Punitive damages are meant to serve two purposes: punish the defendant for the conduct at issue in the lawsuit and deter similar conduct in the future. But, sometimes a punitive damages award goes beyond serving these two purposes and moves into the territory of violating the Due Process Clause of the 14th Amendment to the United States Constitution. The 14th Amendment, through the Due Process Clause, prohibits the imposition of grossly excessive or arbitrary punishments.

Punitive damages are allowed in California under California Civil Code section 3294(a), which states “In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” Although California law does not define “clear and convincing evidence”, it carries a higher burden of proof than “preponderance of the evidence,” which is the burden of proof necessary to prevail in a civil lawsuit. In determining whether to award punitive damages, the jury considers: (1) the reprehensibility of the defendant’s conduct; (2) whether there is a reasonable relationship between the amount of punitive damages and the plaintiff’s harm; and (3) what amount will punish the defendant and discourage similar future conduct. In determining this amount, the jury considers the defendant’s financial condition. In California, there is no official cap on punitive damages. Continue Reading Excessive Punitive Damages Awards Continue To Be An Issue In California

Published Decision: Knox v. MetalForming, Inc., 914 F.3d 685 (1st Cir. 2019)

MG+M Boston Attorneys Javier Flores, Eric Skelly, and Thaddeus Lenkiewicz authored the appellate briefing. Attorney Flores presented oral argument.

The extent to which state and federal courts may exercise specific personal jurisdiction over foreign defendants has long been an area of ambiguity and disharmony. Notably, the U.S. Supreme Court’s two most recent attempts to address the issue both failed to produce a majority opinion. The lower courts have thus been tasked with delineating the boundaries of jurisdictional authority, armed only that the competing tests articulated in the Supreme Court’s fractured pronouncements. On January 30, 2019, the Court of Appeals for the First Circuit issued a decision in the matter of Knox v. MetalForming, Inc. and Schechtl Maschinenbau GmbH[1], which provides much needed clarity concerning the relevant factors and applicable standards for the exercise of personal jurisdiction over foreign product manufacturers.

  1. Case-Specific Jurisdiction Precedent and the Stream-of-Commerce Analysis

For the exercise of personal jurisdiction to be constitutional, a defendant must have “certain minimum contacts” with the forum state such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.”[2] In the absence of general jurisdiction, a plaintiff must establish that the court has case-specific jurisdiction over the defendant, for which a three-part test applies. First, the plaintiff’s claim must directly arise out of, or relate to, the defendant’s forum-state activities. Second, the defendant’s forum contacts must represent a purposeful availment of the privilege of conducting activities in the forum state. Third, the exercise of jurisdiction must be reasonable.

While the test is well established, it is “’not susceptible of mechanical application” and requires a highly fact-specific inquiry.[3] Particularly, the Supreme Court’s efforts to provide guidance in the application of “purposeful availment” prong to foreign manufacturers has resulted in competing variations of the so-called “stream-of-commerce” test. The Supreme Court first set forth the “stream-of-commerce” standard in World-Wide Volkswagen v. Woodson, stating that a “forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.”[4] In Asahi Metal Indus. v. Super. Ct., Justice O’Connor, writing for three other justices, stated that placing a defective product into the stream of commerce combined with “an intent or purpose to serve the market in the forum State” satisfied purposeful availment.[5] This “stream-of-commerce plus” standard, sought “[a]dditional conduct of the defendant” to “indicate an intent or purpose to serve the market in the forum State.”[6] Examples included designing the product for the market in the forum state, advertising in the forum state, establishing channels for providing regular advice to customers in the forum state, or marketing the product through a distributor who has agreed to serve as the sales agent in the forum state.[7]

The Supreme Court revisited its stream-of-commerce precedent most recently in J. McIntyre Mach., Ltd. v. Nicastro.[8] There, the plaintiff was injured in New Jersey while operating a machine that was manufactured in England by J. McIntyre Machinery (“McIntyre”), sold to a U.S. distributor, who in turn sold and shipped the machine to New Jersey. In a split opinion, the Supreme Court ruled that the New Jersey courts lacked jurisdiction over McIntyre. Both Justice Kennedy’s plurality opinion and Justice Breyer’s concurrence emphasized that McIntyre did not have a single contact with New Jersey apart from the fact that the machine in question ended up there.[9] Justice Kennedy, joined by three other justices, stated the stream-of-commerce “metaphor” merely acknowledges the “unexceptional proposition” that “a defendant may in an appropriate case be subject to jurisdiction without entering the forum . . . as where manufacturers or distributors seek to serve a given State’s market.”[10] Justice Kennedy continued that jurisdiction is appropriate only where the defendant “can be said to have targeted the forum.”[11]

In a concurrence, Justice Breyer rejected the plurality’s “strict rules that limit jurisdiction where a defendant does not intend to submit to the power of a sovereign and cannot be said to have targeted the forum.”[12] He observed that the case could be decided merely by applying the Court’s existing precedents and did not require the Court to promulgate a new standard. Justice Breyer noted that the Court had never held that a single isolated sale is sufficient.[13] Thus, McIntyre was not subject to the court’s jurisdiction because there was no evidence of a “regular flow or regular course of sales in New Jersey” nor the examples of “something more” identified in Asahi.[14] Courts have subsequently recognized Justice Breyer’s opinion as the narrowest grounds for the Court’s decision, and thus the binding opinion.[15]

  1. Facts and Procedural of Knox Case

The Knox matter involves an individual who was injured in Massachusetts in October 2016 while operating a metal folding machine manufactured by a German company, Schechtl Maschinenbau GmbH (“Schechtl”). The machine had been sold to the Plaintiff’s Massachusetts employer by MetalForming, Inc. (“MetalForming”), a Georgia-based company who served as Schechtl’s exclusive distributor in the U.S.

On a prima facie review of the pleadings, the First Circuit noted the following facts:

Schechtl is headquartered in Germany and maintains no operations in the U.S. Schechtl sells its machines to U.S. customers through MetalForming, an independently owned distributor. Each U.S. customer places an order with MetalForming who in turn sends a purchaser order to Schechtl. When a machine is ready, Schechtl delivers it to a transport agency in Germany, at which point ownership passes to MetalForming. MetalForming then installs the machine at the purchaser’s site. Schechtl also required MetalForming to pass information to customers received from Schechtl concerning Schechtl’s products and their proper use, including safety and instructional manuals which accompanied each machine. The instruction manuals direct purchasers to contact Schechtl (and not MetalForming) for inquiries, additional machine parts, troubleshooting, and additional training, and provide Schechtl’s direct contact information (phone number, fax number, mail and email address). As to the machine at issue, MetalForming provided Schechtl with a purchase order including the machine’s specifications and the name of the Plaintiff’s employer. Schechtl supplied the machine and accompanying manuals to MetalForming, who delivered them to the Massachusetts site of Plaintiff’s employer in 2001.

Schechtl provided MetalForming with advertising materials to market Schechtl products in the U.S. MetalForming promoted Schechtl machines in national trade publications and at industry trade shows. There was no evidence as to the Massachusetts recipients of those trade publications and no evidence that any of those shows was in Massachusetts. Between 2000 and September 2017, MetalForming sold 2,639 Schechtl machines throughout the U.S., at a value of just over $97 million. The Schechtl machine at issue was one of forty-five machines and 234 Schechtl parts MetalForming sold to purchasers in Massachusetts at a total value of nearly

$1.5 million (1.35% of Schechtl’s machine sales in the U.S.).

The Plaintiff sued MetalForming and Schechtl in Massachusetts Superior Court. After the matter was removed to federal court based-on diversity, Schechtl moved to dismiss for lack of personal jurisdiction. The U.S. District Court of Massachusetts granted the motion, finding that evidence of purposeful availment was lacking. The Plaintiffs and MetalForming appealed.

  1. First Circuit’s Decision

The Court of Appeals for the First Circuit reversed the dismissal upon finding that Schechtl had purposefully availed itself of the forum by selling substantial goods to Massachusetts and establishing channels of communication with Massachusetts customers. The First Circuit reaffirmed that Justice Breyer’s concurrence is the binding opinion of J. McIntyre, but noted the totality of Schechtl’s activities, voluntarily undertaken, satisfied the tests articulated in the concurrence as well as Justice Kennedy’s plurality opinion.[16]

To begin, the First Circuit rejected the Schechtl’s argument and the District Court’s holding that the exercise of jurisdiction required a showing that Schechtl designated Massachusetts “for special attention” or specifically “targeted buyers within Massachusetts.[17] “Supreme Court precedent does not establish specific targeting of a forum as the only means of showing that the purposeful availment test has been met.”[18] “Purposeful availment analysis will vary with the quality and the nature of the defendant’s activity.”[19] Depending on the facts, a defendant’s regular flow or regular course of sale in the forum could make the exercise of jurisdiction foreseeable to the defendant.[20] Likewise, jurisdiction could be foreseeable based on “something more” than this, evidencing an intent to serve the forum.[21]

Applying these principles to the facts at hand, the First Circuit held that Schechtl’s sales, through MetalForming, of forty-five machines and 234 parts into Massachusetts, totaling $1.5M, constituted a regular flow or course of sales and was readily distinguishable from the single isolated sale at issue in J. McIntyre.[22] The fact that these sales were a small fraction of a nationwide sales effort did not preclude jurisdiction. Instead, the question was whether Schechtl’s connection with Massachusetts was such that the exercise of jurisdiction was voluntary and foreseeable. The First Circuit further noted that its opinion did not merely rest on the volume of sales. Schechtl supplied each machine in response to purchaser-provided specifications and required that MetalForming include, with each machine, materials that instructed that purchaser to contact Schechtl directly.[23] The Court thus found that Schechtl voluntarily opened direct links to at least forty-five Massachusetts purchasers; links which are kept open over many years and presumably used, as evidenced by sale of 234 spare parts.[24] Schechtl’s channels to Massachusetts purchasers “constitute[d] efforts to continue – and perhaps to expand – its relationship with those purchasers.” The Court determined that these links were relevant to the jurisdictional analysis and further supported the exercise of jurisdiction here is foreseeable.[25] The Court concluded that, unlike the foreign manufacturer in J. McIntyre, “[t]his case involves a manufacturer which can direct where its products go, which sold dozens of expensive products into the forum over nearly two decades, and which initiated an ongoing relationship with its in-forum purchasers.”[26]

  1. Conclusion

The First Circuit’s opinion in Knox provides instructive guidance in applying the Supreme Court’s varying articulations of the “stream-of-commerce” / purposeful availment tests to foreign manufacturers. The decision reaffirms that the analysis requires a highly fact-specific inquiry and that no formulation of the test can be mechanically applied. The Court distinguished a manufacturer who merely places of a product into the stream-of-commerce resulting in a single sale to the forum state from a manufacturer who establishes a regular course of sales and channels of communication with forum customers, albeit through an independent distributor and as part of a nationwide sales effort. Most importantly, the Knox decision affirms that a foreign manufacturer, who seeks to engage forum customers, cannot avoid jurisdiction from product liability suits merely by asserting that it did not target the forum specifically.

[1] Case Nos. 18-1550, 18-1551 (Opinion of Lynch, J., joined by Stahl, J. and Barron, J.).

[2] Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

[3] PREP Tours, Inc. v. Am. Youth Soccer Org., No. 17-1223, 2019 WL 126221, at *4 (1st Cir. Jan. 8, 2019).

[4] 444 U.S. 286, 297-98 (1980).

[5] 480 U.S. 102, 112 (1987).

[6] Id.

[7] Id.

[8] 564 U.S. 873 (2011).

[9] Id. at 886, 888-89.

[10] Id. at 881-82.

[11] Id. at 882.

[12] Id. at 890.

[13] Id. at 887, 888.

[14] Id. at 889 (citing Asahi, 480 U.S. 102, 111-12, 117, 122 (1987) (O’Connor, J.) (requiring “something more” than simply placing “a product into the stream of commerce,”); (Brennan, J.) (arguing that jurisdiction should lie where a sale in a State is part of “the regular and anticipated flow”, but not where that sale is only an isolated occurrence); (Stevens, J.) (indicating that “the volume, the value, and the hazardous character” of a good may affect the jurisdictional inquiry and emphasizing Asahi’s “regular course of dealing”).

[15] Plixer Int’l, Inc. v. Scrutinizer GmbH, 905 F.3d 1, 10 (1st Cir. 2018) (quoting Marks v. United States, 430 U.S. 188, 193 (1977)); Williams v. Romarm, SA, 756 F.3d 777, 784 (D.C. Cir. 2014); Ainsworth v. Moffett Eng’g, Ltd., 716 F.3d 174, 178 & n.14 (5th Cir. 2013); AFTG-TG, LLC v. Nuvoton Tech. Corp., 689 F.3d 1358, 1363 (Fed. Cir. 2012).

[16] Knox, Opinion of Lynch, J., Jan. 30, 2019, at 13, 15 (internal quotations omitted).

[17] Id. at 13 (internal quotations omitted).

[18] Id. at 14 (quoting Plixer, 905 F.3d at 9).

[19] Id. at 18 (quoting Burger King v. Rudzewicz, 471 U.S. 462, 475 (1985); PREP Tours, 2019 WL 126221, at *6).

[20] Id.

[21] Id. (citing Asahi, 480 U.S. at 111-12 (O’Connor, J.)).

[22] Id. at 15-16.

[23] Id. at 17.

[24] Id. at 18.

[25] Id.

[26] Id. at 18-19

In a 6-3 ruling on March 19, 2019, the United States Supreme Court held that, under maritime law, a product manufacturer has a duty to warn when its “bare metal” product requires incorporation of a part the manufacturer knows or has reason to know is likely to be dangerous, such as asbestos-containing components.

In Air & Liquid Systems Corp., et al. v. DeVries, No. 17-1104, 586 U.S. ___ (2019), the Supreme Court examined the scope of a manufacturer’s duty to warn of the dangers of asbestos when its own bare metal products are later combined with asbestos-containing parts that the manufacturer did not make or sell. Plaintiffs Kenneth McAfee and John DeVries (“Plaintiffs”) filed suit in state court against a number of product manufacturers alleging that they developed cancer as a result of exposure to asbestos-containing equipment, including pumps, blowers, and turbines manufactured by the defendants, while serving on U.S. Navy vessels.[1] Plaintiffs asserted, inter alia, that defendants were negligent in failing to adequately warn of the dangers associated with the use of their equipment, even though the defendant-manufacturers of the equipment at issue did not always incorporate asbestos into their products and instead delivered much of the equipment to the Navy without asbestos, in a condition known as “bare metal.” Defendants removed to federal district court under maritime jurisdiction and subsequently moved for summary judgment based on the “bare-metal defense.” The District Court granted the motions for summary judgment, and Plaintiffs appealed. The United States Court of Appeals for the Third Circuit vacated and remanded, holding that “a manufacturer of a bare-metal product may be held liable for a plaintiff’s injuries suffered from later-added asbestos-containing materials” if the manufacturer could foresee that its product would be used with later-added asbestos-containing parts. In re Asbestos. Prods. Litig., 873 F.3d 232, 240 (3d Cir. 2017). The United States Supreme Court granted certiorari to resolve inconsistency among the Courts of Appeals regarding the validity and application of the bare-metal defense under maritime law. Continue Reading “Bare-Metal” Defense Treading Water Under Maritime Law

Synopsis: The six year statute of repose barring negligent construction and design claims applies even in cases involving damages arising from diseases with extended latency periods such as mesothelioma. A recent decision from the Massachusetts Supreme Judicial Court (“SJC”) affirms the legislative intent and comprehensive reach of the statute of repose, G.L. c. 260, § 2B (“§ 2B”). The decision highlights the importance and need for certain defendants entrenched in personal injury asbestos litigation within Massachusetts to evaluate their potential standing under the statute.

Overview: In Stearns v. Metropolitan Life Ins. Co, SJC-12544 (March 1, 2018), the SJC was tasked with answering a certified question for the United States District Court for the District of Massachusetts. The federal district court initially denied a defendant’s motion for summary judgment based on the statute of repose in a sweeping opinion that sought to address a matter of first impression under state law. Following a motion for reconsideration and a request for certification pursuant to 28 U.S.C. § 1292(b), the federal district court appropriately yielded to the Commonwealth’s highest court and certified the question of whether § 2B “can be applied to bar personal injury claims arising from diseases with extended latency periods, such as those associated with asbestos exposure, where defendants had knowing control of the instrumentality of injury at the time of exposure.” Stearns v. Metropolitan Life Ins. Co., No. 15-13490 RWZ, 2018 WL 2227991 (D. Mass. May 12, 2018).

In response, the SJC issued a well-reasoned opinion drawing from past precedent and legislative intent of § 2B in concluding that the plain and unambiguous statutory language means what it says. Although the SJC recognized “the regrettable effect of barring all or nearly all tort claims arising from negligence in the use or handling of asbestos in construction-related suits,” the SJC nonetheless upheld the viability of § 2B in finding that the statute “completely eliminates all tort claims arising out of any deficiency or neglect in the design, planning, construction, or general administration of an improvement to real property after the established time period has run, even if the cause of action arises from a disease with an extended latency period and even if a defendant had knowing control of the instrumentality of injury at the time of exposure.” Continue Reading Massachusetts Statute of Repose Means What it Says–Unequivocal Statutory Language Bars Asbestos Tort Claims

On September 11, 2018, the Environmental Protection Agency proposed modifications to the 2016 New Source Performance Standards, a series of regulations enacted by President Barack Obama that require the oil and gas industry to take strict precautions to reduce and avoid methane leaks due to drilling. While proponents argue that the new standards would save energy companies hundreds of millions of dollars, a vocal opposition slammed the proposed changes in the law as a public health risk and a danger to a much-needed environmental protection.

When the New Source Performance Standards were enacted by the Obama administration, the fundamental goal of the regulatory provision was to end harmful methane leaking. According to the Environmental Defense Fund, methane – which is the main component of natural gas – is 84 times more potent than carbon dioxide. It absorbs the sun’s heat and is more effective at preventing the escape of infrared radiation, potentially making it more harmful for the climate. To combat this, the New Source Performance Standards sought to require energy companies to capture methane that would otherwise escape into the atmosphere during drilling for oil on American and tribal lands. Under current regulations, energy companies are expected to inspect their drilling operations as often as every six months. If methane leaks are found, repairs must take place within 30 days. The New Source Performance Standards were projected to eliminate 175,000 tons of methane emissions, 150,000 tons of volatile organic compounds, and 1,860 tons of hazardous pollutants. Proponents of the New Source Performance Standards applauded the added protections for the environment, hopeful that the regulations would effectively reduce pollution. Opponents of the New Source Performance Standards felt it placed an undue burden on the oil and gas industry given the Environmental Protection Agency’s own estimates that energy companies would pay $530 million between 2019 and 2025.

In response to complaints about the costly effect of the New Source Performance Standards, the Trump administration seeks to modify or remove some of the regulations currently in place. For instance, the proposed changes would extend the timeline for energy companies to inspect their drilling operations from every six months to every year. Another amendment would extend the 30-day rule that required almost immediate repair of methane leaks to 60 days, allowing companies more time to remedy these leaks while still holding them accountable for repairs. The proposed revisions would also seek to diminish the federal government’s role in such regulation by allowing energy companies to follow state rules regarding methane standards rather than federal rules. It is anticipated that these revisions to the current regulations will save energy companies $484 million dollars by the end of 2025, should they be approved.

The proposed changes to the New Source Performance Standards have caused an uproar among Democratic leaders across the nation. The leading Democrat on the Senate Appropriations Subcommittee on the Interior, Environment, and Related Agencies, Senator Tom Udall of New Mexico, called the proposal “wasteful and outrageous.” California and a number of other states share the outrage. Mary Nichols, California Air Resources Board and Chair, states that repealing the rule is “an attack on public health and continues the administration’s dereliction of duty to protect air quality, taxpayer dollars and the environment.” Meanwhile, the Environmental Protection Agency refers to the proposed amendment as something that will “reduce EPA and state requirements, streamline implementation, and significantly decrease unnecessary burdens on domestic energy producers.”

What Is Next?

A 12-hour public hearing was held on the proposed rule titled, “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources Reconsideration,” on November 14, 2018 in Denver, Colorado. The public was welcome to provide comments, feedback and concerns through December 17, 2018.

While the proposed revisions to the New Source Performance Standards still need to be enacted and codified, these revisions are one of many steps the Trump administration has taken to reduce environmental regulations. If these modifications are passed into law, environmental attorneys would be required not only to take note of the changes in federal regulations, but they would also be wise to revisit state regulations that in the past were trumped by federal law.