Wednesday, April 23, 2014

Off Label Use Does Not Establish a False Claim


Part of what makes holidays special is telling and listening to the same stories over and over.  The things in the stories that dazzled us when we were young fade or lose their impact, but then other nuances in the stories strike our more mature selves as pertinent or poignant.  As a lawyer, it’s hard not to be struck by Pontius Pilate’s question of “What is truth?”  Is the question a mere sneer?  Is it an admission that the trial of Jesus was unfair?  Is it an exhibition of the  contrast between sophistry and faith?  Whichever of those possibilities is most true, who will dispute that truth can be elusive?

 

What is false?  That is also slippery.  It can be dangerous.  We are reminded of our thesis advisor, Judith Shklar who realized that one way to shine a light on virtues was to study vices.  It’s certainly a more concrete and arresting way to tackle morality, in the same way that Dante’s Inferno is an easier read than Purgatorio or Paradiso.   We are tempted to think of falsehoods as infernal, but that notion runs aground on shoals of complexity and intention.  Do these clothes make me look fat?  Are you hiding the Frank family in your attic?  Is Schrodinger’s cat dead?  

 

There’s a Youtube video by a law professor where he tells the audience in no uncertain terms never-ever to talk to the police.  Maybe you think you’re innocent and the truth will set you free, but it almost never does.  If the government wants to get you, it will be persistent and might very well use your own words against you.   Miranda warnings say nothing about how your words can be used for you – and that is because they never will be.  The government might use your words against you in a manner only tangential to the original inquiry.  Ask Martha Stewart.

 

All of which is to say that we hate the False Claims Act.  What began as a means of punishing war racketeers who sold inferior goods to the government has morphed into a dragnet for catching people and companies who missed crossing an ‘i’ or dotting a ‘t’ – on a document for another transaction in another place at another time.  That is only a slight exaggeration.  We’d like to think it is not false.   Like RICO and the statute criminalizing deprivation of the “intangible right of honest services,” the False Claims Act has become a weapon of abuse.  Even worse – and like RICO – it is an abusive weapon that greedy private parties can commandeer.  
 
 
We’ve groaned before about the abuse of the False Claims Act against drug and device companies that allegedly marketed products off label.  Perhaps we are stubborn or stupid (or both), but we have a hard time finding the false statement in those cases.  A couple of weeks ago, a judge dismissed claims in an off-label False Claims Act, but the dismissals were without prejudice and the reasoning was more intricate than what we’d like to see: a shout of “nonsense!” as we’d usher the plaintiff down the courtroom steps.    

 

The case was Simpson v. Bayer Corp., 2014 U.S. Dist. LEXIS 51342 (D.N.J. April 11, 2014).  Simpson brought a qui tam action against her former employer under the False Claims Act and similar state and local statutes.  She had helped market Trasylol, and was now alleging that Bayer had illegally promoted Trasylol “engag[ing] in a campaign  of concealment and disinformation concerning Trasylol’s safety and efficacy that continued at least until May 2008, when Bayer recalled Trasylol from the market.”  Simpson, 2014 U.S. Dist. LEXIS 51324 at *3.  These promotional activities, according to Simpson, violated the Food Drug and Cosmetic Act (FDCA) prohibition against “misbranding”.  The tie-in between misbranding and off-label promotion is the residue of sloppy statutory language.  A drug is misbranded if labeling, which under the FDCA includes all drug manufacturer promotional and advertising material, describes any intended use for the drug not approved by the FDA.  Simpson alleged that Bayer misbranded Trasylol by promoting off-label uses of the drug. 

 

Okay, okay.  What did Bayer say that was false?  Good luck figuring that out.  Why isn’t this case dismissed before the ink dries on the complaint?  The court tells us “there are two categories of false or fraudulent claims under the FCA: factually false claims and legally false claims.”  Id. at *13.  Dante would have enjoyed this kind of scholasticism.  Us?  Not so much.  Our heads are starting to hurt.   A claim is “factually false” when the claimant misrepresents what goods or services that is provided to the Government.  We don’t have that here.  It’s not as if anyone handed pills over to the government and said they were magic beans.  What about legally false?  That happens when the claimant knowingly falsely certifies that it has complied with a statute or regulation the compliance with which is a condition for Government payment.  Id.   

 

Got it?  We’re not done yet.  It turns out that there are two different “false certification” theories of liability: the express false certification theory and the implied false certification theory.  Under the express false certification theory, an entity is liable under the False Claims Act  for falsely (aha!) certifying that it is in compliance with regulations that are prerequisites to Government payment in connection with the claim for payment of federal funds.  Nobody says that we have that here.  So what the Simpson case must be about is the pimple on the rump of False Claims Act jurisprudence,  the implied false certification theory, when an entity is liable if it “seeks and makes a claim for payment from the Government without disclosing that it violated regulations that affected its eligibility for payment.”  Id. at *14.  Let's switch from anatomy and rumps to botany:  isn’t this branch of the False Claims Act decision-tree, in truth, full of sap and sharp edges?  But what is truth?

 

The plaintiff’s theory was that each claim for payment for Trasylol was “false or fraudulent in implying that the drug was not misbranded and was permitted in interstate commerce.”  Id. Can you count the jumps of illogic buried in that formulation?  It’s sophistry.  What tripped the plaintiff up – and credit must be given here to smart defense lawyers and a smart judge (although it is a pity that so much smartness had to be devoted to slamming the window shut on such a frail theory of liability) – was the inability to show that compliance with the regulation that the defendant allegedly violated was a condition of payment from the Government.  It is a heightened materiality requirement, and just as in securities cases, that materiality requirement is the highest hurdle for plaintiffs.   

 

The Complaint made a valiant effort (please read irony into that word “valiant”)  to plead that compliance with the FDCA’s misbranding provisions was a condition of payment from the Government, but it could not quite do it.  The Complaint alleged that the government settlements with drug and device companies are evidence that the federal government deems misbranding to be a material ground for recovering federal funds expended on pharmaceuticals.  According to the plaintiff, from that “evidence” it can be inferred “that the Government may eventually sue a drug manufacturer for failing to comply with the FDCA’s misbranding provisions.”  Id. at *18.  The court was not going to go so far in drawing inferences.  It simply did not follow that the Government conditions its payments for pharmaceuticals on a drug manufacturer’s compliance with the FDCA’s misbranding provisions.  Accordingly, the Complaint did not adequately plead the existence of a condition of payment.  The Government’s (pernicious) prosecutions of false claims by drug and device companies has no bearing on whether compliance with the misbranding provisions of the FDCA is a condition of payment from the Government for Medicaid reimbursements.  And since when are settlements evidence?

 

The Complaint also alleged that the defendant submitted or caused to be submitted claims for Medicare reimbursement of a drug when the use of that drug was not “reasonable and necessary for the diagnosis or treatment of illness or injury.”  The Medicare Benefit Policy Manual (MBPM) provides that FDA approved drugs used for indications other than what is indicated on the official label may be covered under Medicare if the carrier determines the use to be medically accepted, taking into consideration the major drug compendia, authoritative medical literature and/or accepted standards of medical practice.  The plaintiff seemed to suggest that if a major drug compendium did not support an off-label use, then the off-label drug use could not be “reasonable and necessary.”  But the court concluded that there was more flexibility than the plaintiff contemplated.   The MBPM language states only that a carrier should consider the major drug compendia.  Moreover, an off-label drug use is considered medically accepted under the Medicaid statute if that use is supported by “one or more citations” in the major drug compendia.

 

The Complaint also alleged that the DRUGDEX entry for Trasylol lists numerous off-label uses for Trasylol, but none of those off-label uses had ‘good’ documentation that they are both safe and effective, and some, such as orthopedic surgery, were described as ‘ineffective’. That gotcha arises from the plaintiff’s predictably selective reading of the DRUGDEX.  Of course other parts of that compendium support off-label use.  What about them?  The plaintiff asserted that the compendia listings themselves are the product of the defendant’s “misbranding of Trasylol through consistent false and misleading statements, articles, and reports about the drug’s safety and efficacy, including off-label uses.”  Id. at *35.  So what condemns the defendant is true, and what supports the defendant must be the offspring of the defendant’s lies.  What is truth?  Truth is whatever it takes to propel the plaintiff toward a multimillion dollar verdict.  After all, doesn’t the word “verdict” mean to speak the truth?  But here’s another truth:  the  Complaint does not “not allege a single fact regarding what Bayer submitted to the compendia or how the compendia evaluated Trasylol.”  Id. at *36. 

 

It is interesting how a False Claims Act complaint can contain claims that to an objective reader, or, at least, a nonobjective DDL defense hack, ring  … false. 

 

Tuesday, April 22, 2014

Pom Wonderful Is Now Submitted, and Courts Continue to Follow It



Yesterday the Supreme Court heard oral argument on the Pom Wonderful case.  One thing we’ve learned is that Justice Kennedy doesn’t seem to like Coke’s label for its juice:
JUSTICE KENNEDY:  Is it part of Coke's narrow position that national uniformity consists of labels that cheat the consumers like this one did?
MS. SULLIVAN:  Justice Kennedy, you have perhaps succumbed to Mr. Waxman's attempts to argue his jury argument here.  We're on a motion to dismiss.  There is no record.  We've put in a brief. ­­
JUSTICE KENNEDY:  I think it's important for us to know how the statutes work.  And if the statute works in the way you say it does and that Coca­ Cola stands behind this label as being fair to consumers, then I think you have a very difficult case to make.  I think it's relevant for us to ask whether people are cheated in buying this product.  Because Coca­Cola's position is to say even if they are, there's nothing we can do about it.  Do you still have this label?
Transcript, at 28:1-17 (emphasis added).  Oof.  But not to worry (just yet).  There are seven other justices considering this case (Justice Breyer has recused himself).  It’s far from over.
In fact, courts continue to follow the Ninth Circuit’s Pom Wonderful decision (which we wrote about here).  Recently, a magistrate in the District of Colorado recommended the denial of a defendant’s request to amend its pleadings to add a Lanham Act counterclaim because it involved an area regulated by the FDA.  Oralabs, Inc. v. The Kind Group LLC, 2014 U.S. Dist. LEXIS 49704 (D. Col. Mar. 10, 2014). 
Oralabs is another Lanham Act business dispute, this one involving lip balm.  The defendant claimed that the plaintiff represented that its competing lip balm weighed 7 grams when its “useable weight” was in fact less than 6 grams.  Id. at *9.  While that ordinarily may be fodder for a Lanham Act claim, the FDA regulates cosmetics.  It’s the “C” in FDCA.  It requires cosmetic labels to include the product’s “net weight” and “accurately reveal the quantity of cosmetic in the package exclusive of wrappers and other material packed therewith.”  21 C.F.R. §701.13.  And so the court found that the proposed Lanham Act claim encroached on an area regulated by the FDA and was an improper attempt to privately enforce FDA regulations, something that the FDCA prohibits:
[B]because no private right of action exists under the FDCA, a plaintiff may not use the Lanham Act as an alternative vehicle by which to seek redress for an FDCA violation.  When the Lanham Act and the FDCA overlap, any conduct that amounts to a violation of the FDCA is within the Food and Drug Administration's jurisdiction.
Id. at *8-9- (citing, amongst other cases, POM Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170, 1175-1176 (9th Cir. 2012), cert. granted, 134 S. Ct. 895 (2014)).  Since the defendant's claim “require[d] an interpretation of the FDCA's requisite level of accuracy [under its regulations], the claim [wa]s preempted."  Id. at *12. 
We’re not sure what Justice Kennedy thinks about the lip balm label.  Regardless, in the meantime, courts are still following Pom Wonderful.  But in the future what Justice Kennedy is thinking may matter a lot.  We’ll just have to wait to see. 

Monday, April 21, 2014

Just Add Water . . . Clinic Isn’t a Manufacturer



            Today’s case got us thinking about all of the consumer products available that require the purchaser to add water to turn the purchased product into its usable or desired form.   Start with Jell-O.  You add hot and cold water to turn powder in a wiggly, jiggly, sweet snack.  There’s always room for Jell-O.  Or, how about all of the powdered drink mixes that have been around since the 1930s:   Kool Aid; Tang; Crystal Light.  And, what about the always popular sea monkeys (enjoy these vintage commercial clips).  Well, if plaintiffs in Thornton v. Davita Healthcare Partners, Inc., 2014 U.S. Dist. LEXIS 50975 (D. Col. Apr. 9, 2014) had prevailed on their products liability claims, the next time you stirred up a batch of Country Maid lemonade, you might  have had to consider yourself a manufacturer. 

            Boiled down to its core, that in fact was plaintiff’s claim.  But, we don’t make light of the alleged injuries and serious harm that these plaintiffs suffered.  This group of consolidated plaintiffs all underwent hemodialysis at Davita clinics and as part of the process all were treated with dialysate (a prescription-only medical product that maintains the proper balance of acids and bases in a patient’s blood) manufactured by a company called Fresenius.  Id.  at *3-4.  Plaintiffs suffered severe injuries, including for some death, allegedly as a result of improper blood pH. 

            The same plaintiffs filed a separate suit in a different jurisdiction against the manufacturer of the dialysate.  We haven’t seen that complaint and know nothing about that case.  What we do have is a general belief that if these plaintiffs want to file products liability claims, they in fact need to be brought against the manufacturer of the product plaintiffs allege injured them and not the clinic that administered the product to them.

            In addition to negligence and consumer protection claims, which the court found survived defendant's motion to dismiss, plaintiffs brought strict products liability and breach of express and implied warranty claims against the clinic.  While hospital liability isn’t a main focus of the DDL blog, we have posted on it before, mainly to help our clients in cases where hospitals are co-defendants.  And, as our 50-state survey found, the overwhelming weight of authority is that a hospital cannot be strictly liable for claimed defects in drugs and medical devices that are used in medical procedures within its walls.  For the most part, plaintiffs attempting to bring such claims allege that the hospital is strictly liable as a distributor or intermediate seller.  But in Thornton, plaintiffs argued that the clinic was actually the manufacturer:

Acknowledging that Fresenius manufactures [dialysate], plaintiffs nonetheless insist that Davita is also a manufacturer because it adds water to the powdered compounds sold by Fresenius and thereby “manufactures” the solution that Davita ultimately uses in its dialysis treatments.

Id. at *10.  We aren't in favor of any arguments looking to expand the definition of manufacturer.  Fortunately, this one never got off the ground. 

            Certainly the precision, sterilization, and we're sure other procedures that go into mixing dialysate don’t equate to mixing up a pitcher of Tang in your kitchen.  But it’s not a preposterous analogy and it supports the court’s conclusion that plaintiffs’ theory “stretches the commonsense and legal definitions of manufacturer too far.”  Id.      

            The court’s analysis starts off with citations to the lead cases in ten states (plaintiffs’ home states plus Colorado) supporting that strict liability and breach of implied warranty claims are not available against healthcare providers.  Id. at *11- 14.  In response to that overwhelming body of law, plaintiffs attempted to fit the clinic under each state’s definition of manufacturer.  The court disagreed:

Davita is not a manufacturer of solutions for hemodialysis.  Doctors prescribe hemodialysis, and Davita administers the treatment.  The only action that Davita takes that could possibly be construed as “manufacturing” is the addition of water to achieve the correct concentration of hemodialysis solution. Plaintiffs are free to allege that Davita acted negligently in its creation of the solution or monitoring of patient blood pH, but they cannot pretend that by adding water to a product manufactured by someone else (a step that is necessary to use the product for its intended purpose) Davita thereby became a manufacturer of the product or that Davita should be held strictly liable for defects in that product.

Id. at *15-16.    In addition to plaintiffs’ lack of case law to support their position, they also offered no facts to suggest that by adding water to the dialysate powder, a new product was created or that the product was “chemically altered” in a way that allegedly caused plaintiffs’ injuries.  Id. at *16.  If they had would that have made a difference?  We don't think so, but since they didn't go there, neither will we.  The bottom line for this case -- re-hydrating a powder is simply part of the process of administering it and the clinic’s role was that of a healthcare provider – nothing more.

            So, enjoy your Jell-O and Kool Aid with the further benefit of knowing that by adding water you remain simply a consumer of a sugary treat (or just recall them fondly from your childhood, the taste might not be one that carries forward to adulthood).    

Friday, April 18, 2014

The Ninth Circuit Taketh Away on Daubert


We reported on the Northern District of California’s order granting summary judgment in Messick v. Novartis Pharmaceutical Corp. when it came out in February 2013, and a good and proper order it was.  The plaintiff was treated with bisphosphonate therapy for approximately two years, and she alleged that she developed osteonecrosis of the jaw (“ONJ”) more than a year after she stopped the therapy.  The problem for the plaintiff was that she had no reliable scientific evidence linking her drug therapy to her alleged disease.  Sure, she had an expert, but the expert admitted that pathology results upon which he relied were not scientifically reliable.  He also admitted that his “differential diagnosis” failed to take into account numerous other risk factors, asserting that “it just doesn’t happen” that someone like the plaintiff would experience ONJ without contribution from bisphosphonates. 
“It just doesn’t happen” is what we say when discussing whether the Chicago Cubs will win the World Series or whether we will ever fully appreciate the talents of Miley Cyrus.  When it comes to giving causation opinions to a reasonable degree of medical certainty, you will forgive us for expecting more.  The district court expected more too, and it found the opinion lacking in reliable methodology and also relevancy because the expert could not say that bisphosphonate exposure caused the plaintiff’s ONJ. 
You can imagine then our disappointment with the Ninth Circuit’s recent opinion reversing the district court’s sound and well-reasoned order.  Messick v. Novartis Pharmaceuticals Corp., No. 13-15433, 2014 U.S. App. LEXIS 6257 (9th Cir. Apr. 4, 2014).  The Ninth Circuit began its analysis by stating that “[t]he relevancy bar is low,” and it faulted the district court for excluding the opinion because, even though the expert could not say that the plaintiff’s ONJ was caused by bisphosphonate therapy, he did say that the ONJ was related to bisphosphonate therapy.  Id. at **6-7. 
The Ninth Circuit was willing to brush aside the difference between association and causation, but we’re not.  A disease may be associated with a certain drug, but it does not take an epidemiologist to understand that such an association does not demonstrate that the drug caused the disease.  Perhaps the condition calling for the drug therapy is also a risk factor for the disease.  Take for example a hypothetical obesity drug.  You might see cardiovascular events in people who take that drug, but that does not mean the drug caused any patient’s heart attack because obesity is itself a major risk factor.  We have no idea how bisphosphonates are “related” to ONJ (if at all), but we do know that that an expert who cannot say that the drug caused the disease is no help to the jury, which makes the expert’s opinion irrelevant. 
The Ninth Circuit’s discussion of the opinion’s reliability is equally off the mark, mainly in its acceptance of the expert’s “differential diagnosis.”  There is no concept in drug and device litigation that has been more misused than the “differential diagnosis,” which is a process of elimination that physicians use to makes diagnoses and prescribe treatment.  As our readers already know, there is no need for a diagnostic tool when you’ve already got a diagnosis, which plaintiffs in litigation generally already have.  However, somewhere along the way, plaintiffs and their lawyers advanced “differential diagnosis” as a method to determine the cause of a disease already diagnosed, and many courts have regrettably accepted this concept.
But even accepting that state of the law, we think the expert’s “differential diagnosis” in Messick was flawed.  For one thing, it is not clear from the opinion that he reliably “ruled in” bisphosphonate therapy as a potential cause of the plaintiff’s ONJ.  We have already belabored that he could not say it was a cause, and the district court observed that the expert “never explained the scientific basis for his opinion.”  Id. at *11.  The Ninth Circuit nonetheless gave him a pass because of the “inherent uncertainty” in the medicine.  As the court explained,

[T]he [American Association of Oral and Mixillofacial Surgeons] stated in a 2009 position paper that “the current level of evidence does not fully support a cause-and-effect relationship between bisphosphonate exposure and necrosis of the jaws.”  But the paper goes on to explain that while “causality might never be proven, emerging experimental and epidemiologic studies have established a firm foundation for a strong association between monthly IV bisphosphonate therapy and the development of BRONJ [bisphosphonate-related ONJ].  []  Because of that inherent uncertainty, we do not require that an expert be able to identify the sole cause of a medical condition in order for his or her testimony to be reliable. 

Id. at *13.  This is a remarkable passage for several reasons:  First, we are not asking an expert to identify the “sole cause” of anything; we would merely have experts identify reliable scientific bases for their opinions, and so would the Supreme Court and the Ninth Circuit itself.  Second, the Ninth Circuit acknowledged that there is no scientific evidence of causation and that there may never be scientific evidence of causation.  But the plaintiff’s expert still gets to testify and the plaintiff gets to proceed with meritless claims because of an “association” based on “emerging” science, as described in a position paper which itself is not a scientific study.  We are not impressed by an association (see above), and the reliance on “emerging” science calls to mind a favorite quote:  “Law lags science; it does not lead it.”  Rosen v. Ciba-Geigy Corporation, 78 F.3d 316, 319 (7th Cir. 1996). 
Third, the plaintiff bears the burden of proving causation, and the proponent of expert opinions bears the burden of establishing their admissibility.  If there is significant uncertainty—and it appears there was not, since the expert himself admitted that he could not say that bisphosphonate therapy caused the plaintiff’s ONJ—that uncertainty should result in the opinion being excluded. 
Finally, separate and apart from the expert’s failure to reliably “rule in” bisphosphonate therapy as a cause, he also failed to “rule out” five other risk factors, which the Ninth Circuit did not even mention.  This “differential diagnosis” is flawed coming and going, which the district court readily detected.  The Ninth Circuit unfortunately did not, and it came to the wrong result. 

Sweet Home [Fill in the Blank] − A Sea Change In Personal Jurisdiction?

We’ve been reviewing the (relatively, in Internet time) recent Supreme Court decision in Daimler AG v. Bauman, 134 S.Ct. 746 (2014), and having done so we recommend it to anyone representing overseas clients worried about being swept into the maw of the overlawyered legal climate in the United States.  But more than overseas companies are affected.  All companies should give Bauman a thorough look.  It may portend a sea change – and a favorable one – in the concept of “general” personal jurisdiction.

The underlying litigation was ridiculous, involving Argentinian nationals whose relatives were injured (often “disappeared”) in Argentina’s quasi-civil war between 1976 and 1983 (Statute of limitations?  We don’t need no stinkin’ statute of limitations!).  Allegedly the Argentinian government of the time collaborated with the Argentinian subsidiary (Mercedes-Benz Argentina) of a German corporation (Daimler AG) in committing nefarious acts – on Argentinian soil.  From this brief description of the facts, it should be immediately obvious why the proper venue for this action (according to plaintiffs) was – wait for it – San Francisco.

We don’t know, and it would take too much time for us to figure out, whether Bauman was actually mooted on the merits by Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013), instructing American courts to keep their noses out of disputes arising from overseas activities, but it should be.  Bauman is another example of the same type of “we can tell the rest of the world what to do” hubris that we decried in connection with Kiobel.

Sorry for the tangent.  Back to personal jurisdiction.

The trial court quite reasonably found no personal jurisdiction over a German company for actions in Argentina.  However, the schizophrenic Ninth Circuit – assuming its “Ninth Circus” persona in this matter – reversed.  In a ruling that sent shivers up the spine of many of our overseas clients, it held that general personal jurisdiction, that is, where a defendant is sufficiently ensconced in a forum to be sued for anything, no matter where the claim arose, could be established merely because the German parent controlled a subsidiary (not alleged to have anything to do with long-ago Argentinian events) that did business in the forum state.  No, this wasn’t a form of “piercing the corporate veil.”  There was no allegation that either parent or subsidiary messed up any of the details of corporate separation.  Nope, the Ninth Circuit found jurisdiction on an “agency” theory:  essentially that a subsidiary controlled by a parent (as almost all of them, by definition, are) can be considered an agent of the parent and their forum contacts aggregated for jurisdictional purposes.  Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 923-24 (9th Cir. 2011), rev’d, 134 S. Ct. 746 (2014).

The Supreme Court reversed – unanimously.  That wasn’t much of a surprise, frankly, but the Court (the majority opinion; there was more than one rationale for reversal) didn’t just blow out the “agency theory.”  It went beyond that, returning to first principles.  Even if the Ninth Circuit’s cockamamie agency theory were otherwise accepted, the Court held, that was insufficient to create general personal jurisdiction over the defendant for things that happened in Argentina – not California.

The test for general (as opposed to “specific”) jurisdiction is “when [a defendant’s] affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.”  Bauman, 134 S. Ct. at 754 (citation and quotation marks omitted).  Over the years, most lawyers (and many courts) forgot about the “essentially at home” part of this definition.  Not the Supreme Court in Bauman. The Court focused on “essentially at home,” and gave it independent weight.  “Continuous and systematic” wasn’t enough, by itself.  The defendant must be “at home” to be amenable to general personal jurisdiction.  “Specific jurisdiction has been cut loose from Pennoyer’s sway, but we have declined to stretch general jurisdiction beyond limits traditionally recognized.”  Id. at 757-58 (discussing Pennoyer v. Neff, 95 U.S. 714 (1878), restricting exercise of personal jurisdiction to “the geographic bounds of the forum”).  The Pennoyer rule, while long since abandoned in “specific” jurisdiction cases, was held in Bauman to be alive and well when “general” jurisdiction is asserted.

That’s a big deal, because “geographic bounds” is a quite limited test.

The Ninth Circuit’s “agency” theory went straight out the window.  Agency had nothing to do with being “at home” in this or that forum, so it has nothing to do with general personal jurisdiction.  The Ninth Circuit had improperly “stacked the deck”:

[T]he inquiry into importance stacks the deck, for it will always yield a pro-jurisdiction answer. . . .  The Ninth Circuit's agency theory thus appears to subject foreign corporations to general jurisdiction whenever they have an in-state subsidiary or affiliate, an outcome that would sweep beyond even the “sprawling view of general jurisdiction” we rejected in Goodyear [Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011)].

Bauman, 134 S. Ct. at 759-60.  Instead, “only a limited set of affiliations with a forum” will create general or “all-purpose” jurisdiction.  Id. at 760.

So what is the general jurisdiction test, then?

Where a corporate defendant is “essentially at home”?  Creating and supervising an agent that does business somewhere else are “slim” contacts, not nearly enough.  “Daimler’s slim contacts with the State hardly render it at home there.”  Id. at 760.  More importantly, even “continuous and substantial” contacts don’t suffice by themselves – the corporate defendant must also be “at home” – this is the key point for future cases.

Goodyear did not hold that a corporation may be subject to general jurisdiction only in a forum where it is incorporated or has its principal place of business; it simply typed those places paradigm all-purpose forums. . . .  [T]he inquiry under Goodyear is not whether a foreign corporation’s in-forum contacts can be said to be in some sense “continuous and systematic,” it is whether that corporation’s “affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.”

Id. at 761. This is continuous and substantial plus.   Only in an “exceptional” case (not defined) will a corporate defendant be subject to personal jurisdiction beyond the places where it is either:   (1) incorporated, or (2) has its principal place of business.   Id. at 761 n.19.   The example the court used of such a case was Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952), which was pretty darn exceptional:  the company was run out of its usual principal place of business (the Philippines) by the Japanese invasion in World War II, and had set up temporary quarters in Ohio.  So, short of a corporation becoming a wartime refugee, being “at home”looks pretty well limited to incorporation/principal place of business.   Bauman thus set a standard well beyond having an agent for service of process.
So – what if an overseas corporation (like the defendant in Bauman) doesn’t have an American principal place of business? The answer appears to be,“tough”:

The Ninth Circuit, moreover, paid little heed to the risks to international comity its expansive view of general jurisdiction posed.  Other nations do not share the uninhibited approach to personal jurisdiction advanced by the Court of Appeals in this case. . . .  Considerations of international rapport thus reinforce our determination that subjecting Daimler to the general jurisdiction of courts in California would not accord with the “fair play and substantial justice” due process demands.

134 S. Ct. at 763.  “Comity” means that, in the interest of the smoother operation of international affairs generally, a court refrains from upsetting the international applecart, even if it could.  So overseas corporations may well be shielded altogether.  Comity would not, however, be an additional factor for companies incorporated in an American state.

Bauman could be a big deal.  Our shorthand from law school – general = continuous & substantial; specific = minimum contacts, is no longer so.  Continuous and substantial is not enough.  Some of our clients are large enough that they arguably had a continuous and substantial presence in every state.  But they’re still only domiciled in a couple of states.  This will make it harder, we think, for forum-shopping plaintiffs to aggregate claims by limiting (or in some cases eliminating altogether) the fora in which claims may be aggregated.  Consider:

  • Will plaintiffs be able to concoct nationwide class actions and bring them in jurisdictions with peculiarly unfavorable law or procedures, when the target defendant isn't domiciled there, and thus is not subject to jurisdiction where the plaintiff was not injured in forum state?
  • Will all these food class actions still be able to be brought in California?  Can plaintiffs claim specific jurisdiction instead?
  • Will all these False Claims Act cases (unless the FCA has special federal jurisdictional provisions, which we don’t know) still be able to be brought in Massachusetts?
  • Will all those cases about just about anything be able to be brought in Madison County Illinois – or Philadelphia, Pennsylvania, for that matter, when the plaintiff suffered no injury in the forum?
  • What about fraudulent misjoinder cases, since personal jurisdiction is a constitutional issue?

We don’t know the answers to these questions (although we can guess as to some), but we’re sure looking forward to finding out.  So should every lawyer currently engaged in the defense of mass tort litigation – and not just drug and device mass torts (plane crashes have never fit well into territorial models, and patent “hellholes” may be just as threatened).

What we do know is that the contacts in Bauman of the defendant’s claimed agent – Mercedes-Benz, USA – with California weren’t near enough to sustain general jurisdiction.  Eight justices (all but Sotomayor) signed on to Bauman, which was authored by Justice Ginsburg, not ordinarily considered a conservative ideolgue.  So the mere fact that a company sells lots of its products all over the country doesn't cut it for general jurisdictional purposes.  That's all the jurisdictional facts that plaintiffs ordinarily have against most of our clients, and against most large U.S. companies.
 
But the idea of “continuous and substantial” as the sole test for general jurisdiction is now dead.  Instead, “[g]eneral jurisdiction . . . calls for an appraisal of a corporation’s activities in their entirety, nationwide and worldwide.  A corporation that operates in many places can scarcely be at home on all of them.”  Bauman, 134 S. Ct. at 762 n.20.  Likewise dead is the assumption that large companies conducting “continuous and substantial” business everywhere in the country may be sued anywhere for anything.  Thus, the jurisdictional basis for this country’s litigation hellholes is, after Bauman, open to considerable question.  And what happens if a hellhole is limited to defendants actually domiciled in that state?   Those defendants may just pack up and leave, since escape is now possible.

So, where can a plaintiff sue a corporate entity?  Three places in most instances – where the plaintiff was injured/exposed (under principles of specific jurisdiction), where the defendant is incorporated, or where the defendant has a principal place of business.  After that, anything else, and the plaintiff better have something "exceptional" – like a World War II-style military invasion.  By and large, they won't.

Thursday, April 17, 2014

O Defect, Defect! Wherefore art thou Defect?



            This post is from the non-Reed Smith side of the blog.

            This is apparently the question the court was asking in deciding whether to dismiss Dilley v. C.R. Bard, Inc., 2014 U.S. Dist. LEXIS 47066 (C.D. Cal. Apr. 3, 2014).  Now Shakespeare may have been using “wherefore” to have Juliet ask the question “why.”  Why, of all the families in Verona, does Romeo have to be a Montague?  But, for our purposes, we’ll take the modern translation.  Where is the defect?  Turns out it wasn’t in the complaint.  We’ll try to keep today’s post as short as we believe the complaint in this case was.

            The case involved a surgical mesh used to repair plaintiff’s hernias.  Plaintiff developed chronic pain post surgery and three years later he had revision surgery, including removal of the mesh.  Id. at *1.  Plaintiff’s terse complaint alleged three causes of action.  First, plaintiff attempted to plead a manufacturing defect by simply alleging that the device “possessed a defect.”  You could argue, isn’t a defect, a defect?  After all, “what’s in name?  That which we call a rose by any other name would smell as sweet.”  That might work for Juliet, but in a products liability action, simply calling something a defect isn’t enough.  For a manufacturing defect, plaintiff “must identify/explain how the [product] either deviated from the [manufacturer’s] intended result/design or how the [product] deviated from other seemingly identical [products.].”  Id. at *8 (citation omitted).  The same lack of specificity was the downfall for plaintiff’s negligent design defect claim.  Id. at *9-10.  And, of course, under California law, there is no strict liability design defect for medical devices.  Id. at *9. 

            Plaintiff’s failure to warn claim similarly failed because plaintiff did “not identif[y] any warnings that were given . . . let alone how they were allegedly deficient.”  Id.  at *11.  But that wasn’t plaintiff’s only pleading mistake.  The complaint also included a medical malpractice claim against plaintiff’s surgeon.  In the malpractice allegations, plaintiff alleged the surgeon “was aware of the problems associate with the use of defendants’ [product] or reasonably should have been aware of the problems associated with the use of them.”  Id.  So, plaintiff pleaded himself right into the learned intermediary defense.  “Under California law, the learned intermediary’s prescription of the medical devices in light of the knowledge of the risks precludes a failure-to-warn claim.”  Id.

            The complaint also contained a request for punitive damages.  But, you’ve probably guessed by now based on the substantive allegations – or lack thereof – that plaintiff failed to meet “even the most lenient pleading standard” available for punitive damages.  Id. at *12-14. 

            It would certainly be an overstatement to say “for never was a story of more woe than this.”  But, the allegations in Dilley are among some of the most woeful we’ve seen.  And the dismissal, for us, is only the sweet without the sorrow.