Wednesday, July 21, 2010

What To Make Of the Aredia Choice Of Law Kerfuffle?

Perhaps you caught the recent report from our friends over at law360 about the latest Aredia decision. If not, it’s worth a read. In Deutsch v. Novartis Pharm. Corp., Judge Arthur Spatt of the Eastern District of New York was called upon to decide whether New York or New Jersey law governed the plaintiffs’ claim for punitive damages. And you might be wondering, what was all the fuss about? After all, the parties had agreed that New York law governed the plaintiffs’ substantive claims. See Deutsch v. Novartis Pharm. Corp., __ F. Supp. 2d ___, 2010 WL 2803038, at *1 (E.D.N.Y. July 16, 2010). When it came to the applicable punitive damage law, however, counsel for Novartis dug in and argued, persuasively and successfully, that New Jersey law, rather than New York law, governed the claim for punitive damages.

So why didn’t defense counsel just agree to let New York law govern the whole ballgame? Maybe the choice of law fight had to do with New Jersey’s punitive damage cap – punitive awards in the Garden State are capped at the larger of $350,000 or 5 times the compensatory award. Id. at *2. Seems like a good reason to dig in your heels and argue for New Jersey law. But there’s also something else going on here, because the New Jersey Products Liability Act (PLA) bars punitive damage awards in cases involving products approved by the FDA. Section 2A:58C-5c of the PLA has an exception to the general bar on punitive damage awards – where “the product manufacturer knowingly withheld or misrepresented information required to be submitted under the agency’s regulations, which information was material and relevant to the harm in question” – but that sounds suspiciously like a statutory provision that is preempted under Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001), and for good reason: it is. In fact, as we reported back in 2008, the New Jersey Appellate Division has found that Buckman preempts the PLA’s purported “exception” to the general statutory bar on punitive damages in drug and device cases, because that PLA exception would seek to impose punitive damage liability only upon a showing of…you guessed it: fraud on the FDA. Take another look at the language: “knowingly withheld or misrepresented information required to be submitted to the agency.” That is a pretty cut and dry example of a prohibited “fraud on the FDA” claim, if you ask us.

But here’s the interesting wrinkle. The Second Circuit – you know, the circuit court that would hear any appeal of the Deutsch case – has previously ruled that an analogous Michigan statute was not preempted by Buckman. That case was Desiano v. Warner-Lambert, and we’ve spilled a lot of e-ink (and tears) complaining about how the Second Circuit misfired. In case you don't remember, or tuned us out, the Desiano court blessed a Michigan statute that essentially bars tort claims involving FDA-approved drugs and devices unless the plaintiff can prove “fraud on the FDA.” Before and after Desiano came down in 2006, courts across the country have grappled with this slippery preemption issue, with mixed results. Some courts find that imposing liability under a statute that requires a showing of “fraud on the FDA” would violate Buckman, and others, like Desiano, have not. Most notoriously, the Supreme Court fought this issue to a 4-4 draw back in 2008 (in Warner-Lambert v. Kent), with Chief Justice Roberts recusing himself.

So now it’s 2010, and there’s a possibility that down the road this “fraud on the FDA” question could be teed up for the Second Circuit again (albeit with respect to an admittedly different statute). Will the issue ever get up to the Second Circuit? And if so, will the Second Circuit follow the New Jersey court’s lead in McDarby and declare the PLA punitive damages provision preempted, or will the Second Circuit hew to the reasoning of its prior decision in Desiano? It will be interesting to see how it all shakes out, but in any event, this seemingly minor tussle over choice of law could turn out to have wider implications for many of us practicing in this area of law.

2 comments:

Ted Frank said...

Could the Second Circuit use Erie to reconcile Desiano and McDarby without contravening either one? It would be an odd patchwork if it did (New Jersey law is preempted but Michigan law is not, notwithstanding the Sixth Circuit determination that it was), but I wouldn't put it past them.

Bexis said...

Don't think so. Erie is a mechanism for the application of state law, whereas preemption is a federal constitutional principle.