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

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.

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

Concurrence in Federal Circuit’s “Ultramercial” Ruling Sends Pointed Message to Patent Litigants

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP

The recent Federal Circuit decision in Ultramercial v. Wild Tangent continues the trend of courts invalidating software and business method patents made vulnerable by the Supreme Court’s decision in Alice Corp. v. CLS Bank International. The Ultramercial decision also continues the wave of “patent reform” in the courts, at the Patent Office, and in Congress. Software and business method patent owners and applicants should be concerned by these recent developments, and alleged infringers should be encouraged. The concurring opinion by Judge Mayer describes how an early determination of patent eligibility during litigation may help stem “[t]he scourge of meritless infringement claims [that] has continued unabated for decades.”

The Federal Circuit invalidated Ultramercial’s patent as being directed to an abstract idea, which is not patentable subject matter under 35 U.S.C. § 101. The asserted patent, U.S. Patent No. 7,346,545 (“the ’545 Patent”), is optimistically titled, “Method and system for payment of intellectual property royalties by interposed sponsor on behalf of consumer over a telecommunications network.” The main patent claim includes eleven specific steps for displaying an advertisement in exchange for access to copyrighted media. However, the appellate court determined that the patent “describes only the abstract idea of showing an advertisement before delivering free content” and is therefore invalid.

In spite of the eleven steps enumerated in the method claim, the court held that merely adding additional routine steps to an abstract idea “does not transform an otherwise abstract idea into patent-eligible subject matter.” Furthermore, although the claims of the ’545 Patent were tied to a general purpose computer, “adding a computer to otherwise conventional steps does not make an invention patent-eligible” either. Continue reading

Copyright and Patent Holders Advance Separate Market-Based, Self-Help Initiatives

copyrightIntellectual property (IP) rights and innovation are inextricably intertwined. It’s not surprising, then, that in the spirit of innovation, some IP owners have taken proactive steps to advance and defend their own property rights. They understand that reliance on current or future government action is no panacea. In separate developments this past week, some of the world’s most successful copyright holders adopted a creative approach to bolster those rights, while leaders of three different patent “self-help” entities explained their unique strategies at a Washington Legal Foundation (WLF) briefing.

Copyrights and WhereToWatch. Pirated online file peddlers and their apologists routinely argue that they are meeting consumers’ unfulfilled demand for affordable access to digital music, movies, and TV shows. As we noted in a WLF Legal Pulse post last month, however, “Huge music libraries can be accessed for free or low cost at outlets such as Spotify, Pandora, Amazon Music, and iTunes. Online options for TV and movie content continue to multiply. Copyright-infringing consumers can no longer claim that they seek pirated content because it isn’t digitally available for a reasonable price.” A September 23, 2014 report by KPMG provides empirical supports that argument. It found, for instance, that 96% of the top 20 movies for the years 2000 to 2010 were available through legal online distributors. Also, 96% of television’s top 100 shows in 2012 were available. Continue reading

After “Smelly Washer” Trial Win, Challenges Await Whirlpool in Related Cases

WhirlpoolWhirlpool Corp. had major reason to celebrate last week; a federal jury rejected class-action claims that “Duet” front-load washing machines sold in Ohio between 2001 and 2009 were defective because of their alleged tendency to develop a moldy smell. This “smelly washer” case has drawn significant media attention in recent years after it twice reached the U.S. Supreme Court on the issue of whether the case should be certified as a class action. The High Court in 2013 vacated a U.S. Court of Appeals for the Sixth Circuit decision certifying a class of more than 100,000 Ohio consumers; but after the Sixth Circuit reaffirmed its decision on remand, the Supreme Court denied review this past February—thus setting the stage for the three-week trial that just ended last Thursday. But if history is any guide, plaintiffs’ lawyers will not willingly accept that the verdict binds all the absent class members (only two class members actually participated in the trial).

Indeed, the ongoing challenge Whirlpool faces underscores why plaintiff classes should rarely, if ever, be certified in consumer product defect cases. Federal Rule of Civil Procedure 23 states that suits seeking monetary damages are not appropriate for class action treatment unless common issues of fact and law “predominate” over individual issues of fact and law. As the Washington Legal Foundation explained in the brief it filed when this case was before the Supreme Court, individual issues (e.g., whether an individual plaintiff’s product was defective and whether that defect caused injury) will almost always overwhelm common issues of fact in the typical consumer product suit. Moreover, Rule 23 requires that the named plaintiffs demonstrate that they can adequately represent the interests of absent class members; if representation is inadequate (e.g., if their interests diverge from those of absent class members), due process case law dictates that absent class members are not bound by any judgment adverse to the class. Thus, the defendant in a certified consumer-product class action often faces a heads-you-win-tails-I lose dilemma: if a company goes to trial and loses to the class, it faces a massive liability award, but if it prevails at trial, absent class members are likely to resist any res judicata claim. Continue reading