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Class Dismissed: Supreme Court Declines to Resolve Circuit Split on Class Action Jurisdiction

Posted in Litigation Trends, Professional Liability

Court RulingThe United States Supreme Court declined a petition for certiorari on Monday, January 9, in the matter of Ascira Partners, LLC v. Daniel, dashing hopes that the Justices would resolve conflicting federal law on jurisdiction under the Class Action Fairness Act. The petition involved a massive medical malpractice action in Ohio which originated from medical care provided by a single doctor working at multiple medical care facilities. Originally, plaintiffs filed 226 individual lawsuits against the doctor and various medical providers in several different Ohio counties before the cases were consolidated before a single judge. At that point, the various plaintiffs requested that the court set all of the cases for one combined trial, or several smaller group trials. The court ultimately set four smaller trials and one large group trial which combined the claims of over 400 plaintiffs into a single case.

Following this consolidation, defendants sought to have the case removed from Ohio state court to federal court under 28 U.S.C. § 1332(d), otherwise known as the “Class Action Fairness Act.” Among other provisions, this statute gives federal courts jurisdiction over certain monetary relief claims of 100 or more persons so long as the plaintiffs’ claims involve common questions of law or fact. The Ohio state court, however, determined that the case should stay in state court, as the “100 plaintiff” element of the statute was not satisfied. Under the state court’s view, federal jurisdiction under the statute is proper only when a single complaint contains at least 100 plaintiffs, not when where multiple suits are combined for trial to encompass the claims of more than 100 plaintiffs. Defendants asked the federal Sixth Circuit Court of Appeals to review this interpretation, arguing that the Seventh, Eighth, and Ninth Circuits had all previously determined exactly the opposite, that the 100 plaintiff threshold was, in fact, satisfied when plaintiffs decide to combine multiple cases for trial. When the Sixth Circuit implicitly adopted the state court’s interpretation by declining to weigh in, defendants sought review from the United States Supreme Court.

These “Circuit splits”, where Circuit Courts disagree on the interpretation of the law, are not uncommon. And it is certainly not uncommon for the Supreme Court to deny a party’s petition for review. The Supreme Court receives approximately 7,000 petitions each year, and accepts roughly 80 for oral argument and review. The Supreme Court’s denial of review in Ascira Parnters is nevertheless significant for mass tort defendants across the country.

It is no secret that, in many instances, injured tort plaintiffs would prefer to file their cases in state court as opposed to federal court. One of the many reasons for this preference is that the Federal Rules of Civil Procedure place express limits on the amount of discovery available to both parties.  Further, the Federal Rules of Evidence tend to be more stringent, as are requirements for expert witnesses.  These, and the notion that federal courts tend to grant motions to dismiss and motions for summary judgment more frequently and award lower verdicts, means that plaintiffs would often rather file their cases in state court.

Part of the rationale behind the Class Action Fairness Act was to keep large, multi-state, multi-plaintiff cases, which are better suited for federal court, from being litigated in state courts, despite what some plaintiffs may prefer. The Sixth Circuit’s interpretation of the “100 plaintiff” threshold, however, essentially creates a loophole for large groups of plaintiffs to bring claims in state court that are subject to federal jurisdiction pursuant to the Act. As the Ascira Partners petitioners stated in their brief, this interpretation would seemingly allow a group of 100 plaintiffs to “artificially split a large lawsuit into smaller actions involving fewer than 100 plaintiffs but consolidate them for trial…all without triggering removal under the CAFA.” In other words, 100 plaintiffs who want the cost and strategic benefits of filing together in a single action but want to avoid federal court could theoretically agree to bring two 50-plaintiff suits in state court, and then consolidate them on the eve of trial. Under the Sixth Circuit’s interpretation, the defendants in this hypothetical case would have no grounds to remove to federal court, and would be forced to defend the case in a state court of the plaintiffs’ choosing.

While it is unknown what the long term effects of this Circuit split may be, it is not unreasonable to assume that mass tort plaintiffs will flock to the states that make up the Sixth Circuit (Michigan, Ohio, Kentucky and Tennessee) to file their claims. With a little clever pleading, they know that they can avoid the pitfalls of removal to federal court that they may face in the states that make up Seventh, Eighth, and Ninth Circuits. But until the Sixth Circuit changes course or the Supreme Court takes up a new petition, national mass tort defendants shouldn’t be surprised to find an uptick in complaints coming out of these four states.

Another Blow to “Every Exposure” in Asbestos Litigation

Posted in Asbestos Litigation, Louisiana Courts, Toxic Tort

louisiana-890549_960_720Causation opinions from plaintiff’s experts in asbestos exposure cases have undergone a puzzling evolution as they continue to face successful challenges. From “every exposure” to “every exposure above background” and “every significant exposure,” each iteration has attempted to make the same end run around the plaintiff’s burden of proof by stating that all exposures in a lifetime work together to cause disease. A recent federal decision, however, struck another blow to the “every exposure” theory, adding to the growing case law debunking it as nothing more than junk science.

Under the “every exposure” theory advanced by plaintiff’s attorneys in asbestos litigation, each defendant whose product plaintiff may have worked with or around, no matter how infrequently, is equally liable. The theory claims that each exposure contributes to the development of disease, without making any attempt to quantify the specific exposures from various products. This is particularly problematic when you consider that exposures to asbestos from certain products may be so low that, taken individually, may not have resulted in disease. The “every exposure” theory glosses over these de minimis exposures with the opinion “each and every exposure” to asbestos contributes to the causation of disease.

Recently, federal courts have begun to critically analyze this “every exposure” theory, and to demand a more stringent causation analysis. In Smith v. Ford Motor Co, a Utah federal court found held that the “each and every exposure theory is based on a lack of facts and data.” Smith involved a plaintiff’s expert who opined that the plaintiff’s mesothelioma was caused by his total and cumulative exposure, with all exposures playing a contributory role. The court excluded that testimony, finding that the “every exposure” theory “asks too much from too little evidence as far as the law is concerned. It seeks to avoid not only the rules of evidence but more importantly the burden of proof.” Likewise, in Yates v. Ford Motor Co., a case out of the Eastern District of North Carolina, the court excluded testimony of another well-known plaintiff’s expert, finding that his adherence to the “each and every exposure” theory lacked a basis in supporting facts or data.

And most recently, in Bell v. Foster Wheeler Energy Corp., the Eastern District of Louisiana referenced the growing line of exclusionary opinions and stated that the “deficiencies of the “each and every exposure” theory of causation in asbestos exposure cases have been extensively discussed.” The court held that the theory is not an acceptable theory of causation because it amounts to “nothing more than the ipse dixit of the expert.” Though some state and federal courts continue to permit the “every exposure” theory, cases like Smith, Yates, and Bell add to the growing number of jurisdictions requiring plaintiffs to meet their burden of proof.

California Supreme Court Recognizes a Duty of Care to “Take-Home” Plaintiffs

Posted in Asbestos Litigation, California Courts, Litigation Trends, Toxic Tort

california-160550_960_720Last month, the California Supreme Court issued a ruling on two coordinated “take-home” asbestos exposure cases, in which it held that employers using asbestos in the workplace have a duty of care to protect an employees’ household members from exposure to asbestos through off-site contact with employees who carry asbestos fibers on their work clothing and/or persons, also referred to as “take-home” exposure plaintiffs.  The Court noted that the duty of care existed regardless of whether the plaintiff states a claim for general negligence or premises liability.  This ruling helps clarify the law in California on the duty of care owed to “take-home” exposure plaintiffs, and in doing so further establishes California as a plaintiff-friendly state in asbestos litigation.

The Court’s opinion was premised on two “take-home” asbestos cases.  In one matter, the plaintiff filed suit against various defendants alleging that they exposed him to asbestos and caused his peritoneal mesothelioma.  Among the defendants was Pneumo Abex, LLC.  The plaintiff alleged that his uncle worked and was exposed to asbestos in a Pneumo Abex plant, which he then took home on his clothes and person and to which the plaintiff was subsequently exposed to during the 1970s.  In the other matter, the plaintiffs filed a wrongful death lawsuit against various defendants, alleging that their mother passed away from mesothelioma after also having been exposed to asbestos.  Among other defendants, the plaintiffs alleged that BNSF Railway Company employed and exposed the decedent’s husband to asbestos fibers, which he then brought home to the household he shared with the decedent, thereby exposing her to asbestos as well.

The Supreme Court set out to determine whether an employer or premises owner using asbestos has a duty to protect individuals secondarily exposed to asbestos through the clothing and persons of individuals either employed by the defendant or on the defendant’s premises.  After evaluating the facts and law, the Court held that “[w]here it is reasonably foreseeable that workers, their clothing, or personal effects will act as vectors carrying asbestos from the premises to household members, employers have a duty to take reasonable care to prevent this means of transmission,” and that the duty applies to employers and “also applies to premises owners who use asbestos on their property, subject to any exceptions and affirmative defenses generally applicable to premises owners.”  However, the Court noted that this duty  extends only to members of a worker’s household, regardless of whether they are a relative.

In reaching this holding, the California Supreme Court first noted that California Civil Code section 1714 “establishes a general duty to exercise ordinary care in one’s activities,” thereby meaning that the issue is not whether a new duty should be established, but rather whether the Court should create an exception such that employers and premises owners would not owe a duty of reasonable care towards a workers’ household members secondarily exposed to asbestos.  California law requires that courts consider the factors outlined in Rowland v. Christian, 69 Cal. 2d 108 (1968) to evaluate whether a situation warrants a duty of care.  Under Rowland, a Court must consider 1) whether the injury in question is foreseeable; 2) the degree of certainty that the plaintiff has suffered an injury; 3) the closeness between the defendant’s conduct and the injury suffered; 4) moral blame of the defendant; 5) whether a duty of care would prevent future harm; 6) the burden to the defendant; and 7) availability of insurance for the type of injury suffered.  After considering all of these factors, the Supreme Court concluded that the injury suffered by the plaintiffs, i.e. mesothelioma resulting from exposure to asbestos, was a foreseeable result in light of the OSHA standards in place at the time of the plaintiffs’ alleged exposure to asbestos, as well as other publications during that time frame documenting the risks of asbestos exposure.  Accordingly, the Court held that because an increased risk of contracting mesothelioma was a characteristic harm resulting from the use of asbestos-containing materials, and because it can be reasonably assumed that a worker exposed to asbestos during the workday returns home at the end of the day, it was reasonably foreseeable that such workers would expose their household members to the asbestos fibers they worked with and around, thereby increasing their risk of contracting mesothelioma. While the defendants argued that there was no scientific consensus regarding the risks of asbestos during the time in which the plaintiffs were allegedly exposed, the Court noted that there is no authority for the proposition that a scientific consensus is required to establish foreseeability in the context of duty analysis.

In addition to the foreseeability of the injuries sustained by the plaintiffs in this case, the Court further held that public policy considerations also supported a finding that employers and premises owners owed a duty of care to a worker’s household members.  The Court noted that the defendants financially benefited from their business activities involving the use of asbestos, and that preventing workers’ household members’ from being exposed to asbestos would not have imposed “a greater burden than preventing exposure and injury to the workers themselves.”

Despite recognizing a duty of care owed to individuals secondarily exposed to asbestos, the defense was able to successfully argue that a blanket duty could lead to tenuous claims by an unlimited number of plaintiffs, thereby overburdening defendants and the courts.  In light of this concern, the Court held that this duty of care only extends “to members of a workers’ household, i.e., persons who live with the worker and are thus foreseeably in close and sustained contact with the worker over a significant period of time,” thereby limiting “potential plaintiffs to an identifiable category of persons who, as a class, are most likely to have suffered a legitimate, compensable harm.”

The Court further held that this duty extends to both employer defendants as well as defendants sued under premises liability theory.  While the defense argued that recognizing a duty of care owed to “take-home” plaintiffs when a defendant is sued under premises liability “would take the ‘premises’ out of premises liability and unsettle the tort law that applies to all property owners,” the Court disagreed, noting that California courts have repeatedly held that a landowner’s duty of care to avoid exposing others to risk of injury is not limited to injuries that occur on the premises, but rather extends to risks of injury off the landowner’s premises, if the property “is maintained in such a manner as to expose persons to an unreasonable risk of injury off-site.”  Given that the plaintiffs’ injuries were allegedly sustained through contact with asbestos fibers originating from the defendants’ worksites, the Court felt a duty of care was appropriate.

This decision will undoubtedly have many repercussions.  While California is already a popular jurisdiction for asbestos litigation, this holding will likely encourage more asbestos lawsuits, given that this holding will help shield many plaintiffs from demurrers and summary judgment motions, thereby increasing plaintiffs’ bargaining power.  This can subsequently result in higher settlements and larger plaintiffs’ verdicts.  However, the Court’s holding did offer some limitations of which defendants should be mindful:

  • Household Foreseeability Limitation – The Court established only a duty of care for members of the same household as individuals exposed to asbestos in their workplace. The Supreme Court was unwilling to extend the duty of care to all individuals who may have been exposed to asbestos through an employer’s clothing and person, as the Court noted that while it is foreseeable for members of an individual’s household to be exposed to asbestos from a workplace, it is less foreseeable for individuals not living in the same household as the worker to be exposed to measureable amounts of asbestos.
  • Premises Defendant Exceptions – The Court noted that while this duty extends to premises liability defendants, various fact-specific defenses may still be applicable. For instance, premises defendants are not liable to third parties for injuries caused by a contractor’s negligence in performing work, based on a lack of control, unless the premises owner is aware of a hazardous condition the contractor did not know about and was unaware of.  Kinsman v. Unocal Corp., 37 Cal. 4th 659, 675 (2005).
  • Product Defendants – The Court noted that product defendants are distinguishable from employer or premises defendants based on the level of control the defendant has over the use of asbestos: “[T]ake-home asbestos cases against employers or premises owners allege that the defendants had direct knowledge as to how fibers were being released and circulated within their facilities and failed to prevent those employees from leaving workplaces owned or controlled by the defendants with asbestos on their clothing or persons. Product liability defendants, by contrast, have no control over the movement of asbestos fibers once the products containing those fibers are sold.”  Accordingly, the Court suggests that this holding does not extend to product manufacturers, as their control ends when the product is sold, thereby making any “take-home” exposure attenuated and difficult to foresee.

While the ultimate repercussions of this decision remain to be seen, defendants should be mindful that it only helps to further solidify California as a popular jurisdiction for asbestos litigation.

CA Supreme Court Offers Interpretation of Personal Jurisdiction Decision

Posted in California Courts, Uncategorized
California Supreme Court

California Supreme Court

The United States Supreme Court’s decision in Daimler A.G. v. Bauman, 571 U.S. __, 134 S.Ct. 746 (2014), has played a significant role this year in cases pending in Delaware and Rhode Island. Most recently, the California Supreme Court has weighed in, changing what we thought we knew about personal jurisdiction, at least in California.

In Daimler, the U.S. Supreme Court held that a court can exercise general jurisdiction (whereby a state court asserts jurisdiction over a defendant on claims unrelated to the defendant’s activities in the forum state) only when the defendant can be said to be “at home” in the forum – the paradigm being the state in which it is incorporated or has its principal place of business. The California Supreme Court has now found a way to turn that decision on its head. It held in Bristol-Meyers Squibb Co. v. Superior Court, 377 P.3d 874 (Cal. 2016) that plaintiffs from outside California whose claims do not arise out of anything involving California can sue a non-California defendant in a California court.

Bristol-Myers argued, pursuant to Daimler, that it was not subject to personal jurisdiction in the California courts for the suits of 592 non-California plaintiffs. First of all, it argued that it was not subject to specific personal jurisdiction because none of the 592 lawsuits by non-California plaintiffs arose out of anything plaintiff or defendant did in California. Moreover, it argued that it was not subject to general personal jurisdiction because it was not “at home” in California, based on the fact that it was neither headquartered nor incorporated in California.

The California Supreme Court agreed that there was no basis for the exercise of general jurisdiction, but instead found that a “new wave” specific jurisdiction existed because Bristol-Myers engaged in “nationwide marketing, promotion and distribution [that] created a substantial nexus between the non-resident plaintiffs’ claims and the company’s contacts in California . . . .” And, according to the Bristol-Meyers court, the more wide-ranging the defendant’s forum contacts, the more readily a “connection” between the defendant’s forum contacts and the claims by the non-resident plaintiffs can be found.

This decision of the California Supreme Court appears to basically moot the Daimler decision and may make any company that does business nationally subject to personal jurisdiction in California. Bristol-Meyers has filed a writ of certiorari with the U.S. Supreme Court, so this decision may have a short shelf life. For the time being, however, companies should be prepared to litigate in California, as the Bristol-Meyers decision is likely to factor into plaintiffs’ decision when choosing a forum in which to litigate.

Delaware Supreme Court Provides New Guidance on Derivative Suits: Private Planes and Venture Capital Investments May Raise Doubts at Pleading Stage

Posted in Corporate Litigation
Delaware Supreme Court

Delaware Supreme Court

The Delaware Supreme Court reversed the dismissal of a derivative suit for failure to make demand, finding that the complaint alleged particularized facts sufficient to create a reasonable doubt as to the disinterestedness and independence of a majority of directors, in Sandys v. Pincus, No. 157, 2016 (Del. Dec. 5, 2016).  In Sandys, the plaintiff alleged that some top managers and directors at Zynga, Inc. were given an exemption to Zynga’s rule preventing sales by insiders until three days after an earnings announcement.

Because Zynga’s board of directors had nine members, the Court examined whether the complaint had excused a demand as to at least five directors.  Two of the directors (Reid Hoffman, and the controlling stockholder and former CEO, Mark Pincus) had participated in the trades and were considered interested in the transaction.  Another director, Don Mattrick, had been named as the new CEO, and was therefore deemed interested because the corporation’s controlling stockholder was interested in the transaction.  The Court concluded that the complaint alleged reasonable doubt as to the disinterestedness of another three directors (adding up to six of the nine directors).

One director, Ellen Siminoff, was deemed to be potentially interested because she and her husband were co-owners of a private plane with Pincus, which “signaled an extremely close, personal bond” between the two directors and their families because unlike some other assets, a private plane “requires close cooperation in use, which is suggestive of detailed planning indicative of a continuing, close personal friendship.”  The Court noted that at the pleading stage, a plaintiff need not “plead a detailed calendar of social interaction to prove that directors have a very substantial personal relationship rendering them unable to act independently of each other.”

Another two directors, William Gordon and John Doerr, were partners at a prominent venture capital firm, Kleiner Perkins Caufield & Byers, which had interlocking relationships with both directors who traded in Zynga stock.  Specifically, Kleiner Perkins also was invested in a company that Pincus’ wife co-founded, and with a company on whose board Hoffman served as a director.  According to its public disclosures, the Zynga board had determined that Gordon and Doerr did not qualify as independent directors under the NASDAQ listing rules.  The plaintiff’s books and records inspection demand did not inquire as to the board’s NASDAQ determination, and the Court of Chancery found that these directors’ independence had not been sufficiently challenged.  The Delaware Supreme Court disagreed, stating that “to have a derivative suit dismissed on demand excusal grounds because of the presumptive independence of directors whose own colleagues will not accord them the appellation of independence creates cognitive dissonance that our jurisprudence should not ignore.”  While agreeing that “the Delaware independence standard is context specific and does not perfectly marry with the standards of the stock exchange in all cases,” the Court nonetheless identified criteria of the NASDAQ rule that “are relevant under Delaware law and likely influenced by our law.”

The plaintiff had followed the Court’s admonition in other cases to use one of the “tools at hand” – a statutory books and records inspection – to gather facts before filing his complaint.  However, the Court chided him for seeking only books and records relating to the underlying transaction and not those “bearing on the independence of the board,” particularly those relating to the board’s determination of independence under NASDAQ rules.  The Court also advised that “one of the most obvious tools at hand is the rich body of information that now can be obtained by conducting an internet search,” suggesting that the plaintiff had failed to do so and overlooked facts concerning Siminoff available through such an inquiry.  However, the opinion is silent as to whether the Court conducted its own internet search and relied on facts it discovered in its analysis.

Interestingly, both the Court of Chancery and the Supreme Court applied the single-prong standard of Rales v. Blasband (which examines only the disinterestedness and independence of directors, and typically applies when a plaintiff challenges a board’s failure to take action), rather than the two-prong standard of Aronson v. Lewis, which also examines the substance of a decision made by a board.  Neither party contested the applicability of Rales, and therefore the Supreme Court used it in its analysis.

In a dissent, Justice Valihura stated that she would have affirmed dismissal because the plaintiff failed to allege facts showing the materiality of investments made by Kleiner Perkins in other companies and also failed to plead why Gordon and Doerr lacked independence under NASDAQ rules (which are not necessarily coextensive with the Delaware standard for independence).  She also noted that the plaintiff had chosen to plead allegations about Siminoff’s co-ownership of a plane as supporting a business venture and not a close personal relationship, and that those allegations failed to establish the materiality of the venture.

 

 

Don’t Be Left Asking “Where’s the Beef?” in Your Insurance Policy

Posted in Foodborne Illness

beefCareful consideration of the language used in an insurance policy, or any contract for that matter, is extremely important.  A food services company, Meyer Natural Foods LLC (“Meyer”), found that out the hard way in a recent case filed in the U.S.D.C for the District of Nebraska.[1]  Exclusionary language in an insurance policy precluded Meyer from recovering its $1.4 million of damages related to the loss of a beef order due to contamination from a pathogen.  Meyer had contracted with a beef supplier, Greater Omaha Packing (“Greater Omaha”) to purchase certain beef products.  As part of their contract, Meyer required Greater Omaha to obtain an insurance policy to protect the value of the beef that was to be shipped, which they did through the Defendant in this case, Liberty Mutual.  One of the beef shipments Greater Omaha made to Meyer, unfortunately, contained E. coli, which resulted in the destruction of the entire shipment valued at $1.4 million dollars.

In an effort to recover that loss, Meyer turned to the Liberty Mutual insurance policy, which was purchased by Greater Omaha pursuant to their agreement.  However, there were certain exclusions in the policy, which may not have been considered by Meyer and/or Greater Omaha, and this language is the reason that U.S. District Judge John M. Gerrard dismissed Meyer’s suit against Liberty Mutual.  The language in question? An exclusion of coverage for “loss attributable to . . . contamination”.  Meyer’s main argument was that the policy exclusion did not specifically refer to E. coli, and that the word contamination is ambiguous, such that E. coli cannot be included therein.  But that argument was unsuccessful, as the court simply relied primarily on the plain meaning of the word contaminate, “to render unfit for use by the introduction of unwholesome or undesirable elements.”  In doing so, the court determined that E. coli clearly fits within this definition.[2]

The first lesson to take away from this case?  Always read and understand the insurance policy that will be covering a potential loss of your property.  No matter where you are on the food chain, you must be aware of all provisions of the insurance covering your property.  In this instance, Meyer did not obtain the insurance policy directly, but rather Greater Omaha did as part of their contract.  This case is a cautionary tale for obtaining insurance coverage of your property through a third-party.  In cases where a third-party obtains coverage, you still must read the policy, and understand the implications of its various exclusions.

Taking a step back to think about this particular scenario, one must ask, for what purposes would a company in the food distribution and supply industry seek insurance on their food products from a potential loss?  Risk of contamination or adulteration of the beef due to a pathogen such as E. coli would clearly be high on that list and, therefore, it should have been tantamount for Meyers to have sufficient language in the policy to protect against such an incident and ensure coverage.  Is it possible that Meyer never saw the insurance policy? Sure.  But that is the point.  A company, or their counsel, should always read every insurance policy with a fine-toothed comb to ensure that their property will be protected in the event of loss, even if they did not directly obtain that policy.

This is not to suggest that Liberty Mutual was hiding the ball when including exclusions in their policy. Rather, it appears Liberty Mutual was simply protecting its own interests.  Liberty Mutual likely inserted this contamination exclusion with this very type of loss in mind.  In many cases, as in this one, insurance companies are providing coverage to sophisticated companies that have the ability to negotiate the policies terms.  Including multiple exclusions as a starting off point for a well negotiated insurance policy is simply good business for an insurance company.  In fact, this case is not alone, as there have been a number of recent cases in which similar exclusions have been applied by the courts to preclude policy coverage.[3]

There was one final gaffe: One of Meyer’s main arguments in the suit was that the word “contamination” was ambiguous and therefore did not include beef tainted with E. coli.  However, in their own Complaint in this very case, they referred to their property loss as the result of contamination.  In fact, they referred to the “contamination” of beef by a pathogen eleven times.  To even the non-legal trained eye this position is contradictory.  One would be hard pressed to persuade a judge or jury that the very word used by that party to describe their property loss, is actually ambiguous when written in the insurance policy intended to cover that very property loss.   A reading of Judge Gerrard’s decision shows that this word choice in the Complaint certainly impacted the Court’s decision.

Again, the final take-away of this case study: lawyers need to choose each and every one of their words very carefully in all pleadings submitted to court.

 

Meyer Natural Foods LLC, et al. v. Liberty Mutual Fire Insurance Co., C.A. No. 8:15-cv-03116

 

[1] Meyer Natural Foods LLC, et al. v. Liberty Mutual Fire Insurance Co., C.A. No. 8:15-cv-03116

[2] The plain meaning was not the only basis for Judge Gerrard’s conclusion, as will be explained further below.

[3] Perhaps the most extreme example is when the Eleventh Circuit Court of Appeals affirmed a decision by the USDC for Northern Alabama in 2011.  The Appellate Court determined that a curry aroma from a neighboring Indian restaurant was considered a “pollutant” under the insurance policy, such that the property damage (fur coats) caused by the aroma was not protected by the policies coverage.

Maxine Furs, Inc. v. Auto-Owners Ins. Co., 426 F. App’x 687, 687 (11th Cir. 2011).

Supreme Court Resolves Circuit Split On Insider Trading, Partially Overruling Newman

Posted in Corporate Litigation

Gavel_editFor the first time since 1997, the United States Supreme Court explored the requirements for proving a federal securities fraud claim based on insider trading, in Salman v. United States (Dec. 6, 2016).  The Salman opinion confirms that a factfinder may infer a personal benefit to a tipper from a gift of confidential information to a trading relative or friend, without the added requirement of “proof of a meaningful relationship” that had been imposed by the Second Circuit in United States v. Newman, 773 F.3d 438 (2d Cir. 2015).  Salman thus resolves a circuit split that had developed between the Second and Ninth Circuits.

Historically, individuals have been found to have engaged in securities fraud under “classical” theory or “misappropriation” theory.  Under classical theory, corporate “insiders” (directors, officers, and others deemed to hold a temporary fiduciary status) either trade on inside information or tip the information to someone who does.  Dirks v. S.E.C., 463 U.S. 646 (1983).  Under misappropriation theory, the person trading or tipping inside information need not owe fiduciary duties generally to a corporation and its stockholders, but must violate some relationship of trust and confidence through which she received the information.  United States v. O’Hagan, 521 U.S. 642, 650-52 (1997).  In both cases, then, the person engaging in insider trading has committed an act of deception by violating a relationship of trust and confidence.  Also, in both cases, the actionable deception is to the source of information and not to the other party to the trade or the general trading public, even though the latter may be injured by the trader’s conduct.  See id.  The Supreme Court has not read the federal securities laws as establishing “a general duty between all participants in market transactions to forgo actions based on material, nonpublic information.”  Chiarella v. United States, 445 U.S. 222, 233 (1980).

In the 2015 Newman case, the Second Circuit further limited the ability of the government to bring insider trading cases.  The court acknowledged that language in the Supreme Court’s Dirks opinion could be read as permitting a factfinder to infer that a tipper received a personal benefit by providing confidential information to a trading relative or friend, but added that such an inference “is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.”  Newman, 773 F.3d at 452.  The Newman opinion called into question hard-won victories by the federal government against insider trading defendants in the Southern District of New York.

The Ninth Circuit took a different direction in Salman.  In that case, confidential information originally was obtained by an investment banker at Citigroup, Maher Kara, who shared it with his brother Michael.  Unbeknownst to Maher, Michael then shared the information with others including the defendant, Bassam Salman, whose sister was married to Maher.  On appeal, the Ninth Circuit refused to follow Newman, considering itself bound by Dirks’ statement that a tipper benefits personally by making a “gift” of confidential information to a trading relative or friend.  To the extent Newman required that the tipper receive an additional benefit by providing the information, the Ninth Circuit declined to follow it.  United States v. Salman, 792 F.3d 1087, 1093 (9th Cir. 2015).

In a unanimous opinion by Justice Alito, the Supreme Court agreed with the Ninth Circuit, explaining that its discussion of gift giving in Dirks resolved the case.  As conceded by Salman’s counsel at oral argument, Maher indisputably would have breached his duty by trading on inside information himself and then making a cash gift of all trading proceeds to his brother.  Maher “effectively achieved the same result by disclosing the information to Michael, and allowing him to trade on it.”  Viewed in this light, it was unnecessary to find an additional pecuniary benefit resulting from the exchange of information:

Dirks specifies that when  a tipper gives inside information to ‘a trading relative or friend,’ the jury can infer that the tipper meant to provide the equivalent of a cash gift.  In such situations, the tipper benefits personally because giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds.  Here, by disclosing confidential information as a gift to his brother with the expectation that he would trade on it, Maher breached his duty of trust and confidence to Citigroup and his clients – a duty Salman acquired, and breached himself, by trading on the information with full knowledge that it had been improperly disclosed.

Thus, Salman also appears to confirm that for an insider trading charge to succeed, the recipient of confidential information must know that it was disclosed in violation of a relationship of trust and confidence.

Salman was in many respects an “easy case,” because of the obvious and undisputed family relationships among the actors involved.  It remains to be seen whether the Second Circuit will continue to apply Newman or some new standard to cases in which the tipper and tippee are not in the same family and the benefit of making a gift of information is arguably less obvious.  In this regard, the Supreme Court stated in footnote 1 of its opinion that its decision did not implicate the questions of proof arising in the Newman case.  Practitioners also may observe that in footnote 2, the Supreme Court noted that the parties did not dispute the assumption that Dirks’ personal-benefit analysis applies both in “classical” and “misappropriation” cases, and therefore did not resolve whether both theories applied (as the government claimed) or only the misappropriation theory applied (as Salman claimed).

Salman v. United States (Dec. 6, 2016)

United States v. Newman, 773 F.3d 438 (2d Cir. 2015)

 

Causation Standard at Center of PA Supreme Court Asbestos Ruling

Posted in Asbestos Litigation, Litigation Trends

Pennsylvania-supreme-court-buildingOn November 22, 2016, the Pennsylvania Supreme Court issued a 4-2 Opinion in Rost v. Ford Motor Co., No. 56 EAP 2014, 2016 Pa. LEXIS 2638 (Pa. Nov. 22, 2016), in which the court purported to uphold and expand upon prior asbestos causation decisions set forth in Gregg v. V-J Auto Parts, Co., 596 A.2d 274 (Pa. 2007), and Betz v. Pneumo Abex, LLC, 44 A.3d 27 (Pa. 2010). However, when juxtaposed against the dissents of Chief Justice Saylor—the author of both Gregg and Betz—and Justice Baer, it becomes evident that the majority opinion creates an additional obstacle for defendants (particularly low-dose defendants) on the path toward exculpation.

In the opinion, the majority upholds a plaintiff’s verdict against Ford Motor Company for a plaintiff, Mr. Rost, who alleged he had experienced direct occupational bystander exposure to asbestos from Ford products while working as a “gofer” in an automotive repair garage over a three month time period. Ford challenged the verdict on two grounds: i) the plaintiff’s expert, Dr. Frank’s, causation opinion was impermissibly before the jury when the opinion amounted to an “each and every breath” opinion (which the court explicitly rejected in both Gregg and Betz) and, with respect to substantial factor causation, Dr. Frank’s opinion failed to take into account plaintiff’s other industrial occupational exposure during which Mr. Rost was exposed to asbestos “at pretty high levels” over at least a ten year period; and ii) the trial court erred in consolidating Mr. Rost’s case with other non-related mesothelioma cases.

Dr. Frank testified generally that mesothelioma is a dose-response disease wherein as the dose increases, the likelihood of developing the disease increases. He also testified that it is scientifically impossible to identify a particular exposure that caused the plaintiff’s disease where there were four sources of exposure, but that the causative agent was a series of exposures. Mr. Frank asserted that all documented exposures should be considered as contributing to the plaintiff’s development of disease, and concluded that it is not possible to quantify how much asbestos initiates the disease process and that it also varies according to individual susceptibility. After testifying to those opinions generally, Dr. Frank testified using a hypothetical that exposure to Ford products specifically was a substantial contributing factor to the plaintiff developing mesothelioma. Dr. Frank asserted “if [the three month exposure to Ford products] would have been [Mr. Rost’s] only exposure, I would be sitting here saying that that was the cause of his disease. Given that he had other exposures, it was all contributory.” Rost, No. 56 EAP 2014, 2016 Pa. LEXIS 2638, at *13.

 

Plaintiff’s Expert’s Conclusory Opinion Satisfied the Causation Standard

The majority began its analysis by revisiting two prior decisions—Gregg and Betz. In Gregg, the court rejected the “each and every breath” theory of causation as insufficient to create a factual issue to submit to the jury. In Betz, the court determined that a plaintiff must adduce evidence that exposure to a particular defendant’s asbestos-containing product was sufficiently “frequent, regular, and proximate” to support a jury’s finding that a defendant’s product was substantially causative of the disease.

In differentiating this case from Gregg and Betz, the court found that “while Dr. Frank clearly testified that every exposure to asbestos cumulatively contributed to Rost’s development of mesothelioma, he never testified that every exposure to asbestos was a ‘substantial factor’ in contracting the disease.” Id. at *27. (emphasis added). The court decided that Dr. Frank did not testify that a single breath of asbestos while at the garage caused Mr. Rost’s mesothelioma but that the entirety of his three month exposure caused his disease based on the fact that mesothelioma may develop after only small levels of exposure. The court explained that “[u]nlike the expert witness in Betz, who unabashedly offered ‘each and every breath’ testimony, in this case Dr. Frank relied upon a generally accepted methodology, taking into consideration exposure history, individual susceptibility, biological plausibility, and relevant scientific evidence (including epidemiological studies).”  Id. at *29-30.

The majority also explicitly rejected Ford’s argument that Gregg and Betz require asbestos plaintiffs to prove relative exposure as part of the “substantial factor” test, stating that “[c]omparison of Rost’s other occupational exposures to asbestos was unnecessary.”  Id. at 36. However, this finding contradicts what the court previously set forth in both Gregg and Betz, where the court indicated that a comparative analysis was warranted. In Gregg, the Court noted that “…we do not believe that it is a viable solution to indulge in a fiction that each and every exposure to asbestos, no matter how minimal in relation to other exposures, implicates a fact issue concerning substantial-factor causation in every ‘direct-evidence’ case.” Gregg 943 A.2d 216, 226-27 (Pa. 2007)(emphasis added). In Betz, the court also noted that “a comparative assessment of impact among differing exposures…is required for causal attribution as a matter of science, as it is under Pennsylvania law.” Betz 44 A.3d 27, 58 (Pa. 2012).

Chief Justice Saylor, joined by Justice Baer, best sums up the difficulties for defendants inherent in the majority’s opinion when he critiques that

[The plaintiff’s expert], however, did not provide the jury with any standards, or benchmarks, or other scientifically-accepted premises for assessing the substantiality of the risk associated with Mr. Rost’s “relatively low dose” exposure to [Ford’s] products in the context of Mr. Rost’s overall exposure. Rather, in response to a hypothetical question generally presenting the circumstances of Mr. Rost’s exposure to Ford products, [the plaintiff’s expert] merely affirmed, in a conclusory fashion, his belief that the exposure was substantially causative…By way of explanation or otherwise, the expert then reverted to various reaffirmations of his other opinions on general and specific causation, i.e., that “all [exposures] contributed[.]”…Where the issue is simply risk—I fail to appreciate how the substantiality of relatively low-dose exposures can be fairly demonstrated in the absence of some sort of reasonably-developed comparative risk assessment accounting for higher-dose industrial exposures. Rost, No. 56 EAP 2014, 2016 Pa. LEXIS 2638, at *69-70, 74.

 

Ford Suffered No Prejudice as a Result of Improper Consolidation

On the issue of consolidation, the majority found that the trial court’s apparently mandatory practice of consolidating asbestos cases based solely on the type of disease alleged violated Pennsylvania Rule of Civil Procedure 213(a). Under that rule, the trial court is permitted to consolidate cases, at its discretion, when there are common issues of law or fact, or which arise from the same occurrence or transaction. Instead, the trial court conducted no analysis and denied Ford’s several requests to sever the case on the sole rationale that consolidation has been a long-standing practice in asbestos matters before the trial court.

Despite the violation, the Pennsylvania Supreme Court found that Ford suffered no prejudice from the trial court’s error because Ford had an opportunity to cross-examine the other defendants’ witnesses but chose not to; Ford did not object to any portion of other defendants’ expert testimonies or closing arguments; and the jury was not confused on the issues when the trial court repeatedly instructed the jury to treat each case individually and decide each on its own merits.

Chief Justice Saylor also dissented from the court’s finding that the trial court’s error in consolidating several matters was not prejudicial and asserted that it is difficult to articulate specific prejudice but, when the court subsumes all of the differences among the various plaintiffs and their circumstances in unrelated cases, prejudice is inherent.

 

Key Takeaways for Asbestos Defendants

Asbestos defendants, particularly low-dose asbestos defendants, are in a precarious situation in Pennsylvania. The Pennsylvania Supreme Court appears to have approved conclusory opinions as satisfaction of a plaintiff’s burden to establish substantial factor causation and, perhaps even more disturbing for defendants, the Court has also apparently sanctioned the trial court’s improper consolidation of unrelated same-disease asbestos cases without consequence. So what is a defendant to do (besides hope that they don’t get sued in Pennsylvania and/or vote out the majority Justices)?[1]  Unfortunately, the answer is not clear given the conflicting views between Rost with Gregg and Betz, but it is clear that it will be more unpredictable for defendants to litigate asbestos cases in Pennsylvania as the current court takes a more plaintiff-friendly stance.

[1] The author of this article is both a proud resident and licensed attorney of the Commonwealth of Pennsylvania and, therefore, believes she has license to speak tongue in cheek about her state and the process by which judicial positions are filled.

 

 

Another Smoking Lung Cancer Asbestos Claim Gets Burned in Baltimore

Posted in Asbestos Litigation, Litigation Trends, Maryland Courts

camelsFive plaintiffs in a smoking lung cancer case in a Baltimore City, Maryland case captioned James Harrell, et al v. ACandS, INC., et al, Consol. Case No. 24X16000053 saw their claims go up in smoke on November 15, 2016 when the Court granted certain Defendants’ Motion for Summary Judgment on the Basis of Assumption of Risk and Contributory Negligence. With Judge Althea M. Handy presiding, the Court addressed whether the plaintiffs had assumed the risk of developing lung cancer by knowing of the addictiveness of cigarettes and their ability to cause lung cancer, but nevertheless proceeding to smoke cigarettes numbering in the thousands.

In Maryland, assumption of the risk is a defense that serves as a complete bar to plaintiff’s recovery of damages under both negligence and strict liability for failure to warn causes of action.[1] To prevail on the defense of assumption of the risk, the defendant must show that the plaintiff “1) had knowledge of the risk of danger; 2) appreciated that risk; and 3) voluntarily confronted the risk of danger.”[2] Under Maryland law, the first two elements are judged by an objective standard. The third element requires that the defendant establish that there was no restriction on the plaintiff’s freedom of choice either by existing circumstance or by coercion emanating from the defendant.[3]

With regard to the first element, the Court in Harrell found that the plaintiffs had knowledge and appreciated the risk that cigarettes were hazardous not by any direct evidence, but instead by relying on discussions of the hazards in the popular media, an almost guilt by association theory. For example, the Court noted that Reader’s Digest, “one of the most widely read publications in the 1920s and 1930s published articles discussing the addictiveness of cigarettes” and that a popular country artist recorded lyrics in 1947 that used phrases like “nicotine slave” and “smoke yourself to death.” The Court further relied on Maryland jurisprudence that concluded that “the ordinary consumer was aware of smoking hazards . . . since the 1950s.”[4]

With regard to the second element, the Court again relied not on any appreciation of risk specific to the plaintiffs, but on “common knowledge by the 1950s” that smoking cigarettes caused lung cancer. The court cited CBS News Program airings on smoking and lung cancer, 1950s print media reporting the connection, and again referenced case law that “found that from 1947 to 1984 the dangers of smoking were obvious and generally known so as to bar the plaintiff’s claims.”[5]

Finally, with regard to the third element, the court found that because the plaintiffs smoked such a high number of cigarettes (reaching in the tens and hundreds of thousands) from the 1950s through the subsequent decades, during a time when warning labels were required on every package, they voluntarily confronted the risk of smoking.

Earlier this year in the The Estate of Willard Entwisle, et al. v. ACandS, Inc. et al., Consol. Case No. 24X15000108, a different Baltimore City Judge granted a sealing product defendant’s Motion for Judgment as a Matter of Law in a smoking lung cancer asbestos personal injury matter, also finding that the plaintiffs’ damages related to his lung cancer were barred by the doctrine of assumption of the risk. However, in the Entwisle matter, the court required specific testimony that the decedent in the case had knowledge not only of the risks of smoking, but of the increased risk of lung cancer from the synergistic effects of asbestos exposure and smoking, something that the Court in Harrell did not mention. The evidence in Entwisle with regard to the knowledge and appreciation of the risk were also more plaintiff specific (i.e. testimony from the decedent’s co-worker and daughter), rather than broadly encompassing a “prevailing knowledge of the day” standard that the court in Harrell seemed satisfied with.

Does Harrell signal that courts in Baltimore may be willing to view the assumption of the risk doctrine more expansively in smoking lung cancer cases? Only time will tell.

[1] Blood v. Hamami, 143 Md. App. 375, 385 (2002).

[2] Blood, 143 Md. at 386 (quoting Liscombe v. Potomac Edison Co., 303 Md. 619, 630 (1985).

[3] Crews v. Hollenback, 358 Md. 627, 644 (2000).

[4] Citing to Estate of white ex rel. white v. R.J. Reynolds Tobacco Co., 109 F. Supp. 2d 424, 433 (D. Md. 2000).

[5] Waterhouse v. R.J. Reynolds Tobacco Co., 368 F. Supp. 2d. 432, 437-38 (D. Md. 2005).

Delaware Supreme Court Repudiates LLC’s Fraudulent Inducement Defense in Summary Advancement Proceeding

Posted in Delaware Courts, Employment Litigation, Litigation Trends, Uncategorized
Delaware Supreme Court

Delaware Supreme Court

The Delaware Supreme Court recently held that the plain language of an employment agreement and an LLC agreement prevented an LLC from interjecting a fraudulent inducement defense into a summary proceeding for the advancement of litigation expenses under Section 18-108 of the Delaware LLC Act.

Trascent Mgmt. Consulting, LLC v. Bouri, No. 126, 2016 (Del. Nov. 28, 2016). In Trascent, an LLC brought claims against a terminated executive for breach of his employment agreement. The executive then counterclaimed for advancement of his litigation expenses under his employment agreement and the operating agreement of the LLC, both of which contained nearly identical language stating that, “[u]nless a determination has been made by final, nonappealable order of a court of competent jurisdiction that indemnification is not required, [the LLC] shall, upon the request of [the indemnitee], advance or promptly reimburse [the indemnitee’s] reasonable cost of investigation, litigation or appeal, including reasonable attorneys’ fees [subject to the condition that the indemnitee provide a written undertaking to repay advancements if a court of competent jurisdiction ultimately decided he was not entitled to indemnification].” Having agreed to this language, the LLC “knew it agreed to provide a right, subject to expedited specific enforcement, and it could not reasonably believe that it could deny that right simply by alleging that the contract was invalid.”

Under those circumstances, the Court explained, allowing the LLC to interpose a defense of fraudulent inducement would be inconsistent with the contractual language, would defeat the purpose of a statutory advancement proceeding by inserting a “plenary claim” into what the Court noted should be a summary proceeding, and would impair the public policy interests served by contractual advancement provisions. In dicta, the Court also noted that equity supported its ruling because the LLC had employed the executive for 16 months and then sued him under the same contract that it claimed was invalid.

Link to ruling:

http://courts.delaware.gov/Opinions/Download.aspx?id=249390