California Court Rules: No Jurisdiction Over Foreign Parent Corporations

By on August 8, 2014
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This week in Young v. Daimler AG, the California Court of Appeal held that there is no general personal jurisdiction over foreign companies in California whose only “connections” to the state are the activities of its legally separate but wholly owned subsidiaries. This is the first appellate case in California applying the U.S. Supreme Court’s January 2014 decision on this issue, Daimler AG v. Bauman (2014) 134 S.Ct. 746.

Young is particularly significant because it abrogates an entire theory of general jurisdiction law in California — the “representative services doctrine” — and gives out-of-state and foreign defendants welcome protection from lawsuits in California, even if they have in-state subsidiaries doing substantial business. It is important to note that this case did not involve any other theory of jurisdiction, such as an “alter ego”-type of theory holding a foreign parent subject to jurisdiction in California, where its corporate formality-ignoring subsidiary operates.

The representative services doctrine, set forth in Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, held that general personal jurisdiction could be asserted over a foreign defendant if its in-state subsidiary performed “a function that is compatible with, and assists the parent in pursuit of, the parent’s own business.” In other words: “[I]f a parent uses a subsidiary to do what it otherwise would have done itself, it has purposely availed itself of the privilege of doing business in the forum. Jurisdiction over the parent is therefore proper.” This may describe many foreign parent-domestic subsidiary relationships, but the U.S. Supreme Court held in Bauman that it does not confer personal jurisdiction, and Young agrees.

This is not the only such case before the Court of Appeal on this very issue — Daimler AG v. Superior Court (Pierson) is scheduled for oral argument on August 18, 2014. Young and Pierson involve the same question, arising out of the same fact pattern: May a California state court exercise general personal jurisdiction over a foreign company, solely due to the in-state activities of its subsidiaries? Young, applying the U.S. Supreme Court’s Bauman decision, answered “no.” The California Supreme Court unanimously ordered in March 2014 that the Pierson plaintiffs show cause why service of summons on Daimler should not be quashed in light of Bauman. Pierson is before a different Court of Appeal district (the Third, in Sacramento) than was Young (the First, in San Francisco), but Pierson is likely to be decided the same way.

Young and Pierson are product liability cases involving Jeep vehicles manufactured by DaimlerChrysler before Chrysler’s split from Daimler AG and bankruptcy. Both plaintiffs pursued their claims against Daimler AG as the ultimate parent of DaimlerChrysler at the time the vehicles in question were manufactured.

In Young, the plaintiffsasked the court to apply the Ninth Circuit’s then-current decision in Bauman v. DaimlerChrysler Corp. (2011) 644 F.3d 909, which held that general jurisdiction over Daimler AG was appropriate in California because of the extensive activities of its indirect subsidiary Mercedes-Benz USA. This case cited the representative services doctrine as the source of its holding, that is, Mercedes-Benz USA’s activities in California were so important to Daimler AG that general jurisdiction over Daimler AG was appropriate.

In reversing the Ninth Circuit, the U.S. Supreme Court held in Bauman that the representative services doctrine “rested primarily on [the] observation that [American subsidiary] MBUSA’s services were ‘important’ to Daimler, as gauged by Daimler’s hypothetical readiness to perform those services itself if MBUSA did not exist. Formulated this way, the inquiry into importance stacks the deck, for it will always yield a pro-jurisdiction answer[.] . . . The Ninth Circuit’s agency theory thus appears to subject foreign corporations to general jurisdiction whenever they have an in-state subsidiary or affiliate, an outcome that would sweep beyond even the ‘sprawling view of general jurisdiction’ we rejected in” other cases.

Applying Bauman, Young affirmed the trial court’s grant of Daimler AG’s motion to quash service of summons and agreed that because Daimler AG itself did not do business in California, there was no general personal jurisdiction: “In our view, appellant’s argument impermissibly ‘elide[s] the essential difference between case-specific and all-purpose (general) jurisdiction. . . . Indeed, the test endorsed in Bauman . . . whether a foreign defendant is ‘essentially at home in the forum state’—focuses on the defendant’s significant corporate presence in the forum.”

Young recognized that this means the representative services doctrine is essentially dead: “While the Bauman II Court questioned the formulation and application of the Ninth Circuit’s agency test [the representative services doctrine], in the end it assumed agency and still concluded that MBUSA’s California contacts were insufficient to confer general jurisdiction in California.” This is hugely important to multistate and international businesses. Such defendants cannot be sued in California, even if their subsidiaries do substantial business in California. Young is a clear rejection of the representative services doctrine and the opinion did not limit the application of its decision to the particular facts of the case before it.

Out-of-state and foreign businesses participating in California’s economy through subsidiaries are common. Such businesses must remain careful to ensure that their subsidiaries observe corporate formalities and remain legally separate. Overall, however, Young brings California general jurisdiction law in line with U.S. Supreme Court precedent and will make establishing jurisdiction over out-of-state and foreign defendants significantly more difficult in the future.

Filed under California, Foreign Corporations, Jurisdiction

Texas Supreme Court Reaffirms Standard of Proof in Mesothelioma Cases: Bostic v. Georgia-Pacific

By on July 29, 2014
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On July 11, 2014, the Texas Supreme Court released an opinion of major importance in Bostic v. Georgia-Pacific — an opinion Gordon & Rees partner William A. Ruskin recently commented on in a Law360 article.  The court’s decision reaffirmed the bedrock significance of the concept of dose in toxic tort litigation and rejected out of hand the argument that a less rigorous standard should be applied in a mesothelioma case than in an asbestosis case.  Bostic articulated that plaintiffs must prove substantial factor causation in all toxic tort litigation in general and in asbestos litigation in particular.

ETT BLOG_texasTimothy Bostic’s relatives sued Georgia-Pacific and 39 other asbestos-related product manufacturers claiming that Bostic’s fatal mesothelioma was caused by exposure to their products.  At trial in 2006, the jury allocated 25 percent of the causation to Knox Glass Co., the decedent’s former employer, and 75 percent to Georgia-Pacific. An amended judgment awarded plaintiffs over $11 million in compensatory and punitive damages. The Court of Appeals reversed the trial court’s decision holding that the plaintiffs failed to prove that the exposure to Georgia-Pacific’s asbestos was a substantial factor in bringing about Bostic’s death.
In affirming the Court of Appeals, the Texas Supreme Court held that the substantial factor causation standard applies to all asbestos cases involving multiple sources of exposure. To meet this standard, proof of “some exposure” or “any exposure” did not suffice to establish causation.  Instead, there must be defendant-specific evidence relating to the approximate dose to which the plaintiff was exposed, along with evidence that the dose was a substantial factor in causing the asbestos-related disease.

Bostic elaborates upon the Texas Supreme Court’s prior decision in Borg-Warner Corp. v. Flores, an asbestosis case. Flores addressed the issue of why the plaintiff’s causation evidence was legally insufficient in the absence of evidence of how much asbestos the plaintiff might have inhaled. Flores explained that proof of frequency, regularity, and proximity to a toxic substance alone is not sufficient to support causation, because it does not demonstrate that the defendant-specific dose was a substantial factor in causing the disease. Bostic expressly rejected the plaintiffs’ attempted distinction between a mesothelioma case and an asbestosis case. Rather, the court held the “framework for reviewing the legal sufficiency of causation evidence lends itself to both types of cases.”

Fundamentally, a plaintiff must show that the defendant supplied the product that caused the injury. Hence, the court viewed plaintiff’s “any exposure” theory as “illogical,” in part because it does not take into account a background dose of exposure.  In asbestos-related cancer cases, plaintiffs are not required to show that specific fibers from a defendant’s products were the ones that actually caused the asbestos-related cancer. Instead, it must be shown that exposure to a defendant’s product was a substantial factor in contributing to the total dose of asbestos the plaintiff inhaled, and therefore to the risk of developing asbestos-related disease.

The Supreme Court disagreed with the lower court, however, stating that the plaintiffs do not have to meet the heightened standard of “but-for” causation. Although the court recognized that “producing cause” or “but-for” is the level of causation applicable to most products liability cases, it was unwilling to apply that standard in a case with 40 defendants.

Acknowledging that causation is difficult to prove in multidefendant cases, the court referenced its prior holding in Merrell Dow Pharmaceuticals, Inc. v. Havner, 953 S.W.2d 706 (Tex. 1997), which offers an alternative method for establishing causation in the absence of direct proof. Havner recognized the possibility of using epidemiological studies to prove a population exposed to a toxin faces the increased risk of injury as compared to an unexposed or general population. Under Havner, the epidemiological evidence must show that the plaintiff’s exposure to the defendant’s product more than doubled the plaintiff’s risk of contracting the disease.

In essence, the Texas Supreme Court found the causation evidence in Bostic to be legally insufficient to uphold the trial verdict. The plaintiffs did not establish any approximation of dose resulting from Bostic’s exposure to Georgia-Pacific’s products. Bostic rejected the plaintiffs’ “any exposure” standard and instead reaffirmed adherence to substantial factor causation.

Alexana Gaspari is a law clerk in Gordon & Rees’s New York office.

Image courtesy of Flickr by Ray Bodden

Filed under Asbestos, Causation, Dose-Response, Mesothelioma, Substantial Factor, Texas

New York High Court Affirms Municipal Fracking Bans

By on July 21, 2014

The New York Court of Appeals, in a landmark ruling, recently upheld bans imposed by municipalities on oil and gas production activities, including fracking, in their communities. On June 30, in Wallach v. Town of Dryden, the court affirmed a ruling by the Appellate Division, Third Department, allowing the towns of Middlefield and Dryden to forbid gas drilling within their borders. This decision came about despite the industry’s argument that only the state could regulate gas drilling.

According to the Court of Appeals, the Oil, Gas and Solution Mining Law (OGSML) did not preempt the towns’ zoning laws prohibiting oil and gas production activities or natural gas exploration. Because there was no legislative intent evidenced within OGSML’s plain language, overarching statutory structure, or legislative history, much less any “clear expression,” requiring preemption of local land use regulations, the court held that the towns acted within their “home rule authority.” New York courts have traditionally given deference to a local municipality’s zoning authority.

The Wallach court explained that the text of a statutory provision is the clearest indicator of legislative intent.  The language of OGSML’s supersession clause states that it “shall supersede all local laws or ordinances relating to the regulation of the oil, gas, and solution mining industries.”  The court found that the clause did not preempt zoning ordinances that restrict or prohibit certain land uses within a town’s boundaries. Instead, the statute only preempts local laws that purport to regulate actual operations of oil and gas activities, which was not at issue here.

Further, the legislative history of OGSML did not evidence an intention to preempt the towns’ zoning laws. There was no mention of zoning or any intent to take away local land use powers. Instead, the legislative history was designed to prevent wasteful oil and gas practices by creating uniform statewide regulations.

Shale gas development using high-volume horizontal hydraulic fracturing, commonly referred to as hydrofracking, remains a controversial issue in New York as elsewhere. Fracking can allow for the extraction of enormous amounts of previously unavailable natural gas, but the practice has become subject to intense scrutiny by environmental advocates and upstate rural communities.

Hydrofracking involves drilling a vertical well thousands of feet into the ground to reach a shale rock formation. Once shale is found, the well is turned horizontally to stay within the formation and a high-pressure mixture of water, chemicals, and sand is injected into the wellbore. The procedure creates small cracks in the shale, “fractures,” which release trapped oil or natural gas.

Natural gas offers enormous benefits including the reduction of greenhouse gases, decreased reliance on foreign oil suppliers, and an economic boon to New York upstate communities. However, environmentalists continue to be concerned that fracking may contaminate groundwater and create air pollution. At the same time, some local communities fear that natural gas exploration will increase the burdens on municipal resources such as police and health care, and cause undesirable shifts in local economies and demographics. While some states have embraced fracking, Gov. Andrew Cuomo and many of his constituents have been hesitant to permit natural gas exploration.

There has been a moratorium on fracking in New York since 2008. While the Department of Environmental Conservation is creating a regulatory framework for hydrofracking in New York in the event the moratorium is lifted, the governor is anticipating the results of a long-awaited health study that the Department of Health commissioned in 2012.

On June 16, 2014, New York’s General Assembly passed a three-year moratorium on fracking to allow for more time to fully study environmental impacts. Full passage of the moratorium now depends on the New York State Senate and ultimately, Cuomo. Thus, even with the issuance of Wallach, affirming the rights of municipalities to prohibit fracking, this decision does not change the existing status quo in New York. The larger fate of hydrofracking in New York ultimately will be left in the hands of the executive and legislative branches of government, which must decide whether to allow New York to engage in natural gas exploration – at least where not prohibited by local zoning laws.

 

Alexana Gaspari is a law clerk in Gordon & Rees’s New York office.

Filed under Fracking, Natural Gas

California Declares Duty in “Take-Home” Exposure Cases

By on May 16, 2014

In Kesner v. Pneumo Abex LLC, decided May 15, 2014, the California Court of Appeal found a duty to protect against “take-home” exposure. The decision extends this duty beyond immediate family members, and is in apparent conflict with an earlier decision, Campbell v. Ford Motor Co., which ruled against any “take-home” duty. At the same time, Kesner’s effect may be limited by such factors as the decision’s attempts to distinguish Campbell and the particular procedural posture of the case.

Johnny Blaine Kesner is the nephew of an employee of a brake lining manufacturer. He claimed asbestos exposure due to intermittent visits, some long-term, with his uncle, and alleged that his uncle brought asbestos dust home. The trial court, based on Campbell, granted the manufacturer’s motion for nonsuit. The Court of Appeal reversed, because the complaint alleged the manufacturer was aware of asbestos hazards and “that Kesner’s contact with his uncle was extensive. As to such persons, the foreseeability of harm is substantial.”  Under “the standard for reviewing the sufficiency of the allegations of the complaint” on nonsuit, that was enough to send the case back for trial.

The Kesner decision may come as a surprise given the 2012 decision in Campbell, which held that a premises owner owed no duty to the family members of employees of independent contractors who worked at the premises. In Campbell, the plaintiff asserted her brother and father, insulators at the premises, had brought asbestos dust home on their clothes. She claimed she developed mesothelioma from handling and laundering these work clothes.  Campbell found no duty. (Interestingly, the decision was modified after first issued specifically to clarify that Ford was a premises owner and not the employer.)

Kesner recognized several limits to the scope of its ruling. One was “that the existence of the duty is not the same as a finding of negligence.” Another was that where “contact with an employer’s worker is only casual or incidental, the foreseeability of harm and the closeness of the connection between the defendant’s conduct and the plaintiff’s injury may be so minimal” as to find that no duty exists.

Kesner did “not question the conclusion in Campbell” and distinguished between “Ford’s passive involvement as owner of a plant in which an independent contractor was installing asbestos insulation” and the facts of Kesner, which involved a negligence claim against a “manufacturer of asbestos-containing brake linings.” Nevertheless, the apparent conflict between Kesner and Campbell suggests possible California Supreme Court review.

If the Kesner decision is not reversed or depublished, it is potentially problematic for defendants — even outside the asbestos arena. Kesner generalizes its holding from asbestos exposure to all “toxins” generally: “It may be true . . . that asbestos is already the subject of strict regulation under both federal and California law [and that liability will not likely] do anything to prevent future asbestos-related injuries. Yet, asbestos is not the only toxin to which an employer’s obligations apply. A rule of law that holds an employer responsible to avoid injury to nonemployees who may foreseeably be harmed by exposure to toxins disseminated in its manufacturing process can be expected to prevent harm to others in the future.”

Full disclosure: Don Willenburg, leader of Gordon & Rees’s Appellate Practice Group, filed an amicus brief supporting the defense position on behalf of the Association of Defense Counsel of Northern California and Nevada.

Filed under Asbestos, Take-Home Exposure

Does CERCLA’s “Act Of God” Defense Apply In Climate Change Litigation

By on May 11, 2014

In a decision issued on May 2, 2014, the Second Circuit held, in Cedar & Washington Assocs. LLC v. Port Auth. of N.Y. & N.J, 2074 BL 123476,2d Cir., No. 10- 4197, that the "act of war" affirmative defense relieved World Trade Center owners and lessees and airlines of Superfund liability for dust that infiltrated a building a block away after the collapse of the Twin Towers on 9/11.

The Second Circuit held that CERCLA was "not intended to create liability for the dispersal of debris and wreckage from a catastrophe that was indistinguishable from military attack in purpose, scale, means, and effect"

Dicta in the Second Circuit’s ruling may have implications for environmental claims relating to climate change? With all of the pollution caused by storm events, which seems to be increasing year by year, will this decision provide a defense to a chemical manufacturer, whose product was released into a waterway because of a hurricane?   In its ruling, the court analogized 9/11, an act of war, to a tornado, an act of God. 

CERCLA provides three defenses to strict liability for releases of hazardous substances. The potentially responsible party (PRP) must prove that the release was "caused solely" by (1) an act of God, (2) an act of war, or (3) an act of a third party.

In exonerating the 9/11 defendants on the basis of the "act or war" defense, the court determined that the attacks were the "sole cause" of the alleged release, comparing the situation to the application of CERCLA’s "act of God" affirmative defense to a tornado.  In her article in the Bloomberg BNA Toxics Law Reporter on May 8, 2014 (29 TXLR 407) titled "Superfund Suit Against WTC Parties Fails; Could Impact Claims Related to Climate Change", Perry Cooper examines language in the Second Circuit’s decision that may be potentially useful in establishing an "act of God" defense in climate change litigation. 

"It would be absurd to impose CERCLA liability on the owners of property that is demolished and dispersed by a tornado", the court said.  "A tornado, which scatters dust and all else, is the ‘sole cause’ of the environmental damage left in its wake notwithstanding that the owners of flying buildings did not abate asbestos, or that farmers may have added chemicals to the soil that was picked up and scattered." 

Hopefully,  no CERCLA trial court will ever be asked to evaluate whether, in the wake of  a terrorist attack that results in the  release of hazardous substances, a defendant can avail itself of the "act of war" defense. However, it is likely that Cedar & Washington Assocs LLC will be cited for the proposition that releases occasioned by  severe unforeseeable storm events should be considered acts of God. 

 

 

Filed under Affirmative Defense, Bloomberg BNA Toxics Law Reporter, Cedar & Wash¡ngton Assocs. LLC v. Port Auth. of N.Y. & N.J, CERCLA, Climate Change, Perry Cooper, Second Circuit, Superfund, Superfund Suit Against WTC Parties Fails; Could Impact Claims Related to Climate Change, tornado, twin tower collapse Tagged with

Environmental Diminution Of Property Value And The Creative Plaintiff Valuation Expert

By on April 18, 2014
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When a homeowner brings a multi-count toxic tort case alleging that a corporate defendant’s discharge of toxic substances from its facility contaminated his property, the diminution of property value claim is often the only element of damages subject to objective determination. Or is it?

In case after case, the testimony of plaintiff property valuation experts is being rejected for failing to comply with Federal Rule of Evidence 702.  There is often little or no dispute that homeowners living adjacent to an area involved in ongoing remediation may have difficulty selling their homes at full market value. And yet, despite the apparent stigma, plaintiff experts in these matters often stumble on their way to the courthouse.

One recent such case is Michael Leese, et al. v. Lockheed Martin Corp., Civ. No. 11-5091, decided by the Hon. Jerome B. Simandle, Chief U.S. District Judge for the federal district court in New Jersey on March 18, 2014. In that case, Judge Simandle granted summary judgment to Lockheed Martin after concluding that the expert report and deposition  testimony of plaintiffs’ valuation expert, Jerome McHale, should be excluded as unreliable.

The property valuation reports at issue concerned the Leese property at 5 Victoria Court and the Linkler property at 7 Victoria Court, in Moorestown, New Jersey. Both properties sit across the street from a Lockheed Martin’s research, development and manufacturing facility. When plaintiffs purchased their respective properties, they admittedly were aware that groundwater underneath their properties was contaminated with TCE, a volatile organic compound.

After several years, plaintiffs brought suit against Lockheed Martin alleging personal injury on behalf of the Leese children and diminution of property value. In late 2013, the court dismissed the personal injury claims due to lack of proof of causation, but permitted plaintiffs to furnish a new expert valuation report.

McHale’s valuation report concluded that each property was worth $295,000 “as is” and $600,000, “if clean.” Therefore, he calculated the loss of value for each property as $305,000. Yet, when Judge Simandle began to dig into McHale’s methodology and rationale, he discovered a jumble of unexplained arithmetic, unreliable methodology, and internal inconsistencies.

As is often the case, a valuation expert does not have difficulty establishing the “if clean” valuation, the real estate investors in Houston will gladly do a valuation every time there is an opportunity to buy a property. In this case, McHale used a “sales comparison” approach by averaging the sale prices of four comparable properties in the plaintiffs’ residential development to obtain the “if clean” valuation. It was when McHale attempted to analyze the “as is” value of the properties that he ran into serious difficulty.

McHale used three different techniques to estimate the “as is” value and took the averages of the three valuations to arrive at a final “as is” figure. The court evaluated each of these three techniques in turn.

The first technique, called “cost to cure,” subtracted from the “if clean” valuation the cost of environmental remediation. McHale obtained an estimate of remediation costs from a non-testifying expert. The problem was that NJDEP did not require or recommend that any of this non-testifying expert’s proposed remedial measures be implemented on plaintiffs’ properties.

The court analyzed the “cost to cure” approach this way:

“The most significant problem with McHale’s cost-to-cure analysis is that he may not reasonably rely on Rogers’ unsupported, subjective analysis of what remedial measures are “required” on the property. Rogers himself states that his estimate describes “measures [that] are prophylactic as opposed to curative in nature.” …In other words, Rogers, by his admission, does not intend his letter to address the costs to cure for a contamination on plaintiff’s property. Rather, Rogers expressed his opinions about what prophylactic measures are required without explaining the basis for such an opinion.”

Judge Simandle found that the “cost to cure” technique suffered from a Daubert “fitness” problem as well. Because plaintiffs admitted that they knew the groundwater under their properties was contaminated with TCE when they bought their homes, remediating the property to “if clean” levels would improve the property beyond what plaintiffs purchased and give them a windfall. According to the court, the proper valuation analysis should take into account what plaintiffs knew of the condition of the property at the time of purchase.

The second technique applied a “paired sales” analysis. A “paired sales” analysis looks to sales of other stigmatized properties, estimates “if clean” valuations for those properties, and calculates a “percentage discount” for the environmental stigma for each property. The average percentage discount is then applied to the “if clean” valuations of plaintiffs’ properties.

Two of the four comparative properties used by McHale were inappropriate because NJDEP required remediation on them, by contrast, but did not require remediation on plaintiffs’ properties. Moreover, the cost of remediation on those properties was modest as compared to the hundreds of thousands of dollars proposed for plaintiffs’ properties.

In evaluating the “paired sales” technique, the court found that McHale’s report had irreparable flaws. First, McHale could not articulate a reliable basis for weighting the comparator percentages, and he did not consult any authority to arrive at his average. More significantly, the court found that McHale had no reliable basis for adding 10% to the weighted average discount. In his deposition, when pressed, McHale admitted that he came up with an extra 10% derived from a “market based opinion from me” after gathering opinions from unspecified “other people in the market.”

The third technique employed by plaintiffs’ expert was “realtor and broker surveys.” McHale surveyed eleven area realtors to come up with an appropriate discount for residential property faced with a stigma. Although the plaintiffs’ homes did not have any operational remediation system on their premises, McHale asked the realtors to assume that the homes had a subsurface depressurized remediation system in the basement.

Based upon the realtors’ survey, he concluded that 20% would be an appropriate discount off the listing price. He then added another 5% because properties without stigma had sold for below 5% market over the past two years due to poor real estate conditions.  He then added another 15% because of additional marketing time and effort, and the difficulty of a buyer finding financing. All of these calculations resulted in the final discount of 40%.

In examining the “interviews/surveys” approach, the court questioned why McHale doubled the discount from 20% to 40% without explaining why the realtors would not have taken into consideration the other factors McHale discussed when giving their responses. Presumably, the discounted selling price already took into consideration any difficulty in obtaining financing and any increased marketing costs. Therefore, these considerations should not be counted twice in coming up with a discount.

In addition, it made no sense why the realtors were asked to assume that they should expect to sell a house with a subsurface remediation system when the plaintiffs’ own homes did not have such a system. In summary, the court concluded:

“Although some methodological flaws go to weight, here the methodology is unreliable at each step: fact gathering, percentage averaging, percentage doubling. The entire formulation of the survey seems to invite unreliability…”

Leese is instructive for the toxic tort defense practitioner because it provides a primer on how to pick apart the opinions of a plaintiff property valuation expert in deposition and, later, in a Daubert motion.  Opinions that at first glance might seem reasonable at first glance fail to hold up and careful analysis.  In Leese, the plaintiff valuation expert utilized three separate techniques for determining plaintiffs’ “as is” value and failed to pass Daubert scrutiny in every instance.

Filed under cost to cure, Daubert, Diminution of Property Value, Federal Rule of Evidence 702, Hon. Jerome B. Simandle, Michael Leese, et al. v. Lockheed Martin Corp, property valuation, realtor and broker surveys, sales', stigma Tagged with ,

The New York City Asbestos Litigation Just Became More Complicated

By on April 14, 2014

Pursuant to the Decision and Order of the Hon. Sherry Klein Heitler, dated April 8, 2014, asbestos plaintiffs for the first time since 1996 may seek permission from the New York City trial judges to charge the jury on the issue of punitive damages. Until Judge Heitler’s ruling, the New York City Asbestos Litigation (“NYCAL”) Case Management Order, as amended May 26, 2011 (“CMO”), provided that counts for punitive damages were to be “deferred” until such time as the Court deemed otherwise, upon notice and hearing. Therefore, punitive damages still could be sought, but only after a hearing to determine if it was appropriate to award them.

The importance of Justice Heitler’s ruling cannot be understated. As she notes, “tens of thousands of complex, time-consuming asbestos personal injury actions have been filed in New York County Supreme Court alone.” Her ruling is likely to have an impact on the thousands of future or presently pending cases.

Justice Helen E. Freedman, who oversaw the creation of the CMO in 1988, which governs all NYCAL cases, explained in a well-reasoned Southwestern Law Review article published in 2012, why she added the provision in 1996 that punitive damages claims should be deferred. According to Justice Freedman:

1. Punitive damages have little or no place in asbestos litigation. To charge companies with punitive damages for wrongs committed twenty or thirty or more years before, serves no correct purpose. In many cases, the wrong was committed by a predecessor company, not even the company now charged, and the responsible individuals are long gone;

2. Punitive damages only deplete financial resources that are better used to compensate injured parties;

3. Since some states do not permit punitive damages, and the federal MDL, precludes them, disparate treatment among plaintiffs would result if permitted in New York City; and

4. No company should be punished repeatedly for the same wrong.

Justice Freedman’s rationale is as valid today as it was in 1996. The only thing that has changed is that multiple bankruptcies, oftentimes involving companies whose only wrongdoing was to acquire the stock of another entity with some asbestos involvement, continue to corrode the fiber of American industry and plaintiffs have look farther and farther afield to find “fresh” defendants, many of whom have only de minimis relationship to asbestos.

Although Justice Heitler contends that the defendants, in opposing the motion, failed to provide empirical proof that punitive damages awards have contributed to bankruptcies, she overlooks the reality that defendants make oversized settlements based upon their potential exposure and that the threat of punitive damages increases that exposure calculus exponentially. One only need read the Garlock decision written by the Hon. George R. Hodges, United States Bankruptcy Judge for the Western District of North Carolina, to appreciate how settlement negotiation leverage in asbestos litigation can contribute to corporate insolvency.

Justice Heitler bases her ruling on constitutional equal protection grounds. And yet, paradoxically, she seeks to minimize the potential repercussions of her ruling (and reassure defendants) by demonstrating how other New York asbestos courts have been restrained in awarding punitive damages due to both New York’s “heavy burden” for seeking punitives and federal due process standards. If the award of punitives in New York courts outside NYCAL’s jurisdiction is so difficult to obtain, where is the loss of equal protection by requiring the filing of a notice and conducting a hearing in NYCAL?

Justice Heitler was reassured by the plaintiff asbestos lawyers that, if punitives were to be permitted, they would not abuse this long sought after opportunity and only seek punitives in the most egregious cases. However, after giving the foxes the keys to the hen house, what leverage did she retain to ensure restraint? The Decision and Order seems to suggest that these particular foxes would be content to take one plump hen and be content. She writes:

“While Plaintiffs have evinced their intention not to abuse this opportunity, it is appropriate for the court to caution the plaintiffs’ bar not to overstep this permission by attempting to seek punitive damages indiscriminately. Punitive damages should only be sought in the most serious cases to correct for the most egregious conduct, and must present a valid reference to corrective action.”

Every plaintiff lawyer has a duty to maximize his client’s recovery in a personal injury action, particularly when the client is suffering from a horrific illness like mesothelioma. If the lawyer believes he can elicit a more attractive offer from a defendant by threatening to seek punitive damages, how could he not do so within the bounds of ethical conduct? Justice Heitler notes that the use of asbestos peaked in the 1960’s and 1970’s when asbestos was used in the more than 3,000 industrial applications. Today, there are probably none. If that is the case, how can a plaintiff make a “valid reference to corrective action” in any demand for punitive damages?
 

Filed under Asbestos, Case Management Order, City, CMO, fox in the hen house, Garlock, Hon. Sherry Klein Heitler, Justice Helen E. Freedman, Litigation, NYCAL, Punitive Damages, Voluntariness, York Tagged with

OSHA Proposes New Standard for Workplace Silica Exposure

By on April 3, 2014

Public hearings were conducted the week of March 18 on a proposed rule by the Occupational Safety and Health Administration (OSHA), first published in September 2013, that creates new standards for workplace silica exposure.

OSHA regulates exposure through permissible exposure limits (PELs), which are the maximum amount of airborne dust an employee may be exposed to during a full work shift. Currently, OSHA has two standards in place for regulating silica exposure, calculated using PEL equations. Based on those formulas, the PEL for general industry is approximately 100 micrograms per cubic meter (μg/m3) averaged over an eight-hour day. For construction work and shipyards, the PEL is roughly 250 micrograms. Companies should also modify walking surfaces to prevent slip and falls in accordance with the guidelines from Occupational Safety and Health Administration.

The new rule would dispense with the PEL equations and set a single PEL applicable to all industry—including construction and maritime—of 50 micrograms of respirable crystalline silica per cubic meter of air (μg/m3), averaged over an eight-hour day. The new rule would cover all three forms of crystalline silica: quartz, cristobalite, and tridymite.

The proposed rule also sets an “action level” of 25 micrograms per cubic meter of air. In workplaces where the action level is exceeded, employers would be required to monitor airborne exposure levels. OSHA has specifically requested comment on whether the action level is appropriate for inclusion in the final rule.

In addition to the new PEL, the proposed rule includes provisions for measuring how much silica workers are exposed to, limiting employees’ access to areas where silica exposures are high, using effective methods for reducing exposures such as wearing tradie uniforms at all times, providing medical exams to workers with high silica exposures, and training for workers about silica-related hazards and how to limit exposure. Many aspects of construction work are dangerous. However, some of the most dangerous construction jobs are those that involve working high in the air on scaffolding. If you or a family member were injured as a result of a scaffolding collapse or similar accident, do not hesitate to contact scaffolding accident attorneys for legal help.

OSHA has stated that the new rule was needed because the current rule was put in place in 1971, is based on complicated formulas, and does not give adequate protection to workers. Industry response is expected to question whether complying with the new rule will prove too costly, and whether there is truly a need for lower PELs or merely a need to enforce the current PELs more vigorously.

Additional information on the new silica exposure rules can be found here.

Filed under OSHA, Permissible Exposure Limits

Comcast Corp. v. Behrend’s Impact In Toxic Tort Litigation

By on March 26, 2014

I have written about how the U.S. Supreme Court’s decision in Comcast v. Behrend has had the practical result of raising the bar for class certification and leveling the playing field for corporate defendants. Until recently, however, it was unclear what impact this anti-trust decision would have on toxic tort litigation. 

On January 17, 2014, the Seventh Circuit issued a groundbreaking decision in Parko v. Shell Oil Company, which was an appeal from the Illinois district court’s certification of a class of property owners in Roxana, Illinois, who had filed suit against Shell Oil Company which (together with various subsidiaries) had owned and operated an oil refinery from 1918 to 2000 adjacent to the village where the 150 class members reside. Although multiple claims were alleged, Parko was  largely a diminution of property value case.

 In Parko, the class action plaintiffs were successful in obtaining class certification in the district court without having to provide evidence. Typically, plaintiffs seek to reserve any discussion of the merits of their claims until after class certification.  Plaintiffs are well aware that the certification of a class creates enormous pressure on defendants to settle regardless of the merits of the case.

The plaintiffs alleged that the refinery had leaked benzene and other contaminants into the groundwater under the class members’ homes.  The Seventh Circuit found it particularly significant that the groundwater was not being used as a drinking water supply.  As such, it was unclear whether the contamination had caused any diminution of property value at all.

In addition, the Seventh Circuit noted defendants’ contention that the contamination alleged by plaintiffs occurred over a 90-year period and involved acts and omissions charged against the six defendants, and maybe other polluters as well.  The defendants had identified sources of pollution in the area that were attributable to the operations of non-parties.  As a consequence,  class members could have experienced different levels of contamination from multiple sources over many years. 

Relying on the language in Comcast Corp. v. Behrend, the Court reversed the district court, holding that a trial judge may not "refuse to entertain arguments against respondents’ damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination."  

The Court held that "mere assertion by class counsel that common issues predominate is not enough. That would be too facile. Certification would be virtually automatic. And so Rule 23 does not set forth a mere pleading standard….Rather, when factual disputes bear on issues vital to certification (that is, to whether the suit should be allowed to be litigated as a class action), such as predominance, the court must receive evidence . . . and resolve the disputes before deciding whether to certify the case."  (emphasis added)  In reviewing the record below, the court stated that it was not even clear that plaintiffs "have identified a common issue."

The Parko decision is short and pithy, and contains a trove of valuable nuggets of good language for the class action  toxic tort defense practitioner. 

On proof of diminution of property value:   

Real estate values have taken a drubbing in recent years, with the collapse of the housing bubble and the ensuing financial crisis. It can’t be assumed that a decline in the value of residential property in Roxana (if in fact there’s been a decline) is the result of proximity to a refinery that for all one knows has been leaking contaminants for the last 95 years without causing detectable harm. There are many things commonly found in soil beneath rural or suburban houses that homeowners would very much like not to enter their home (such as earthworms, fungi, ants, beetles, slugs, radon, chemical residues, thousands of different types of microbe— and groundwater), but as long as there is no danger of such unwanted visitors their underground presence should not affect property values. Benzene in the water supply is one thing; benzene in groundwater that does not feed into the water supply is quite another. (emphasis added)

On Rule 23’s predominance requirement post-Comcast:  

The district judge did not explore any of these issues. He treated predominance as a pleading requirement. He thought it enough at this stage that the plaintiffs intend to rely on common evidence and a single methodology to prove both injury and damages, and that whether the evidence and the methodology are sound and convincing is a question going to the strength of the plaintiffs’ case and should be postponed to summary judgment proceedings or trial. But if intentions (hopes, in other words) were enough, predominance, as a check on casting lawsuits in the class action mold, would be out the window. Nothing is simpler than to make an unsubstantiated allegation. A district judge may not "refus[e] to entertain arguments against respondents’ damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination."

 On the appropriate level of judicial inquiry pre-certification:

The judge should have investigated the realism of the plaintiffs’ injury and damage model in light of the defendants’ counterarguments, and to that end should have taken evidence. For if the defendants are right, there is no common issue, only individual issues that will vary from homeowner to homeowner: is there benzene in the groundwater beneath his home at a level of concentration that if the groundwater were drunk would endanger health (and is there any possibility it would enter the water supply); what is the source of the benzene in the groundwater beneath a given home (that is, who is the polluter who caused the groundwater to become polluted); could the presence of the benzene in that concentration cause any other form of harm; has the presence of the benzene reduced the value of his property; if so, how great has the reduction been. It is difficult to see how these issues can be managed in the class action format. But in any event they must be engaged by the district judge before he can make a responsible determination of whether to certify a class.

" Benzene in the water supply is one thing; benzene in groundwater that does not feed into the water supply is quite another."  Amen!

 

 

Filed under Class Actions, Class Certification, Comcast v. Behrend, Diminution of Property Value, Groundwater Contamination, Parko v. Shell Oil Company, Predominance, Roxana, Illinois, Rule 23, Seventh Circuit, Toxic Tort Litigation Tagged with ,

New Draft FDA Guidance On Off-label Uses Raises Concerns

By on March 19, 2014

On March 3, 2014, FDA made available for comment a revised draft of its “Guidance for Industry: Distributing Scientific and Medical Publications on Unapproved New Uses–Recommended Practices“.  The revised guidance seeks to clarify and expand upon FDA’s 2009 draft guidance that generated significant controversy. Although the recently released draft guidance addresses some industry concerns, does it address the concerns of those who believed the earlier guidance took a position at variance with the First Amendment?

In summary, the draft guidance expands upon the types of materials that may be distributed (subject to FDA’s enforcement discretion) and, for the first time, includes clinical practice guidelines.  In particular, industry had been pushing for more clarity from FDA on this issue. The draft guidance requires that a manufacturer, before disseminating a clinical practice guideline, establish that the clinical practice guideline is “trustworthy” and, as detailed in the Client Alert, meets six tests based on standards developed by the Institute of Medicine.

Of particular interest, however, is the extent to which FDA may be modifying its position on restrictions on truthful, non-misleading, off-label speech in light of the Second Circuit’s important  2012 decision in U.S. v. Caronia.

FDA  has long held the position that, although off-label promotion by pharmaceutical manufacturers and/or their agents is not expressly prohibited by the FDCA or its attendant regulations, such commercial activities are impliedly prohibited as “misbranding.”   Thus, when a drug is placed in interstate commerce without adequate directions for use and adequate warnings It is the FDA’s view that, by definition, a drug fails to bear adequate directions for an off-label use. Therefore, promotion beyond the scope of the product label may be construed as “misbranding” in violation of the FDCA.

In Caronia, the Second Circuit vacated the conviction of Alfred Caronia, a former pharmaceutical sales representative for Jazz Pharmaceuticals whom a federal district court jury found guilty of conspiring to introduce a “misbranded” drug into interstate commerce in violation of the FDCA.

The majority held that the FDCA’s misbranding provisions cannot be interpreted as a blanket ban on off-label promotion by pharmaceutical manufacturers. However, the court was clear that its holding did not prevent the FDA from regulating the marketing or promotion of prescription drugs and limited its decision to the truthful off-label promotion of prescription drugs for which an off-label use is not prohibited.  The court also stated that more narrowly tailored regulation of speech by the FDA as it concerns off-label use might survive judicial scrutiny.

In analyzing Caronia, it is important to keep in mind that courts, in general, are hesitant to criminalize speech without an articulable public good (such as harm or safety) to be gained from doing so. That is, a desire merely to stop speech is not a sufficient interest (without another countervailing public need) in order to permit the government to regulate or prohibit speech.

In earlier cases, the Supreme Court has disfavored categorical bans on truthful, non-misleading speech because it arises from the “paternalistic assumption” that the public will use truthful, non-misleading commercial information unwisely,  Such paternalism is all the more misguided when the speech is being directed to the medical community over whom  FDA can assert no regulatory authority.  A medical clinician, who has presumably more knowledge than FDA staffers about the diseases and conditions she treats, should not be unnecessarily hamstrung in seeking to become more knowledgeable about a particular drug.

Although Caronia represented a setback for the Agency, it is inaccurate to conclude from this decision that FDA does not retain broad regulatory authority  to regulate promotional speech. The likely battleground in the future will be when the First Amendment is raised as a defense to civil fraud cases, particularly qui tam actions, brought under the federal civil False Claims Act.

The revised draft guidance does not include the same blanket prohibitions included in the earlier pre-Caronia guidance. Under the revised draft guidance, some highlighting and summarizing is permitted as long as it does not promote an off-label use or is misleading. Although FDA clearly still believes that it can regulate non-misleading speech, it has backed off somewhat (perhaps in light of Caronia), and sought to bolster its position by adhering closely to the statutory prohibitions in the FDCA.

In the absence of further modification of the draft guidance, to what extent will the risk of noncompliance outweigh the benefit to industry of being able to distribute scientific or medical publications on unapproved new uses?  How will the new guidance affect, if at all, the ability of the medical community to obtain reliable information on off-label uses from drug manufacturers?  It will be interesting to see how the various stakeholders’ positions evolve during discussions over the coming months.

Filed under citizens petition, draft guidance, FDA, FDCA, First Amendment, Guidance for Industry: Distributing Scientific and Medical Publications on Unapproved New Uses--Reco, Misbranding, Off-label Promotion, Pharmaceutical & Medical Device, u.s. v. caronia, unapproved new uses, unapproved uses Tagged with

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