Second Circuit Snuffs Out Plaintiff Counsel Misconduct

On August 8, 2016, the Second Circuit issued its much awaited decision affirming the ruling of the Southern District of New York, which held that a $9.5 billion judgment obtained in Ecuador against Chevron Corporation by the indigenous Lago Agrio Plaintiffs in an environmental litigation could not be enforced. The Second Circuit’s 127-page decision represents a stunning rejection of virtually every legal argument advanced by Steven Donziger, who the district court found guilty of corrupt practices violative of the civil RICO statute.

8-22The Second Circuit’s decision will provide legal scholars much to discuss. After all, Donziger’s attorneys attacked the decision as unprecedented in that the trial court allowed Chevron, which had lost its case in Ecuador, to use a U.S. district court to attack the foreign damages award. However, at its roots, the Donziger RICO litigation was not really about issues such as jurisdiction or the enforceability of foreign judgments. Rather, it was about Donziger and his legal team’s brazen violations of ethics and norms when it prosecuted the Chevron case in Ecuador. The Second Circuit’s decision demonstrates that the court simply could not abide the evidence of legal misconduct. Specific instances of ethical misconduct by Donziger cited by the Second Circuit include the following examples:

  • Instructing his environmental consultant to estimate damages under the faulty assumption that Chevron’s predecessor entity, Texaco, was fully liable for all of the contamination, even after it had left the region. Donziger used what the consultant characterized as a “scientific wild ass guess” in the media to generate settlement leverage.
  • Directing Plaintiffs’ environmental consultants to use less probative tests after early environmental testing demonstrated that the pollution was likely not caused by Texaco.
  • Submitting to the court reports with falsified experts’ conclusions, including the charge that Texaco’s remediation was “inadequate or insufficient.”
  • Paying substantial fees to engineering experts to pose as “independent monitors” without disclosing to Chevron or the court that plaintiffs were paying them, which Donziger characterized in his notes as a “bargain with the devil.”
  • Coercing the presiding judge to cancel pollution site inspections due to concern that additional testing would produce pro-Chevron testing results. As coercion, Donziger used knowledge of an accusation that the judge had traded jobs for sex in his court.
  • Persuading the court to designate an independent court-appointed expert who would appear to be “independent”, despite being controlled by the Plaintiffs.
  • Directing plaintiffs’ environmental consultants to 1) perform the technical work supposedly performed by the court-appointed independent expert and 2) submit the report to the court under the independent expert’s name.

The fundamental weakness of Donziger’s appeal was his utter failure to attack any of the multiple factual bases for the trial court’s decision of nearly 500 pages. Some of the Second Circuit’s most important pronouncements are recitations of age-old legal precepts that are all too often ignored by our nation’s courts.

The appellants argued that any misdeeds by Donziger, however egregious they may have been, did not provide a basis for the district court to nullify their monetary award. They contended that they were unaware of any misconduct and “simply ‘unsophisticated client-principals following the lawyers’ lead’.” In rejecting this argument, the Second Circuit found that there was no basis for arguing that a party ignorant of the fraudulent actions of its lawyer may enforce a fraudulently procured judgment. To do otherwise, the Second Circuit held, would run afoul of the U.S. Supreme Court’s maxim that fraud “is a wrong against the institutions set up to protect and safeguard the public, institutions in which fraud cannot complacently be tolerated consistently with the good order of society.” Thus, the court noted, even innocent clients may not benefit from the fraud of their attorney.

The Hon. Amalya Kearse, writing for the Second Circuit, quoted the district court: “There is no ‘Robin Hood’ defense to illegal and wrongful conduct. And the defendants’ ‘this-is-the-way-it-is-done-in-Ecuador’ excuses–actually a remarkable insult to the people of Ecuador — do not help them. Evidence that Donziger had actively sought a prohibition in Ecuador of the disclosure ordered by the SDNY, the Second Circuit found, was evidence of bad faith and a justification for sanctions. On this basis, the court affirmed the Rule 37 sanctions granted Chevron by the district court. The district court had found the Donziger parties’ “obdurate and quite possibly contemptuous refusal to comply with their discovery obligation” warranted the striking of personal jurisdiction defenses.

A disturbing post-script to the Donziger saga is that, despite the evidence against his ethics, he retains “rock star” celebrity status in certain legal circles. Notably, after the issuance of Judge Lewis Kaplan’s trial court decision, Harvard Law School hosted Donziger at a panel discussion on Ecuadorian rainforest litigation. One may wonder why Donziger was considered a reputable source and deserving of an invitation. In fact, Paul Barrett in Bloomberg Businessweek (August 8, 2016) suggested that Donziger’s Harvard Law hosts ask him the following questions during his visit:

  • Why haven’t you rebutted or explained the evidence of fraud, bribery and collusion against you, under oath in a court of law?
  • If you did not commit fraud in this case, why did Julio Prieto, one of your Ecuadorian lawyers, email you with fears that if your activities were discovered “all of us, your lawyers, might go to jail”?
  • If you did not commit fraud in this case, how do you explain the bank records that show $1,000 was deposited in an Ecuadorian judge’s bank account on several occasions? Why were the deposit slips signed by a staff member of your organization?
  • If you did not ghostwrite the Ecuadorian judgment against Chevron, how do you explain that text from your internal work product was found word-for-word, typos and all, in the judgment?

Barrett suspects these questions were not addressed at the panel discussion in light of the tone of their event announcement material. Barrett concludes that “[w]hat we really need to find out is how much credibility should be assigned to the folks at Harvard, rather than Donziger himself, if they are willing to ignore the mountain of evidence against the racketeer and treat him as some sort of human rights crusader and victim of big business retaliation.” Harvard’s embrace of a disgraced lawyer, no matter how noble the underlying intention, raises an important question about the ends served by lending credibility to a non-credible individual.

All too often, in our nation’s mass tort litigation, such as in asbestos litigation, a clear judicial finding of fraud or misconduct does not result in the forfeiture of the party’s damages award. For example, despite clear evidence of plaintiff lawyers “gaming the system” in the Garlock bankruptcy case, many state court asbestos trial judges appear willing to take this misconduct in stride and to go about business as usual. There is little awareness in the defense bar of any judicial initiative to ensure that Garlock-like offenses are not proliferating in their courtrooms. A thorough house cleaning often does not take place in the judiciary until a journalist or an insightful jurist has brought unwelcome attention to the court.

New York Broadens Personal Injury Statute of Limitations for Waste Sites

On July 21, 2016, Governor Andrew Cuomo of New York signed legislation extending the statute of limitations in New York for personal injury claims related to pollution at superfund sites. The legislation was a response to the concerns of residents of Hoosick Falls, New York whose groundwater was contaminated with PFOA, a chemical compound previously used at manufacturing facilities in Hoosick Falls for several decades. Although the new legislation was specifically tailored to assist residents at Hoosick Falls in bringing PFOA-related personal injury cases, it is likely that the law will have an impact far beyond Hoosick Falls.

7-28The new law resurrects previously time-barred claims. Any time a site is designated a superfund site, potential plaintiffs will now have a new three-year window to bring a personal injury action related to the site. Corporate entities that have been identified as responsible parties at inactive hazardous waste disposal sites may find themselves at increased risk for alleged toxic exposures that may have occurred decades ago. The new law has the potential to generate an enormous windfall for the plaintiff bar.

Prior to the new enactment, New York already had an expansive statute of limitations for toxic tort claimants in latency cases. The period in such cases is computed from the “date of discovery of the injury by the plaintiff or from the date, when through the exercise of reasonable diligence, such injury should had been discovered, which ever is earlier.”

The new statute, codified as CPLR 214-f, supersedes this discovery trigger.

Action to recover damages for personal injury caused by contact with or exposure to any substance or combination of substances found within an area designated as a superfund site. Notwithstanding any provision of law to the contrary, an action to recover personal damages for injury caused by contact with or exposure to any substance or combination of substances contained within an area designated as a superfund site pursuant to either Chapter 103 of Section 42 of the United States Code and/or Section 27-1303 of the environmental conservation law, may be commenced by the plaintiff within the period allowed pursuant to section two hundred fourteen-c of this article or within three years of such designation of such an area as a superfund site, which ever is latest.

The plaintiff may have known about the contamination and alleged illness for years, but no matter. The statute begins anew once the designation takes place.

It is well known that a federal or state site may be designated as a superfund site decades after alleged contamination has taken place. CPLR 214-f may require corporate defendants identified as potentially responsible parties (PRPs), even if de minimis, at newly listed superfund sitesto defend personal injury cases alleging decades-old exposures. The Hoosick Falls litigation will likely target: (1) a single chemical compound, PFOA, (2) used by a small group of defendants, (3) identified in drinking water, and (4) specific diseases that the epidemiologic literature associates with PFOA exposure. As enacted, however, the law may encourage plaintiff lawyers to plead “chemical soup” mass tort toxic tort claims against multiple defendants involving multiple chemical substances and alleging that this “chemical soup” caused a broad range of diseases.

New York ECL 27-1303, which is specifically referenced in the new law, emphasizes the role of New York counties in identifying inactive hazardous waste disposal state sites within their boundaries and submitting annual reports to the NYDEC describing the location of each suspected site and the reasons for such suspicion. Unlike the designation of a superfund site at the federal level, the designation of a superfund site at the state level is a much more localized process that can be subject to political manipulation.

The sponsors of the legislation were clearly influenced, not only by the discovery of water contamination in Hoosick Falls, but the serious problems in Flint, Michigan as well.

The recent discovery of water contamination in Hoosick Falls, New York and Flint, Michigan has raised great alarm across our country and our state. These instances of contamination have been sited as a potential cause of many previously unexplained illnesses suffered by members of those communities. In many cases, the statute of limitations to bring a personal injury action has long since run before any contamination was every discovered. This bill seeks to address this in equity and give those who have been sickened legal recourse to be made whole.”

Although the sponsors claim that their bill would “create a narrowly tailored legal mechanism to address instances where extraordinary circumstances negatively impact public health,” this legislation is anything but narrow. The statute permits recovery “for injury caused by contact with or exposure to any substance or combination of substances.” Plaintiff may argue that the new law applies to any substance at any CERCLA site regardless of whether that substance is subject to regulation under the statute. For example, CERCLA specifically excludes petroleum contamination. Is a company that disposed of petroleum products at a waste site, which is not a proper substance for CERCLA regulation, a proper target of a personal injury action under CPLR 214-f?

“Every Exposure” Theory of Causation Rejected by Georgia Supreme Court

The highest court in Georgia recently excluded a standard plaintiff argument that “every exposure” to asbestos causes mesothelioma. In Scapa Dryer Fabrics, Inc. v. Knight, the court overturned a plaintiff verdict and reversed both the trial court and intermediate appellate court, holding that a medical expert’s opinion that “every exposure above background contributed to cause plaintiff’s mesothelioma” is legally unsound and “does not ‘fit’ the legal standard for causation”, which requires that an exposure be more than de minimis or trivial. The Georgia Supreme Court reversed, resulting in judgment for the defendant.

7-11The defendant, a textile manufacturer in the late 60’s and early 70’s, produced dryer felts. Some felts contained asbestos that was released into the air during manufacture, at a facility where some of the pipes were insulated with material containing asbestos. Plaintiff was an outside sheet-metal contractor who worked at defendant’s facility on multiple occasions over a four-year period. Plaintiff was sometimes present when the manufacturing process was underway, worked in ventilation ducts that had collected dust, and on one occasion cut into pipe insulation and breathed that dust.

Over defendant’s objection, the trial court allowed plaintiffs’ expert pathologist, Dr. Jerrold Abraham, to testify to the following syllogism: “background asbestos is not known to cause mesothelioma;” “the precise point at which cumulative exposure is sufficient to cause any particular person to develop mesothelioma is not scientifically knowable;” “when a person has mesothelioma, it can only be attributed to his cumulative exposure as a whole;” “each and every exposure to respirable asbestos in excess of the background contributes to the cumulative exposure;” therefore, “each exposure in excess of background is a contributing cause of the resulting mesothelioma, regardless of the extent of each exposure.” Dr. Abraham went so far as to testify that “a causal connection would be lacking only if ‘there was no asbestos exposure’ attributable to [defendant]’, that “one fiber [of asbestos] above ambient levels would be causative for someone who had  mesothelioma”, that “he did not need to determine the extent of [plaintiff’s] exposure, but only need to know that the exposure was more than ‘zero’”, and that “if someone gets the disease from a trivial exposure, it is still asbestos-related.’”

This is a common position taken by plaintiffs’ experts in toxic tort litigation. It is known by many names: “single fiber,” “any exposure,” “every exposure” or, in this case, the “cumulative exposure” theory of causation. The theory has been rejected by the supreme courts of Pennsylvania and Texas and many other courts; a recent California appellate court, in dicta, refused to reject this theory outright, but affirmed the plaintiff’s burden as requiring proof that the defendant’s product “was a substantial factor in contributing to the risk of developing asbestos-related cancer.” (See our earlier post on the California case.)

The jury in Scapa assessed 40% fault to the defendant and awarded plaintiffs $4 million.

The Supreme Court of Georgia analyzed this issue first by examining the relevant standards for admissibility of expert testimony. It noted that the question of admissibility of expert testimony is a question “committed to the sound discretion of the trial court.” However, using language much like the United States Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 597 (1999), the court held that it is incumbent upon the trial court to “act as a ‘gatekeeper’ to ensure the relevance and reliability of expert testimony.” Dr. Abraham’s qualifications were not in dispute. Instead, the defendant challenged his “single fiber” theory as “junk science”, and also argued that the testimony was not relevant because it did not “fit” the legal standard for causation under Georgia law. The court agreed with the second point (and hence did not reach the question whether the “cumulative exposure” theory is scientifically valid), holding that because this opinion “does not ‘fit’” the legal standard for causation, and for that reason, the admission of his testimony … was not helpful to the jury and amounted to an abuse of discretion.”

To prove causation in an asbestos personal injury case under Georgia law, a plaintiff must therefore show that an exposure was a “contributing factor” in bringing about the disease. It need not be “substantial”, but it must be “meaningful” and not “de minimis.”

Though the court recognized that the plaintiffs in that case “may well have presented evidence of more than a de minimis exposure” at defendants’ facility, defendants presented evidence to the contrary. But by admitting the opinion of Dr. Abraham that “any asbestos above background … was a contributing cause of the mesothelioma” (i.e., even a de minimis exposure), the trial court allowed the jury to resolve this dispute in a manner inconsistent with Georgia law.

The court cautioned: “That is not to say that expert testimony premised upon a cumulative exposure theory could never be relevant to causation.” But the court held fast to the notion that de minimis or trivial exposures are not causative. Had Dr. Abraham also presented reliable evidence that the exposures in question were “more than de minimis,” and had he based his ultimate causation opinion on exposures that were more than de minimis, “the opinion then might ‘fit’ the pertinent causation inquiry, notwithstanding that the extent of exposure is disputed.” The court pointed out that in other cases Dr. Abraham’s “cumulative exposure” theory has been allowed when coupled with a review of the evidence of the extent of exposure and of studies showing such exposures present an increased risk of developing mesothelioma.

While a precise quantitative exposure analysis is not required, a qualitative assessment is. Thus, an opinion that a “de minimis” or “any” exposure could cause mesothelioma is inadmissible (at least in Georgia), while an opinion that each “significant” or “sustained” exposure to asbestos” is a cause would be admissible.

How Much is too Much? Counsel’s Active Conduct in Asbestos Suit Results in Forfeiture of Jurisdictional Defense

Since the jurisdictionU.S. Supreme Court handed down Daimler AG v. Bauman 134 S.Ct. 746 (2014), personal jurisdiction defenses have experienced a renaissance in asbestos litigation.  Defendants that wish to win such arguments, however, are well advised to heed a recent ruling by Judge Gibney, who presides over Rhode Island’s state court asbestos docket.  In Bazor v. Abex Corporation et al., C.A. No. PC-10-3965 (R.I. Super. May 2, 2016), Judge Gibney issued a ruling that is instructive on what a defendant must do to preserve its right to contest jurisdiction, holding that a defense counsel’s “active conduct constitute[d] forfeiture of the defense of lack of personal jurisdiction.”  The court referred to “forfeiture” as opposed to “waiver” because the defendant had properly asserted the lack of personal jurisdiction as a special defense.

In this instance, the “active participation” included the following conduct during the two years and nine months between the filing of an answer and the motion to dismiss: filing an objection to the trial date, attending a plaintiff’s deposition, requesting and participating in the reopening of that deposition, participating in the deposition of the plaintiffs’ expert, objecting to the expert’s deposition on non-jurisdictional grounds, disclosing eight  expert witnesses, filing 15 motions in limine, supplementing its expert witness disclosure, producing two expert witnesses for depositions, responding to discovery (without preserving the defense of lack of personal jurisdiction), supplementing its expert discovery, moving to compel the production of the plaintiffs’ bankruptcy trust documents, and participating in at least ten status/settlement conferences.  In short, defense counsel’s very active participation in the litigation was so active so as to constitute “forfeiture” of a claim of lack of personal jurisdiction.

Looking to federal jurisprudence for guidance, the court focused on defense counsel’s litany of activity over several years.  Synthesizing federal decisions, the court identified two  principal elements to weigh to determine whether a defense of personal jurisdiction is forfeited: (a) the delay in asserting the defense; and (b) the “nature and extent” of the defendant’s involvement in the case.  The court noted that the first factor could be met by as little as four months’ delay; but reasoned that the second factor weighed more heavily than the mere passage of time.  With regard to the second factor, the court cited defendant’s filing of an appearance, participation in discovery, attending and taking depositions, and filing and opposing motions as evidence of active participation.  Notably, the court found that the defendant had created “substantial delay” without “a sufficiently meritorious reason” for failing to assert its defense for two years and nine months after the filing of its answer.  The level of participation appears to have been the deciding factor; with special attention brought to “the fifteen motions in limine [defendant] filed which sought merits-based rulings” and the failure to continually assert the defense throughout the course of litigation.  However, of concern is that the ruling did nothing to establish a “bright line” rule of precisely how much participation is “too much” so as to result in a forfeiture of a jurisdictional defense.

It is unclear where this decision leaves litigants who need to participate in early discovery and who also want to preserve their jurisdictional defenses.  Defendants who wish to maintain their defenses are faced with choosing from various interpretations of the Bazor decision, focusing on the assertion of their rights and carefully monitoring the level of their participation.  The decision could reasonably be read to indicate that a party may participate in discovery, but only if they continue to maintain and pursue their jurisdictional defense.  Alternatively, some parties may refuse to participate in non-jurisdictional discovery for fear of inadvertent forfeiture. This may create friction with plaintiff’s counsel when their clients are in poor health, which frequently occurs in asbestos cases across the country.  Ultimately, the lesson of Bazor may be that safest resolution for defense counsel will be to file and pursue dispositive jurisdictional motions as early in the case as possible.  At the very least, defense counsel should raise the defense in pleadings and discovery which precede the filing of the motion to dismiss on jurisdictional grounds and/or reach some sort of agreement with opposing counsel to prevent forfeiture despite some level of active participation in the case. For example, defense counsel in the asbestos litigation should obtain a stipulation that attendance at an exigent deposition does not constitute a waiver of personal jurisdiction arguments; and that stipulation should be placed on the record.

A More Personal Touch: Challenge to Madison County Jurisdiction Ordered Forward

6-7On May 25, 2016, the Illinois Supreme Court ordered the Fifth District Appellate Court of Illinois to hear Ford Motor Company’s appeal on a motion to dismiss for lack of personal jurisdiction, which had been denied by Honorable Judge Stephen A. Stobbs, the presiding asbestos judge in Madison County. Because Madison County has long been a magnet for out-of-state plaintiffs, this appeal could have widespread ramifications for out-of-state corporations, particularly those involved in mass-tort litigation. A ruling in favor of Ford would significantly impede plaintiffs’ ability to forum shop in plaintiff-friendly jurisdictions such as Madison County.

In Jeffs v. Anco Insulations, Inc., plaintiff alleges that the decedent was exposed to asbestos-containing products through his work as a union insulator at various sites. Decedent worked at the Ford plant in Michigan for six weeks in the 1970’s, but was not exposed to any Ford product or facility in Illinois.

In June 2015, Ford moved to dismiss for lack of personal jurisdiction. Ford relied primarily on the United States Supreme Court’s ruling in Daimler AG v. Bauman, which established that a court may assert jurisdiction over a foreign corporation “only when the corporation’s affiliations with the State in which suit is brought are so constant and pervasive as to render [it] essentially ‘at home’ in that forum State.” (This is an issue that we have blogged about before – California Court rules no jurisdiction over foreign parent corporations; No in state dealings for years – no jurisdictionOut of state defendant? Out of state exposure? File suit somewhere else; and Registered in Delaware Is Not At “Home” There.) Under the Daimler analysis, a corporation is generally “at home” only at its place of incorporation or principal place of business. Because Ford’s state of incorporation is Delaware and its principal place of business is in Michigan, Ford argued that the court could not impose jurisdiction.

In November 2015, Judge Stobbs denied Ford’s motion. Despite the standard articulated in Daimler, Judge Stobbs ruled that Ford is subject to jurisdiction in Illinois due to its substantial contacts with the state. Judge Stobbs noted that Ford conducts business in Illinois, owns real property in Illinois, has employees in Illinois, and has acquiesced to jurisdiction in Illinois in previous suits. Judge Stobbs further found that Ford provided “unequivocal consent to jurisdiction in Illinois” by virtue of its Illinois business license and appointment of a registered agent to accept process. To further bolster his decision, Stobbs relied on Ford’s recently filed brief in a separate case, Folta v. Ferro Engineering, in which Ford explicitly acknowledged its significant operations and monetary investments in Illinois.

After Judge Stobbs issued his ruling, Ford sought leave to appeal the decision. On February 10, 2016, a three member panel of the Fifth District denied Ford’s petition. Undeterred, Ford filed a motion for a supervisory order with the Illinois Supreme Court, which the court granted. A supervisory order is granted only in limited circumstances when the lower court acted in excess of its authority or abused its discretionary authority. As such, the granting of this supervisory order suggests that the Illinois Supreme Court finds Ford’s position meritorious.

A ruling in favor of Ford would undoubtedly be followed by an onslaught of personal jurisdiction motions, particularly for those out-of-state defendants caught in the web of Madison County asbestos litigation. Most of the active defendants have little or no connection with Illinois, and many cases involve non-Illinois exposures. In the interim, it remains to be seen whether Judge Stobbs will entertain any additional personal jurisdiction motions or simply stay them pending a ruling from the Fifth District Appellate Court.

The HPV-Lung Cancer Link: A New Issue for the Asbestos Bar?

011516_hpv_THUMB_LARGELong known for its link to cervical cancer, recent medical research suggests a potential link between the Human Papilloma Virus (“HPV”) and lung cancer. While the science in this field is still developing, it is trending towards a conclusion that HPV may independently cause lung cancer in non-smokersincluding those that have never smoked —  and may also contribute to the causation of lung cancer in smokers and former smokers.

Two recent papers have addressed this hypothesis. The earlier is HPV and lung cancer risk: A meta-analysis from Zhai et al in the Journal of Clinical Virology 63 (2015) 84 – 90.  These authors looked at nine published studies spanning 1995 to 2013 and covering 1094 cases of lung cancer.  They set the context by commenting that “Lung cancer (LC) is the most common cause of morbidity and mortality worldwide”  and “approximately 25% of those with LC are never smokers.”

The authors broke out their results for HPV in general, and for subtypes such as HPV 16 and HPV 18.  For HPV in general they reported:  “A statistically significant association was observed  between HPV and LC patients” and recorded an Odds Ratio (OR) of 5.67 with a 95% confidence interval.  Compare that odds ratio for the similar calculations that are discussed in asbestos disease cases involving auto mechanics for example. They then looked at specific subtypes of LC and noted:

We also evaluated the cancer risk of HPV16/18 in different LC histological types. In SCC (squamous cell cancer), HPV 16/18 was significantly associated with cancer risk (OR=9.78, 95% confidence interval: 6.28 – 15.22, P<0.001, l2=44.9%); however, OR was not significant in AC (adenocarcinoma) (OR=3.69, 95% confidence interval: 0.99 – 13.71, P= 0.052; l2 + 75.5%).  [Author’s note:  this OR is not “significant” because the 95% CI includes 1, but just barely so.]

In discussing their findings, these authors note that “Most people are infected with HPV at some point in their lives, but only persistent infections cause pathological changes.” They reiterate their conclusion that HPV plays a distinct role in the pathogenesis of different LCs.  They ultimately address the elephant in the room by stating “Whether smoking interacts with HPV to promote the development of LC is unclear.”

A second recent paper is Human papillomarivirus infection and risk of lung cancer in never-smokers and women: an “adaptive” meta-analysis; Bae et al, Epidemiology and Health 37 (2015).  One of their initial observations is: “The increasing incidences of lung cancer among women never-smokers is a global trend {citations omitted} and it has been suggested that lung cancer in never-smokers should be considered separately, a disease different from lung cancer in smokers {citations omitted}.”  These researchers note the work of Zhai discussed above and comment that they are expanding on it by analyzing women and never-smokers.

These researchers ultimately focused on four case control studies and calculated a “summary odds ratio” (SOR).  They found a SOR for women of 5.32 and for never-smokers of 4.78.  The authors conclude that the risk of HPV caused lung cancers for women never-smokers was expected to be even higher.

Given the substantial increase in asbestos-related lung cancer civil case filings over the past five years, the hypothesis, if ultimately proven, could result in novel new claims by both plaintiffs and defendants in the litigation. This issue has already arisen in a recent California case, in which a core needle biopsy of the lung tumor of the plaintiff was obtained and reviewed by two defense pathologists.  Administering an accepted immuno-histochemical test to that tumor tissue, the pathologists found it to be positive for P16, signifying the presence of the HPV  in the tumor.  From that, both experts were prepared to opine that the presence of the HPV in this plaintiff more probably than not caused or contributed to her cancer. The literature discussed above was part of the scientific basis they were prepared to point to in support of their conclusion.    Therefore, while more research may be indicated, in lung cancer cases for which tumor tissue is available, defense counsel may want to consider if testing for the presence of HPV is indicated.

California Adopts “Sophisticated Intermediary” Defense

Earlier this week, the California Supreme Court formally adopted the “sophisticated intermediary” defense for product suppliers. The court significantly restricted applicability of the defense, however, and ruled that there was insufficient evidence in this case that Johns-Manville qualified as such an intermediary.

5-24Webb v. Special Electric Co., Inc. articulated the defense as follows: “a [product] supplier may discharge its duty to warn end users about known or knowable risks in the use of its product if it: (1) provides adequate warnings to the product’s immediate purchaser, or sells to a sophisticated purchaser that it knows is aware or should be aware of the specific danger, and (2) reasonably relies on the purchaser to convey appropriate warnings to downstream users who will encounter the product.”

Perhaps the most significant hurdle to use of the defense in the future is the requirement that “a product supplier must show not only that it warned or sold to a knowledgeable intermediary, but also that it actually and reasonably relied on the intermediary to convey warnings to end users.”

The challenge posed by that requirement was exemplified here, where the Supreme Court ruled that Special Electric, a 2-person broker of raw crocidolite asbestos, had a duty to warn asbestos behemoth Johns-Manville and the downstream users of Johns-Manville products that incorporated Special Electric-brokered raw material. In part, this reflected a welcome understanding about the divergent toxicities of the different minerals classified together as asbestos. “Although the record clearly shows Johns-Manville was aware of the risks of asbestos in general, no evidence established it knew about the particularly acute risks posed by the crocidolite asbestos Special Electric supplied.”

Webb identified four other reasons why the evidence did not justify the trial court’s decision to grant a defense JNOV in the face of a jury verdict finding negligence.

  1. “The evidence is disputed about whether Special Electric consistently provided warnings to Johns-Manville during the relevant time frame.” Note that it is not just “warnings,” but “consistent warnings.”
  2. “[P]laintiffs presented evidence that at least one Special Electric salesperson told customers crocidolite was safer than other types of asbestos fiber, when the opposite was true. If the jury credited this evidence, it may have found it unreasonable for Special Electric to believe Johns-Manville was so sophisticated that a warning about the particular dangers of crocidolite asbestos was not called for.”
  3. Further, “the record does not establish as a matter of law that Special Electric actually and reasonably relied on Johns-Manville to warn end users like William Webb about the dangers of asbestos. We recognize that direct proof of actual reliance may be difficult to obtain when, as in the case of latent disease, the material was supplied to an intermediary long ago. However, actual reliance is an inference the factfinder should be able to draw from circumstantial evidence about the parties’ dealings.”
  4. “[T]he jury could have reasonably determined that any reliance on Johns-Manville would have been unjustified. Plaintiffs presented testimony from a former Johns-Manville employee criticizing the company’s handling of asbestos warnings and asserting it had failed to warn its own workers about the hazards of asbestos before the mid-1970s.”

While this evidence may be slim, it was enough to support the jury’s finding of negligence and thus to overrule the trial court’s grant of JNOV to the defense. The evidence in the case may also have been sufficient to support a jury finding that Special Electric was entitled to rely on the sophisticated intermediary defense, but the issue was presented only to the court and not to the jury.

Webb overruled an earlier Court of Appeal decision that had rejected the sophisticated intermediary defense on the rationale that “that doctrine, where it applies at all, applies only if a manufacturer provided adequate warnings to the intermediary.” Webb ruled that “[t]his assertion cannot be reconciled with our analysis in Johnson [v. American Standard, the key California “sophisticated user” decision].Insofar as it expresses a different view, Stewart v. Union Carbide Corp. is disapproved.” So in at least some cases a defendant that provides no warnings can rely on the sophisticated intermediary defense.

A footnote that is off the main point is nevertheless a troubling sign for product liability defendants, because it appears to allow very speculative evidence about whether a plaintiff ever encountered a defendant’s product. “Plaintiffs introduced evidence that Webb was exposed to dust from Johns-Manville products containing trace amounts of crocidolite at roughly the same time Special Electric was supplying crocidolite asbestos to Johns-Manville. While evidence of the link could be stronger, it is nonetheless sufficient for the jury to have found that Special Electric’s asbestos was a substantial factor in causing Webb’s mesothelioma.” “[E]vidence of the link could be stronger” is an understatement. This footnote portends both an easier path for plaintiffs to “prove” exposure, and a court not willing to put much “substantial” in “substantial factor.”

Oregon Court of Appeals Decision Upends Asbestos Litigation for Equipment Manufacturers, and Perhaps Others

The Oregon Court of Appeals has held in a case of first impression that the “bare metal” defense is not applicable under Oregon law. McKenzie v. A.W. Chesterton Co., 277 Or App 728 (2016). Under this defense, which courts in many other states have applied, a manufacturer whose product does not contain asbestos (i.e., is “bare metal”) is not liable for harms caused by asbestos-containing replacement parts supplied by others. By bucking the national trend, it is likely that the ruling will increase the number of asbestos cases filed in Oregon. The decision is based on Oregon statute, which may limit its applicability to Oregon, but it is also based on the Restatement, which may make it influential elsewhere as well.

Background

5-19Paul McKenzie served on WWII-era aircraft carriers as a fireman and boilerman in the course of a 20-year naval career that ended in 1972. He changed packing, internal gaskets, and external insulation in and around pumps manufactured and sold to the U.S. Navy by defendant Warren Pumps when the carriers were built. Warren had shipped original asbestos-containing gaskets, packing, and insulation with some pumps as “a complete package,” but these had all been replaced by the time Mr. McKenzie served on these vessels. The trial court granted Warren’s summary judgment motion based on Plaintiff’s failure to offer evidence that Warren had manufactured or supplied to the Navy the replacement products to which Plaintiff claims her husband had been exposed.

The Court’s Analysis

The Oregon Court of Appeals reversed based on the Oregon strict liability statute, ORS 30.920, and in particular two provisions of that statute: (1) that strict liability applies if “[t]he product is expected to and does reach the user or consumer without substantial change in the condition in which it is sold or leased[;]” and (2) that the statute “shall be construed in accordance” with Comments a through m of the Restatement (Second) of Torts, sec. 402A (1965). Plaintiff argued that Warren reasonably knew that the replacement products would contain asbestos, because that is what the Navy required, and that therefore the pumps were not substantially changed between their delivery to the Navy and Mr. McKenzie’s service decades later. The court rejected Warren’s argument that the relevant “unreasonably dangerous products” for purposes of ORS 30.920 were the asbestos-containing replacement products of others to which Mr. McKenzie had actually been exposed, and held that a jury could conclude that Warren should have reasonably known that the pumps were expected to and did reach users like Mr. McKenzie without substantial change in the condition in which they were sold even though the replacement asbestos-containing gaskets, packing, and external insulation that Mr. McKenzie encountered were manufactured and supplied by others. The court relied in part on Restatement comment (d), which recognized the expected replacement of component parts through wear and tear.

McKenzie expressly declined to follow decisions from other states, including the supreme courts of neighboring Washington State (Simonetta v. Viad Corp., 165 Wash.2d 341, 197 P.3d 127 (2008), and Braaten v. Saberhagen Holdings, 165 Wash.2d 373, 198 P.3d 493 (2008)) and California (O’Neil v. Crane Co., 53 Cal.4th 335, 266 P.3d 987 (2012)), which applied the “bare metal” defense to exonerate equipment defendants from liability. McKenzie concluded that Oregon precedent was inconsistent with the “bare metal” defense, and that the opinions from other states “appear to derive the bare-metal defense either from a limitation on a manufacturer’s or seller’s duty to warn that is contrary to the comments in section 402A of the Restatement or else based upon the jurisdiction’s own common law, developed without regard to the comments to section 402A which may be consistent with their respective common law but were not with Oregon statutes.”

The Court of Appeals similarly reversed Warren’s summary judgment on Plaintiff’s negligence claim. As with the strict liability claim, the court rejected Warren’s argument that it was the asbestos dust from replacement parts which had allegedly harmed decedent – not any asbestos from products it had originally supplied with the pumps – and that any failure to warn about asbestos-containing products originally supplied with its pump was therefore not the “but for” cause of Mr. McKenzie’s asbestos-related condition. McKenzie ruled that negligence in Oregon is based on foreseeability, and noted that Warren failed to establish that its failure to warn about asbestos in replacement parts did not play a part in Mr. McKenzie’s injury. Because the Navy required the use of asbestos-containing gaskets, packing, and external insulation in or on its pumps, a jury could find it to have been foreseeable that replacement component parts would contain asbestos, thereby triggering a duty to warn.

Likely Effects of This Opinion

There is clearly the potential under McKenzie for more equipment claims in Oregon that might otherwise be brought elsewhere. For example, craftsmen working in southern Washington State often also work on jobs in northern Oregon. McKenzie also makes summary judgment less likely (perhaps even unlikely) in cases with no product identification issues – for example, once a plaintiff shows evidence of asbestos exposure while working with a defendant’s product, it now seems to make no difference whether the asbestos was in the defendant’s product or a product manufactured or supplied by someone else.

That said, the scope of the decision may still be limited. A primary focus of the opinion was the foreseeability based on Navy regulations that replacement gaskets, packing, and external insulation would also contain asbestos. Such foreseeability may not be as clear in private industry, without such government regulations or MilSpecs. Further, Oregon currently has a cap on non-economic damages of $500,000 in wrongful death cases, which has historically limited the number of cases generally brought in Oregon to those with no alternative jurisdiction. The Legislature has considered increasing that limit to $1.5 million, which would make the cap less of a hindrance, but has taken no such action to date.

N.B: Although Gordon & Rees represents Warren Pumps as local counsel in certain jurisdictions, this post is the opinion of the author and is not intended to constitute or represent the opinions or positions of Warren Pumps with respect to this matter.

New York High Court Rejects Plaintiff Bar Effort To Broaden Multinationals’ Product Liability

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In a ruling of major importance to the business community, the New York Court of Appeals issued its decision on May 3, 2016 in Finerty v. ABEX Corp.(Ford Motor Company) rejecting plaintiff’s argument that, even in the absence of any basis for corporate veil-piercing, a parent company can be held liable for torts committed by its foreign subsidiary on the theory that the parent is “in the best position to exert pressure to improved safety products.”  The court firmly rejected the notion that a U.S. parent is the global “guardian” of its brand and that the broad imposition of liability for products sold by its subsidiaries in foreign countries is therefore appropriate.  The decision goes a long way in reaffirming well-settled New York law on corporate separateness and basic principles of corporate law.

Plaintiff claims that he developed peritoneal mesothelioma as a result of exposure to asbestos during the 1970s and 1980s while replacing asbestos-containing brakes, clutches and engine parts on Ford tractors and passenger vehicles in Ireland.  The plaintiff later immigrated to New York.  It was not disputed that Ford USA’s wholly owned subsidiary, Ford UK, manufactured, produced, distributed and sold the parts in question.  Both the trial court and the Appellate Division, First Department, determined that, while there was no basis on which to pierce the corporate veil, the plaintiff had nonetheless produced sufficient evidence showing that Ford USA “exercised significate control over Ford UK and Ford Ireland and had a direct role in placing the asbestos-containing products to which plaintiff was exposed into the stream of commerce.”  Thus, both lower courts found that there was a question of fact concerning Ford USA’s “direct responsibility for plaintiff’s injuries…”

There was no factual question as to whether Ford USA was the manufacturer, retailer or distributor of the asbestos-containing parts.  That was not at issue.  Rather, the appellate division hinged Ford USA’s potential liability on the premise that there was evidence that Ford USA played a “substantial rule in the design, development and use of the auto parts distributed by Ford UK” such that Ford USA’s “role in facilitating the distribution of the asbestos-containing auto parties” could subject it to strict liability because it was in the best position to exert pressure on Ford UK into warn its users of the hazards presented by the auto parts.  (emphasis in original opinion).

The court determined that the lower appellate court had committed two significant errors in its ruling.  First, the court held that Ford USA, as the corporate parent of Ford UK, could not be held derivatively liable to plaintiff under the theory of strict products liability unless Ford USA disregarded the separate identity of Ford UK and involved itself directly in that entity’s affairs such that the corporate veil could be pierced.

Essentially, the court faulted the First Department for its seemingly basic misunderstanding of the role parents play with their subsidiaries across different markets throughout the world to ensure product standardization.  As the US Chamber of Commerce observed in its amicus curiae brief, successfully selling a product locally requires a balance between standardizing products across markets in various countries and adapting them to the differences among markets in those countries.  The US Chamber of Commerce cited a study of 128 products sold in foreign markets by 62 multinational corporations that showed that this balance was best achieved through direct contact between headquarters and subsidiary managers to positively influence product performance in international markets.  Parent-subsidiary corporation is a fact of life for multinational corporations and hardly controversial.  The Court of Appeals held:

“Moreover, absent any indication that Ford USA was in the distribution chain, it is of no moment that Ford USA exercised control over its trademark.  …In any event, the record indicate that Ford USA’s “world-wide” trademark program described how the trademark was to be used on packaging of Ford products, and did not contain directives as to what warnings, if any, were required to be placed on the packaging itself.”

The second significant error made by the First Department was its conclusion that Ford USA could be subject to strict liability because it was in the “best position” to “exert pressure” on Ford UK for improved product safety.  The court recognized that as Ford UK’s parent company, Ford USA could “exert pressure” on Ford UK, but clarified that:

“…we have never applied that concept to a parent company’s presumed authority over a wholly owned subsidiary.  We have, however, routinely applied that concept to sellers of a manufacturer’s product because it is the sellers who, through their ongoing relationship with the manufacturers and through contribution and indemnification in litigation, combined with their role in placing the product in the consumer’s hands, are in the best position to pressure the manufacturers to create safer products.”

Accordingly, because Ford USA was not in the distribution supply chain as a manufacturer, retailer or distributor, it was a mistake for the appellate division to seek to subject Ford USA to strict liability.

If it had been left unchallenged, the poorly reasoned decision of the First Department would have potentially opened the litigation floodgates in New York, not just for asbestos defendants, but to all American product manufacturers, and potentially create confusion concerning the proper role of multinational corporations in today’s world.  The Court of Appeals decision provides clear judicial guidance to New York trial courts concerning how they must address creative challenges to American corporate law principles in the future.

Half the States, Environmental and Industrial Groups Call US EPA “All Wet” Over New Rule Redefining US Jurisdictional Waters Under Clean Water Act

navagableOn May 27, 2015, the United States Environmental Protection Agency and the United States Army Corps of Engineers jointly announced a new final rule defining the scope of jurisdictional waters protected under the authority of the Clean Water Act (“Act”).  Immediately following the announcement of the new rule, various entities including industrial and agricultural groups, more than half the states, and numerous environmental groups filed legal challenges in multiple federal jurisdictions.  On October 9, 2015, in In re EPA and Dept. of Defense Final Rule, 803 F.3d 804 (6th Cir. 2015), the Sixth Circuit issued a nationwide stay on enforcement of the new rule pending further developments, including the Court’s own need to determine its jurisdictional authority to hear Plaintiffs’ legal challenges.  Most recently, on February 22, 2016, the Sixth Circuit held that it may exercise subject matter jurisdiction over legal challenges to the new rule.

The Rule

The EPA and the Army Corps assert that the new rule addresses a number of questions raised by decisions of the United States Supreme Court in U.S. v. Riverside Bayview Homes, Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers (“SWANNC”), and Rapanos v. United States (“Rapanos”).  Specifically, “[t]he [new] rule will ensure protection for the nation’s public health and aquatic resources, and increase [Clean Water Act] program predictability and consistency by clarifying the scope of the “waters of the United States” protected under the Act.”  According to the agencies, the new rule will also provide “greater clarity regarding which waters are subject to [Clean Water Act] jurisdiction, reducing the instances in which permitting authorities, including the state and tribes authorized with section 402 and 404 [Clean Water Act] permitting programs, would need to make jurisdictional determinations on a case-specific basis.”

In substance, the new rule divides water features into three general categories: those waters that are jurisdictional by rule in all cases; those waters that are subject to a case-specific jurisdictional analysis; and those waters that are excluded from jurisdiction by rule in all cases.

“Categorical” jurisdictional waters are jurisdictional by rule without the need for additional or case-specific analysis.  The categorical jurisdictional waters recognized by the new rule include: (1) traditional navigable waters which are subject to interstate commerce; (2) all interstate waters, including wetlands; and (3) the territorial seas.  Categorically jurisdictional waters under the new rule also include all tributaries, impoundments, and waters adjacent to the jurisdictional waters listed above.

Along with waters that are considered categorically jurisdictional, the new rule contemplates waters that are subject to a case-specific analysis.  In the new rule, the agencies have identified five specific types of waters located in specific regions which are subject to a case-specific analysis.  In addition, the new rule provides that waters located in whole or in part within the 100-year floodplain of traditional navigable water, interstate water, or the territorial seas, and those waters located within 4,000 feet of the high tide line or ordinary high water mark, are subject to case-specific jurisdictional analysis.  The new rule refers to the waters subject to case-specific analysis as “similarly situated.”

Finally, the new rule also excludes a variety of waters from the definition of “waters of the United States.”  While it retains all pre-existing exclusions from jurisdiction, the new rule provides for several new exclusions which reflect “longstanding agency practice.”  Under the new rule, waters excluded from the definition of “waters of the United States” include: (1) prior converted cropland; (2) waste treatment systems; (3) groundwater; (4) stormwater control features; (5) artificial retention and detention basins used for wastewater recycling, groundwater recharge basins, and percolation ponds; and (6) three types of ditches.  In addition, the new rule carves out exclusions from jurisdiction for a number of specific water features, including, but not limited to, artificial lakes or ponds, artificial reflecting pools or swimming pools, and erosional features, including gullies, rills, and other ephemeral features that are not tributary to other “waters of the United States.”

Implications of the New Rule

The nationwide stay issued by the Sixth Circuit currently precludes the enforcement of the new rule in any jurisdiction.  Accordingly, although its impact remains uncertain, it is anticipated that the new rule will affect a variety of regulated industries, entities, and individuals.  While the new rule may authorize the exercise of federal jurisdiction over previously unregulated waters, the addition of bright line exclusions may exempt some features that would have otherwise been deemed jurisdictional.  It therefore seems that despite the agencies’ efforts to provide certainty and clarity regarding the scope of Clean Water Act jurisdiction, the new rule may raise as many questions as it answers.