The Supreme Court on Wednesday issued a divided opinion in a case that raised an important issue of arbitration law: should an arbitrator or a judge decide whether an international treaty requires a private party to bring a commercial dispute before a judge prior to attempting arbitration? In BG Group PLC v. Republic of Argentina, the Court ruled 7-2 against Argentina, concluding that arbitrators acted within their power when they concluded that a British firm was not required to file suit in Argentina’s courts before seeking arbitration. Chief Justice Roberts, joined by Justice Kennedy, dissented; they argued that in signing the bilateral UK-Argentina investment treaty, Argentina agreed to arbitration only on condition that investors bring their disputes to an Argentine court first. But there was one point on which the justices agreed unanimously: Argentina has a sorry history of living up to its contractual commitments to investors. That point of agreement does not bode well for Argentina, which in two pending Supreme Court cases is asking the Court to permit it to invoke sovereign immunity as the basis for resisting repayment of sovereign debt.
The case involved claims by a British firm, BG Group plc, that Argentina breached a natural gas distribution contract. Washington, D.C.-based arbitrators awarded BG Group $185 million in damages, and Argentina turned to American courts to overturn the award. It cited the terms of the UK-Argentina treaty as the basis for its claim that the arbitrators lacked jurisdiction to hear the case. The treaty provides that an investor asserting a claim under the treaty may not initiate arbitration until 18 months after filing a claim against Argentina in an Argentine court.
The arbitrators held that BG Group should be excused from complying with the 18-month litigation requirement. They noted that Argentina, after taking steps that essentially expropriated BG Group’s property, adopted a series of laws designed to block any BG Group lawsuit. They held that these laws, “while not making litigation in Argentina’s courts literally impossible, nonetheless hindered recourse to the domestic judiciary to the point where the Treaty implicitly excused compliance with the local litigation requirement.” Continue reading
The U.S. Supreme Court this week has a chance to strike a blow for judicial modesty and at the same time call a halt to a disturbing trend being pushed by the plaintiffs’ bar: class-action lawsuits in which no one was injured but that seek millions of dollars in “damages.” The Court is being asked, in the case of First National Bank of Wahoo v. Charvat, to consider whether federal courts possess jurisdiction to hear such no-injury lawsuits. The Court should accept the invitation and announce that attorneys will no longer be permitted to flout Article III of the U.S. Constitution, which limits the filing of federal lawsuits to those who have actually suffered an injury.
The case involves two small Nebraska banks that, like most banks, charge a small fee to non-customers who use their ATM machines. Federal law requires banks to provide notice that they charge such a fee. The two Nebraska banks did provide notice (on the very first screen seen by ATM users), and no one has come forward to claim that he or she used one of the ATMs without being aware that a fee would be incurred.
Here’s the wrinkle: at the time this lawsuit arose, federal regulations (since repealed) also required a second form of notice—on a small placard physically attached to the ATM. Some of the ATMs maintained by the First National Bank of Wahoo and the Mutual First Federal Credit Union did not display the placard. Jarek Charvat, an enterprising young man working with a local plaintiffs’ law firm, knew about the ATM fees and observed that the banks were not in full compliance with the federal placard regulation. So he went from bank branch to bank branch, making ATM withdrawals and deliberately incurring a $2.00 fee at each stop. Continue reading
Cross-posted from WLF’s Forbes.com contributor site
The Supreme Court’s decision last month in Daimler AG v. Bauman has been viewed by many as having its principal impact on lawsuits involving overseas events. There is no question that the decision evinces the Court’s reluctance to permit federal courts to exercise jurisdiction over controversies arising within other nations. But to focus exclusively on this aspect of Daimler overlooks its potential bombshell consequences for domestic tort litigation; it could result in major upheavals in standard operating procedures for much of the plaintiffs’ bar. Indeed, Daimler may even conceivably spell the end of most nationwide class action lawsuits.
The plaintiffs in Daimler were 22 residents of Argentina who claim to have suffered human rights abuses at the hands of Argentina’s military rulers more than 30 years ago. The plaintiffs alleged that Mercedes-Benz Argentina, a subsidiary of Daimler, aided and abetted those human rights abuses. Daimler is a German corporation whose cars are sold world-wide. It sells its cars here through its American subsidiary, Mercedes-Benz USA (MBUSA). MBUSA is a Delaware corporation with a principal place of business in New Jersey, and it distributes Daimler-manufactured cars to independent dealerships throughout the U.S., including many in California.
The plaintiffs filed suit in a federal district court in California against Daimler, claiming that it should be held responsible for the alleged misdeeds of its Argentine subsidiary. They asserted personal jurisdiction over Daimler on the basis of MBUSA’s contacts with California, although they conceded that none of the events giving rise to their claim occurred in California. The Ninth Circuit upheld the assertion of personal jurisdiction; it held that MBUSA did sufficient business in California to be answerable for any lawsuit filed against it within the state and that Daimler was similarly answerable because MBUSA was Daimler’s agent for jurisdictional purposes. Continue reading
Cross-posted by Forbes.com at WLF’s contributor site
A little over a decade ago, federal regulators and state attorneys general initiated a litigation campaign to alter how government health care programs reimbursed doctors for prescription drugs. Like most “regulation by litigation” efforts, this campaign seized upon laws of broad application such as the False Claims Act (FCA) and encouraged private lawsuits of questionable merit. Government enforcers have long since moved on to other crusades, but as a federal court decision last month reflects, some private suits still drag on, burdening American businesses with needless legal expenses.
AWP. In the early 2000s, the federal government reimbursed health care providers based in part on a drug’s average wholesale price, or “AWP.” Some likened AWP to the sticker price, or MSRP, of a new car: an inflated number which almost no one actually paid. Everyone involved in health care was aware of the illusory nature of AWP, and federal and state regulators urged legislative change, but Congress resisted reform. So unelected officials and their brethren in the plaintiffs’ bar sought to impose change. As this 2002 WLF Working Paper explains, they devised legal theories which branded AWP as an overcharging scheme, and accused drug makers, price publishers, and other entities such as pharmacy benefit managers (PBMs) of perpetrating a fraud. State attorneys general filed billion-dollar fraud actions and plaintiffs’ lawyers teamed up with “whistleblowers” to file qui tam suits under the FCA.
The ensuing litigation crusade provided moderate returns at best to the plaintiffs’ lawyers and state AGs who jumped on board. For instance, in 2009, the Alabama Supreme Court dashed the state’s (and its contingent-fee lawyers’) dreams of a huge payday, dismissing two AWP cases, finding no fraud existed. Continue reading
Cross-posted at WLF’s Forbes.com contributor page
On the day that it returns from its holiday break on January 10, the chances are good that the U.S. Supreme Court will agree to review a dispute between Argentina and a creditor that is owed substantial sums on defaulted bonds. Republic of Argentina v. NML Capital, Ltd., Case No. 12-842. That dispute is not the one that has been making big headlines for the past year, however. The high-profile case—in which the federal appeals court in New York (the U.S. Court of Appeals for the Second Circuit) last August upheld an order barring Argentina from treating “holdout” bondholders such as NML less favorably than other bondholders—has not yet reached the Supreme Court. Moreover, major differences exist between the two cases such that even if the Court decides this week to review the first case, there is no reason to view that decision as an indication that the Court is likely to grant review in the second, higher profile case. Indeed, there is good reason to conclude that the Court will not agree to hear the second case, which would preserve the bondholder’s victory.
The petition for review that the High Court will consider on January 10 arises from NML’s efforts to collect on court judgments against Argentina totaling $1.6 billion. NML obtained the judgments after Argentina defaulted on bonds held by NML, which the nation has refused to voluntarily pay. When judgment creditors are faced with a recalcitrant debtor, the law permits them to subpoena records for the purpose of attempting to pinpoint the location of the debtor’s assets; if they locate “nonexempt” assets, they are entitled to seize the assets in satisfaction of their court judgments. NML has been attempting to engage in just such document discovery. In particular, in 2010 it served document subpoenas on two banks located in New York in an effort to learn more about how Argentina moves assets through New York and around the world. Over Argentina’s objection, the lower federal courts upheld the subpoenas. Early in 2013, Argentina filed a petition asking the Supreme Court to review those decisions; Argentina asserted that the subpoenas violated its rights under the Foreign Sovereign Immunities Act (FSIA).
Although the Supreme Court grants no more than a tiny fraction of the thousands of petitions for review it receives each year, there is reason to conclude that the Court is giving serious consideration to granting Argentina’s petition. First, the Court issued an order last April directing the Solicitor General to file a brief expressing the views of the United States about the case. The Court issues no more than a handful of such orders each year; an order directing the Solicitor General to file a brief is generally viewed as an indication that the Court is actively mulling the petition in question. The Solicitor General’s brief, filed earlier this month, recommended that the Court grant Argentina’s petition. As studies have shown, such a recommendation substantially increases the chances of the Court’s granting a petition. Continue reading
Cross-posted at WLF’s Forbes.com contributor page
The Food and Drug Administration (FDA) has long had “commitment issues” in its relationship with the First Amendment. It possesses statutory authority to prevent the sale and distribution of drugs whose intended use and labeling are not FDA-approved, but in doing so it routinely treads on manufacturers’ speech. Federal courts have held repeatedly that the First Amendment severely restricts FDA’s regulation of truthful speech about approved drugs. The agency has responded with assurances that it will comply fully with those court decisions. Recent actions make clear, however, that FDA shows little or no respect for those rulings and apparently believes it is not bound by the First Amendment.
The latest example of FDA’s defiance took the form of a Warning Letter issued by FDA’s Office of Prescription Drug Promotion (OPDP) on November 8, 2013 to Aegerion Pharmaceuticals. OPDP’s letter objected to an appearance by Aegerion’s CEO on a CNBC talk show directed to the financial community. During the course of his interview, the CEO suggested that Juxtapid, a drug manufactured by Aegerion, was safe and effective for several off-label uses that are closely related to its approved uses. For example, the CEO could reasonably have been understood to say that the drug, when taken by itself, was effective in reducing a patient’s “bad” cholesterol levels, even though FDA has approved Juxtapid as a treatment for reducing “bad” cholesterol only as an “adjunct” to a “low-fat diet and other lipid lowering treatments.” The Warning Letter did not contend that the CEO’s statement regarding efficacy was false, but it nonetheless charged that the statement was illegal because it rendered Juxtapid “misbranded.” The letter demanded that Aegerion “immediately cease misbranding Juxtapid” and to issue “corrective messages” to rectify the situation.
So how did OPDP reach the remarkable conclusion that truthful statements made on a television talk show aimed at the financial community can render an otherwise lawful drug “misbranded?” OPDP noted that a “misbranded” drug is defined to include a drug that lacks adequate directions for all intended uses. It is safe to assume that a drug’s approved labeling does not include adequate directions for uses that have not been approved by FDA. So if a manufacturer distributes a drug with the objectively verifiable intent that it be sold for an off-label use, the drug can be deemed “misbranded.” So far so good. Continue reading
Cross-posted at WLF’s Forbes.com contributor page
Twice in the last six weeks, we have addressed an increasingly popular trial lawyer tactic aimed at keeping class action lawsuits in state court (see here and here). The lawyers strategically break large numbers of plaintiffs with identical claims into groups less than 100 with the unstated goal of consolidation for trial. Why less than 100? Because the Class Action Fairness Act (CAFA) allows defendants to seek removal of certain class actions, including “mass actions,” which are “monetary relief claims of 100 or more persons . . . proposed to be tried jointly.”
Yesterday, the U.S. Court of Appeals for the Eighth Circuit construed the most contested phrase in cases involving this CAFA provision—”proposed to be tried jointly”—in a way that allowed the defendant to removed the suits to federal court. The opinion embraced the Seventh Circuit’s approach in a 2012 ruling (In re Abbott Labs) and rejected a Ninth Circuit decision from September 24, 2013 (Romo v. Teva).
Atwell v. Boston Scientific involved three groups of less than 100 plaintiffs suing Boston Scientific in a state court in St. Louis. The suits alleged common facts and issues. After the defendant removed the three cases to federal court, two federal trial judges remanded two of the suits back to state court. Boston Scientific invoked the CAFA provision which allows immediate appeal of such decisions. Even though the plaintiffs never explicitly proposed that the state court jointly try the remanded cases, the Eighth Circuit concluded that was their goal. The court looked at “the necessary consequence of their request” along with “plaintiffs’ candid explanation of their objectives” in reaching that conclusion. Continue reading
Cross-posted at WLF’s Forbes.com contributor site
Last month in Ninth Circuit Endorses Gaming of Class Action Fairness Act & Creates Circuit Split, we discussed the U.S. Court of Appeals for the Ninth Circuit’s decision in Romo v. Teva Pharmaceuticals USA, Inc.. The two-judge majority in that case allowed plaintiffs’ lawyers to divide their 1,500 clients into groups of less than 100 for the sole purpose of evading the Class Action Fairness Act’s (CAFA) dictate that such mass actions be removed to federal court. Thanks to an October 18 ruling from the Western District of Oklahoma, the Tenth Circuit will be the next venue to consider this CAFA circumvention strategy.
In Halliburton et al. v. Johnson & Johnson et al., Federal District Court Judge Tim Leonard ordered the remand of eleven essentially identical cases to Oklahoma state court. Each case alleged the same violations of Oklahoma state law and featured at least one Oklahoma and one New Jersey plaintiff. Each suit was filed by the same lawyers in front of the same state judge. Before Judge Leonard, the defendants argued that the plaintiffs’ act of filing their 11 suits in a one-judge county court reflected their intention that the cases be tried jointly. Johnson & Johnson also argued that the judge should give no weight to the plaintiffs’ declaration that no two suits would be tried jointly. The defendants further urged Judge Leonard to sever the claims of the New Jersey plaintiffs as they were fraudulently joined for the purpose of defeating diversity jurisdiction (Johnson & Johnson is a New Jersey company).
Judge Leonard rejected each of the defendants arguments and ordered the 11 suits remanded to the state judge. On October 28, Johnson & Johnson filed a permission to appeal the District Court’s decision to the Tenth Circuit. Under CAFA, the appeals court must accept or deny the defendant’s permission to appeal within ten days.
On a related note, the defendants in Romo v. Teva have sought rehearing en banc in the Ninth Circuit. WLF has filed an amicus brief supporting their arguments.
Additional WLF resource:
Gaming Of CAFA’s Jurisdiction Exemption For “Mass Actions”: How It Can Be Stopped
WLF Legal Opinion Letter, by Victor E. Schwartz, Co-Chairman, and Cary Silverman, Counsel, of the Washington, D.C.-based Public Policy Group of Shook, Hardy & Bacon L.L.P.
Cross-posted at WLF’s Forbes.com contributor site
Argentina’s efforts to overturn adverse court decisions regarding repayment on its defaulted bonds have been reduced to a last-ditch effort to persuade the U.S. Supreme Court to review the case. An often-overlooked obstacle to Argentina’s efforts to obtain such review: the only federal issue that it can realistically raise in its petition for certiorari is a claim that the injunctive relief granted by the lower courts violates a federal statute, the Foreign Sovereign Immunities Act (FSIA). A careful examination of this federal statute indicates, however, that FSIA does not prohibit the relief granted to holdout bondholders and that no federal court has ever interpreted the FSIA in the manner espoused by Argentina.
Congress adopted the FSIA in 1976 to establish clear rules regarding when foreign governments are entitled to assert sovereign immunity from the orders of American courts. The statute replaced the former system under which courts looked to the Executive Branch on a case-by-case basis for guidance on sovereign immunity issues. A key provision of the FSIA provides that a foreign government is generally immune from suit in U.S. court, but that its immunity is subject to waiver. That general immunity provision is of no help to Argentina, however, because it explicitly waived its immunity in connection with the bonds currently at issue and agreed that disputed issues would be resolved in accordance with New York law.
Argentina argues that even though it was properly subject to suit in federal court in New York based on its non-payment, the court’s injunctions violated the FSIA. Section 1609 of the FSIA provides that, with limited exceptions, property belonging to a foreign government is “immune from attachment, arrest, and execution” by a U.S. court. Argentina argues that the injunctions issued in this case effectively “attach” its property in violation of the FSIA. Continue reading
Cross-posted at WLF’s Forbes.com contributor page
Congress adopted the Class Action Fairness Act (CAFA) in 2005 in response to concerns that plaintiffs’ lawyers were gaming the system to prevent removal of class action lawsuits from state to federal court, thereby ensuring that their cases would be heard by sympathetic judges. CAFA provides state-court defendants the option of removing cases to federal court in situations where the suit is both substantial and involves numerous plaintiffs, and where minimal diversity of citizenship exists.
Since CAFA’s passage, the plaintiffs’ bar has worked to circumvent the law and keep their mass lawsuits in state courts. A disappointing September 24 U.S. Court of Appeals for the Ninth Circuit decision reflects how those efforts have borne fruit. But the decision has a silver lining: a dissenting judge on the three-judge panel explained that the decision directly conflicts with a decision from the U.S. Court of Appeals for the Seventh Circuit, inferring the need for Supreme Court review to resolve the conflict. Moreover, the dissenting judge had the remarkably good sense to cite directly to the amicus brief that Washington Legal Foundation filed in the case, adopting the narrower of two rationales that WLF had urged.
At issue in the Ninth Circuit case, Romo v. Teva Pharmaceuticals USA, Inc., are the product liability claims of more than 1,500 individuals alleged to have suffered injuries after taking medications containing the active ingredient propoxyphene—a drug that was widely marketed in this country between 1957 and 2010. The claims were all initially filed (by a single set of lawyers) in state court in California. The plaintiffs named as defendants nearly a dozen pharmaceutical manufacturers and wholesalers, including one California-based wholesaler whose presence defeated complete diversity of citizenship. The defendants nonetheless removed the claims to federal court under CAFA’s “mass action” provision, which permits defendants to move cases from state to federal court if there are more than 100 plaintiffs and certain other conditions are met. Continue reading