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Manufacturers Benefit from Georgia Supreme Court Ruling on Take-Home Exposure

Posted in Asbestos Litigation, Litigation Trends, Products Liability

Court RulingThe Georgia Supreme Court has weighed-in on the issue of manufacturers’ liability for take-home exposure cases. In the opinion recently issued in CertainTeed Corporation v. Fletcher, the Court drew an unexpected distinction between a manufacturer’s duty to issue warnings and its responsibility to keep harmful products out of the stream of commerce. Justice Carol Hunstein, writing for the Court, concludes that while manufacturers do not generally have a duty to warn third parties of the possible hazards of asbestos dust from its products, a manufacturer does bear the burden of proving that its product, as designed, is not defective. The opinion comes as a bit of surprise, as it seems to contradict a prior opinion issued by the Court, wherein it held that an employer owes no duty to third-party, non-employees, who come into contact with its employees’ asbestos-tainted work clothing at locations away from the work place.

Plaintiff Marcelle Fletcher filed suit in Georgia after being diagnosed with malignant pleural mesothelioma. In her complaint, Fletcher alleges that years of laundering her father’s asbestos-tainted clothing caused her to come into contact with asbestos from cement water pipe manufactured by CertainTeed, which eventually caused her mesothelioma. When the trial court granted CertainTeed’s motion for summary judgment on Fletcher’s failure-to-warn and product defect claims, Fletcher appealed. The appellate court reversed and the Georgia Supreme Court thereafter granted review of CertainTeed’s appeal.

On appeal, the Supreme Court held that CertainTeed, as a manufacturer, owed no duty to warn Fletcher of the possible hazards of asbestos dust from its products. In reaching its conclusion the Court cited public policy concerns that could result from an expansion of the class of individuals protected by a manufacturer’s duty to warn, stating that any such duty placed on the manufacturer would ultimately shift to the product user. Looking at the facts in the case before it, the Court determined that while “Fletcher would not have seen any warning label placed on CertainTeed’s products … a warning could have permitted her father to take steps to mitigate any danger posed by the asbestos dust on his clothing.” The Court nevertheless determined that such a conclusion would be “problematic” in that it effectively makes the product-user responsible for protecting those with whom he or she comes into contact, whether those individuals were members of the same household or members of the same community. The Court reasoned that imposing such an indefinite and imprecise duty on CertainTeed to warn all individuals in Fletcher’s position would be unreasonable, classifying the scope and mechanism of such warnings as “endless.”

Regarding Fletcher’s design defect claim, however, the Supreme Court upheld the appellate court’s reversal of summary judgment, finding that CertainTeed had failed to prove that its product was not defectively designed. The Court’s holding seems, at first, to contradict its 2005 decision in CSK Trans. v. Williams, 278 Ga. 888, 608 SE 2d 208 (2005), wherein the Court barred take-home exposure claims against employers, holding that employers did not owe a duty to the household members of its employees. The Court in Fletcher drew a distinction between the duties owed by an employer to its employees’ household members and the duties owed by a product manufacturer to third-party, non-users of its products. The Court explained that unlike a duty to warn claim, analysis of a design defect claim centers on the conduct of the manufacturer and the reasonableness of its product’s design. Both factors are considered within the standard framework of risk-utility analysis utilized in product liability claims, including the consideration of factors such as the usefulness of the product and whether the manufacturer acted reasonably in choosing a particular product design given the seriousness of the risk posed by the product.

Moving forward, the current ruling lessens the burden on manufacturers defending take-home exposure claims in Georgia by eliminating the need for those manufacturers to prove that they issued sufficient warnings decades ago, a generally fact-sensitive determination that often hinges on witness testimony and presumably faulty memories. Manufacturers can likewise find some relief in the Court’s holding regarding design defect claims. Because the analysis of a design defect claim does not consider a plaintiff’s use of the alleged defective product but rather focuses on the manufacturer’s conduct in designing the product, manufacturers are in a position to establish and fine-tune these defenses without having to rely heavily on the specific facts of each case where it applies. Given the Court’s ruling on duty to warn claims, we expect that the State of Georgia will see an increase in design defect claims brought by take-home plaintiffs.

Recent Fifth Circuit Ruling a Relief to United States Government Equipment Suppliers

Posted in Asbestos Litigation, Complex Torts, Litigation Trends, Products Liability

battleshipIt 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 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 and conversely, defendants often prefer to litigate these cases in federal court. Consequently, when possible, defendants often will remove a case filed in state court to the applicable U.S. District Court where the state action was pending. One such method of removal is found in 28 U.S.C. § 1442(a)(1), the federal-officer removal statute. Specifically, § 1442(a)(1) allows a defendant that acted under any United States agency or officer to remove a plaintiff’s suit to federal court if any of the alleged claims or defenses relate to “any act under color of such office.” This is a frequently used tool of military contractors to get their government contractor defense heard by a federal court.

Government contractor immunity is a recognized federal defense based on public policy (See Boyle v. United Technologies Corp., 487 U.S. 500 (1988)). It is an offshoot of the governmental immunity doctrine codified in 28 U.S.C. § 2680, which insulates the federal government from suit in relation to the performance of its discretionary actions. Military contractors may be extended the benefits of §2680 in a product liability action if they can demonstrate that: (1) the government “approved reasonably precise specifications” for their product; (2) the product conformed to those specifications; and (3) the contractor warned the government about the dangers in the use of the product that were known to it but not to the government.”  Boyle, 487 U.S. at 512.

Military contractors of all stripes expressed a collective sigh of relief on January 20, 2017, when the Fifth Circuit Court of Appeals fortified the federal officer removal statute in Zeringue v. Crane Co., 2017 WL 279496 (5th Cir. 2017), a decision which overturned the Eastern District of Louisiana’s remand of an asbestos plaintiff’s suit to Orleans Parish District Court. In Zeringue, the Plaintiff filed suit in Louisiana state court alleging that he first was exposed to asbestos while serving aboard U.S. Navy ships during the 1950s. Crane, one of more than twenty defendants in the case, was a major supplier of asbestos-containing valves, among other equipment, to the Navy. Accordingly, Crane invoked the federal officer removal statute so that it could litigate the case in federal district court. It argued that removal was proper because “any product [Zeringue] alleges Crane Co. manufactured for or supplied to the Navy (and any product literature, labeling, or warnings that accompanied the product) would be subject to Navy specifications and requirements.” Zeringue, 2017 WL 279496 at *1. As such, Crane argued that “[f]ederal officers exercised their discretion regarding whether (1) asbestos was used in the product, and (2) whether a warning would accompany the product.” Id.

In support of its position, Crane proffered three affidavits. The first, from Crane’s Vice-President for Environment, Heath, and Safety, stated that “all equipment supplied by Crane Co. to the Navy was built in accordance with [Navy] specifications” which “governed all aspects of a piece of equipment.” Id. at *4. The second affidavit was prepared by a former admiral in command of operation and maintenance of Navy ships who explained that “[e]quipment could not have been installed aboard Navy vessels unless it was first determined by the Navy to be in conformity with all applicable Navy specifications.” Id. Finally, a former Navy physician that oversaw naval industrial hygiene testified that “the Navy’s knowledge of asbestos dangers ‘has been quite complete when compared to available knowledge over time, and at least by the early 1940s, the Navy had become a leader in the field of occupational medicine relating to, among other things, asbestos dust inhalation exposure.’” Id.

The District Court, however, sided with Zeringue in his attempt to return the case to state jurisdiction. Notably, the District judge agreed that Crane “allege[d] all the elements for…federal officer removal” and “provided evidence that permitted a ‘plausibl[e] assum[ption] that any equipment that Crane built for the Navy was indeed subject to detailed specifications.’” Id. at *1. Yet, Zeringue’s case was sent back to the state court because the federal court did not believe Crane proved that the Navy exercised discretion over the equipment Crane supplied.

Crane appealed the District Court’s ruling to the Fifth Circuit, which thoroughly rejected the lower court’s holding. The appeals court explained that a federal defense, such as government-contractor immunity, must only be colorable to permit federal jurisdiction. A colorable federal defense is one that is material, not “wholly insubstantial and frivolous,” and not made solely for the purpose of obtaining federal jurisdiction. Id. at *2. The Circuit Court noted that the affidavits submitted by Crane, although not conclusive, fell well within the scope of colorability:

[The documents] are not definitive proof that Zeringue’s asbestos exposure resulted from the Navy’s—not Crane’s—discretionary decision, nor are they definitive proof that Crane did not need to supply the Navy with information regarding the dangers of asbestos because of the Navy’s existing knowledge. But definitive proof is not necessary for removal, and the military specifications and affidavits do suffice as a non-insubstantial and non-frivolous basis upon which Crane may assert government-contractor immunity.

Id. at *4. (Emphasis added).

In sum, the Fifth Circuit has joined a number of other federal Circuit Courts in holding that a removing defendant need not win its case on removal.  Instead, the removing defendant need only demonstrate that it has a colorable federal claim or defense in order to litigate the case in federal court.

U.S. Supreme Court to Weigh In on Personal Jurisdiction as State Courts Have Gone Rogue

Posted in California Courts, Litigation Trends

Lady JusticeEver since the United States Supreme Court’s 2014 decision in Daimler A.G. v. Bauman, 134 S. Ct. 746 (2014), in which the Court held that general personal jurisdiction exists over a corporation only where the corporation is fairly regarded as “at home,” many plaintiffs and state courts have attempted to distinguish Daimler in an effort to expand the boundaries of a court’s exercise of personal jurisdiction. It should come as no surprise then that the U.S. Supreme Court, with five personal jurisdiction cases before it and its Daimler decision seemingly under attack, ultimately decided to grant review of two such cases in 2017: BNSF Railway Co. v. Tyrrell, and Bristol-Myers Squibb Co. v. The Superior Court of San Francisco County, which attack the Daimler holding from very different perspectives.

As you may recall from your first year law school basics, personal jurisdiction requires, among other things, that the “the defendant’s conduct and connection with the forum state are such that he should reasonably anticipate being haled into court there.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).  This can be established through either specific jurisdiction, where the defendant has sufficient contacts with the forum state which directly relate to the underlying controversy, or general jurisdiction, where “the [ defendant’s] affiliations with the [forum s]tate are so ‘continuous and systematic’ as to render them essentially at home in the forum [s]tate.” Daimler, 134 S. Ct. at 748-49, 760.

BNSF Railway, begs the question as to whether a state court may decline to follow the Supreme Court’s decision in Daimler, as The Montana Supreme Court directly challenged the limitations on general personal jurisdiction established by the Daimler Court. It did so by holding that the Federal Employers Liability Act (“FELA”) essentially creates an exception to the “at home” requirements of Daimler.  The plaintiffs in BNSF Railway are two employees who seek damages from the company pursuant to FELA, which provides railroad employees with a federal cause of action for personal injuries caused by their employer’s negligence. Neither plaintiff resides in Montana, nor did the injuries occur in Montana. Yet, plaintiffs brought suit in Montana. Under Daimler, BNSF should not have been considered “at home” in Montana, as it is incorporated in Delaware and has its principal place of business in Texas. Despite these facts, the Montana Supreme Court held that Montana courts could exercise general jurisdiction over BNSF.  The Montana Supreme Court reasoned that Section 56 of FELA allows a plaintiff to bring suit in any federal district court in which the defendant does business, and also confers concurrent jurisdiction over FELA suits to state courts. As such, the Court reasoned that state courts should have general jurisdiction in FELA matters over defendants in any state in which the defendant did business.  Tyrrell v. BNSF Ry. Co., 373 P.3d 1 (Mont. 2016).

As previously reported, in Bristol-Myers Squibb the California Supreme Court took a different approach to challenging the limits of the exercise of personal jurisdiction.  Instead of directly attacking Daimler’s holding concerning the limits of general personal jurisdiction, the California Supreme Court used specific personal jurisdiction as a tool to enlarge the Court’s power to exercise personal jurisdiction over a foreign corporation.  In Bristol-Myers Squibb, the California Supreme Court expressly held, consistent with Daimler, that Bristol-Myers Squibb was not subject to general personal jurisdiction in California, as its contacts with the state were not substantial enough to render it “at home” in the jurisdiction. It held, however, that specific personal jurisdiction existed over Bristol-Myers Squibb in California—even for plaintiffs who were not injured in California—based on its “purposeful availment” of the benefits and privileges of the laws of the State of California as a result of its “nationwide marketing, promotion and distribution [that] created a substantial nexus between the non-resident plaintiffs’ claims and the company’s contacts in California . . . .” Bristol-Myers Squibb Co. v. Superior Court, No. S221038, 2016 WL 4506107(Cal. Aug. 29, 2016).

Of the two decisions, Bristol-Myers Squibb may be the most troublesome for defendants, particularly product manufacturers. That is because the California Supreme Court’s “purposeful availment” test essentially guts Daimler and effectively would subject product manufacturers to personal jurisdiction in every state in which they sell their products. Accordingly, 2017 could be a game changer when it comes to personal jurisdiction, including the impact it has on a corporation’s ability to be sued, and potential forum shopping by plaintiffs. We should note, however, that in 2010 the U.S. Supreme Court expressed the need for clear jurisdictional rules in order to allow businesses predictability as to where they are subject to suits. The Hertz Corp., v. Friend, 130 S. Ct. 1181 (2010). Given the impact of both BNSF Railway and Bristol-Myers Squibb, the Court may take this opportunity to do just that in terms of both general and specific personal jurisdiction. Stay tuned…

The Delaware LLC is Not a Corporation and Should Be Subject to a Different Veil Piercing Analysis

Posted in Corporate Litigation, Delaware Courts, Litigation Trends

architecture-22039_960_720“Veil piercing” is an equitable remedy that allows a plaintiff with a claim against an entity to obtain relief from the entity’s owners, in spite of laws providing for limited liability.  When the owners provide personal guarantees or otherwise contract around liability protections, or when the owners are sued in their own right based on their own conduct, it is not necessary to pierce a veil of limited liability.  True veil piercing – where the owners are asked to stand in for acts of the entity – is an extraordinary remedy to be reserved for the most extreme cases.

Courts generally have reviewed several factors, with varying degrees of emphasis, when determining whether to pierce the veil of a corporation.  These have included the existence of fraud, adherence to “corporate formalities” such as holding and documenting meetings, the level of capitalization, whether a dominant stockholder siphoned funds from the corporation, and whether investors are so active in the management of the corporation that the corporation is their “alter ego” or “instrumentality.”  Fraud may, depending on the circumstances, provide an independent basis for the liability of stockholders and others on the grounds that individuals are being found liable based on their own conduct.  Other factors supporting veil piercing also often stand in as proxies for fraud, or reasons to suspect fraudulent behavior.

As has become increasingly clear, Delaware “alternative entities” such as limited partnerships and limited liability companies are not the same thing as corporations.  While many of the same fiduciary principles applicable to corporate fiduciaries may apply under certain circumstances to the fiduciaries of an alternative entity, courts must remain sensitive to distinctions in entity law.  In the context of veil piercing, these distinctions suggest that a Delaware LLC should not be subject to true veil piercing at all, as opposed to the imposition of liability under standard concepts of fraud, fraudulent conveyance, etc.; and that assuming the LLC’s veil may be pierced, any piercing should be subject to different standards than those applicable to piercing the corporate veil.

Section 102(b)(6) of the Delaware General Corporation Law (“DGCL”) states that a certificate of incorporation “may” contain “[a] provision imposing personal liability for the debts of the corporation on its stockholders to a specified extent and upon specified conditions; otherwise, the stockholders of a corporation shall not be personally liable for the payment of the corporation’s debts except as they may be liable by reason of their own conduct or acts.”  8 Del. C. § 102(b)(6).  Thus, under the DGCL, the default rule is that stockholders are not personally liable for corporate debts based on their ownership of stock, but may be liable as a result of their own conduct, and may also agree in the charter to be liable to a specified extent and upon specified conditions.

Section 18-303(a) of the Delaware Limited Liability Company Act (“DLCCA” or “Delaware LLC Act”) states that

Except as otherwise provided by this chapter, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company.

Section 18-303(b) of the DLCCA goes on to state that:

Notwithstanding the provisions of subsection (a) of this section, under a limited liability company agreement or under another agreement, a member or manager may agree to be obligated personally for any or all of the debts, obligations and liabilities of the limited liability company.

Thus, just as a stockholder may agree voluntarily in a charter provision to be liable for corporate debts to a certain extent under certain conditions, a member or manager of an LLC may agree voluntarily in the LLC agreement or another contract to be obligated personally for the LLC’s obligations.

Unlike section 102(b)(6) of the DGCL, section 18-303(a) does not contain the “except as they may be liable by reason of their own conduct or acts” proviso.  However, section 18-303(a) refers only to debts, obligations, and liabilities of the LLC, and also states that members and managers shall not be liable “solely” by reason of being a member or acting as a manager.  Courts have interpreted this language to mean that managers and members may continue to be liable for their own independent debts, obligations, and liabilities.  Again, when such a determination is made it is unclear that there is any “veil piercing” at all, as opposed to the plain vanilla application of tort and contract liability principles.

Other provisions of the Delaware LLC Act represent public policy choices that are inconsistent with the rote application of corporate veil piercing standards to an LLC.  For example, the policy of the DLLCA is “to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”  6 Del. C. § 18-11011(b).  More specifically, the DLLCA contemplates that an LLC agreement may restrict or even eliminate all duties or liabilities of a member or manager other than for the implied contractual covenant of good faith and fair dealing.  6 Del. C. § 18-11011(c),(e).  Taken together, these provisions stand for the proposition that “contract is king” for the LLC.  The organizers of an LLC are permitted to borrow concepts from a corporation, but are not required to, and can organize themselves in potentially infinite ways.

Thus, Delaware LLCs lack “corporate formalities” by design.  Even in a corporation, “corporate formalities” exist for the protection of stockholders, not third parties, and are a relatively weak justification for veil piercing.  Corporate formalities may be relevant to veil piercing to the extent that they suggest a corporation is a sham entity that exists only to facilitate fraud or other inappropriate conduct.  However, evaluating LLC management with the same jaundiced eye is inconsistent with the fundamental principle that an LLC is not the same thing as a corporation and is to be operated however the parties choose in their LLC Agreement.

Even more significantly, section 18-1101(j) of the DLCCA provides that “[t]he provisions of this chapter shall apply whether a limited liability company has 1 member or more than 1 member.”  The statute expressly contemplates that many LLCs will have only one member, and provides that the same principles (which include maximum freedom of contract and limited liability) are to apply equally to those LLCs.  It is currently estimated that the vast majority of Delaware LLCs are not publicly traded and are closely held.  As with a lack of “corporate formalities,” then, LLCs are likely to have a “unity of interest” by design.  In a small start-up company formed as an LLC, the same person often will be the single member and manager of the LLC, and will make all decisions for the business.  If that is not an acceptable state of affairs, then the LLC cannot have limited liability in most circumstances, thus thwarting legislative policy.

Corporations and LLCs also are generally formed for different reasons.  The primary reason for forming a corporation is to amass large amounts of capital through the capital markets.  The primary reason for forming an LLC is to limit the liability of its members for decisions they make themselves.  Although one can debate the efficiency of conferring limited liability on single-member start-up companies, that is a decision best made by a legislature and not by judges on an ad hoc basis.

 

Distracted Driving Lawsuits: Apple’s Responsibility or an Attempt to limit Drivers’ Personal Responsibility?

Posted in California Courts, Litigation Trends, Products Liability

celldriveOn December 23, 2016 in Santa Clara, California, in Modisette v. Apple, Inc., 16CV304364, the family of a five-year-old girl killed in a car crash on Christmas Eve 2014 filed a lawsuit against Apple alleging that Apple’s FaceTime application distracted a driver and caused the death of Moriah Modisette.  Like the majority of distracted driver accidents, this one could have been prevented. On the one hand, the driver could have waited until he stopped driving before using the FaceTime application. On the other hand, Apple could have designed a lock-out feature or warned FaceTime users of the dangers of driving while FaceTiming.

In Modisette v. Apple, Inc., the court must decide whether a smartphone manufacturer like Apple has a duty to protect the public and FaceTime users by preventing the use of the application while driving. FaceTime is a factory-installed video communication service similar to Skype and Google Hangouts that allows Apple device users to conduct one-on-one video calls. Ultimately, this case raises an important question: Should a smartphone manufacturer be liable for injuries caused by distracted drivers using a phone application, and if so, are distracted drivers a superseding intervening cause?

Plaintiffs allege that Apple’s iPhone was defective because Apple failed to install and implement the safer alternative design for which it sought a patent in December 2008, which was later issued in April 2014. The alternative design would “lock out” a driver’s ability to FaceTime while driving. In addition, Plaintiffs allege that Apple failed to warn drivers that FaceTiming while driving was likely to be dangerous.  Plaintiffs further allege that the conduct of the driver is “inextricably intertwined” with Apple’s failure to implement the patented lock out feature, and as a result, Apple allegedly failed to exercise reasonable care.

This is not the first time Apple has been involved in a products liability lawsuit arising out of an accident caused by a distracted driver. In 2015, in Meador v. Apple, Inc. (2016) WL 4425527 (E.D.Tex.), Apple was sued for a 2013 crash involving a driver distracted by checking her text messages. The question raised in Meador is similar to the Modisette’s case: Does a smartphone manufacturer have a duty to prevent drivers from using the device while driving? On August 16, 2016, in a pretrial report and recommendation, United States Magistrate Judge K. Nicole Mitchell recommended that the case be dismissed with prejudice because a “real risk of injury did not materialize until [the driver] neglected her duty to safely operate her vehicle by diverting her attention to the roadway.” Meador v. Apple, Inc. (E.D. Tex., Aug. 16, 2016) WL 7665863, at 4. Thus, Judge Mitchell opined that Apple’s failure to lock out the driver did “nothing more than create the condition that made Plaintiffs’ injuries possible.” Id. As a result of Judge Mitchell’s recommendation, the Meador case has been stayed pending an order from the District Judge on Apple’s Motion to Dismiss.

In a similar case involving text messages against a network provider in Oklahoma, in Estate of Doyle v. Sprint/Nextel Corp., (Okla. Civ. App. 2010) 248 P.3d 947, the Oklahoma court of appeals affirmed the trial court’s granting of Sprint’s motion to dismiss.  The court held that “the purchase and use of a cellular phone or cellular service are not inherently dangerous acts, nor is it foreseeable that the sale and subsequent use of such a phone would cause an accident. Even if using a cell phone while driving is foreseeable, it is not necessarily foreseeable that it will cause a collision or unreasonably endanger a particular class of persons.[citation omitted] It is not reasonable to anticipate injury every time a person uses a cellular phone while driving.” Estate of Doyle v. Sprint/Nextel Corp., at 951.

Although the Modisette case was recently filed, the outcome will have rippling effects. The court will ultimately have to decide whether FaceTiming while driving was an inherent danger in the purchase of an iPhone that Apple should be responsible for. Should plaintiffs be successful, the case will likely invite waves of future lawsuits against application developers and manufacturers of cars, navigation systems, radios, and of any device that could have prevented a distracted driver, but failed to do so.

 

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.