One Major Positive, But Still Many Negatives, for Asbestos Defendants in 2014

NewportWhen assessing liability risk, businesses, insurers, and others impacted by America’s free-wheeling civil justice system often ask, “What’s the next asbestos?” Regrettably for defendants still wrapped up in what the Supreme Court once called “the elephantine mass” of asbestos litigation, asbestos is still the next asbestos. In 2014, asbestos defendants continued to struggle against the tide of unfavorable judicial rulings, though one positive development this year did offer a great deal of hope to besieged businesses.

A January 9 ruling by U.S. Bankruptcy Court Judge George Hodges found a “startling pattern of misrepresentation” and withholding of exposure evidence in a ten-case sampling from asbestos actions consolidated in his court as In re Garlock Sealing Technologies, LLC, et al. Judge Hodges ordered full discovery in those cases to determine whether allegedly injured plaintiffs had exaggerated the value of their claims and failed to disclose claims they had made to asbestos bankruptcy trusts. A Fall 2014 WLF Conversations With paper, featuring former Attorney General Dick Thornburgh and former Delaware state court judge Peggy Abelman, addressed the larger concerns with such withholding of bankruptcy claims information. A January 21 Featured Expert Column on the WLF Legal Pulse also discussed In re Garlock in detail. Continue reading

Supreme Court Observations: “Dart Cherokee” Eliminates the Presumption against Removal of Class Actions

supreme court*Joining WLF’s Richard Samp as a guest commentator on this post is M.C. Sungaila, a partner with Snell & Wilmer LLP. Ms. Sungaila acted as counsel to the International Association of Defense Counsel and the Federation of Defense and Corporate Counsel, both of which joined WLF in its amicus brief in Dart Cherokee.

The Supreme Court’s ruling Monday, December 15 in Dart Cherokee Basin Operating Co. v. Owens, overturning a Tenth Circuit removal jurisdiction decision, was hardly surprising. After all, the Tenth Circuit’s restrictive interpretation of the federal removal statute, 28 U.S.C. § 1446(a)—that a defendant forfeits its removal rights unless the removal petition attaches documentary evidence supporting the jurisdictional allegations—conflicted with decisions from every other federal courts of appeal that has addressed the issue and elicited no supporting comments from the justices during October’s oral argument. Of far more lasting significance was Dart Cherokee’s rejection of a presumption against removal, in class-action cases and perhaps in other removal cases as well. That presumption had been adopted by 10 of the 11 regional courts of appeals and has been cited by countless district courts as the basis for remanding cases to state court. Organizations with which we are affiliated—the Washington Legal Foundation, the International Association of Defense Counsel, and the Federation of Defense and Corporate Counsel—are justly proud of having filed a brief that focused attention on the presumption-against-removal issue, an issue not raised by the parties.

Background. Dart Cherokee involved a class-action claim that an oil company breached a contract by underpaying royalties allegedly owed to lessors from production of oil wells located in Kansas. The oil company removed the case to federal district court, asserting jurisdiction under the Class Action Fairness Act (CAFA). CAFA permits removal of class actions even in the absence of complete diversity of citizenship, so long as the amount in controversy exceeds $5 million. The plaintiffs filed a motion to remand, asserting that the removal petition inadequately demonstrated the amount in controversy.

The district court agreed and ordered a remand. It did so despite acknowledging that the oil company’s response to the motion adequately demonstrated that the amount in controversy exceeded $5,000,000 and that the plaintiffs conceded as much. The court concluded that under Tenth Circuit case law, evidence supporting federal removal jurisdiction must be included within the removal petition itself and not added later. The court explained that its decision to remand was “guided by the strong presumption against removal.” It noted that the Tenth Circuit “narrowly construes removal statutes, and all doubts must be resolved in favor of remand.” Continue reading

A Key Ruling for Food Labeling Class Action Defendants Issued on “Reasonable Consumer” Standard

Smith_JamesGuest Commentary

by James D. Smith, Bryan Cave LLP

In what seems likely to become a defining case on appeal, Northern District of California Judge Lucy Koh granted summary judgment this week in a long-running food labeling class action. The plaintiff in Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK (N.D. Cal.), alleges that 10 Dole products are misbranded because their labels say the products contain “All Natural Fruit.” Mr. Brazil contends this is false because the products contain ascorbic acid (commonly known as Vitamin C) and citric acid (found in citrus). Both of those ingredients, of course, are naturally occurring compounds; many food manufacturers add them because of their natural preservative effects. The 10 products include diced apples, pears, oranges, and grapefruit packed in juice. For the past two years, Mr. Brazil and his counsel have pressed this litigation, alleging that the product labels somehow deceived him because neither he nor any other reasonable consumer would believe that fruit packed in juice contains Vitamin C or citric acid.

The procedural history is long, but readers interested in food labeling class actions in the Northern District of California may want to review Judge Koh’s earlier substantive rulings. By the time she granted summary judgment on December 8, Judge Koh had narrowed the case to a single injunction class. As an aside, Judge Koh’s November 6, 2014, order decertifying the damages class nicely shows why a hedonic damages regression analysis—which many food labeling class action plaintiffs try to rely on to show class-wide damages—isn’t feasible in these types of cases. This most recent ruling in Brazil is noteworthy because it explains that a named plaintiff’s subjective interpretation of a label isn’t sufficient to meet the burden of proving that the label is likely to mislead consumers under California’s Unfair Competition Law (“UCL”).

Granting summary judgment, Judge Koh concluded “there is insufficient evidence that the ‘All Natural Fruit’ label statement on the challenged Dole products was likely to mislead reasonable consumers and that the label statements were therefore unlawful on that basis.” That plaintiff did not attempt to use consumer surveys to establish that the labeling statements could mislead a significant portion of the public or of targeted consumers. Instead, he relied on informal FDA statements that “natural” means nothing artificial or synthetic “has been included in, or has been added to, a food that would not normally be expected to be in the food.” (Emphasis added.) As we’ll see, that plaintiff’s failure to establish that consumers would not normally expect ascorbic acid or citric acid to be in the food doomed his claims. Continue reading

Update: Federal Liability Immunity Thankfully Conferred for Some Ebola Vaccines

670px-ebola_virus_virionPer Washington Legal Foundation’s suggestion earlier this fall, the Secretary of the Department of Health and Human Services (HHS) issued a formal declaration this week that those who manufacture, distribute, and administer certain yet-to-be-approved vaccines for the Ebola virus qualify for federal liability protection under the federal Public Readiness and Emergency Preparedness Act (PREP Act).

In our October 30 post, Ebola Vaccine and Treatment Makers Need Liability Protection, we discussed the PREP Act and explained why its protections would be an especially effective incentive for Ebola vaccine research and development. Under the law, those who have been allegedly injured by a vaccine can only sue in federal court if the FDA or the Justice Department investigates and finds willful misconduct by the drug manufacturer.  The act preempts all state laws that might limit distribution of the declared countermeasure, and it creates compensation funds for injured parties.

Secretary Burwell’s declaration applies to three specific countermeasures that are currently in development. The liability immunity protects manufacturers and distributors regardless of whether a covered vaccine is administered, and applies without geographic limitation. Liability protection related to the administration of a covered vaccine lasts until December 10, 2015, and the declaration extends that protection for manufacturers for an additional year “to allow for the manufacturer(s) to arrange for disposition of the Covered Countermeasure.”

Individuals who sustain a “covered serious physical injury as the direct result” of the use of a covered vaccine can seek compensation through a Countermeasures Injury Compensation Program. The burden of proof for such claims is significant:

The causal connection between the countermeasure and the serious physical injury must be supported by compelling, reliable, valid, medical and scientific evidence in order for the individual to be considered for compensation.

We applaud HHS for mitigating the manufacturers’ liability exposure and cutting avaricious plaintiffs’ lawyers out of the injury compensation process. Now if only similar measures can be adopted throughout our healthcare system, we might actually begin to bend the cost curve substantially.

Also published by Forbes.com at WLF’s contributor page

WLF Web Seminar to Assess Whether Third Time is the Charm at SCOTUS on “Injury-in-Law” Standing

PodiumPic1Tomorrow at 10:00 a.m. EDT, Washington Legal Foundation is hosting its final Web Seminar program of 2014. The program will address a critically important case currently awaiting cert consideration by the U.S. Supreme Court, and the larger issues the case implicates.

No-Injury Class Actions: The Rise of Statutorily-Created Harm and the Need for High Court Intervention will be an hour-long live event featuring two appellate experts as our panelists: Andy Pincus of Mayer Brown LLP and Meir Feder of Jones Day. If you are interested in viewing the program live online, you can register for free HERE. If you cannot view it live but would like to watch the video from our online archive, please email WLF Legal Studies Division Chief Counsel Glenn Lammi at glammi@wlf.org.

The petition pending before the Supreme Court that offers the context for our discussion arises from a U.S. Court of Appeals for the Ninth Circuit ruling, Spokeo v. Robins. The case squarely presents the issue of whether private plaintiffs suing under a federal statute that defines certain action or inaction as an “injury” (injury-at-law) must also demonstrate that they have “case or controversy” standing under Article III of the U.S. Constitution (injury-in-fact). The question has been decided differently in a number of federal circuits, and the Supreme Court has twice passed on opportunities to resolve the split. In 2012, after hearing oral arguments, the Court dismissed as improvidently granted another case from the Ninth Circuit, First American Financial v. Edwards. Earlier this year during its October 2013 term, the Court denied review to an Eighth Circuit decision, First National Bank of Wahoo v. Charvat.

The Court has requested that the Solicitor General of the U.S. provide the justices with the federal government’s view of the case and issues. The Solicitor General’s brief has not yet been filed.

Ninth Circuit Thwarts Plaintiffs’ Efforts to Evade Removal Under CAFA

Cruz-Alvarez_FFeatured Expert Contributor – Civil Justice/Class Actions

Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. with Rachel A. Canfield,  Shook, Hardy & Bacon, L.L.P.

Addressing a question of first impression, the U.S. Court of Appeals for the Ninth Circuit Court of Appeals, sitting en banc, weighed into an issue that has split the circuit courts involving the invocation of federal mass-action jurisdiction. Corber v. Xanodyne Pharmaceuticals, Inc.¸ Nos.13-56306 & 13-56310, — F.3d —-, 2014 WL 6436154 (9th Cir. Nov. 18, 2014). This is just one in a series of recent federal decisions limiting plaintiffs’ efforts to avoid federal class or mass action jurisdiction.

To prevent class-action abuse, the Class Action Fairness Act of 2005 (“CAFA”) expands federal jurisdiction over certain class or mass actions that fall within its purview. Corber, 2014 WL 6436154, at *11. In pertinent part, CAFA defines mass actions as any civil action in which “monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiff’s claims involve common questions of law or fact.” 28 U.S.C. § 1332(d)(11)(B)(i).

Treated as companion cases, Romo v. Teva Pharmaceuticals USA, Inc., and Corber v. Xanodyne Pharmaceuticals, Inc., were two of twenty-six cases pending before the district court, and more than forty actions filed in California state courts, alleging injuries due to the ingestion of an ingredient found in certain pain relief drugs. Corber, 2014 WL 6436154, at *7. A number of the actions were brought by one group of plaintiffs’ attorneys who sought to obtain coordination of the actions pursuant to section 404 of the California Code of Civil Procedure, which permits coordination of civil actions containing a common question of fact or law if one judge hearing all of the actions for all purposes will promote the ends of justice. Id. at *8-9. In an attempt to obtain coordination in state court and evade federal jurisdiction, these plaintiffs’ attorneys superficially segmented the cases to involve fewer than 100 plaintiffs and crafted the petitions for coordination absent an express proposal that the actions be jointly tried. Continue reading

Seventh Circuit Continues Scrutiny of Class Action Settlements and Cy Pres

US-CourtOfAppeals-7thCircuit-SealThe U.S. Court of Appeals for the Seventh Circuit has, for better and worse, been at the forefront of federal class action jurisprudence recently. On the “better” side of the ledger, the appeals court has closely scrutinized and rejected a number of class action settlements in 2014. Its most recent rejection, Pearson v. NBTY, also dealt a serious blow to the  use of the controversial cy pres device in such settlements.

Judge Richard Posner regularly lands on Seventh Circuit panels involving class actions, where has been highly skeptical of class action settlements. In a June 2 opinion, Eubank v. Pella, he labeled the class action settlement “inequitable” and “even scandalous.” In another Posner-authored opinion, Redmand v. RadioShack, the Seventh Circuit on September 19 reversed a lower court’s approval of a coupon settlement. The court was especially troubled that the settling parties attempted to consider sums not available to the class members, such as “administrative costs,” when calculating the attorneys’ fees. As Reed Smith Counsel James Back and Rebecca Weil argued last month in a WLF Working Paper, such reasoning could be applied similarly to cy pres awards, the value of which settling parties seek to include when calculating fees.

The settling parties in Pearson v. NBTY, a consumer class action involving marketing claims for glucosamine pills, attempted to include a $1.13 million cy pres donation to the Orthopedic Research and Education Foundation when calculating attorneys’ fees. The trial judge refused to consider that amount as a “benefit” to the class when totaling the value of the settlement to be $20.2 million. The judge awarded the plaintiffs’ lawyers $1.93 million in fees.

The Center for Class Action Fairness objected to the settlement and on November 19, the Seventh Circuit, led by none other than Judge Posner, reversed the lower court. Judge Posner agreed with little of what the lower court determined, but he found the trial judge’s refusal to consider the cy pres amount in calculating the class benefit correct “for the obvious reason that the recipient of that award was not a member of the class.”

Separately, the court found that the cy pres award was itself improper. Judge Posner stated that while the recipient “seems perfectly reputable,” beneficiaries of cy pres are “entitled to receive money intended to compensate victims of consumer fraud only if it’s infeasible to provide that compensation to the victims—which has not been demonstrated” (our emphasis). Prior to reaching that conclusion, the opinion criticized the parties for seemingly “structur[ing] the claims process with an eye towards discouraging the filings of claims.” Less than one-quarter of one percent of the 4.72 million consumers notified sought the menial refund offered in NBTY. Judge Posner remarked that the claims process could have been simplified or “Rexall could have mailed $3 checks to all 4.72 million postcard recipients.”

The opinion contains several other positive statements and conclusions that district court judges and other circuit courts should find compelling, such as Judge Posner’s suggestion that “It might make sense for the district judge in a large class action suit like this to appoint an independent auditor, on the authority of Fed. R. Evid. 706, to estimate the reasonableness of class counsel’s billing rate.” But the double-blow to the cy pres device—that courts cannot consider it when calculating the settlement’s class benefit, and that the parties must prove that it is infeasible to provide the funds earmarked for the charity to the class members themselves—will likely be ruling’s most lasting achievement.

In the aforementioned WLF Working Paper, the authors asked, “Is the end near for a legal remedy with no basis in law?” With Judge Posner’s NBTY opinion exposing several more chinks in the doctrine’s already weakened armor, perhaps it is.

But we think it’s also important to take Judge Posner’s reasoning that cy pres is inappropriate in cases where money can’t feasibly be rewarded to plaintiffs to its logical endpoint: If plaintiffs cannot feasibly be located, why should a case be certified as a class action in the first place?

Also published by Forbes.com at WLF’s contributor page