Defense Litigation Insider

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Bristol-Meyers Squibb Standard Helps MG+M Attorneys Secure a Dismissal

Posted in Asbestos Litigation, California Courts, Litigation Trends

Recently, a team of attorneys from MG+M successfully obtained a dismissal of all claims against their client, based on the lack of personal jurisdiction.  The case was Howell v. Asbestos Corporation, pending in Los Angeles County Superior Court before the coordinating asbestos judge, the Honorable Steven J. Kleifield.  In his decision dismissing the claims, Judge Kleifield applied the stringent personal jurisdiction standards recently set forth in Bristol-Meyers Squibb Co. v. Superior Court of California 137 S. Ct. 1773 (2017).

 

In Bristol-Meyers, the United States Supreme court examined whether a state court could exercise personal jurisdiction over the claims of non-resident plaintiffs against a non-resident corporate defendant for injuries occurring out of the forum state.  Id. at 1778  Specifically, a group of plaintiffs sued Bristol-Myers Squibb (Bristol) in a California court for injuries sustained after ingesting a drug manufactured and supplied by Bristol.  Many of the plaintiffs were not from California. Bristol was incorporated in Delaware with its principal place of business in New York; however, it did have some connections with California, as it sold its drug within the state.

 

Ultimately, the Court ruled that California courts could not exercise specific personal jurisdiction over Bristol with respect to any plaintiffs who did not reside in California, because any conduct giving rise to the non-resident plaintiffs’ claims occurred outside of California. The Court noted that specific jurisdiction necessitates “an affiliation between the forum and underlying controversy, principally, [an] activity or an occurrence that takes place in the forum state.”  Id. at 1781.  Thus, because the complaint did not allege any acts or occurrences in California that specifically resulted in injury, the Court ruled that California could not exercise personal jurisdiction over the claims against Bristol.

 

In the Howell v. Asbestos Corporation case decided last week, the plaintiffs alleged that Mr. Howell developed malignant epithelial mesothelioma as a result of exposure to various asbestos-containing products. Although the plaintiff did reside in California for a short period of time, the vast majority of the plaintiff’s alleged exposure to asbestos occurred in the state of Texas. On behalf of one of the defendants, attorneys from MG+M argued that California courts lacked personal jurisdiction over our client pursuant to the standard set forth in Bristol-Meyers. Specifically, MG+M attorneys argued the plaintiff’s claims did not relate to any contacts that the defendant had with the state of California. For example, the defendant was not incorporated in California, did not have its principal place of business in California, and had less than 1 percent of employees residing in California, meaning there was no general jurisdiction. Additionally, the plaintiff’s alleged injury from the defendant’s product occurred outside of the state of California, meaning there was no specific jurisdiction. Ultimately, Judge Kleifield applied the Bristol-Meyers standard and held that because the plaintiffs’ claims did not bear a substantial connection to the non-resident defendant’s forum contacts, the exercise of personal jurisdiction was not appropriate.

 

 

The Future of Bristol-Meyers

 

Since the decision in Bristol-Meyers, corporate defendants are raising more personal jurisdiction challenges and achieving greater success. The Bristol-Meyers standard for personal jurisdiction has fundamentally changed the rules governing where corporate defendants can be sued, limiting plaintiffs’ lawyers’ ability to select favorable forums in which to file claims (i.e. forum shopping).  To establish specific jurisdiction, plaintiffs’ lawyers now must plead specific facts that show a connection between their client’s claims and the forum in which they seek adjudication.

No More Double-Dipping in Michigan

Posted in Asbestos Litigation, Litigation Trends

The federal Bankruptcy Code allows companies in bankruptcy proceedings to establish asbestos bankruptcy trusts, in which assets are set aside for the benefit of future claimants whose specific identity is unknown at the time of the bankruptcy. So-called “double dipping” can occur when a plaintiff seeks recovery from an asbestos bankruptcy trust without disclosing that recovery in litigation against other defendants.  Recent legislative amendments in Michigan will make it more difficult for individuals to engage in double dipping.

On February 8, 2018, the Michigan State Legislature passed House Bill 5456, which amended the Revised Judicature Act by adding the Asbestos Bankruptcy Trust Claims Transparency Act (the “Transparency Act”).  Currently, a plaintiff seeking compensation for asbestos exposure may seek redress in two ways: by filing a complaint in court, and by filing a claim against an asbestos bankruptcy trust.  To date, there are approximately 60 asbestos bankruptcy trusts in the United States with assets approaching $25 billion, which have been established for the sole purpose of paying asbestos-related personal injury claims.  Although the Transparency Act does not eliminate a plaintiff’s ability to seek compensation from both the trusts rand litigation, it imposes disclosure requirements to prevent a plaintiff from “double-dipping.”  Thus, under the Transparency Act, any compensation received from an asbestos trust will be credited against any judgment in the plaintiff’s favor.

Pursuant to the Transparency Act, a plaintiff in an asbestos action must, within 30 days after filing an action, provide a signed statement, under penalty of perjury, attesting that any and all potential asbestos trust claims that could be filed, have been filed.  In addition, a plaintiff must provide—to all parties—all trust claim materials,[1] including those that relate to conditions other than those that are the basis for the asbestos action.  Finally, if the plaintiff’s asbestos trust claim is based on secondary exposure through another individual, he or she must submit all trust claim materials submitted by the other individual.

The Transparency Act affirmatively requires a plaintiff to provide up-to-date trust claim materials, and it also provides defendants with tools to deter a plaintiff from failing to comply with her disclosure obligations.  A defendant in an asbestos action now has the ability to request a 60-day stay, if the defendant identifies an asbestos trust claim that a plaintiff has failed to disclose to the parties, and the defendant believes the claim should have been identified.  After a motion to stay the matter has been filed, the burden to lift the stay shifts to the plaintiff, who may respond in one of three ways: file the asbestos trust claim; file a response stating that there is insufficient evidence for the plaintiff to file the asbestos trust claim; or request a determination from the court that the costs to file the asbestos trust claim would outweigh the expected recovery.

The Transparency Act also provides safeguards for those scenarios in which a plaintiff first obtains a judgment in an asbestos action and then files an asbestos trust claim that was already in existence at the time of the judgment.  In that scenario, defendants are permitted to file a motion to re-open the case and alter the judgment to reflect any asbestos trust payments obtained by the plaintiff.

Unsurprisingly, attorneys who represent clients with mesothelioma and other asbestos-related cancers are vehemently opposed to this legislation.  One such attorney, Jay Bedortha, stated, “This bill allows the defendants to control whether or not our clients, who are dying of cancer, are going to have a trial date during their lifetime, or whether the trial date has to wait until after they’ve passed away.”[2]  By contrast, proponents of the legislation laud the transparency created between solvent defendants and bankruptcy trusts.

Michigan is not the only state to enact this kind of law.  Since 2011, the following states have enacted similar legislation aimed at preventing plaintiffs from double-dipping when making asbestos claims: Ohio, Oklahoma, Wisconsin, Texas, Arizona, Tennessee, West Virginia, Utah, South Dakota, North Dakota, Iowa, and Mississippi.  In addition, this trend is not limited to state legislation, and a bill has proceeded through one house of Congress.  On March 9, 2017, the United States House of Representatives passed House Resolution 985, which includes the Furthering Asbestos Claim Transparency Act (FACT).  In short, FACT would amend the federal bankruptcy code to require asbestos liability trusts to disclose information about plaintiffs’ demands and payments from the trusts.  As of the date of this writing, House Resolution 985 is still awaiting a hearing in the Senate Judiciary Committee.

 

 

[1] Trust claims materials are defined in the Act as “a final executed proof of claim and all other documents and information related to a claim against an asbestos trust, including claims forms and supplementary materials, affidavits, depositions and trial testimony, work history, and medical and health records, all documents that reflect the status of a claim against an asbestos trust, and, if the trust claim has been settled, all documents that related to the settlement of the trust claim.”  H.R. 5456 § 3011(F).

[2] Sarah Cwiek, Critics Say Bill Would “Delay and Deny” Justice for Asbestos Cancer Victims, Mich. Radio (Feb. 12, 2019) http://michiganradio.org/post/critics-say-bill-would-delay-and-deny-justice-asbestos-cancer-victims.

Tinder No Match for CA’s Second District Court of Appeal in Allegedly Ageist Pricing Case

Posted in California Courts, Class Action Litigation, Litigation Trends

A California appellate court recently ruled that Tinder’s age-based pricing strategy violated the state’s Unruh Civil Rights Act, which broadly outlaws discrimination based on sex, race, sexual orientation, age, and other classes. California’s Second District Court of Appeal in Los Angeles reversed the trial court’s dismissal of a class action brought by a putative group of customers over 30 years of age, who claim Tinder improperly charged them more for a premium service than it did users in the 18-29 age range.

This case, which has drawn a great deal of publicity, may appear to signal the beginning of a judicial push against age-based price differences, but the implications outside California are likely limited.

 

In March 2015, the free dating service switched to a “freemium” pricing model. Users could still join Tinder without cost, but for a fee, they could upgrade their membership to Tinder Plus and receive additional features, including the ability to undo mistaken swipes or expand their geographic filter for potential matches. For this membership upgrade, users over 30 paid a $20 subscription fee, while users under 30 paid only $14.99 (or $9.99, depending on any promotions in effect).

 

Tinder claimed that before setting the price, it conducted market research that showed that users under 30 were more likely to be “budget constrained” and were less likely to pay an increased fee. The named plaintiffs (one of whom previously sued a women-only networking event to allow the inclusion of men) argued that this stated basis failed to justify what amounted to a surcharge on older customers, some of whom might actually have had less disposable cash than younger users.

 

The court found that, under the Unruh Civil Rights Act, Tinder’s stated basis failed to justify what amounted to age discrimination. The court acknowledged that while this practice might make business sense, it violated the spirit of California’s law, which treats people equally unless the legislature provides an explicit basis to do otherwise (as it has for discounts for elderly persons and minor children). The court found no such legislative basis for young adults generally.

 

Many other products lend themselves well to different pricing tiers like the one challenged in the Tinder case: software licenses, content subscriptions, club memberships, etc. This scrutiny of Tinder’s pricing suggests that potential plaintiffs may scrutinize any pricing benefitting a non-elderly or minor age group. However, because the age-based claim that will now proceed in California is cutting-edge and largely untested, the full impact of this ruling remains to be seen. In several states (California, Maryland, Pennsylvania, and Wisconsin), courts have found that ladies’ nights violate state discrimination laws, but have not clearly addressed age-based pricing in a similar context.  Regardless, the case law in California and elsewhere will continue to develop. For example, it remains an open question whether student discounts would pass the Appeal Court’s “legislative-findings” standard as applied in the Tinder case.

 

 

Massachusetts Focuses on the Elements of Spoliation

Posted in Food & Beverage Litigation, Litigation Trends, Massachusetts Courts

In Santiago[1] v. Rich Products Corp., et al.[2], the Massachusetts Appeals Court held that a finding of spoliation requires both: (1) the negligent and intentional loss or destruction of evidence; and (2) the awareness of the spoliator at the time the evidence is lost or destroyed of the potential for the evidence to help resolve the dispute. The Santiago Court’s strict interpretation of the doctrine of spoliation follows the trend of Massachusetts litigation, shifting focus from the first element, the spoliator’s conduct to the second element, its mental state. The opinion also accentuates the fact that non-compliance with a document retention policy does not equate to per se spoliation.

 

The underlying dispute arose in 2006, when the plaintiff, Kelvin Santiago, then a 7-year-old first grader at Lowell public schools, experienced traumatic brain damage after choking on meatballs that were served to him during school lunch. The plaintiffs (Kelvin Santiago and his parents) sued the city of Lowell and the entity that produced and sold the meatballs, Rich Products, asserting negligence, breach of the implied warranty of merchantability, and Chapter 93A consumer protection claims, amongst others. Id. at 2. By way of background, in 2004, as part of the Federal government’s initiative to provide healthy lunches to students through the National School Lunch Program, Rich Products began providing and producing meatballs that met the healthy-lunch specification guidelines. To comply with standards promulgated by the United States Department of Agriculture, Rich Products used Profam 974, a soy protein isolate, to achieve the requisite “two ounces of protein per student [per lunch].” Santiago, No. 16-P-504 at 3. The plaintiffs’ counsel argued that the inclusion of Profam 974 rendered the product unreasonably dangerous, because the soy protein produced a meatball whose texture made it a choking hazard. Id. at 6

 

Upon enduring substantial discovery and motion hearings, in 2014, the Superior Court awarded the city of Lowell summary judgment, and a jury found that Rich Products was not responsible, on the basis that its negligence was not a “substantial contributing factor to the plaintiffs’ injuries.” Id. at 2-3. On appeal, the plaintiffs argued that the trial court erred by, among other things, denying the plaintiffs’ request for an adverse-inference instruction regarding Rich Products’ alleged spoliation of evidence. Id. On December 28, 2017, the Appeals Court “conclude[d] that the trial judge did not abuse his discretion in declining to give a spoliation instruction because the plaintiffs failed to establish the necessary factual predicate that Rich Products lost or destroyed the missing evidence when it knew or should have known of a potential lawsuit.” Id. (emphasis added).

 

Spoliation is the destruction of evidence, negligently or intentionally, when the litigant is aware or should be reasonably aware that the evidence is relevant to a potential action, whether or not the action has officially commenced. Id. at 7 (citing Mass. G. Evid. § 1102 (2017)). “The doctrine does not extend to a fault-free destruction or loss of physical evidence;’” however, the purpose of the doctrine is to force accountability of a “party who culpably destroys evidence,” while providing a remedy to the other party “where unfair prejudice results.” Santiago, No. 16-P-504 at 7 (quoting Scott v. Garfield, 454 Mass. 790, 798 (Mass. 2009)); Keene v. Brigham and Women’s Hosp., Inc., 439 Mass. 223, 234 (Mass. 2003)(quoting Kippenhan v. Chaulk Servs., Inc. 428 Mass. 124, 127 (Mass. 1998)); Mass. G. Evid. § 1102 (2017). The court applies the reasonable person standard to determine whether the loss of evidence constitutes spoliation, by asking “at the time of spoliation, [did the party realize] the possible importance of the evidence to the resolution of the potential dispute?” Santiago, No. 16-P-504 at 7 (citing Kippenhan at 127)(emphasis added). The party seeking sanctions has the burden of proving that the spoliating party had the requisite knowledge by “producing evidence sufficient to establish certain preliminary facts.” Id. at 7 (citing Scott at 799). Should the sanction seeking party provide enough evidence to determine spoliation has occurred, a judge has a myriad of options to remedy the situation, so long as the sanction addresses, “the precise unfairness that would otherwise result” in the least severe way necessary. Santiago, No. 16-P-504 at 9 (citing Westover v. Leiserv, Inc., 64 Mass. App. Ct. 109, 113 (Mass. App. Ct. 2005) (quoting Fletcher v. Dorchester Mut. Ins. Co., 437 Mass. 544, 550 (Mass. 2002))); Santiago, No. 16-P-504 at 9 (quoting Keene 439 Mass. at 235).

 

Regarding the allegations at issue, the plaintiffs’ counsel claimed that Rich Products engaged in sanctionable conduct with respect to their “(1) laboratory notebooks and production records from 2004 relating to the development of the formula for the meatballs and (2) the results of product-development and production testing from 2004.” Santiago, No. 16-P-504 at 5. The plaintiffs’ counsel said that this evidence would highlight to the jury the unreasonably dangerous texture that Profam 974 created within the meatballs. Id. at 6. The plaintiffs, however, were able to recreate meatballs using Rich Products’ recipe provided in answers to interrogatories, and obtained expert testimony that identified those meatballs as unreasonably dangerous, and opined that “both the size and texture of the meatball presented a choking risk to children.” Id. at 6. Moreover, while articulating the alleged dangers of the product, the plaintiffs’ counsel neglected to identify whether or not Rich Products “at the time of spoliation” knew or should have reasonably known “the potential importance of the evidence to the resolution of the potential dispute.” Id. at 7. Judge Shin reinforced the Superior Court’s position that simply pointing to a document retention policy does not equate to a culpable or negligent destruction of documents with knowledge that the documents could solve a potential dispute. Id. at 6. Because the plaintiffs’ counsel ultimately could not bear this burden of proving intentional or negligent acts with knowledge as to their significance, there was no actionable spoliation. Id. at 8 (citing Vigorito v. Ciulla Builders, Inc., 57 Mass. App. Ct. 446, 454-455 (Mass. App. Ct. 2003)). Nevertheless, the Superior Court Judge acted within his discretion to allow the plaintiffs’ counsel to “argue [] the lack of evidence,” which “allow[ed] [the plaintiff] to make use of the fact the documents were missing,” ultimately painting the picture for the jury at each juncture of the trial. Santiago, No. 16-P-504 at 8, 11.

 

Thus, the standard that Massachusetts courts demand for proving spoliation requires a showing of knowing action, or failure to act, before the court will punish a party for failing to preserve evidence. At the same time, if critical pieces of evidence are missing, Massachusetts have the authority to allow counsel an opportunity to present this point to the jury without the imposition of sanctions such as an adverse inference instruction.  Id. at 11

[1] Kelvin Santiago & Julia Rivera and Juan Santiago, individually and as next friends of Kelvin Santiago

[2] Kelvin Santiago & Others v. Rich Products Corp., Casa Di Bertacchi Corp., and the city of Lowell, No. 16-P-504 (Mass. App. Ct. Dec. 28, 2017)

 

 

Death, Taxes, and Sexual Harassment: How the #MeToo Movement Affected Trump’s Tax Bill

Posted in Corporate Litigation, Employment Litigation, Litigation Trends, Uncategorized

On December 22, 2017 President Trump signed into law the Tax Cuts and Jobs Act (officially Public Law no. 115-97, named “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”). Recognized generally for changes to the individual income tax brackets, the corporate tax cuts, and the estate tax modification, a separate section, 13307, likely will have a significant impact on sexual harassment settlements.

 

Senator Bob Menendez (D- NJ) proposed the Weinstein tax exclusion (above) in direct response to the #MeToo movement after the sexual harassment revelations about Harvey Weinstein. The provision was added to the Tax Cuts and Jobs Act to restrict tax deductibility of sexual harassment settlements associated with nondisclosure agreements. Such agreements were reported in connection with Harvey Weinstein, Fox News, and other high profile cases.

Section 13307 modified the IRS Tax Code section 162 to eliminate the ability of businesses and defendants (and possibly plaintiffs) to deduct the costs associated with settlements of sexual harassment claims that are subject to nondisclosure agreements, including legal fees related to the settlements. Because most settlements related to sexual harassment have included confidentiality or nondisclosure language, the impact of this legislation will be significant for all parties involved, and will be reflected in advice from legal counsel. The provision applies to any payments made on or after December 22, 2017 and is not retroactive, except to the extent it affects payments left to be paid after December 22, 2017 on any prior settlement agreement.

The statutory language does not provide definitions for the terms “sexual harassment” or “sexual abuse.” The statutory language also does not clarify the meaning of “related to” for the purposes of settlement or legal fees. This ambiguity leaves several important open questions:

• An employment dispute that does not involve claims of sexual harassment but results in a nondisclosure agreement that includes broad releases may be problematic. If the scope of the releases includes sexual harassment claims, can that settlement be deducted by the business?

• What if a plaintiff has multiple claims, including but not limited to retaliation, gender discrimination, and a sexual harassment claim; what portions of a settlement payment will be deductible? Could effective contract drafting allocate most of the settlement consideration to the non-sexual harassment claims and thereby affect deductibility?

• In settling multiple claims, should counsel draft two separate agreements, one dealing only with the sexual harassment claim and the other agreement with all remaining claims, and allocating the larger portion of the settlement consideration to the nonsexual harassment claim, which is deductible?

• Does the statute exclude all legal fees associated with the claim from deduction, or just the portion of fees associated with the negotiation of the settlement and the drafting and execution of a settlement agreement?

Until more clarity is provided by administrative rules, legislative changes, or court opinions, lawyers will have an important role advising clients how to modify previous boilerplate nondisclosure settlement agreements Counsel also will be instrumental in structuring the negotiation of sexual harassment claims, as businesses and defendants weigh the potential benefit of keeping a sexual harassment claim confidential against the financial implication of losing the ability to deduct the settlement and legal fees.

The #MeToo movement has given a voice and a platform for sexual harassment victims. Because the number of sexual harassment claims, including class actions, is likely to increase, businesses will be motivated to increase their preventive efforts through education and training of their employees about sexual harassment. After the enactment of the Tax Cuts and Jobs Act, businesses and defendants also must be prepared to balance the cost of claims that can no longer be deducted against the value of confidentiality and settlement certainty.

The new tax provision is important, but also vague and subject to interpretation. In future issues, the Defense Litigation Insider will examine the effect of this legislation on the negotiation and drafting of settlement and nondisclosure agreements.