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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.