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May 22, 2012

Federal Court Approves Computer-Assisted Review

Could the recent decision of U.S. Magistrate Judge Andrew J. Peck of the Southern District of New York mark a turning point in the judicial march to driving the costs associated with e-discovery higher and higher? In a case of first impression, a federal court has put its imprimatur to a form of computer-assisted review called predictive coding. The software for predictive coding determines how a document should be coded based on an earlier sample analyzed by a small group of reviewers. Essentially, the program learns to code based on the coding of the previous reviewers of the sample "seed" set. By matching the subjects and terms of the seed set, the computer program dramatically reduces the need for the massive numbers of lawyer hours typically spent manually reviewing each document prior to production.

In the case of Moore v. Publicis Groupe and MSL Group, Judge Peck held in a case of first impression that the use of predictive coding met the standards of Federal Rule of Civil Procedure 26 and Federal Rule of Evidence 702. The Moore case was brought by a group of five women against Publicis Groupe, one of the world's largest advertising conglomerates, and its U.S. subsidiary, MSL Group, based on gender and pregnancy discrimination and alleged violations of the Equal Pay Act and the Fair Labor Standards Act. The defendants proposed the use of predictive coding, which the plaintiffs did not oppose in principle; rather, it was the implementation of the coding that was at issue.

In this large data case involving more than three million emails, the court was convinced that there was no approach—manual or otherwise—that would insure 100 percent accuracy. "There simply is no review tool that guarantees perfection," commented Judge Peck. The court also noted that the use of keyword searches presented its own challenges. In fact, Judge Peck went to great lengths to show that, in studies comparing manual to computer-assisted review, there was no evidence that the manual review was superior. Judge Peck noted that "even if all parties were willing to entertain the notion of manually reviewing the documents, such review is prone to human error and marred with inconsistencies from the various attorneys' determination of whether a document is responsive." Moreover, the court considered the necessity of proportionality as set forth in F.R.C.P. 26 (b)(2)(C) in terms of the cost, the results of the predictive-coding process, and the amount in controversy in the case.

In this case, approximately 2,500 documents were reviewed by senior defense lawyers to develop the seed set from which the computer would learn to tag the remaining documents. In addition, the approved protocol demanded a 95 percent confidence level. To insure the accuracy of the searches, "judgmental sampling" and keyword searches were used coding the top 50 hits. The judge made clear that the seed set would need to be made available to the plaintiffs to ensure the validity of the coding. This element of transparency was critical to the judge's decision. To make the predictive coding as an e-discovery tool more workable, the court also agreed to phased discovery.

While this ruling does not mandate the use of predictive coding due to the parties' prior agreement, it does approve its use as an alternate approach to the lengthy and costly manual review long viewed as the "gold standard." However, Judge Peck conceded that computer-assisted review may not be appropriate for every case. Monique DaSilva, et al. v. Publicis Groupe & MSL Group, 11 Civ. 1279 (ALC) ) (AJP).

Keywords: litigation, mass torts, technology, predictive coding, document review

—Beatrice O'Donnell, Duane Morris LLP

May 15, 2012

Welding Fume MDL Settlement Shows Increased Use of QSFs

Nine years after the creation of a multidistrict litigation (MDL) involving plaintiffs' allegations concerning exposure to hazardous welding fumes and the ensuing discovery battles undertaken by the parties, the welding-rod litigation has settled [PDF] with the many defendants agreeing to the creation of $21.5 million Welding Fume Resolution Fund, which will be administered by David R. Cohen. The comprehensive settlement includes not only the more than 100 lawsuits pending in the MDL, but also another 700-plus lawsuits pending in other states, including Arkansas, California, Georgia, Kentucky, Louisiana, Mississippi, Teas, and West Virginia.

The underlying claims involved the inhalation of welding fumes from welding rods, which the plaintiffs say contained manganese and thereby caused neurological damage. The settling defendants included A.O. Smith Corp.; Arcos Industries, LLC; AvestaPolarit Welding, Inc.; Bohler Welding Group USA, Inc.; CBS Corp.; DeloroStellite LP; Eutectic Corp.; Hobart Brothers Co.; Linde, LLC; Praxair, Inc.; Sandvik, Inc.; Select-Arc.; Sarco Corp.; TDY Industries; Techalloy Co.; Thermadyne Holding; and The Lincoln Electric Co.

Notably, the vehicle used for the settlement fund, approved by Ohio Federal District Court Judge Kathleen O'Malley, constitutes a qualified settlement fund (QSF), a settlement mechanism that has grown increasingly popular in the context of mass-tort settlements. Included among the many benefits of a QSF are the tax deductions made available to the defendants that contribute to the fund and the independence it gives plaintiffs in terms of receiving payments from the fund. In short, the Welding Rod QSF is the latest in the increased use of QSFs as a mass-tort settlement vehicle.

Keywords: litigation, mass torts, MDL, QSF, qualified settlement, toxic, welding rod

—Andrew J. Scholz Esq., special counsel to Goldberg Segalla, LLP, and cochair of the Mass Torts Committee's Toxic Tort Subcommittee

May 15, 2012

Federal Court Considers Climate Change Suit Dead in Water

In March 2012, a court in the Southern District of Mississippi again dismissed coastal Mississippi property owners' claims against the oil and coal industries for damages arising from Hurricane Katrina. See Comer v. Murphy Oil USA, Inc., No. 1:11-cv-220-LG-RHW (S.D. Miss. Mar. 20, 2012). The Comer plaintiffs alleged that the defendants' energy operations released harmful byproducts that, in turn, caused an increase of global warming, led to a more intense Hurricane Katrina, and produced massive damage to their coastal property. As explained below, this was the plaintiffs' second trip to federal court, as their first suit in 2007 was dismissed on causation and political-question grounds. After reviewing the new complaint, Chief Judge Louis Guirola held that the plaintiffs' claims were barred by the doctrines of res judicataand collateral estoppel. In addition, "in an abundance of caution," the court went further and found the plaintiffs' case should also be dismissed on alternate grounds, including the political-question doctrine, limitations, and standing.

Procedural History
In 2007, Judge Guirola dismissed the plaintiffs' original suit, in which the court found the plaintiffs lacked standing because their alleged damages arising from Hurricane Katrina were not "fairly traceable" to the defendants' actions and that their claims were non-justiciable under the political-question doctrine. The plaintiffs' appeal to a Fifth Circuit panel was successful, but in 2010, the defendants' petition for rehearing en banc was granted. Thereafter, with the disqualification of an appeals-court judge, the en banc panel lost its quorum, but, according to the Fifth Circuit rules, the plaintiffs' appeal was properly vacated. In early 2011, the U.S. Supreme Court denied the plaintiffs' petition for a writ of mandamus to reinstate their appeal. The plaintiffs were undeterred, and they re-filed their claims under the auspices of a Mississippi savings statute purportedly allowing re-filing.

Lack of Standing for Climate-Change Plaintiffs
Though the case was primarily dismissed on res judicata and collateral estoppel grounds, the main thrust of Judge Guirola's March 2012 opinion is its lengthy discussion on the plaintiffs' lack of standing. Although two federal courts of appeal found standing for climate-change plaintiffs, Judge Guirola makes clear that he does not agree. See Connecticut v. Amer. Elec. Power Co., 582 F. 3d 309 (2nd Cir. 2009) and Comer v. Murphy Oil USA, Inc., 585 F. 3d 855 (5th Cir. 2009). InJudge Guirola's March 2012 opinion, the court explained that plaintiffscould not show a causal connection between their injury and the defendants' conduct and thus could not demonstrate the second element needed to establish constitutional standing. While plaintiffs need not show proximate cause to survive a standing challenge, the court stated that the "injury [must] be fairly traceable to the defendant" and the "more attenuated or indirect the chain of causation between the defendant's conduct and the plaintiff's injury, the less likely the plaintiff will be able to establish the causal link sufficient for standing." The court disagreed with the plaintiffs' reliance on the Clean Water Act cases for the proposition that the plaintiffs need only allege the "defendants' emissions contributed to the kinds of injuries that they suffered." Instead, the court cited Native Village of Kivalina v. Exxonmobil Corp., 663 F. Supp. 2d 863 (N.D. Cal. 2009), and agreed with the defendants that statutory water-pollution claims are distinguishable from global-warming claims because, without federal standards limiting the discharge of greenhouse gases, the plaintiffs do not benefit from a presumption that any defendants' conduct harmed the plaintiffs. Here, the Comer plaintiffs could not show the defendants' emissions of greenhouse gases caused Hurricane Katrina and that their injuries would not have occurred absent such emissions.

What Comes Next?
Whether a Fifth Circuit panel will again reverse Judge Guirola's analysis regarding the plaintiffs' lack of standing remains to be seen. Even so, Judge Guirola dismissed the plaintiffs' claims on a litany of other grounds. Prognostication may be forthcoming, as oral arguments in Kivalina have already been heard before the Ninth Circuit, and that court will have the benefit of both the Fifth Circuit's panel decision for the Comer plaintiffs as well as Judge Guirola's dismissals.

Keywords: litigation, mass torts, Fifth Circuit, climate change, Hurricane Katrina, dismissal

—Arlene Hennessey, King & Spalding, cochair of the Mass Torts Litigation Committee's Young Lawyers Subcommittee

May 15, 2012

Discoverability of Social Media: A Plaintiff's Perspective

With the advent of social networking sites, our society has hastened the pace at which we share opinions, basic information, pictures, videos, and more. The issue of whether information posted on these sites is discoverable is arising in a variety of contexts, including mass-tort cases. Although surprisingly few published decisions exist, a number of courts are allowing broad discoverability of this evidence.

Due to the inherently public nature of social networking sites, many believe that users should have a low expectation of privacy for the information placed therein. The court in Moreno v. Hanford Sentinel, Inc. stated that "[b]y posting [an] article on myspace.com [the plaintiff] opened the article to the public at large." 172 Cal. App. 4th 1124, 1130 (Cal. Crt. App. 2009). That the plaintiff "expected a limited audience does not change the analysis." Id. "[Her] potential audience was vast." Id.; see also Bass v. Miss Porter's School, 2009 WL 3724968, at *1 (requiring the production of the plaintiff's Facebook account); Romano v. Steelcase, Inc., 907 N.Y.S.2d 650, 657 (N.Y. Sup. Ct. Suffolk Co. 2010) (ordering the plaintiff to provide written authorizations for defendants to obtain her current and historical Facebook and MySpace pages and accounts, including all deleted information); McMillen v. Hummingbird Speedway, Inc., No. 113-2010 CD, 2010 WL 4403285 (Pa. Com. Pl. Sept. 9, 2010) (ordering the plaintiff to provide his Facebook and MySpace user names and passwords).

Further, social networking sites forewarn users that their information may become public. In its privacy policy, Facebook reminds its users to "understand that information might be re-shared or copied," and that Facebook "cannot control the actions of other users with whom you share your information" or "ensure that information you share on Facebook will not become publicly available."

Nonetheless, some courts have determined that the discoverability of social networking site material should be narrow. In Mackelprang v. Fidelity National Title Agency of Nevada, the plaintiff sued the defendant for sexual harassment. No. 2:06-cv-00788-JCM-GWF, 2007 WL 119149, at *1 (D. Nev. 2007). The defendants sought to obtain email communications on two of the plaintiff's MySpace accounts. Id. at *2. The court denied the defendant's request, finding that he was "engaging in a fishing expedition since . . . it was nothing more than suspicion or speculation as to what information might be contained in the private messages." Id. The court noted, however, that there was nothing in its order that prevented the defendant from requesting messages that contained specific categories of information relevant to plaintiff's claim. Id. at *8.

For plaintiffs bringing personal-injury claims, postings can be particularly harmful to their cases. Social networking site users often post pictures after accidents for which they are bringing suit without fully understanding how such information could negatively impact their claims. In Romano v. Steelcase Inc., the plaintiff claimed to have sustained permanent injuries and that she was confined to her house and bed. 907 N.Y.S.2d at 654. A photo posted to the plaintiff's Facebook profile, however, showed her "smiling happily" outside of her home. One can easily see the defendants citing this photograph as proof that the plaintiff's claims are fraudulent or exaggerated. It may be that this picture was taken before the accident or during a few moments of a day that the plaintiff had hobbled out of her home to get some sunlight. Even if there are many circumstances that make the photograph consistent with the plaintiff's claims, the fact that she has to explain the photograph can damage her case.

The best course of action is to advise clients of the dangers posed by the use of social networking sites. A client may consider freezing social networking site accounts until the case is completed. Alternatively, users can prohibit others from posting to their profiles. And, of course, always warn clients to set their profiles to private and pay attention to the pictures and updates they post.

With the benefit of speedy communication has come the loss of privacy. Users should be wary of what information they share on these sites and cognizant of the possible consequences that dissemination of their private lives may entail. Even where users have limited their "friends" and made their profiles private, their postings, photos, and messages will most likely be discoverable, particularly if a defendant can show that they are relevant to a plaintiff's claims.

Keywords: litigation, mass torts, Facebook, MySpace, discoverability

—Ricardo M. Martínez-Cid, partner, Podhurst Orseck, Miami, Florida, co-chair of the Aviation and Space Law Subcommittee and the Aviation Subcommittee of the Mass Torts Litigation Committee

April 13, 2012

Judge Approves Computer-Assisted Review

It has long been recognized that an overwhelming majority of documents produced in complex litigations inevitably come from electronic sources. With today’s infinite volumes of electronically stored information (ESI) complicating the discovery process, the legal world has been forced to adapt and find reliable, efficient, and cost-effective methods of facilitating e-discovery. A growing number of attorneys have begun to utilize a relatively new technology known as a “predictive coding.” This technology, through the use of sophisticated computer programming and algorithms, enables a computer to predict the relevance of a large volume of documents by learning from a human reviewer’s classification of a small sample set. Andrew Peck, “Search, Forward: Will Manual Document Review and Keyword Searches Be Replaced by Computer Assisted Coding,” L. Tech. News, Oct. 2011.

Predictive coding has proven to increase efficiency and accuracy during the document-review process and reduce litigation costs. Maura R. Grossman & Gordon V. Cormack, “Technology-Assisted Review in E-Discovery Can Be More Effective and More Efficient Than Exhaustive Manual Review,” Rich. J. L. & Tech., Spring 2011, at 48. Despite these proven benefits, most lawyers have been reluctant to embrace computer-assisted review because of the difficultly in defending complicated discovery protocols and underlying technology that leaves attorneys and their clients exposed to harsh discovery sanctions. This unwillingness was further supported by the absence of judicial direction on the subject. Well, the wait is over. In a landmark judicial opinion, Magistrate Judge Andrew Peck of the Southern District of New York cleared a path for litigants across the country to adopt computer-assisted document-review protocols, such as predictive coding, to facilitate and expedite the costly and cumbersome e-discovery process in appropriate cases. Monique Da Silva Moore v. Publicis Groupe & MSL Group, No. 11 Civ. 1279, Dkt. No. 96 (slip op.) (S.D.N.Y. Feb. 24, 2012).

At issue in Monique Da Silva Moore v. Publicis Groupe & MSL Group was a discovery dispute arising in the context of a class-action suit filed on behalf of female employees of a multinational advertising conglomerate alleging claims of gender discrimination. During the discovery process, the defendants were faced with the challenge of reviewing more than three million documents. The parties were in agreement that some method of computer-assisted review was appropriate, but could not come to an agreement on the exact methodology. After reviewing all of the relevant submissions, Magistrate Judge Peck determined that computer-assisted review could be used during the discovery process. This decision marks the first time any court has approved the use of computer-assisted review in electronic data discovery.

Although Magistrate Judge Peck’s order stems from a discovery dispute in an employment-based class-action lawsuit, the effect of this decision is likely to have a broader reach, extending to a wide spectrum of practice areas, including traditionally document-intensive litigations such as pharmaceutical and medical-device litigations. In fact, Magistrate Judge Peck made no secret about the fact that he intended his opinion to resonate throughout the country, stating, “What the Bar should take away from this Opinion is that computer-assisted review is an available tool and should be seriously considered for use in large-data-volume cases where it may save the producing party (or both parties) significant amounts of legal fees in document review.”

While the ESI protocol adopted in Da Silva Moore is not a one-size fits all solution, it is instructive regarding the types of cases where computer-assisted discovery should be considered, and it provides a platform for the judiciary and future litigants to implement this type of efficient, cost-saving technology whenever appropriate. Anxiety over the ability to defend these types of protocols should be significantly reduced now that there is some legal support for the use of computer-assisted review. As a result, firms and their clients need to take steps to educate themselves about computer-assisted discovery protocols and evaluate whether the use of such protocols is appropriate for their respective cases.

Keywords: litigation, technology, computer-assisted review, electronic discovery

—Nicholas Weiss, Sedgwick LLP, Los Angeles, California

April 6, 2012

New York Appeals Court: Mold Case Can Go Forward

Toxic-tort related mold claims are on the rise throughout the country. In the personal-injury context, a plaintiff's main hurdle to recovery has been to overcome a causation-based Frye/Daubert challenge. This is because most courts find that the epidemiological evidence has not shown a causal connection between exposure to certain fungi and various respiratory ailments. However, a recent appellate court decision out of New York makes a mold-related personal-injury claim much easier to maintain in that state. In Cornell v. 360 West 51st Street, ___ A.D.3d ___, 2012 N.Y. App. Div. Lexis 1614 (March 6, 2012), the appellate division modified a lower court decision that precluded a plaintiff's mold expert from testifying as to these general causation issues and held that the science has sufficiently developed in the last two years to show such a connection.

In Cornell, the trial court held a Frye hearing on Dr. Eckhard Johanning's general and specific causation opinions. Dr. Johanning, a routinely used plaintiff's mold expert, opined that the plaintiff's upper-respiratory injuries, asthma, rash, and other conditions were caused by exposure to mold in her apartment. In rejecting Dr. Johanning's opinions, the trial court cited repeatedly to a recent 2008 appellate division decision, Fraser v. 301-52Townhouse Corp., 57 A.D.3d 416, 870 N.Y.S.2d 266 (1st Dep't 2008) where Dr. Johanning's general causation opinions as to mold exposure were soundly rejected as insufficient to constitute general acceptance in the scientific community under the standards of Frye. Specifically, the appellate-court decision in Fraser upon which the trial court in Cornell extensively relied found that the scientific literature, including a 2004 epidemiological study by the Institute of Medicine of the National Academies regarding exposure to mold, showed that there was, on the one hand, sufficient evidence to show an "association" between mold growth and certain respiratory ailments, but, on the other hand, there was insufficient evidence to establish a causal relationship between the two. The trial court in Cornell further found that Dr. Johanning's reliance on two studies that post-dated Fraser was insufficient to overcome the prior science and the Fraser ruling. See Cornell v. 360 West 51st St. Realty, LLC, 26 Misc.3d 1211, 906 N.Y.S.2d 778 (Sup. Ct. N.Y. Co. Dec. 18, 2009) (Friedman, J.).

In a 3–2 decision, the appellate division reversed the trial court, distinguished its own prior holding in Fraser, and plainly held that the two post-Fraser studies upon which Dr. Johanning relied "easily satisfied the test of scientific reliability set forth in Frye." Cornell, 2012 N.Y. App. Div. Lexis 1614, at *7. The appellate division's majority noted that the two new studies showed a "clear relationship between exposure to mold and respiratory" symptoms and also showed a "statistically significant" relationship between mold and claimed injuries. The two dissenters, however, stated that the two post-Fraser studies were insufficient to show that Dr. Johanning's opinions were generally accepted by the scientific community. The first study, the dissent noted, "plainly states that, ‘[t]he data reviewed here represent initial steps toward defining . . . effects of damp homes and associated excess mold growth.'" The second study was similarly insufficient because it was based on a "single office building," which "contains no evidence that the conclusions were adopted by the National Institute for Occupational Safety and Health."

Cantrell is significant for numerous reasons. From a New York perspective, it gives local plaintiffs' counsel and their experts a game plan for surviving summary judgment and, as such, it will reverberate throughout New York City. It is unclear whether the defendants will seek leave to appeal to New York's highest court. In this regard, the case law may not be developed enough for the court to address the issue. Outside of New York, the decision will also likely be cited in the ongoing legal debate over mold claims and the causation-based science. Defendants in Frye states faced with future lawsuits must stay abreast of the latest science in this area, which may provide further ammunition to arguments that the causation issues are not generally accepted. They should similarly keep track of other cases where Fryechallenges have been successful and cite to those cases as persuasive authority.

Keywords: litigation, mass torts, Frye, mold, causation, Daubert

—Andrew J. Scholz Esq., special counsel to Goldberg Segalla, LLP, and cochair of the Mass Torts Committee's Toxic Tort Subcommittee

March 6, 2012

Summary Judgment Granted in Pamidronate MDL

On January 30, 2012, the U.S. District Court for the Eastern District of New York granted summary judgment in favor of Sandoz, Inc.; APP Pharmaceuticals, Inc.; Ben Venue Laboratories, Inc.; Teva Parenteral Medicines, Inc.; and Hospira, Inc. with respect to all remaining plaintiffs in the generic pamidronate multidistrict litigation (MDL). In re Pamidronate Products Liab. Litig., No.1:09-MD-2120 (KAM), slip op. (E.D.N.Y. Jan. 30, 2012). Judge Kiyo Matsumoto found that all of the plaintiffs' claims were preempted by federal law under the Supreme Court's recent decision in Pliva, Inc. v. Mensing, 131 S. Ct. 2567 (2011).

The Pamidronate MDL was formed in December 2009 to address claims that the drug, the generic form of the bisphosphonate cancer treatment Aredia, causes osteonecrosis of the jaw. The MDL included claims by as many as 134 plaintiffs, who had sued some or all of the four manufacturers of generic pamidronate. The defendants had moved to dismiss the claims of the majority of plaintiffs based on their failure to identify which generic pamidronate product they had allegedly taken. Following the Supreme Court's ruling in Mensing, the court stayed further briefing and consideration of the pending product-identification motions to consider the impact of generic preemption. A number of plaintiffs agreed to voluntarily dismiss their claims with prejudice, and the defendants moved for summary judgment with respect to the remainder.

In her decision, Judge Matsumoto found that the plaintiffs' failure-to-warn claims were squarely preempted under Mensing and that this ruling extended to the plaintiffs' negligence and breach-of-express-warranty claims too, which are warnings-based claims. Judge Matsumoto further found the plaintiffs' design-defect claims preempted because the Supreme Court found that a generic drug's design, like its label, is subject to a "sameness" requirement with respect to the reference brand drug. Consequently, the court granted summary judgment with regard to all remaining claims.

Keywords: litigation, mass torts, multidistrict litigation, generic drugs

—Joe Hollingsworth, Hollingsworth LLP, Washington, D.C.

February 28, 2012

Fifth Circuit Immunizes FEMA from Toxic Shelter Claims

The U.S. Court of Appeals for the Fifth Circuit recently held that the Federal Emergency Management Agency (FEMA) is immune from suits arising out of FEMA's provision of temporary shelters to victims of Hurricanes Katrina and Rita that allegedly contained dangerous levels of formaldehyde.

The appeal, In re: Fema Trailer Formaldehyde Prods. Liab. Litig. [PDF], Nos. 10-30921, 10-30945 (5th Cir. Jan. 23, 2012), arose from a multidistrict litigation (MDA) in the U.S. District Court for the Eastern District of Louisiana. Two groups of plaintiffs—from Alabama and Mississippi—sued FEMA under the Federal Tort Claims Act (FTCA). The plaintiffs claimed that, in the aftermath of Katrina and Rita, FEMA knowingly provided the plaintiffs with temporary shelters containing dangerous levels of formaldehyde, failed to warn the plaintiffs that these shelters were unsafe, and ignored complaints of formaldehyde emissions in the shelters to avoid litigation exposure.

Following several rounds of dispositive motions and denial of class certification, the district court dismissed the plaintiffs' FTCA claims against FEMA for lack of subject-matter jurisdiction. On appeal, the Fifth Circuit affirmed, holding:

• No Jurisdiction to Sue the Government Without Consent. "The United States must consent to be sued, and that consent is a prerequisite to federal jurisdiction." In re FEMA, slip op. at 7.
• Explicit Statutory Waiver of Immunity Required. "A plaintiff may only sue the United States if a federal statute explicitly provides for a waiver of sovereign immunity." Id.
• Government Liability Cannot Exceed Private Liability. The FTCA waiver of sovereign immunity, 28 U.S.C. § 2674, "provides that the United States shall be liable in the same manner and to the same extent as a private individual under like circumstances." Id. at 7.
• No Jurisdiction Unless Private Party Would Be Liable under State Law. The FTCA jurisdictional grant, 28 U.S.C. § 1346, vests federal jurisdiction in suits against the government only where "a private person . . . would be liable to the claimant in accordance with the law of the place where the act or omission occurred"—a reference "exclusively to state law." Id. at 7–8. "Therefore, if a private person under ‘like circumstances' would be shielded from liability pursuant to a state statute, lower courts must decline to exercise subject-matter jurisdiction." Id. at 10.
• Alabama and Mississippi Law Bar Good-Samaritan Liability. By statute, both Mississippi and Alabama exculpate private actors from tort liability who "(1) voluntarily, (2) without compensation, (3) [allow their] property or premises to be used as shelter during or in recovery from a natural disaster." Id. at 11.
• The Shelters Were Free and FEMA Had No Obligation to Provide Them. FEMA was "under no contractual or legal obligation" to provide the shelters to victims and "did not receive compensation from the disaster victims from letting them use" the shelters. Id. at 12.
• As a Result, the Claims Are Barred. Because FEMA would be immune as a private actor under the Mississippi and Alabama statutes, it is immune from suit under the FTCA. Dismissal affirmed. Id. at 11–13.

 

Keywords: litigation, mass torts, Fifth Circuit, Federal Emergency Management Agency, subject-matter jurisdiction

—Douglas J. Pepe, partner, Gregory P. Joseph Law Offices, New York, New York. He is a chair of the Experts and Evidence Subcommittee.

February 1, 2012

Beginning of the End of the Conte Foreseeability Doctrine

The California Supreme Court recently issued an opinion in O'Neil v. Crane Co. [PDF], S177401, slip op. (Cal. Jan. 12, 2011), that may lay the groundwork for overturning Conte v. Wyeth, the controversial California Court of Appeals opinion that opened the door for plaintiffs to sue brand-name drug manufacturers for their failure to warn about the possible dangers of ingesting generic drugs.

O'Neil held that there is no equivalent nonmanufacturer liability claim in negligence. The California Supreme Court directly addresses "foreseeability" and its limits, applying the public-policy factors that Conte refused to address. "[I]n strict liability as in negligence, foreseeability alone is not sufficient to create an independent tort duty." O'Neil, slip op. at 29 (citation and quotation marks omitted, emphasis added). "Duty" in negligence "is not an immutable fact of nature but only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection." Id. at 30–31.

Keywords: litigation, mass torts, California Supreme Court, Conte Foreseeability Doctrine

—David A. Lester, Jones, Walker, Waechter, Poitevent, Carrère & Denègre, LLP, Birmingham, Alabama

January 30, 2012

Chamber Vows to Fight Overregulation, Promote Tort Reform

On January 12, 2012, Thomas J. Donohue, president and chief executive officer of the U.S. Chamber of Commerce delivered the Chamber’s State of American Business address to its members.

In the address, Donohue outlined the Chamber’s American Jobs Growth Agenda for 2012, which includes efforts to fight overregulation and to continue tort reform. “The regulatory avalanche confronting our job creators is unprecedented,” Donohue explained. “The Labor Department has 100 rulemakings in the pipeline. Dodd-Frank requires 447 rules, 63 reports, and 59 studies. The health-care law established 159 new agencies, panels, commissions, and regulatory bodies. EPA has some 200 regulations in the works. And the business community must contend with a National Labor Relations Board that is clearly tilted toward the unions. This adds up to a big drag on our economy.” Donohue assured members that “when the need is there and the regulatory remedy makes sense, the Chamber will support it. But when we see regulatory activism that is based on bad data, dubious authority, or pure politics, we will oppose it.”

Donohue also touched on the U.S. Chamber’s involvement in the battle for tort reform. He explained that the “Institute for Legal Reform will continue to fight the expansion of excessive litigation that is sucking the vitality out of American businesses. We’re going to build on our successful work in the states and seek passage of additional state-level legal reforms. We’ll be engaged in a major effort this year to educate voters as they choose state Supreme Court justices and attorneys general. We’re also aiming to stop the alarming rise of third-party litigation financing.”

Keywords: litigation, mass torts, U.S. Chamber of Commerce, overregulation, tort reform

—David A. Lester, Jones, Walker, Waechter, Poitevent, Carrère & Denègre LLP, Birmingham, Alabama

January 24, 2012

The Learned Intermediary Rule in a Multi-Drug Context

In the decision of Wendell v. Johnson & Johnson, 2011 WL 6291792 (N.D. Cal. Dec. 15, 2011), a product liability case involving prescription drugs, the moving defendants all received summary judgment based on California’s learned intermediary rule. The decision is a good illustration of a court applying the learned intermediary rule in a circumstance where there were different warnings on a combination of different drugs, but the prescribing physician was aware of and informed the patient of the known risks. Wendell involved three drugs—mercaptopurine (6-MP), Remicaid, and Humira—and the interaction between their respective warnings.

Keywords: litigation, mass torts, learned intermediary rule, California, drug warnings

—James Beck, Dechert, LLP, Philadelphia, Pennsylvania

January 23, 2012

Philadelphia Court Makes Exception to Mensing

The Court of Common Pleas of Philadelphia County is the latest court to carve out exceptions to the U.S. Supreme Court's holding in Pliva, Inc. v. Mensing, 131 S.Ct. 2567 (2011). In In Re: Reglan/Metoclopramide Litigation, No. 1997, January Term, 2010 (Nov. 18, 2011), 2011 WL 6259558, Judge Sandra Mazer Moss overruled without prejudice generic manufacturer defendants' preliminary objections to the plaintiffs' state-court claims involving the generic drug metoclopramide, which is commonly used to treat digestive-tract problems and sold under the brand name Reglan. The defendants sought dismissal of approximately 2,000 plaintiffs' claims based on federal preemption and the Supremacy Clause of the U.S. Constitution pursuant to the Supreme Court's Mensing decision. Id. at 1.

In a 5–4 decision, the "'Supreme Court held in Mensing that federal drug regulations applicable to generic drug manufacturers directly conflicted with, and thus preempted, state law failure-to-warn claims for inadequate warning labels on generic drugs.'" Id. at 2 citing Hughes v. Mylan, Inc., 2011 U.S. Dist. LEXIS 123544 (E.D. Pa. Oct. 25, 2011) citing Mensing, 564 U.S. at 1.

The defendants argued that "the Supreme Court's Mensing decision completely forecloses any state law cause of action against generic prescription drug manufacturers" and that the "[p]laintiffs' allegations . . . mirror those in the Mensing complaint whose claims [the] Supreme Court held were preempted." Id. at 3. The defendants asserted that the plaintiffs' claims were preempted because they "ultimately sound in 'failure to warn' theories and seek to impose obligations different from federal rules and regulations established by the . . . FDA." Id.

The plaintiffs argued that the "Mensing Court foreclosed only claims requiring generic manufacturers to unilaterally change their drug's warning label to include information different from and additional to the brand manufacturer's approved FDA label." Id. at 4. The plaintiffs asserted, among other things, that "because their amended complaint asserts only theories not requiring label changes, Mensing does not affect their claims." Id.

After reviewing the case law nationwide since the Mensing decision, with some courts dismissing plaintiffs' claims in their entirety and others carving out varying exceptions to the Mensing holding, the court sided with the latter, finding that the defendants failed to sustain their "heavy burden . . . [to] show that [the] law would not recognize any of the claims asserted against them," and overruled the defendants' preliminary objections to the plaintiffs' claims. Id. at 4–5 citing Emplrs. Ins. of Wausau v. DOT, 581 Pa. 381, 389, n.5 (Pa. 2005).

Keywords: litigation, mass torts, federal preemption, Supremacy Clause

—Jackie M. McCreary, Stone Pigman Walther Wittmann L.L.C., New Orleans, Louisiana

December 7, 2011

Canadian Court Confirms Primacy of Arbitration Agreements over Proposed Class Proceedings

The enforceability of arbitration agreements in the face of proposed class proceedings has emerged as a hot issue both north and south of the 49th parallel. Mandatory arbitration and/or class action waiver clauses have generally been upheld in both Canada and the United States, although not without considerable judicial deliberation. That being said, the Supreme Court of Canada recently found such a clause to be inoperative where statutory language evidenced a legislative intention to have certain claims resolved in court as opposed to arbitration. In Seidel v. TELUS Communications Inc. (2011 SCC 15), a slim majority of the Court found that the provincial consumer protection legislation at issue intended to create a public interest remedy, the policy objectives of which were incompatible with the low-profile, private, and confidential nature of arbitration. Accordingly, the motion to certify the proposed class proceeding was allowed to continue in relation to those claims arising from the legislation.

The impact of the Seidel v. TELUS decision was most recently considered by the Federal Court of Canada in Murphy v. Compagnie Amway Canada (2011 FC 1341). An "independent business owner" commenced a proposed class proceeding against Amway, alleging that its business model and distribution system violated Canadian anti-trust legislation. The Competition Act, RSC 1985, c C-34. In response to a motion to certify the class, Amway moved to stay the proposed class proceeding and compel arbitration on the basis of an agreement to arbitrate clause contained in the initial registration agreement and a class action waiver clause in Amway's code of conduct. The code of conduct, by which the independent business owner had agreed to be bound, provided that independent business owners could not assert a claim as a class if their individual claims each exceeded $1,000.

The court granted Amway's motion to stay the proposed class proceeding and compel arbitration. In doing so, the court emphasized that the parties had freely entered into the agreement, which contained a clear, extensive, and detailed arbitration agreement. The court followed a long line of cases out of the Supreme Court of Canada, which have generally upheld the validity and enforceability of mandatory arbitration clauses in commercial agreements. The court described the arbitration agreement as a "jurisdictional choice" made by the parties, which they were obliged to honour and that could not be circumvented through a class proceeding. The court also refused to disregard the class action waiver. The court acknowledged Seidel v. TELUS and confirmed that the decision did not take exception to the accepted principal that it must give effect to parties' agreement to arbitrate absent clear legislative language to the contrary. In contrast to the result in Seidel v. TELUS, the court found no such language in the Competition Act.

The Federal Court of Canada's decision in Murphy v. Amway goes some way toward restoring Canada's reputation as an arbitration-friendly jurisdiction following Seidel v. TELUS. The decision confirms the general principle that while class proceedings may be an efficient procedural vehicle, their use neither modifies nor creates substantive rights. Accordingly, the prevailing position in Canada continues to be that in the absence of a clear legislative language prohibiting class action waivers, a proposed class proceeding cannot serve as a means to circumvent a clear and freely accepted arbitration agreement.

Keywords: arbitration agreement, class action waiver, motion to stay, motion to compel arbitration

—David Elman and Sean Murtha, Borden Ladner Gervais LLP, Toronto, Canada

November 1, 2011

Supreme Court to Determine Whether Corporations May Be Sued under the Alien Tort Statute

The Supreme Court recently granted certiorari in Kiobel v. Royal Dutch Petroleum to resolve the issue of whether a corporation may be sued in a United States federal court under the Alien Tort Statute. The Alien Tort Statute, 28 U.S.C. § 1350, is a federal statute that provides that "[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." This statute is notable for allowing United States courts to hear human rights cases brought by foreign citizens for conduct committed outside the United States.

The plaintiffs in Kiobel are Nigerian residents who filed a putative class action in the United States District Court for the Southern District of New York, alleging that Royal Dutch Petroleum Company and Shell Transport and Trading Company aided and abetted the Nigerian government in committing human rights violations, including murders, torture, and forced exile. The defendants moved to dismiss the case, arguing that corporations could not be held liable under the Alien Tort Statute. The district court agreed but certified its order for interlocutory review so that it could be reviewed by the Second Circuit.

In a 2–1 split, the Second Circuit affirmed the district court's dismissal. In doing so, the court explained that "international law, and not domestic law, governs the scope of liability for violations of customary international law under the ATS." The Second Circuit found that, under international law, liability for violations of international human rights laws rests with nation states and individuals—not corporations. The court noted that proposals to bring fictional persons like corporations under the jurisdiction of international tribunals have been repeatedly rejected because the moral authority underlying international human rights law rests on the responsibility of nation states and individuals for their own actions. As such, corporate liability is not a norm that is "specific, universal, and obligatory" enough to be a norm in the relations of states with one another.

Many courts outside the Second Circuit have disagreed with the Kiobel holding and have allowed Alien Tort Statute lawsuits to proceed against corporations. Kiobel will be argued with Mohammed v. Rajoub, a case in which the D.C. Circuit held that only natural persons could be sued under the Torture Victim Prevention Act.

—David Lester, Jones, Walker, Waechter, Poitevent, Carrère & Denègre LLP, Birmingham, AL

October 31, 2011

Second Circuit Affirms $1.2 Billion 9/11 Property Damage Settlement

The United States Court of Appeals for the Second Circuit recently approved a settlement resolving the bulk of the 9/11-related property damage and insurance subrogation claims against airlines and security companies for an aggregate settlement amount of $1.2 billion.

In its opinion, the Second Circuit held that the statute governing the 9/11 litigation—the Air Transportation Safety and System Stabilization Act of 2001, Pub. L. No. 107–42, 115 Stat. 230 (2001) (codified as amended at 49 U.S.C. § 40101, note) (ATSSSA)—does not preempt New York state law's "first-come, first-served" settlement rule; that the district court properly evaluated and approved the settlement; and that the full $1.2 billion settlement amount must be credited against the defendants' liability cap created by ATSSSA.

Background on ATSSSA
Congress passed ATSSSA in the immediate aftermath of 9/11. In addition to establishing the Victim's Compensation Fund for those killed or injured in the tragedy and their family members, ATSSSA contains several key provisions that governed all 9/11-related lawsuits throughout their history. Section 408(a) of ATSSSA statutorily capped the airlines' and security companies' tort exposure at the amount of their available liability insurance limits. Section 408(b) of ATSSSA created a new federal cause of action as the "exclusive remedy" for damages arising out of 9/11; vested original and exclusive jurisdiction over all 9/11 suits in United States District Court for the Southern District of New York; and mandated that the "substantive law" for the 9/11 suits "shall be derived" from state law "unless inconsistent with or preempted by Federal law."

The 9/11 Litigation
Following 9/11, a multitude of plaintiffs brought suit under ATSSSA against United Airlines, American Airlines, their security companies on 9/11, and others in the Southern District of New York. The plaintiffs fell into two general categories: (1) plaintiffs alleging personal injury or wrongful death that opted out of the Victim's Compensation Fund; and (2) property damage and business loss plaintiffs, including insurance companies who paid for 9/11-related damages and brought suit in subrogation. These cases were managed by the district court in two separate but coordinated tracks managed by court-appointed executive committees and liaison counsel.

After a period of extensive discovery, all but one of the personal injury/wrongful death cases had settled. The property damage claims were sent to mediation under the auspices of retired federal district court judge John S. Martin.

The Property Damage Settlement
After several months of mediation, in February 2010, 18 of the 21 plaintiffs in the property damage track reached a $1.2 billion global settlement with the aviation defendants and their insurers.

Following the settlement, a group of entities affiliated with developer Larry Silverstein objected—first, in the district court and then on appeal to the Second Circuit following the district court's approval of the settlement.

The Second Circuit's Approval
WTCP raised three principal grounds for objection. All were rejected by the Second Circuit.

No ATSSSA Preemption
First, the Second Circuit found that ATSSSA did not preempt the ordinary New York state law rule that allows a defendant or its insurer to settle "whenever and with whomever" they choose. The court held that ATSSSA's cap on the aviation defendants' tort exposure to the limits of their liability insurance was designed to protect the nation's air transportation system from "potentially ruinous tort liability in the wake of the attacks." The liability cap was not "intended to create a 'limited fund' from which plaintiffs . . . are entitled to an equitable share." As a consequence, the Second Circuit concluded, approval of a settlement involving some, but not all, of the 9/11 property damage claims was "neither inconsistent with ATSSSA" nor would it "stand as an obstacle to the accomplishment of Congress's objectives in enacting ATSSSA."

District Court's Evaluation Was Proper
Second, the court rejected the argument that the district court failed to properly evaluate the fairness of the settlement, and the objectors presented "no evidence of the bad faith necessary to draw into question the settlement." The Second Circuit endorsed both the process and the "lump sum payment" at issue in the settlement.

ATSSSA Cap Properly Credited
Finally, the Second Circuit held that the settlement amount was properly credited against the defendants' respective ATSSSA liability caps. The court was "not persuaded" that these settlement payments were not payments for "liability" within the meaning of ATSSSA, and held that "it makes better sense to read 'liability' to include the settlement payments made."

—Douglas J. Pepe and Timothy S. Tomasik, cochairs of the Experts and Evidence Subcommittee of the Mass Torts Committee

August 29, 2011

Mensing Plaintiffs Seek Rehearing

The plaintiffs in PLIVA, Inc. v. Mensing filed a petition for rehearing, asking the Supreme Court to revisit its ruling that state-law failure-to-warn claims against generic drug manufacturers are preempted by federal law.

 

In Mensing, the Supreme Court found that a conflict exists between state-law failure-to-warn claims and labeling provisions of the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetics Act. Under Hatch-Waxman, a manufacturer seeking approval to produce a generic form for a brand-name drug must show that the drug it wishes to produce is equivalent to an already-produced brand-name drug and that the safety and efficacy labeling it proposes is the same as that already approved for the brand-name drug. Therefore, the Court reasoned, the generic drug manufacturers could not comply with the Hatch-Waxman Amendments and also provide the strengthened warnings that the plaintiffs contended were required, because the generic manufacturers had no unilateral ability to change their labels.

 

The plaintiffs contend that the Supreme Court overlooked an alternate theory of liability, arguing that "the Petitioner generic drug companies could have 'independently' complied with both state and federal law simply by suspending sales of generic metoclopramide with warnings that they knew or should have known were inadequate." Mensing Petition for Rehearing at 1.

 

Interestingly, the theory upon which plaintiffs seek rehearing has been rejected by the Restatement (Third) of Torts and 28 states, which all conclude that there is no common-law duty to initiate a product recall. See, e.g., Restatement (Third) of Torts, Products Liability § 11 (1998). Mensing's home state of Minnesota is among the 28 states that have expressly rejected a duty to recall. See Kladivo v. Sportsstuff, Inc., 2008 WL 4933951 at *5 (D. Minn. 2008). Moreover, the theory upon which the Mensing plaintiffs seek rehearing suffers from the same conflict between state and federal law that formed the basis for the original decision. In essence, for plaintiff's theory to prevail, the Supreme Court would have to hold that a state may order a product off the market after it has been approved by the Food and Drug Administration.

 

Most legal commentators agree that is very unlikely that the Mensing plaintiffs' petition for rehearing will be granted.

—David Lester, Jones, Walker, Waechter, Poitevent, Carrère & Denègre LLP, Birmingham, AL

June 23, 2011

Supreme Court Finds Preemption on Failure to Warn Claims Against Generic Drug Manufacturers

On June 23, 2011, the Supreme Court released its highly anticipated ruling in Pliva, Inc. v. Mensing, 564 U.S. (2011). In a 5–4 opinion, the Court held that state-law claims against generic drug manufacturers are preempted by federal law.

The plaintiffs in the underlying cases were prescribed metoclopramide, a generic form of the brand name drug Reglan. At the time the plaintiffs were initially prescribed metoclopramide, the warning label stated that “tardive dyskinesia . . . may develop in patients treated with metoclopramide,” and the drug’s package insert added that “[t]herapy for longer than 12 weeks has not been evaluated and cannot be recommended.” In 2004, the warning label was changed to read “[t]herapy should not exceed 12 weeks in duration.” The label was once again strengthened in 2009 when the United States Food and Drug Administration (FDA) ordered a black box warning stating that “[t]reatment with metoclopramide can cause tardive dyskinesia, a serious movement disorder that is often irreversible. . . . Treatment with metoclopramide for longer than 12 weeks should be avoided in all but rare cases.” After taking the drug as prescribed for several years, they developed tardive dyskinesia. The plaintiffs filed lawsuits against the generic manufacturers and the manufacturers of the brand name equivalents, alleging that the manufacturers failed to warn them of the effects of long-term use of metoclopramide.

Read the full case note

—David Lester, Jones, Walker, Waechter, Poitevent, Carrère & Denègre LLP, Birmingham, AL

May 23, 2011

Injunction Against Seeking Recognition of an Ecuadorian Judgment

The long-running controversy over Ecuadorian claims of pollution of the Amazonian rain forest allegedly resulting from petroleum operations conducted  between 1964 and 1992 recently took an interesting turn.

On March 7, 2011, the United States District Court for the Southern District of New York entered an order enjoining a set of "Lago Agrio" plaintiffs from seeking recognition and enforcement of an $18 billion Ecuadorian judgment in any court outside the Republic of Ecuador. Chevron Corp. v. Donziger, No. 11 Civ. 0691 (LAK), 2011 U.S. Dist. LEXIS 22729 (Mar. 7, 2011). By order dated April 6, 2011, the district court refused to grant the Lago Agrio plaintiffs a stay of the preliminary injunction pending appeal.

The district court's injunctive relief arose against the backdrop of allegations that the $18 billion judgment was obtained by fraud and that the Ecuadorian legal system does not provide impartial tribunals or procedures compatible with due process—both of which are generally grounds in U.S. courts for denying recognition of a foreign country judgment. See, e.g., Uniform Foreign Money-Judgments Recognition Act (UFMJRA) § 4. In addition, the Ecuadorian plaintiffs had loudly stated their intention to initiate simultaneous proceedings in multiple jurisdictions around the world for recognition and enforcement of the judgment, including their intention to seek ex parte attachments and seizures, as a strategy to exert pressure to compel a settlement. Consequently, even before the Lago Agrio judgment had been rendered, Chevron commenced an action that, among other things, sought a declaration as to the non-recognition of the judgment and made RICO claims against the plaintiffs' lawyer and others, based on their alleged participation in the corruption of Ecuadorian justice.

In issuing a preliminary injunction, the district court found that Chevron had established a likelihood of success on its claims of fraud in the procurement of the judgment—including the submission of forged expert reports and the ghostwriting of a supposedly independent damages assessment—and its claim that the Ecuadorian tribunals are flawed. (The district court acknowledged that the Ecuadorian judicial system "has been plagued by corruption and political interference for decades.") Chevron Corp., slip op. at 77–84.

The district court concluded that, under all the circumstances, the "balance of hardships tips decidedly toward Chevron" and therefore enjoined the Lago Agrio plaintiffs. Id. at 73.

The Ecuador controversy is somewhat unique in its scope, magnitude, and duration, and the breadth of the injunction is headline-grabbing; however, other cases involving such demonstrable fraud and corrupt judicial systems would just as likely fail under the UFMJRA and common law standards. On the other hand, it is not too difficult to envision future mass toxic tort cases being litigated against U.S. entities in foreign judicial systems that are not as corrupt but that are ill-equipped to handle mass tort cases and sophisticated toxic tort issues. Looking ahead, the evolution of foreign legal systems, the further development of international environmental standards, and the trend among U.S. courts not to permit claims for foreign environmental damages to proceed under the guise of an Alien Tort Statute cause of action might combine to give rise to an increase in such foreign mass toxic tort cases.

There will, no doubt, be closer questions in cases in which the facts are not as egregious as those present in the Ecuador controversy and in cases in which the foreign courts do not overreach. Of note, the National Conference of Commissioners on Uniform State Laws drafted a revised UFMJRA in 2005, which has now been adopted by 14 states. The revised act provides broader challenges to recognition by permitting a challenge to due process in the specific proceeding, rather than challenging the entire foreign judicial system. The revised UFMJRA, for example, allows challenges asserting a lack of judicial integrity in the particular proceeding. These sorts of challenges will be vital tools if foreign mass toxic tort judgments emerge.

In the most recent procedural turn in the Donziger action, the district court, by order dated April 15, 2011, bifurcated Chevron's cause of action for declaratory judgment on the recognition of the judgment from the other counts in the suit sounding in fraud and violations of RICO.

Keywords: recognition of judgment, foreign judgment, Ecuador

—Paul V. Majkowski Rivkin Radler LLP, Uniondale, NY

April 29, 2011

Ninth Circuit Holds That the Airline Deregulation Act Prevents States from Regulating Foreign Air Carriers

The Unites States Court of Appeals for the Ninth Circuit recently issued an opinion holding that the Airline Deregulation Act of 1978 (ADA) completely preempts state regulation of foreign air carriers. In re Korean Air Lines Co., Ltd., Antitrust Litigation, 2011 U.S. App. LEXIS 7887 (Apr. 18, 2011).

In the underlying case, a group of plaintiffs filed suit against Korean Air Lines Co., Ltd. (KAL) and Asiana Airlines, Inc. (Asiana) alleging that the defendants had conspired to impose an illegal surcharge on tickets purchased by the plaintiffs through travel agents and consolidators. Plaintiffs alleged that defendants' actions violated California's unfair competition and federal antitrust laws. Defendants moved to dismiss plaintiffs' complaint, arguing that the claims asserted by the plaintiffs under California state law were preempted by the ADA. Defendants further argued that the case management order prohibited plaintiffs from asserting federal claims. The district court agreed and dismissed the complaint.

On appeal, the plaintiffs argued that the preemptive force of the ADA does not apply to foreign air carriers. The ADA provides that a "[s]tate . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation." 49 U.S.C. § 417173(b)(1). The ADA defines the words "air carrier" and "foreign air carrier" as terms with different meanings. 49 U.S.C. §§ 40102(a)(2) and 40102(a)(21). Plaintiffs argued that Congress' use of the word "air carrier" in the preemption provision of the ADA indicated that Congress did not intend to preempt laws affecting "foreign air carriers." Defendants, on the other hand, argued that the term "air carrier" encompasses all air carriers, whether foreign or domestic.

The Ninth Circuit affirmed the district court's dismissal of plaintiffs' state law claims, holding as a matter of first impression that the "Airline Deregulation Act of 1978, 49 U.S.C. § 41713, preempts state regulation of foreign air carriers." In doing so, the court analyzed Congress's use of the term "air carrier" in the ADA and determined that its use did not always correspond with the term's statutory definition. In fact, the court found that the term "'air carrier' was sometimes used to refer generally to both domestic and foreign airlines." See, e.g., 49 U.S.C. §§ 40129(f); 44901(i); 44940(a)(2). Because the term "air carrier" is subject to at least two different meanings as used in the ADA, the Ninth Circuit analyzed the manner in which the term was used in the preemption provision and determined that such context resolved the dispute. The court explained that Congress's modification of the word "air carrier" with the phrase "that may provide air transportation" indicated that Congress intended for the preemption provision to apply to both foreign and domestic air carriers. The court noted that its interpretation was supported by the ADA's legislative history, which indicates that Congress "intended to preserve its authority to regulate the airline industry by prohibiting states from regulating all air carriers, both domestic and foreign." The court further found that pragmatic concerns supported its holding, because allowing individual states to regulate foreign air carriers would impose unfair burdens upon foreign air carriers flying internationally from the United States. Nevertheless, the Ninth Circuit found that the district court abused its discretion in dismissing the plaintiffs' federal antitrust claims on the grounds that such claims were barred by the case management order. Accordingly, the case was remanded to the district court for further evaluation of plaintiffs' state law claims.

The Ninth Circuit's decision is consistent with other courts' indirect application of the ADA's preemption provision to foreign air carriers. See, e.g., Morales, 504 U.S. at 383–85 (concluding that state law claims were preempted with respect to all respondents, including foreign air carriers); Buck v. Am. Airlines, Inc., 476 F.3d 29, 36 (1st Cir. 2007) (concluding that preemption prevented state law claims against six foreign air carriers); Read-Rite Corp. v. Burlington Air Express, Ltd., 186 F.3d 1190, 1197 (9th Cir. 1999) (concluding state law claim for cargo damage preempted against foreign air carrier). Therefore, it appears to be well settled that the ADA preempts state regulation of foreign air carriers, even though the plain language of the ADA does not make that explicitly clear.

—David A. Lester, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Birmingham, AL

March 29, 2011

Pennsylvania Court Prevents Disclosure of Hundreds of Confidential Settlement Agreements

In a scrimmage over the legality of settlement agreements relating to only one drug, the U.S. District Court for the Eastern District of Pennsylvania in FTC v. Cephalon provided what may be considered a win-win scenario for much of the pharmaceutical industry and for the Federal Trade Commission (FTC). The court is allowing the FTC to cite its report, which compiles data from hundreds of settlement agreements, while simultaneously ruling against the disclosure of those settlement agreements for one pharmaceutical company to examine. See FTC v. Cephalon, No. 08-2141 (E.D. Pa. Feb. 28, 2011).

The case involves an FTC challenge to Cephalon's settlements in patent-infringement cases for the drug Provigil (modafinil). The FTC cited two studies in support of its contentions that the Provigil settlement agreements were illegal "pay-for-delay"-type agreements, including the FTC studies entitled "Generic Drug Entry Prior to Patent Expiration: An FTC Study" and "Pay for Delay: How Drug Company Pay-Offs Cost Consumers Billions." These FTC studies compiled data from hundreds of settlement agreements on other unrelated drugs. The FTC stipulated that it did not intend to offer the studies into evidence and had not provided the underlying agreements (except the Provigil agreements) to its experts. Nonetheless, the FTC's citation of its studies prompted Cephalon to file a motion to compel the production of the underlying documents. Had the motion been granted, the unrelated settlement agreements—which involve much of the pharmaceutical industry—would have been disclosed to Cephalon's outside counsel.

Cephalon's motion caused opposition from the FTC and incited some third-party pharmaceutical companies to file a motion for a protective order to prevent disclosure of their own confidential unrelated settlement agreements. See Mem. of Law in Supp. of Third-Party Pharm. Cos.' Mot. for Protective Order, D.I. 88-1. The Motion for a Protective Order was denied as moot in light of the court's decision. In their motion, the third-party pharmaceutical companies emphasized (1) that disclosure of the settlement agreements was contrary to the confidentiality provisions of both the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173, 117 Stat. 2006 (2003)) and the Federal Trade Commission Act (15 U.S.C. § 41 et seq.), and (2) that disclosure of the settlement agreements to outside counsel, who repeatedly represent pharmaceutical companies, would put at risk highly proprietary information of many companies not involved in the Provigil dispute.

The court was ultimately swayed by the arguments of both the third-party pharmaceutical companies and the FTC. Its order denies Cephalon's motion to compel the production of hundreds of unrelated settlement agreements—but, it still allows the FTC to cite its report.

—Frederick (Rick) R. Ball and Elese Hanson, Duane Morris LLP, Chicago, IL.

September 16 , 2010

New BP Class Action Complaint Filed

A class action lawsuit filed on August 20th in U.S. District Court in New Orleans appears to be the first to address the issue of punitive damages in connection with the BP oil spill. The case could initiate a long legal battle over the application of the Supreme Court's 2008 decision in Exxon v. Baker. The complaint, filed by Corliss Gallo, a landowner on Grand Terre Island, alleges that his property suffered environmental damage due to the oil spill and related cleanup effort. His complaint alleges that the "outrageous conduct" by BP, Transocean, Cameron International, and Halliburton represents a "common thread of gross negligence and willful, wanton and reckless indifference for the rights of others."

In Exxon, the Supreme Court limited punitive damages related to the Exxon Valdez oil spill to a one-to-one ratio of punitive to compensatory damages, characterizing the ratio as a "fair upper limit" in maritime cases. The court's decision reduced punitive damages awarded in that case from $5 billion to $507.5 million. However, the Supreme Court left open the possibility that punitive damages could be as much as three times actual damages in cases of reckless profiteering. The court further noted that the behavior of the Valdez captain, who was fatigued and possibly drunk, was "worse than negligent but less than malicious." The court articulated that a three-to-one punitive damages ratio might be warranted in a wide variety of cases involving egregious conduct, including malicious behavior and dangerous activity carried on for the purpose of increasing a defendant's financial gain.

Gallo's attorney believes that the BP oil spill qualifies as an exception to the rule. The suit relies on results of the Coast Guard investigation as well as the congressional hearing on the Deep Water Horizon explosion and resulting oil spill to characterize the defendants as companies that knowingly took risks and failed to properly maintain their equipment because of their overriding desire to maximize profits.

The case is expected to be incorporated under the multi-district litigation before Judge Carl Barbier, who may subdivide the cases into different tracks based on the nature of the claims.

August 16 , 2010

Transfer Order Issued on BP Deepwater Horizon Cases

On August 10, 2010, the Judicial Panel on Multidistrict Litigation (JPML) entered an order consolidating and transferring 154 oil-spill related cases to the United States District Court for the Eastern District of Louisiana. In doing so, the JPML panel noted that all defendants had moved to consolidate the actions in the Southern District of Texas, while the plaintiffs had set forth various arguments for the cases to be consolidated in the Northern District of Alabama, the Southern District of Alabama, the Northern District of Florida, the Middle District of Florida, the Eastern District of Louisiana, the Western District of Louisiana, the Southern District of Mississippi, the Southern District of Texas, and the District of South Carolina.  The JPML explained that the Eastern District of Louisiana was the geographic and psychological "center of gravity" of the oil spill claims. 

Read the full order

June 24, 2010

No Implied Preemption When a Statute Contains an Express Preemption Clause

The Hart v. The Boing Co. case arose from an accident involving a Continental Airlines flight that veered off the runway during takeoff at Denver International Airport, landed in a ravine, and burst into flames. Hart v. The Boeing Co., 2009 WL 4250122 (D. Colo. Nov. 23, 2009). Plaintiffs sued Boeing for injuries sustained in the accident and asserted negligence and strict product liability claims related to the design and manufacture of the aircraft's directional control and stabilization system.

Boeing moved to dismiss the complaint on the ground that the state law claims were impliedly preempted by the Federal Aviation Act (49 U.S.C. § 40101), which sets the only applicable standard of care for airline safety. The complaint, however, failed to plead a violation of a federal standard of care under the Act and its regulations. Relying on Tenth Circuit precedent, Cleveland v. Piper Aircraft Corp., 985 F.2d 1438 (10th Cir.), cert. denied, 510 US 908 (1993), the court denied the motion to dismiss. In Cleveland, the court of appeals pointed to the FAA's savings clause, which preserved remedies at common law, as evidence that the FAA did not impliedly preempt state laws implicating aircraft safety. Cleveland also found that implied preemption is generally not found when a statute (like the FAA) contains an express preemption clause. While the Hart court recognized that a subsequent Supreme Court case has undermined, in part, the logic in Cleveland, this dicta was not sufficient to overcome the precedent in Cleveland. The court rejected defendant's preemption argument.

Court Adopts "Nerve Center" Test for Federal Diversity Jurisdiction Cases

In February 2010, the Supreme Court unanimously held that, with respect to federal diversity jurisdiction, a corporation's "principal place of business" is where the corporation's high-level officers direct, control, and coordinate the corporation's activities." Hertz Corp. v. Friend, 559 U.S. ___ (2010).

In Hertz, the plaintiff brought an employment class action consisting of California residents under California law, in California state court. Hertz, headquartered in New Jersey, removed the case to federal court based on federal diversity jurisdiction. Many federal courts followed the "nerve center" test to determine principal place of business, but California did not. The Ninth Circuit followed a different rule that let the plaintiff treat Hertz as having its principal place of business in California because that was the location of most of its retail care locations and employees.

The decision in Hertz finally provides predictability and uniformity in the determination of a company's "principal place of business" for diversity purposes. "[A] company's principal place of business] should normally be the place where the corporation maintains its headquarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e. the 'nerve center,'" provided Justice Breyer.

— Orla M. Brady, Kreindler & Kreindler LLP, New York, NY

World Trade Center Disaster Recovery Workers' Claims Questioned in Litigation

On May 29, 2008, Judge Alvin K. Hellerstein of the Southern District of New York held a status conference in the World Trade Center Disaster Site litigation, Master Docket number 21 MC 100. The plaintiffs in the mass tort action, firefighters, police officers, construction workers and other individuals, claim they sustained respiratory injuries while participating in emergency response activities at Ground Zero in the aftermath of September 11th. They seek to recover damages from the city of New York and its contractors, including the $1,000,000,000 in insurance that they maintain.

Prior to the status conference, Judge Hellerstein had consolidated the more than 10,800 plaintiffs' cases for pre-trial discovery purposes. He had also ordered them to file short form complaints that listed their injuries and to produce all of their medical records from 1995 forward. At the conference, counsel for the city of New York and its contractors advised the court that many of the plaintiffs did not sustain any of the injuries that the media had previously alleged they had, and that, in fact, some plaintiffs did not sustain any injuries at all. Specifically, counsel represented that "the severity of plaintiffs' cases, taken in the composite, has been grossly overestimated and is routinely overestimated in the press and in other places." He further stated that the city's "conclusion . . . from what is in front of us now is that the number of plaintiffs who are both seriously injured and are able to link that injury to anything having to do with the World Trade Center and 9/11 will be an extremely small percentage of what is now an overly expansive pool that is the result of virtually no screening of cases before they were taken in and filed."

The city revealed that as many as 30 percent of the plaintiffs had nothing more than nominal injuries such as a runny nose. It further revealed that a significant number of their alleged injuries (e.g., multiple sclerosis and hernias) could not be causally related to their exposure to the World Trade Center debris. The city also uncovered the previously unknown fact that many of the plaintiffs not only filed suit without having been diagnosed with any injury, but did so only because the unions that represent them recommended that they do so. The city further reported that, based on a sample study of 500 plaintiffs' medical records, a significant number of plaintiffs had preexisting medical conditions, which could easily have been the cause of their alleged respiratory illnesses. For example, 78 percent had been diagnosed as obese or morbidly obese, both of which conditions are known to cause respiratory impairment. Moreover, 37 percent admitted that they are former or current smokers. Furthermore, plaintiffs' medical records reveal that as many as 30 percent of them have not sustained any injuries at all. Lastly, the city reported to the court that it could not complete its analysis of plaintiffs' claims because they had failed to produce all of their medical records, from 1995 forward, pursuant to the court's prior order.

In response, plaintiffs argued that the city's analysis is deeply flawed and that the evidence that they will offer will prove that the many of the workers suffered from serious respiratory related injuries, such as lung cancer, which were caused by their exposure to the World Trade Center debris. After hearing the parties' arguments, the court ordered the plaintiffs to produce all of their medical records from 1995 to date.

It remains to be seen how the court will address the city's arguments after the plaintiffs produce the necessary medical records. Future significant developments regarding this mass torts claim will be reported here.

— Andrew J. Scholz, Esq., Flemming Zulack Williamson Zauderer LLP, New York, NY