
this context that the Sedona Conference
drafted its International Principles to help
parties—and courts—manage crossborder discovery.
III. New Proposed Solution: The
International Principles
Overview
Confronted with the complexities and
conflicts of cross-border litigation,
Working Group 6 of the Sedona
Conference drafted the International
Principles to provide a framework for
addressing these problems.
The
Principles
were
written
by
an
international group of attorneys who
specialize in cross-border discovery and
data protection. Although they were
designed to apply broadly to cross-border
discovery issues between the U.S. and
any foreign country, consistent with the
discussion above, the commentary
accompanying the first edition focuses on
issues specific to cross-border discovery
between the U.S. and the EU. 23
Underlying all six principles is the
theme of cooperation between parties.
Everywhere possible, the Principles
exhort, the requesting party and the
responding party should seek to reach
agreements
that
provide
relevant
information while respecting EU laws.
The International Principles contains a
three-stage approach for avoiding and
Lindsey Boney, The Unique Challenge of
Serving Two Masters: European Data Privacy
Laws & United States Discovery Obligations,
Int’l Who’s Who of Prod. Liab. Def. Lawyers
(2011).
23
INTERNATIONAL PRINCIPLES, supra note 2, at
vi.
minimizing conflicts: (1) a stipulation or
court order extending special protections
to data covered by data protection laws;
(2) a phased discovery process,
memorialized in the scheduling order,
that allows time for implementation of
data protection measures and for
determining whether the necessary
information can be gathered from sources
not subject to data protection laws; and
(3) a legitimization plan that describes
―the
methodology by
which it
contemplates preserving, processing,
transferring, and producing Protected
Data.‖24
The Principles in Brief
Principle 1
With regard to data that is subject to
preservation, disclosure, or discovery,
courts and parties should demonstrate due
respect to the Data Protection Laws of
any foreign sovereign and the interests of
any person who is subject to or benefits
from such laws.
In keeping with the overarching idea
of cooperation and collaboration,
Principle One is based on two core tenets
of U.S. law—comity and good faith.
First, comity—which, as recognized by
the Supreme Court in Aerospatiale, is
essential to maintaining an international
legal system—requires courts and parties
to afford due respect the laws of other
countries. Second, as reflected in the
FRCP, good faith requires that parties
advance data protection laws only when
24
Id. at 17–18. The drafters included, as an
appendix to the Principles, a model protective
order and a model legitimization plan.
Newsletters
Page 233
they truly are in conflict with U.S.
discovery requirements.25
Principle 2
Where full compliance with both
Data Protection Laws and preservation,
disclosure, and discovery obligations
presents a conflict, a party’s conduct
should be judged by a court or data
protection authority under a standard of
good faith and reasonableness.
Principle Two echoes the Supreme
Court’s call in Aerospatiale for balancing
certain considerations when deciding
whether to order foreign discovery over
the objections of the foreign sovereign.
Both Aerospatiale and the drafters of the
International Principles state that courts
should
consider
the
requested
information’s importance to the litigation,
―the degree of specificity of the request,
and the availability of alternative means
of securing the information.‖26 These
factors are among several that the
Restatement (Third) of Foreign Relations
Law § 442(1)(c) states should be
considered by a domestic court
determining
whether
its
interests
outweigh those of a foreign country. The
International Principles suggests that
parties should use these same factors to
guide their actions, and if those actions
are challenged, courts should then use the
factors in evaluating those actions. 27
25
Id. at 7–8.
Id. at 11 (citing Aerospatiale, 482 U.S. at
544 n.28).
27
Id.
Principle 3
Preservation
or
discovery
of
Protected Data should be limited in scope
to that which is relevant and necessary to
support any party’s claim or defense in
order to minimize conflicts of law and
impact on the Data Subject.
In the commentary to Principle
Three, the drafters set out a number of
ways that parties can limit the scope of
discovery to help minimize conflicts with
EU data protection laws. One of these
suggestions encourages phased discovery.
Parties should agree to a scheduling order
that organizes discovery such that the first
data produced is the data least likely to be
subject to data protection laws. In this
chronological process, the last data to be
produced would be the data most likely
protected by EU data protection laws. 28
Principle 4
Where a conflict exists between Data
Protection Laws and preservation,
disclosure, or discovery obligations, a
stipulation or court order should be
employed to protect Protected Data and
minimize the conflict.
The elements of the three-stage
approach described above should be used
to fulfill Principle Four: a protective
order, a scheduling order for phased
discovery, and legitimization plan. The
most difficult of these to craft will be the
―legitimization
plan.‖
Such
legitimization plans ―should be tailored to
each applicable Data Protection Law and
should seek to comply with those
requirements, as well as with the U.S.
26
28
Id. at 15.
Page 234
preservation and discovery obligations.‖29
Appendix C to the International
Principles is a helpful guide with
instructions for establishing a data
protection and transfer protocol that can
be used in conjunction with a
―legitimization plan.‖30 Depending on the
case, any or all of the three elements may
help parties meet both U.S. and EU
obligations. 31
Principle 5
A Data Controller subject to
preservation, disclosure, or discovery
obligations should be prepared to
demonstrate
that
data
protection
obligations have been addressed and that
appropriate data protection safeguards
have been instituted.
Principle Five reflects another
practical tool developed by the drafters—
namely, a protocol designed to help data
controllers comply with data protection
laws.
These data controllers are
encouraged to document their compliance
with the protocol, which will provide
evidence of good faith, reasonable efforts
to safeguard data subject to privacy
laws.32
Principle 6
including relevant Protected Data, with
appropriate data safeguards.
Principle Six addresses the issues
created by data retention policies.
Because ESI is relatively inexpensive to
store, it is easy for an organization to
become a hoarder of electronic data.
Retaining electronic data for longer than
business or legal reasons require, though,
can further complicate compliance with
EU privacy laws. To minimize such
complications, organizations should enact
policies to prevent data retention for any
longer than their business needs (or the
law) would require. Retained data, of
course, should be protected with
appropriate safeguards to prevent
compromise of the data’s integrity and
confidentiality.33
IV. Conclusion
Cross-border discovery—in whatever
form—creates enormous pitfalls. It is a
problem that U.S. courts and litigants will
continue to face.
The Sedona
Conference’s
new
International
Principles present a useful set of
principles to aid parties in navigating
these rough waters. Parties and courts
should heed their admonition to cooperate
to make cross-border discovery more
efficient, fair, and effective.
Data Controllers should retain
Protected Data only as long as necessary
to satisfy legal or business needs. While a
legal action is pending or remains
reasonably anticipated, Data Controllers
should preserve relevant information,
***
29
Id. at 18.
Id.
31
Id.
32
Id. at 19.
30
33
Id. at 22.
Newsletters
The Obligation of Good Faith and
The Doctrine of “Necessary
Implication”: Does This Have
Relevance To The Contracts Entered
Into By Sureties?
By: Hugh E. Reynolds, Jr.
March 2012 Fidelity and Surety
About 35 years ago, I tried a case
in ―blizzard conditions‖ in Evansville,
Indiana for eleven weeks. It was a
multi-party case with an owner,
contractor,
surety
(my
client),
subcontractors, suppliers and design
professionals as parties.
After
eleven weeks, the case for the owner
and most of the case for the contractor
had been completed. At that point,
perhaps as much from exhaustion as
anything else, the case was settled
pretty much for a wash.
One interesting issue was that the
owner (a private owner) concluded,
after the contracts had been entered
into, that it did not want to pay the
design professional to review changes
in the work, inspect the work, and
review progress to approve payouts.
All of this had been set forth in the
construction contract as being part of
what would occur.
Unlike many
situations, the surety had received and
read the contract before issuing the
bond. Not surprisingly, two of the
principal issues in the case involved
changes proposed by the contractor and
approved by the owner without design
professional review, which were the
subject of a significant dispute. Also
Page 235
Hugh E. Reynolds, Jr.
is a Past Chair of the
Tort and Insurance
Practice Section of the
American
Bar
Association, and one
of its delegates to the
ABA House of Delegates, a past chair of
its Fidelity and Surety Law and Appellate
Advocacy Committees. He was on the
Governing Committee of the Forum on
the Construction Industry of the
American Bar Association (1984-90),
was the Chair for one year and editor of
the Construction Lawyer for two years.
Mr. Reynolds is a founding fellow of the
American College of Construction
Lawyers and a member of the American
College of Trial Lawyers. He is a
member of the American Law Institute
and was an advisor to the committee
which revised the Restatement of the Law
of Suretyship. He has received the
Cornerstone Award for lifetime
achievement from the Forum on the
Construction Industry of the ABA, the
Martin Andrew Award for lifetime
achievement in fidelity and surety law
from the Fidelity & Surety Committee of
the Tort & Insurance Practice Section
of the ABA and the Louis B. Potter
Lifetime Professional Service Award
from the Defense Research Institute for
demonstrating a lifetime commitment to
the legal profession and to the
betterment of our civil justice system.
would certain portions of the work have
been disapproved if, in fact, periodic
inspections had occurred? And, as
one might guess, the alleged dollar
amounts involved in these two problems
were considerable.
Page 236
My surety’s claim that it should not
be held responsible to the owner for
these problems arose out of the
argument that the owner had violated a
duty to disclose these changes in the
contract. The problem here, as in many
such contracts, is that the documents
allowed for contract changes and no
surety’s approval was specifically
required. At that time, most issues
surrounding this particular problem
were issues relating to improper
approval of payments to the contractor.
There was ample case law regarding the
surety’s right to have credit against the
owner’s claims for payments which
should not have been made. However,
that was not the issue in this particular
case.
There was a motion for summary
judgment filed by the owner and by the
design professional (against whom there
were a number of claims, including
claims by the surety arising out of these
events). The motions were denied. The
issue was in the case. There was
evidence on it. But, of course, no
result.
All of this was in the dim mists of
my memory. But this year, I handled an
arbitration involving contract relations
between a company which entered into
contracts with individuals. These were
not called ―franchises‖, but, in fact, the
form of the contract was essentially a
franchise arrangement. The franchisee
had the ownership of the subject matter
of the franchise (specifically a given
territory within which to operate and
specific customers) and had the right to
sell that arrangement. However, if the
franchisee was terminated for cause, the
franchise was terminated and the
contract stated that, after termination,
no money was due for the value of the
franchise. And, that is what happened.
Under the doctrine of good faith
and fair dealing or under the doctrine of
―necessary implication,‖ did the owner
have an obligation to advise the
franchisee that termination was being
considered (for an event which was
clearly a violation of the franchisee’s
obligations)?
The franchisee then
would have had an opportunity to sell
his franchise during the roughly one
year period while the franchisor was
making up its mind whether or not to
terminate the franchisee (the franchisee
being completely unaware that this was
under consideration). This seems like a
lot of talk before we get to the subject
matter, but it does lay some
groundwork.
In the surety context, there are a
number of important contracts to which
either the duty of good faith and fair
dealing or the doctrine of ―necessary
implication‖ might apply. In general,
what gives rise to a duty of good faith
and fair dealing in contracts is not
always clear. In this article, we are
talking about construction contracts,
contracts of employment in which a
bond is given for faithful performance
or the obligation to account for monies,
contracts of indemnity between the
surety and its principal, the surety bond
itself and, in some cases, contracts are
imposed by statutory language in the
case of statutorily required surety
instruments.
The first question: ―Does an
obligation of good faith and fair dealing
apply?‖ In the case of sales of goods by
suppliers there clearly is an obligation
Newsletters
of good faith imposed by Article II of
the Uniform Commercial Code. Some
jurisdictions hold that every contract
has an obligation of good faith and fair
dealing, others hold that an obligation
of good faith and fair dealing arises
when there is a ―special relationship‖
created between the parties to the
contract. In the Restatement (Second)
of Contracts , there is language
suggesting that ―every contract imposes
on each party a duty of good faith and
fair dealing in its performance and
enforcement.‖1
However, it is obvious from
reading the cases (including those in
Pennsylvania), that there are a number
of limitations to such a universal
application of the doctrine of good faith.
And, the application to the doctrine of
good faith of the ancillary doctrine of
―necessary implication‖ is even more
limited. From the cases in Pennsylvania
and elsewhere, it is fairly clear that
some sort of special relationship is
required for an obligation of good faith
to arise. Certain contracts, by their
nature, are excluded from the
application of these doctrines. It is also
clear that there is such a special
relationship in most construction
contracts, in contracts of indemnity and
there is certainly such a special
relationship in the bonds to support an
obligation of faithful performance or to
account for monies. So, the basic
obligation of good faith and fair dealing
would apply to each of the types of
contracts which have been mentioned
above.
1
RESTATEMENT (SECOND) CONTRACTS § 205
(1981).
Page 237
Going back to my Evansville case,
still buried in the mists of time,
applying an obligation of good faith and
fair dealing would suggest that the
owner had an obligation to the surety to
advise it if the controls imposed by the
contract and to be exercised by the
design professional were not going to
occur. The test suggested by the case
law might be: ―Did the party in the
position of the surety reasonably expect
that it receive word if, in fact, in a
contract that called for this type of
involvement by the design professional
had been altered to remove the design
professional’s participation?‖ The lack
of such participation leading, in the case
I have described, to substantial claims
of damages against the surety on its
bond.
The arbitration case in which I was
involved recently was to be decided
under Pennsylvania law. Pennsylvania
(along with Delaware) is a state which
has more or less clearly adopted the
doctrine of ―necessary implication.‖ An
advantage of the doctrine of ―necessary
implication,‖ if it were to be applied, is
that it provides much more useful tests
of what the obligation of good faith
requires than are laid out in the general
case law involving good faith issues.
It would appear that the doctrine of
―necessary implication‖ has been
adopted in Pennsylvania although there
is no Pennsylvania Supreme Court case
directly on point. The doctrine can be
stated as follows:
In the absence of an express
provision, the law will imply an
agreement by the parties to a
contract to do and perform those
Page 238
things that according to reason and
justice they should do in order to
carry out the purpose for which the
contract was made and to refrain
from doing anything that would
destroy or injure the other party’s
right to receive the fruits of the
contract. Accordingly, a promise
to do an act necessary to carry out
contract must be implied.2
Pennsylvania case law holds that
the court may apply this doctrine of
―necessary implication‖ to imply a
missing term only when it is abundantly
clear that the parties intended to be
bound by such a term.
Thus
unequivocal contract terms hold a
position superior to any terms to be
implied by courts, leaving the implied
covenants to serve as a gap killer.
The doctrine ―cannot imply a term
not explicitly contemplated by the
contract.‖3 ―Both the implied covenant
of good faith and the doctrine of
―necessary implication‖ are principles
for courts to harmonize the reasonable
expectations of the parties with the
intent of the contractors and the terms
of their contract.‖4
If one wished to review the
Pennsylvania
case
law
which
progressed over time and outline a
number of the potential limitations, the
principal cases, in chronological order,
2
Conomos Inc. v. Sun Co., Inc., 831 A.2d
696, 706 (Pa. Super. Ct. 2003) (quoting
Daniel B. Van Campen Corp. v. Bldg. and
Constr. Trades Council of Philadelphia and
Vicinity, 195 A.2d 134, 136-137 (Pa. Super.
Ct. 1963)).
3
Conomos Inc., 831 A.2d at 708.
4
Id.
are Daniel Van Campen Corp. v. Bldg.
and Constr. Trades Council of
Philadelphia and Vicinity,5 Slater v.
Pearle Vision Ctr., Inc.,6 Sommers v.
Sommers,7 Cornelius F. Murphy, Jr. v.
Duquesne Univ. of the Holy Ghost,8
Agrecycle, Inc. v. City of Pittsburgh9
and, Kamco Indus. Sales, Inc. v.
Lovejoy, Inc.10
Lovejoy11 is particularly appropriate
in considering the potential use of good
faith and fair dealing or the doctrine of
―necessary implication‖ in a context
similar to those that might arise
involving instruments in which a surety
is a party or otherwise responsible.
There,
a
company
purportedly
following its right under the contract,
transferred
all
of
a
sale’s
representative’s accounts to ―house
accounts‖ thus depriving the sales’
representative of its commissions. The
background here is that Kamco
attempted to force the salesmen into a
certain financial situation and it refused
to agree.
So, Kamco used its
5
195 A.2d 134 (Pa. Super. Ct. 1963) (in
which the comment on ―necessary
implication" is dicta).
6
546 A.2d 676 (Pa. Super. Ct. 1988) (in
which the doctrine was discussed but not
applied).
7
613 A.2d 1211 (Pa. Super. Ct. 1992) (in
which an implied duty of good faith was
applied).
8
777 A.2d 418 (Pa. 2001) (in which the
discussion is in a concurring opinion).
9
783 A.2d 863 (Pa. Comm. Ct. 2001) (in
which the doctrine was held not to be
applied to the facts).
10
779 F. Supp.2d 419 (E.D. Pa. 2011) (in
which the federal court held that the doctrine
did apply).
11
779 F.Supp.2d 419.
Newsletters
contractual right to designate ―house
accounts‖ as a method of obtaining
actually more than what it previously
wanted by the use of express language
of the contract.
In this case, the court refused to
allow this, applying the doctrine of
good faith and fair dealing to the point
that, to give proper place to the rights of
the sales organization such a use of the
sections relating to ―house accounts‖
would
violate
the
reasonable
expectations of the parties if the matter
had been considered at the time the
contract had been signed. The court
held that the duty of good faith and fair
dealing and the doctrine of ―necessary
implication‖ could be used to
harmonize the reasonable expectation to
the parties even though it is to be
applied
only
under
limited
circumstances and cannot trump the
express provisions in the contract.
However, you will see in many
instances this construction works out to
vitiate a term of the contract.
In Conomos,12 in which the
doctrine was applied, there was to be a
duty of good faith in the inspection of a
construction
contractor’s
surface
preparation. However, although the
basic claim of Conomos was approved,
it held the obligation of good faith and
―necessary implication‖ could not be
used to overturn a limited liability
provision protecting the refiner. Thus,
the
amount
of
recovery
was
contractually limited.
The doctrine has also been adopted
in Delaware (at least by a federal
district court sitting in Delaware) in
12
831 A.2d 696.
Page 239
W&G Seafood Assoc. LP v. E. Shore
Markets, Inc.13 It cited a Delaware
Chancery case, in which the Delaware
Court of Chancery stated:
Terms are to be implied in a
contract not because they are
reasonable, but because they are
necessarily involved in the
contractual relationship so that the
parties must have intended them
and have only failed to express
them because they are too obvious
to need expression. They are
implied only because they are
necessary to give the contract the
effect which the parties –
presumably would have agreed on,
if, having in mind the possibilities
of the situation which has arisen,
they had contracted expressly in
reference thereto.14
So, it is clear that there is probably
an obligation of good faith and fair
dealing in most of the contracts which
directly affect a surety’s obligation
either
on
performance
bonds,
construction contracts and performance
bonds on employees and positions as
well as many statutorily required bonds.
But the extension of that good faith
doctrine (or perhaps explanation of the
doctrine is a better word), by use of the
doctrine of ―necessary implication‖ has
been largely limited to the states of
Pennsylvania and Delaware.
It is,
13
714 F. Supp. 1336 (D. Del. 1989).
Danby v. Osteopathic Hosp. Assn. of Del.,
101 A.2d 308, 313-314 (Del. Ch. 1953).
14
Page 240
nonetheless, an interesting concept
which would seem to have considerable
merit. It is obvious just from reading
the few Pennsylvania cases I have cited
that, to some degree, the application of
either the general doctrine of good faith
and fair dealing or the doctrine of
―necessary implication‖ is not a white
line and, to some extent, may be a
minefield. Nonetheless, I suggest that
surety lawyers should be aware of the
possible use of such doctrines on their
clients’ behalf and to beware of the
possible use of such doctrines against
them as a result of a surety’s action or
inaction. It is reasonable to predict that
in the right case on the right facts other
jurisdictions will certainly apply the
application of the doctrine of good faith
and fair dealing and may, as an
extension of that, apply the doctrine of
―necessary implication‖.
Thus, one should consider some of
the possibilities.
By far the most
significant possibility for the potential
application of those doctrines would
arise in the case of changes in a
construction contract. Such changes
without notifying the surety may very
well have been expressly provided for
in the language of the contract itself and
of the bond. Does that mean, because
there is express language allowing such
changes without notifying the surety
and with the surety continuing to be
bound, that their express contract
language must control? And, thus,
neither the obligation of good faith and
fair dealing nor the doctrine of
―necessary implication‖ could be
applied.
In the first place, we know that this
is not the law in cases in which some
substantial changes in the scope of the
contract performance occur. This is
where they are considered by the court
(or the finder of fact) to be such a
material change that the contract against
which the owner is attempting to apply
the bond is no longer the same contract.
While that situation usually arises in
connection with extras to the work, it
would not require a leap of faith to find
that, if the two doctrines apply, the
circumstance described in my many
years old Evansville case might be
circumstances to which one could apply
the doctrine. The surety should have
the benefit of this doctrine to require
performance by the other party to avoid
materially injuring its right. A change
as significant as removing the design
professional from seeing that the duties
that appear to be imposed on the
contractor in the construction contract
are properly performed should give rise
to an obligation of the owner to inform
the surety and obtain its permission.
The case law, in general, holds that
despite the clear language of a faithful
performance bond or other instruments
requiring accounting for money, an
obligation under the bond arises when
the particular acts set out in the
instrument have occurred. Assume the
obligee is aware of dishonesty or lack of
faithful performance and overlooks it
and later seeks to recover losses
occurring following its knowledge of
the prior dishonest or improper
performance of the principal. Any such
case would be very fact sensitive.
The case law and, in many
instances, the language of the bonds
themselves generally hold that recovery
from the surety for the later misconduct
Newsletters
is barred. However, an argument can be
made under the doctrine of good faith
and fair dealing that the notice also may
have given the surety an opportunity to
obtain recoupment or indemnity from
its principal in a situation in which the
principal’s financial condition would (in
most cases) be significantly better than
after
the
successive
additional
defalcations have occurred.
Now, again, there is a considerable
body of case law which suggests this
may be a basis for defense. Another
example, in the context of a
construction contract, would be a
situation in which the work is
performed in various sequences. The
bonded contractor has entered into a
contract to perform each of those
sequences in a prescribed order.
However, there are certain requirements
applying to each sequence. Suppose
that the owner, invoking one of those
requirements in a circumstance where
the contractor’s work is otherwise
completely satisfactory, removes one of
these sequential activities from the
contractor and awards it to someone
else. An obvious situation where this
might occur would be where the
contractor has unpaid bills on that
sequence (some of which, of course,
may be in dispute between the
contractor and its subcontractors or
suppliers) and the owner, on the basis of
those unpaid bills, removes that portion
of the work but then insists that the
contractor must proceed to perform the
remaining work. In such a case, the
contractor loses control of the sequence
and faces the potential of serious harm
to the contractor, which is a potential of
serious harm to the surety. Many surety
Page 241
instruments actually contain language
which holds that the coverage afforded
by the surety bond protecting the
obligee is no longer in effect once the
obligee is aware of prior improper acts
or omissions which would be violations
of the bond. Nonetheless, in more
sophisticated cases, the ability to look to
the doctrines of good faith and fair
dealing or the doctrine of ―necessary
implication,‖ requiring notice to the
surety of the discovery of these acts as a
prerequisite
to
the
continued
enforcement of the obligation, would
make the application of the law as
applied to facts clearer.
I am not suggesting how these
cases or others that we could consider
would work out.
I am merely
suggesting that it is wise to consider the
application of the doctrine of good faith
and fair dealing. Sometimes in the real
world, the kinds of instances to which I
have referred (as was true in Lovejoy),
the use of a contractual provision to
gain an advantage which the court finds
a misuse of an otherwise proper
provision in order to avoid a clearly
improper result, using the doctrine of
―necessary implication‖ or providing
for a good faith interpretation of the
contract, allows the court to say, if the
parties
had
considered
those
circumstances, they would realize that
enforcing the strict provision being
misused would unfairly deprive the
other party of the rights obtained from
the other provisions of the contract and
thus relief from the clause implied as a
portion of the contract.
I would predict that if any such
cases arise there is at least a reasonable
possibility that courts considering what
Page 242
law to apply may very well consider
either the employment of the general
rule of good faith and fair dealing or the
more specific rule of ―necessary
implication‖ in seeking to protect the
contractor (and, by extension, the
surety). Forewarned is forearmed!
***

April 2012 - International Association of Defense Counsel

Transcription

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