Photo of Cory D. Lapin

As an associate in MG+M's Miami office, Cory D. Lapin practices high-exposure complex litigation. He has significant experience in areas such as medical malpractice, products liability, mass torts, and catastrophic injury litigation.

The Supreme Court’s May 14, 2018, decision in Murphy v. NCAA was focused on sports betting, however, the case at its core served as a stress test on the Tenth Amendment and state sovereignty. No. 16-476, 2018 WL 2186168 (U.S. May 14, 2018). Constitutional law prohibits the federal government from “commandeering,” or compelling the states to take regulatory action that the Tenth Amendment would otherwise reserve to them. In Murphy v. NCAA, consolidated with its companion case, New Jersey Thoroughbred Horsemen’s Association, Inc. v. NCAA (referred to herein collectively as “Murphy”), the Supreme Court held that the Professional and Amateur Sports Protection Act (PASPA) violates the anti-commandeering doctrine. Id. at *20. Its decision not only allows states to legalize sports betting, but if applied broadly, could be construed as conferring substantially more power on states, in general, on issues ranging from gun control to legalization of marijuana.

Anti-Commandeering Doctrine

When the original states declared their independence from England, they did so with an aim toward dual sovereignty — granting sovereign powers to both the federal government and the states. Consistent with dual sovereignty, the framers etched into the Constitution that Congress cannot issue orders directly to the states. The addition of the Tenth Amendment solidified this basic premise by declaring, “[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The anti-commandeering doctrine represents the recognition of this limit on congressional authority.

Before 2018, the anti-commandeering doctrine had only been addressed twice by the Supreme Court. New York v. United States, 505 U.S. 144, 166 (1992); Printz v. United States, 521 U.S. 898 (1997).  In New York, the Supreme Court struck down a federal law that ordered the state to regulate in accordance with federal standards. Similarly, in Printz, the Supreme Court struck down a federal law that compelled state officers to enforce federal law.

In both opinions, the Supreme Court explained that the Constitution “confers upon Congress the power to regulate individuals, not States.” New York v. United States, 505 U.S. 144, 166 (1992). “No Member of the Court ha[d] ever suggested” that even “a particularly strong federal interest” “would enable Congress to command a state government to enact state regulation.” Id. at 178 (emphasis in original). “We have always understood that even where Congress has the authority under the Constitution to pass laws requiring or prohibiting certain acts, it lacks the power directly to compel the States to require or prohibit those acts.” Id. at 166.

Professional and Amateur Sports Protection Act

In 1992, Congress passed the Professional and Amateur Sports Protection Act (“PASPA”).  PASPA makes it illegal for states to “authorize” “a lottery, sweepstakes, or other betting, gambling, or wagering scheme based” “on one or more competitive games in which amateur or professional athletes participate.” 28 U.S.C. § 3701 et seq. PASPA grandfathered in four states – Delaware, Montana, Nevada and Oregon – that already had sports gambling, and it also carved out an exception for New Jersey that would have allowed sports betting at the state’s casinos, as long as the state set up the scheme within one year after PASPA went into effect. Id. New Jersey chose not to legalize sports gambling within the statutory time constraint. Notably, PASPA does not make sports gambling a federal crime, but instead, allows the Attorney General, as well as professional and amateur sports organizations, to bring civil actions to enjoin violations. Id.

Murphy v. NCAA

In 2014, New Jersey passed a law to repeal its ban on sports gambling with the intent of legalizing sports gambling at casinos and horseracing tracks. In response, the NCAA and professional sports leagues filed suit in federal district court to strike down the New Jersey law arguing that it unlawfully “authorized” sports betting, in violation of PASPA. Murphy, No. 16-476, at *6. The NCAA and professional sports leagues contended that the Tenth Amendment does not apply to PASPA for two reasons: (1) PASPA does not require states to take any action, and therefore no commandeering is taking place; and (2) there is a distinction between banning the states from legalizing sports gambling and banning the “affirmative authorization” of sports gambling. Id. at *8.

The U.S. District Court and the Third Circuit sided with the NCAA and professional sports leagues. Id. at *7. Ultimately, the case went before the Supreme Court to decide if PASPA violates the anti-commandeering doctrine. Id. A question before the Court was whether the federal law unconstitutionally regulated New Jersey’s exercise of its lawmaking power by prohibiting it from modifying or repealing laws prohibiting sports gambling. Id. at *8. As explained by the Supreme Court, contrary to the federal laws analyzed in New York and Printz, PASPA prohibits a state from enacting new laws, rather than compels a state to enact a federal law. Id. at *13.

The Supreme Court reversed the Third Circuit, finding that PASPA “unequivocally dictates what a state legislature may and may not do.” Id. In doing so, it declared PASPA unconstitutional, illustrating the nefariousness of the law:  “It is as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislators from voting on any offending proposals. A more direct affront to state sovereignty is not easy to imagine.” Id. As explained by the Murphy Court, under the anti-commandeering doctrine, there is no distinction between a federal law that commands state legislatures to enact federal law as opposed to refrain from enacting state law. Id.

The Murphy Court cited three key reasons for the anti-commandeering principle. Id. at *12. First, the rule provides a balance of power between the states and the federal government, thereby minimizing the risk of tyranny and abuse from either side. Second, it promotes “political accountability.” Id. When Congress regulates its own laws, it must account for the benefits and burdens of the regulation. Id. Voters who favor or disfavor the effects of the regulation know who to credit or blame. Id. Such accountability is distorted if the state is forced to impose the federal government’s regulations. Id. Third, the anti-commandeering principle precludes the federal government from forcing states to pay for the costs of regulating federal governmental laws. Id. In light of this, the Court expressed that Congress must assess the costs and benefits of certain programs prior to enacting them. Id.

In its decision to strike down PASPA, the Supreme Court emphasized that part of the anti-commandeering analysis is whether the federal law regulates private actors. Id. at *15. If the federal law regulates private actors, the anti-commandeering doctrine is not implicated and is likely constitutional, but if it regulates the states, then it is implicated and is likely unconstitutional. Id. PASPA is neither a regulation of private actors nor a federal restriction on private actors. Id. at *16. As such, the Supreme Court found that PASPA “leaves in place a state law that the state does not want, so the citizens of the state . . . are bound to obey a law that the state does not want but that the federal government compels the state to have.”[1]

Murphy’s Potential Impact Outside of Sports Gambling

As stated by the Supreme Court in striking down PASPA, “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.” Id. at *20.  The Murphy decision makes it clear that Congress cannot dictate policy outcomes in states without ever having to legislate on the issue directly. Had the Court found PASPA constitutional, the federal government would be able to block any state effort to legalize activities previously forbidden under state law. Accordingly, the Supreme Court’s holding may allow the states to regulate, without the threat of federal government intervention, a host of issues that are the subjects of intense public debate, including gun control, marijuana legalization, and sanctuary cities.

Going forward, the Murphy Court explains that to enact successfully federal regulations, Congress must: (1) incentivize states to adopt federal policies, or (2) prohibit certain conduct directly. Id. at *13–16.  However, if it opts for prohibition, Congress must bear the cost of enforcing the regulation. Id. at *12.  By way of example, marijuana is illegal under federal law. However, a growing number of states are decriminalizing the drug.[2]  Based on the federal government’s lack of intervention, it can be argued that it has concluded it is not in its best interest to expend money and resources to enforce law that is in conflict with state laws.  It would logically follow that, under Murphy, such states would likely not have an expectation that the federal government will compel them to apprehend their own citizens for the violation of violating federal marijuana law while in compliance with state law.

Gun regulation may exemplify another potential scenario in which states and the federal government may have opposing views.  Under Murphy, a state’s decision to institute gun reform, may also escape an effort by the federal government to pass a law that makes it illegal for states to “authorize” certain gun control measures.

The Murphy ruling could also have an impact on sanctuary cities – cities that refuse to cooperate with federal immigration officials to enforce immigration laws – and the federal government’s ability to apply conditions on money grants for state and local law enforcement. Specifically, the federal government has relied on the following statute to enjoin and penalize sanctuary cities:  “Notwithstanding any other provision of Federal, State, or local law, a Federal, State, or local government entity or official may not prohibit, or in any way restrict, any government entity or official from sending to, or receiving from, the Immigration and Naturalization Service information regarding the citizenship or immigration status, lawful or unlawful, of any individual.” 8 U.S.C. § 1373. This statute is similar in nature to PASPA and, under Murphy, may also be construed as a violation of the anti-commandeering doctrine if it is challenged.

 

Conclusion

The Murphy decision makes clear that Congress cannot transfer the regulatory burden to the states on polarizing matters. However, the federal government is far from powerless in its ability regulate, as it may regulate certain areas authorized by the Constitution or it may use its spending power to provide incentives to states to adopt more restrictive schemes. Nevertheless, the Supreme Court’s holding will likely have a significant impact on future state regulatory activities and legislation.

 

[1] Justice Anthony Kennedy during Murphy oral argument.

[2] The following states have passed laws decriminalizing certain marijuana possession offenses:  Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Illinois, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New York, North Carolina, Ohio, Oregon, Rhode Island, and Vermont.

On August 30, 2016, a Miami-Dade jury awarded Richard Batchelor and his wife more than $21 million after finding that his mesothelioma arose, in part, from asbestos exposure during overhaul work at a Florida Power & Light Co. (FP+L) power plant. On December 27, 2017, the Third District Court of Appeal erased the verdict against defendant Bechtel Corporation (Bechtel), finding that the jury should never have considered claims against that defendant because of plaintiffs’ insufficient evidence.  The appellate court also found reversible error in an adverse inference instruction, and concluded that Bechtel’s efforts to locate discoverable information were reasonable under the circumstances.

Between 1974 and 1980, Richard Batchelor worked for FP&L as an electrical technician at two power plants including the Turkey Point power plants. At that time, Turkey Point was a sprawling and complex facility – occupying over three thousand acres and containing 12 nuclear-fueled units and two oil and natural gas fueled units – and provided power for all of South Florida. On any given day, four hundred FP&L employees and numerous contractors worked at Turkey Point. Mr. Batchelor was responsible for repairing and maintaining gauges and equipment at the site, including four of the nuclear and gas units. Insulation, an indeterminate amount of which contained asbestos, covered the various pipes, wires, and equipment at the plant. Mr. Batchelor never removed insulation from any equipment and never worked on equipment while the insulation was being removed. Instead, insulation removal was performed by independent contractors who specialized in insulation removal, and other FP&L workers. Mr. Batchelor did work in the vicinity of other workers removing insulation, but it is unclear how close Mr. Batchelor worked to those removing asbestos, how often this occurred, or the duration of the occurrences. When asked by his attorney if the dust he breathed in was from insulation, Mr. Batchelor responded, “It could be from anywhere. It’s just dust.”

One of the contractors retained to provide ongoing maintenance services of the equipment on site was defendant Bechtel. The contracts provided that FP&L would issue work orders at its discretion to Bechtel, which would do the work requested on a cost-plus basis. FP&L decided whether FP&L or Bechtel would provide needed supplies, equipment, and ancillary services. During the relevant time period, Bechtel provided 1,050,070 man hours of services at Turkey Point.

FP&L periodically shut down the units for repair and maintenance. During these shutdowns, FP&L had Bechtel perform major overhauls on the units. FP&L also had another contractor, Foster Wheeler, perform maintenance on the unit’s giant boilers, which were lined with insulation. Although other contractors were present most of the time, Bechtel received work instructions only from FP&L.

In 2015, Mr. Batchelor was diagnosed with terminal mesothelioma caused by asbestos exposure. On January 2, 2016, he filed suit against twenty-six defendants, including Bechtel Corporation, for negligently causing his mesothelioma. Mr. Batchelor’s medical causation expert never examined Mr. Batchelor and never visited Turkey Point. He based his opinion solely on a review of Mr. Batchelor’s deposition and published medical studies.

Mr. Batchelor’s claim against defendant Bechtel was based on premises liability, and contended that Bechtel was liable for any asbestos exposure he sustained from any source at Turkey Point that was under Bechtel’s possession or control. More specifically, Mr. Batchelor alleged that Bechtel was liable for the dangers of asbestos dust created by Bechtel “or by others in the areas of Turkey Point that were being controlled by Bechtel while Bechtel performed its work at the time Mr. Batchelor was exposed.”

In early August 2016, Mr. Batchelor’s attorney deposed Bechtel’s corporate representatives. Immediately after the depositions, Mr. Batchelor moved for sanctions, arguing that Bechtel failed to adequately search for documents and information from thirty-six to forty-two years ago that might have been provided by retired former employees. In opposition, Bechtel argued that it had no obligation to find former employees from so long ago and that attempts to locate past employees in similar lawsuits had proved futile due to the passage of time. Ultimately, the trial court granted the motion for an adverse inference based on Bechtel’s failure to attempt to locate former employees.

Several weeks later, the jury entered a verdict for Mr. Batchelor for $15,381,724.12 and $6 million for his wife. It attributed fault as follows:  Foster Wheeler 5%, FP&L 35%, and Bechtel 60%. The Third District Court of Appeal considered two points on appeal:  (1) the trial court should have directed a verdict because there was insufficient proof of Bechtel’s possession and control of the premise, and (2) the trial court should have granted a new trial because the adverse inference jury instruction was reversible error.

 

Premises Liability

The primary focus of the Third District Court of Appeal’s opinion was on whether Mr. Batchelor met his burden in proving a premises liability claim. Interestingly, Mr. Batchelor chose not to sue Defendant Bechtel under a products liability theory for manufacturing products containing asbestos. Nor did Mr. Batchelor sue Bechtel for removing asbestos in a manner that negligently exposed Mr. Batchelor to a dangerous level of asbestos.

Mr. Batchelor’s premises liability theory was that Bechtel, as the party in control of the premises, had a duty to warn Mr. Batchelor of the dangers of asbestos created by FP&L and by FP&L’s other contractors. To prove this theory, Mr. Batchelor was obligated to show that Bechtel had a right to control access to or exclude others from the Turkey Point power plant. In support, Mr. Batchelor offered no direct evidence that FP&L surrendered, and Bechtel took possession of, all or any part of Turkey Point. Instead, Mr. Batchelor relied on the following points:

(1)        Bechtel was a huge contractor at Turkey Point during the relevant time period and provided more than one million man hours of services during that time;

(2)        The service contracts provided that FP&L would issue future work orders and Bechtel would fill the work orders on a cost-plus basis;

(3)        The service contracts required Bechtel to maintain liability insurance “with respect to the scope of the Bechtel Services;” and

(4)        FP&L directed Bechtel to perform maintenance on the power units when they were down.

The Third District Court of Appeal was not persuaded by Mr. Batchelor’s arguments. Although Bechtel provided significant hours of services during the relevant time period, the plant itself was also serviced by four hundred FP&L employees per day, plus contractors – rendering Bechtel’s presence a “fraction of the presence of FPL’s own work force…” Mr. Batchelor also could not produce any language in the service contracts discussing Bechtel’s assumption of possession or control of all or any part of the plant, and a contractual provision requiring insurance coverage was not found to support an inference that FP&L surrendered possession. Finally, Bechtel was not the only entity performing maintenance on the power units, and therefore did not have the authority to exclude other contractors or FP&L employees from the areas. The appellate court concluded, “In the absence of direct or circumstantial evidence sufficient to support a logical inference, the conclusion that Bechtel exercised control and possession is no more than conjecture, speculation, and surmise.” Due to the lack of evidence, the court reversed the trial court’s ruling and held that the trial court should have granted Bechtel’s motion for directed verdict.

 

The Adverse Inference Jury Instruction

In granting Mr. Batchelor’s motion for sanctions against Bechtel for failing to properly prepare its corporate representatives, the trial judge instructed the jury as follows:

If you find that Bechtel’s failure to produce persons employed at Turkey Point between 1974 and 1980 to testify regarding Mr. Batchelor’s work at Turkey Point is unreasonable, and that their testimony would have been relevant to Mr. Batchelor’s work activities, you are permitted to infer that the evidence would have been unfavorable to Bechtel.

The trial court’s rationale for the sanction was that Bechtel failed to attempt to locate retired employees from 1974 to 1980 by mailing postcards to the last-known addresses of employees.

The Third District Court of Appeal thoroughly disagreed with the trial court’s decision, citing Rule 1.310(b)(6) of the Florida Rules of Civil Procedure. Under that rule, a corporation can be required to produce a representative to testify “about matters known or reasonably available to the organization.” The Court of Appeal explained that this rule places a duty on the corporation to affirmatively prepare its representative “to the extent matters are reasonably available, whether from documents, past employees, or other sources.”      The appellate court found that it was unreasonable to expect Bechtel to locate retirees who had worked at the plant over thirty years ago and then interview them to prepare a corporate witness with no guarantee of success. “Absent a specific court order to do so, we would not interpret a party’s responsibilities to prepare a representative to extend so far, particularly here, where the deposition is noticed to take place only a few weeks before trial when there is reduced time for such a large effort.” Without such a court order, the appellate court found that the trial court harmfully erred in imposing the sanction of an adverse inference jury instruction.  The appellate court cautioned that such an instruction should be rarely given as it is an extreme sanction, “reserved for circumstances where the normal discovery procedures have gone seriously awry.”

 

Speculative Nature of Asbestos Claims

Batchelor v. Bechtel Corp. underscores the broader problems of proof that tend to be inherent in asbestos claims as a result of the creeping nature of asbestos-related diseases. Plaintiffs typically do not develop symptoms of an asbestos-related disease until ten to forty years after asbestos exposure. After the extensive passage of time, documentary evidence is difficult to obtain and witnesses are difficult to locate. More importantly, basic memories from so long ago are vague and highly prone to inaccuracies. This situation can make it very difficult for defendants to defend themselves, but very simple for plaintiffs to get their cases to a jury.

The generally asymmetric nature of asbestos litigation can be explained as follows. In nearly every asbestos lawsuit, the plaintiff sues scores of defendants, sometimes a hundred, alleging that they manufactured asbestos-related products that exposed the plaintiff to asbestos many years ago and caused asbestos-related disease. As long as the plaintiff testifies that he used a specific manufacturer’s product, even in conclusory fashion and without any documentary support, that manufacturer often is unable to escape summary judgment. In other words, although the plaintiff has a very limited memory of his exposure many years ago, and no documentary evidence that he was exposed to a specific manufacturer’s product, that the product contained asbestos, or that he was exposed to a particular amount of asbestos from that specific product, the plaintiff still can maintain an action against that manufacturer and force it to defend itself against millions of dollars in exposure. Although plaintiffs are entitled to compensation for asbestos-related diseases, defendants should not be forced to incur these expenses without greater certainty that they manufactured the products the plaintiff was exposed to and that those products likely caused the plaintiff’s asbestos-related disease.

Since 2004, the Florida Supreme Court has examined a series of objections raised by defendants to avoid producing records of “adverse medical incidents.”  In each case, the Court has found that Amendment 7 to the Florida Constitution, which grants broad rights of record access to medical patients, abrogates any Florida statute that would otherwise prohibit discovery, including statutes that previously exempted from discovery any records of investigations, proceedings, and/or peer review panels. Undaunted, defendants have continued to object to Amendment 7 discovery requests, using new and refined theories in response to each court decision. On October 26, 2017, the Florida Supreme Court appeared to have put an end to many of these creative defense tactics in Edwards v. Thomas.

 

History of Amendment 7

In 2004, the citizens of Florida voted to amend the Florida Constitution to allow nearly unfettered access to records of “adverse medical incidents.” This amendment, commonly referred to as Amendment 7, entitles any patient to records related to a health care facility’s “medical negligence, intentional misconduct, and any other act, neglect, or default that caused or could have caused injury to or death of a patient.” The stated purpose of the amendment was to “lift the shroud of secrecy from records of adverse medical incidents and make them widely available” because such records “may be important to a patient.” Although a lawsuit does not need to be filed to access these records, the issue seems particularly germane in medical negligence actions.

Before Amendment 7, Florida statutory law prohibited discovery of records of adverse medical incidents, which gave defendant hospitals a distinct advantage over medical negligence plaintiffs. These records tend to shed light on what a defendant hospital knew about the qualifications of attending physicians, the adequacy of its policies and procedures, and its own analysis of the particular medical incident at issue. After Amendment 7’s enactment, extensive litigation has sought to define the amendment’s scope, primarily with regard to what health care facilities can withhold from requesting patients, culminating in the opinion in Edwards v. Thomas.

 

Florida Supreme Court’s Decision in Edwards v. Thomas

In Edwards v. Thomas, the Florida Supreme Court was asked to decide if records from external peer review reports are discoverable under Amendment 7, and what it means for documents to be “made or received in the course of business.” The defendant hospital had refused to produce external peer review reports at issue, maintaining “that certain requested records did not relate to ‘adverse medical incidents,’ were not ‘made or received in the course of business,’ were protected by attorney-client privilege, and were protected as opinion work product.”

The trial court granted plaintiff’s motion to compel the defendant hospital to produce specific reports listed in the hospital’s privilege log “relating to attorney requested external peer review.” However, the Second District Court of Appeal quashed, in part, the trial court’s order on the basis that the external reports were not “made or received in the course of business” per Amendment 7’s requirements, and that they did not relate to an adverse medical incident. Specifically, the Second District Court of Appeal determined that the documents were not “made or received in the course of business” because the records were created by an expert retained for the purposes of litigation. The Second District also stated that the report did not relate to adverse medical incidents because the third party’s review was not part of the defendant hospital’s regular or routine peer review process.

In its analysis, the Florida Supreme Court focused on the text of Amendment 7, which states in full:

(a) In addition to any other similar rights provided herein or by general law, patients have a right to have access to any records made or received in the course of business by a health care facility or provider relating to any adverse medical incident.

(b) In providing such access, the identity of patients involved in the incidents shall not be disclosed, and any privacy restrictions imposed by federal law shall be maintained.

(c) For purposes of this section, the following terms have the following meanings:

(1) The phrases “health care facility” and “health care provider” have the meaning given in general law related to a patient’s rights and responsibilities.

(2) The term “patient” means an individual who has sought, is seeking, is undergoing, or has undergone care or treatment in a health care facility or by a health care provider.

(3) The phrase “adverse medical incident” means medical negligence, intentional misconduct, and any other act, neglect, or default of a health care facility or health care provider that caused or could have caused injury to or death of a patient, including, but not limited to, those incidents that are required by state or federal law to be reported to any governmental agency or body, and incidents that are reported to or reviewed by any health care facility peer review, risk management, quality assurance, credentials, or similar committee, or any representative of any such committees.

(4) The phrase “have access to any records” means, in addition to any other procedure for producing such records provided by general law, making the records available for inspection and copying upon formal or informal request by the patient or a representative of the patient, provided that current records which have been made publicly available by publication or on the Internet may be “provided” by reference to the location at which the records are publicly available.

Art. X, § 25, Fla. Const. (emphasis added).

The Court found the language of Amendment 7 clear and unambiguous, and that it “conveys a clear and definite meaning.” In light of this, the Court was obligated to apply the unequivocal meaning of the plain language. The Court noted that the amendment provides for no limitation on the types of adverse medical incident reports and no qualifying provision that restricts the scope of discoverable records to those previously prohibited by the Legislature. In other words, the Court found that the amendment’s scope was not restricted to adverse medical incident records previously protected by statute:  “The prior statutory protections served only as an explanation for Amendment 7’s genesis, rather than a limitation on the amendment’s broad application. Moreover, in the cases since Buster, many courts have expanded upon Buster’s explanation by interpreting the amendment’s right as an absolute right to review adverse medical incident reports. Therefore, as the plain language of the amendment mandates, we hold that Amendment 7 was aimed at eliminating all discovery restrictions on ‘any records . . . relating to any adverse medical incident.’” (emphasis in original).

I. External Peer Review Reports

The first issue the Supreme Court decided was whether external peer review reports fall within the purview of Amendment 7 and whether external peer review committees can be a “similar committee” as articulated in the constitutional provision. The Court considered whether there are differences between documents prepared in compliance with Florida statutes and those “documents prepared or produced at the specific request of the defendant hospital’s attorney for use in litigation.” However, as stated previously, the Court recognized the clear and broad language of the amendment (i.e., “any records” and “any adverse medical incident”), and concluded that its scope went beyond adverse medical incident records previously protected by statute.  Thus, the Court determined that external peer review committees “cannot logically be excluded from Amendment 7’s application simply because they are in addition to the base-level, statutorily-required risk management committees. Such a result would be directly contrary to the intent and express words of Florida voters to have greater access to adverse medical incident records than they did before the passage of Amendment 7.” The Court explained that a contrary conclusion would allow defendants to avoid their obligations under Amendment 7 by simply outsourcing adverse medical incident reporting to third party committees separate from those required by Florida law.

II.“In the Course of Business” Requirement

Amendment 7 provides explicit definitions of its major terms, except for “in the course of business.” Until the Edwards opinion, courts had not interpreted the term, either. The defendant hospital in Edwards contended that the external peer review reports at issue were not created “in the course of business” because they were not drafted in accordance with the defendant hospital’s statutory documentation and reporting requirements, but rather were requested in anticipation of litigation.

However, the Florida Supreme Court disagreed, finding that just because the defendant hospital chose to outsource its peer review needs did not exempt third party reports from the scope of Amendment 7. If that were the case, a hospital could simply outsource all of its peer review and thereby avoid producing any records. Moreover, the records produced by an external peer review committee are the same category of reports that hospitals otherwise would maintain or receive in their course of business, even in the absence of any statutorily-mandated duty to do so.

III. Fact Work Product Privilege

The last issue the Court considered was whether the external peer review reports at issue were protected from discovery under the fact work product privilege. Again, the Court considered the plain language of Amendment 7 and its goal of providing a broad right to know about adverse medical incidents. The Court concluded that Amendment 7 nullifies any fact work product privilege that may have attached to adverse medical incident reports. Otherwise, the amendment could be rendered meaningless merely by having an attorney request records following an adverse medical incident.

 

Future of Amendment 7 Challenges

In Edwards, the Florida Supreme Court has severely limited potential objections to Amendment 7 discovery requests. However, the Edwards decision did not address opinion work product or the attorney-client privilege. Given the high unlikelihood of overruling good-faith opinion-word product or attorney-client privileges, defendants may find that no other objections would be valid with regard to records of “adverse medical incidents.”

 

Imagine this scenario:  Company X manufactures a “bare-metal” product. After the product is sold, the buyer adds defective asbestos-containing insulation manufactured by Company Y to the product, which is sold for its proper function. Unfortunately, an end-user is then injured by the insulation manufactured by Company Y.  The “bare-metal defense” suggests that the bare-metal manufacturer, Company X, would not be liable for this injury.  In practice, the intuitive logic of the bare-metal defense is not always followed.  Thus, the short answer to the question of the bare-metal manufacturer’s liability is, “it depends.”

Some courts apply a bright-line rule, holding that a bare-metal product manufacturer is never liable for asbestos-related injuries, while other courts assess the foreseeability that hazardous asbestos materials would be added to the manufacturer’s bare-metal product. The Supreme Court has not yet addressed this issue, and neither had the United States Court of Appeals for the Third Circuit, until October 3, 2017, in In re:  Asbestos Products Liability Litigation (No. VI).

 

What is the “Bare-metal Defense”?

In simplest terms, the “bare-metal defense” contends that equipment manufacturers are not liable for the potential hazards of asbestos-related injuries, when the source of the asbestos exposure comes from aftermarket replacement component parts or insulation that the equipment manufacturer neither manufactured nor placed into the stream of commerce. Some courts have applied the defense when considering causation, concluding that the bare-metal manufacturer was not the proximate cause of an asbestos-related injury.  Others courts have analyzed similar issues when evaluating whether a bare-metal manufacturer had a duty to act with reasonable care with respect to reasonably foreseeable asbestos-related risks. Although slightly different, both analyses hinge upon foreseeability.

The Third Circuit addressed the application of the “bare-metal defense,” and in particular, whether to use a bright-line rule or a fact-specific standard, in a maritime negligence claim.

 

The Third Circuit’s Decision in In re: Asbestos Products Liability Litigation (No. VI)

            Two widows of former Navy servicemen alleged that their husbands were exposed to asbestos from insulation and other components that were added onto engines, pumps, boilers, and other equipment manufactured by defendants. Many of the defendants made their products “bare-metal” and without any asbestos-containing insulation, which was later added. These same defendants asserted the “bare-metal defense” and were granted summary judgment by the Eastern District of Pennsylvania, because they shipped their products without asbestos-containing insulation and therefore could not be liable for asbestos-related injuries.

Both widows appealed the summary judgment to the Third Circuit. In tackling this issue, the Court reviewed the four main tenets of maritime law:

  • Maritime law is deeply concerned with the protection of sailors;
  • Maritime law is built on “traditions of simplicity and practicality;”
  • Maritime law has a “fundamental interest” in “the protection of maritime commerce;” and
  • Maritime law seeks out “uniform rules to govern conduct and liability.”

The Third Circuit found only the first tenet to be dispositive of the “bare-metal defense,” and stated that none of the other tenets weigh heavily in either direction. Maritime law has deep concern for the safety of sailors due to a “special solicitude for the welfare of those men who undertook to venture upon hazardous and unpredictable sea voyages.” Moragne v. States Marine Lines, Inc., 398 U.S. 375, 387 (1970). Thus, maritime law is often far more lenient towards sailors than is common law. Courts have stated that maritime law prefers to “give [rather] than to withhold the remedy” whenever “established and inflexible rules” do not require otherwise. Id.

The Court concluded that this guiding principle calls for a fact-based standard, as opposed to a bright-line rule, which will offer a greater number of sailors an opportunity to receive compensation for their alleged injuries. The Court therefore applied the following standard:  A manufacturer of a bare-metal product may be held liable for injuries suffered from later-added asbestos-containing materials, if the injuries were a reasonably foreseeable consequence of the manufacturer’s failure to provide a reasonable and adequate warning. In making this factual determination, important factors to consider are whether the bare-metal manufacturer reasonably could have known, at the time it placed its product into the stream of commerce, that

  • asbestos is hazardous, and
  • its product will be used with an asbestos-containing part, because
  • the product was originally equipped with an asbestos containing part that could reasonably be expected to be replaced over the product’s lifetime,
  • the manufacturer specifically directed that the product be used with an asbestos-containing part, or
  • the product required an asbestos-containing part to function properly.

 

The Decision’s Impact

            Within the Third Circuit, bare-metal manufacturers should no longer expect claims against them to be dismissed under a “bare-metal defense,” unless they can show that they could not reasonably have known that harmful asbestos parts would be added to their products.  A potential defense would prove:

  • the bare-metal manufacturer did not originally equip the product with any asbestos-containing parts;
  • the bare-metal manufacturer did not specifically direct that the product be used with an asbestos-containing part; and
  • the product could have been used properly without an asbestos-containing part.

At least until the Supreme Court provides its own guidance, the Third Circuit’s decision may also be viewed as persuasive by courts in other jurisdictions.

Recently, in Sawyer v. Foster Wheeler LLC, the Fourth Circuit held that a government contractor is entitled to federal jurisdiction, even in product liability failure-to-warn actions, based on the contractor’s assertion that it has a colorable federal defense of government contractor immunity. 860 F.3d 249 (4th Cir. 2017). The big takeaway from this case, however, is that the Fourth Circuit has now joined the Second, Third, Fifth, Seventh, and Ninth Circuits in holding that a government contractor need not demonstrate that it attempted to provide a warning, but was prohibited from doing so by the government. Id.; see Cuomo v. Crane Co., 771 F.3d 113 (2nd Cir. 2014); Papp v. Fore-Kast Sales Co., Inc., 842 F.3d 805 (3d Cir. 2016); Zeringue v. Crane Company, 846 F.3d 785 (5th Cir. 2017); Ruppel v. CBS Corp., 701 F.3d 1176 (7th Cir. 2012); Leite v. Crane Co., 749 F.3d 1117 (9th Cir. 2014). Instead, for the government contractor defense to apply, the contractor is only required to establish that the government dictated or approved the warnings the contractor actually provided.

 

Sawyer involved the claims of a decedent’s family against Foster Wheeler LLC in Maryland state court, in which they alleged that the decedent’s death was caused by exposure to asbestos while he assembled Foster Wheeler boilers for use aboard Navy vessels in the boiler shop of the Sparrows Point Shipyard, and that the defendants failed to warn him of the dangers associated with asbestos exposure. Sawyer, 860 F.3d at 249. Foster Wheeler removed the case to federal district court based on federal officer jurisdiction conferred as a result of its government contractor defense. Following plaintiffs’ motion, the district court remanded the case and Foster Wheeler appealed. Id.

 

In support of federal officer jurisdiction, Foster Wheeler asserted that it manufactured boilers for the Navy under the Navy’s strict specifications and that “in the manufacture and sale of boilers and auxiliary equipment for the Navy, including all aspects of warnings associated with that equipment, [it] was acting under an officer or agency of the United States.” Id. In support, Foster Wheeler supplied the affidavits of a former employee and a retired Navy captain, in which they attested: (1) Foster Wheeler designed boilers to match highly detailed ship and military specifications provided by the Navy, that “deviations from these specifications were not acceptable,” and the Navy exercised “intense direction and control over all written documentation to be delivered with its naval boilers;” and (2) “the Navy was well aware of the health hazards associated with the use of asbestos from the early 1920s,” and that the Navy’s information “with respect to the specification and use of asbestos, and the health hazards associated with its use aboard Navy vessels, far exceeded any information that possibly could have been provided by a boiler manufacturer.” Id.

 

The Plaintiffs argued: (1) that the government contractor defense does not apply to failure-to-warn actions; and (2) the boilers were not constructed on U.S. naval ships, were manufactured under the direction of Foster Wheeler personnel, and only later transported and installed upon U.S. naval ships.  Id.  In addition, Plaintiffs argued that there is no evidence that the government prohibited Foster Wheeler from warning those individuals constructing the boilers concerning the hazards associated with asbestos exposure. Id.

 

The Fourth Circuit reversed and remanded, finding that Foster Wheeler satisfied all three criteria to establish federal jurisdiction, namely that: (1) it acted under a federal officer; (2) it has a colorable government contractor defense; and (3) the charged conduct was carried out for or in relation to official authority. Id. With regard to the government contractor defense, the Fourth Circuit held that the defense applies to failure-to-warn claims where the defendant can demonstrate that: (1) the government exercised discretion and approved certain warnings; (2) the defendant provided the required warnings; and (3) the defendant warned the government about hazards that were known to it but not to the government.  But, the Court went one step further and held that “the government need not prohibit the contractor from providing additional warnings; the defense applies so long as the government dictated or approved the warnings the contractor actually provided.” Id.

 

In its application of that standard, the Fourth Circuit found that Foster Wheeler demonstrated that the Navy “exercised intense direction and control over all written documentation to be delivered with its naval boilers,” including those manufactured by Foster Wheeler. Id. The Court cited one of Foster Wheeler’s affidavits which stated that “Foster Wheeler would not be permitted, under the specifications, associated regulations and procedures, and especially under actual practice as it evolved in the field, to affix any type of warning or caution statement to a piece of equipment intended for installation onto a Navy vessel beyond those required by the Navy.” Id. It also found that Foster Wheeler actually gave the warnings that were required by the Navy and that the Navy would penalize any deviation. Id. Finally, the Court found that Foster Wheeler credibly demonstrated that the Navy’s knowledge of asbestos-related hazards exceeded Foster Wheeler’s during the relevant time period. Id.  Based on those findings, the Court held that Foster Wheeler had demonstrated that it was entitled to litigate this case in a federal forum. Id.