There’s No Place Like Home: United States Supreme Court Reaffirms Daimler, Sends Out-of-State Plaintiffs Packing In Two Highly Anticipated Cases

The United States Supreme Court has issued two highly-anticipated personal jurisdiction decisions limiting suits against defendants who are not “at home” in a state, or alternatively, did not commit a wrongful act in that state.

Specific Jurisdiction

“General jurisdiction” exists over a defendant only where it is “at home,” generally where it is incorporated or has its principal place of business.  “Specific jurisdiction” exists only when the claims in a lawsuit arises out of a defendant’s connection to the jurisdiction, such as selling products. The Supreme Court reaffirmed these limits on jurisdiction in Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County, No. 16-466 (June 19, 2017).

Some 678 plaintiffs (592 of whom were out-of-state residents) filed suit in California state court against Bristol-Myers Squibb Company (“BMS”), asserting various state-law claims based on injuries allegedly caused by a BMS drug called Plavix. BMS moved to quash the non-residents’ suits for lack of jurisdiction. BMS was headquartered and incorporated outside California, so there was no general jurisdiction. Despite the fact that the nonresidents had not taken the drug in California, the California Supreme Court held that California courts had “specific jurisdiction to entertain the nonresidents’ claims.”  The United States Supreme Court reversed.

The California Supreme Court had applied a “sliding scale approach to specific jurisdiction,” finding that BMS’s “extensive contacts with California” permitted a “less direct connection between BMS’s forum activities and plaintiffs’ claims than might otherwise be required.” Because the claims of both the resident plaintiffs and non-resident plaintiffs were similar and “based on the same allegedly defective product and the . . . misleading marketing and promotion of that product,” the “less direct connection” requirement as met. Thus, the court reasoned, it had personal jurisdiction over all the claims of all the plaintiffs, even in the absence of any California conduct as to the out-of-state plaintiffs.

The Supreme Court rejected this in no uncertain terms:

“Under the California approach, the strength of the requisite connection between the forum and the specific claims at issue is relaxed if the defendant has extensive forum contacts that are unrelated to those claims. Our cases provide no support for this approach, which resembles a loose and spurious form of general jurisdiction. For specific jurisdiction, a defendant’s general connections with the forum are not enough….What is needed—and what is missing here—is a connection between the forum and the specific claims at issue.”

This is true even if the defendant would suffer minimal or no inconvenience, even if the defendant has extensive contacts with the state, even if the forum had a strong interest in the application of its laws, and even if the forum state were the most convenient location for the litigation. Bristol-Myers should serve to help defendants limit the jurisdictions in which suit may properly be brought, and reduce forum-shopping in mass tort and perhaps other cases.

General Jurisdiction

On the issue of general jurisdiction, BNSF Railway Co. v. Tyrrell, No. 16-405 (May 30, 2017), the Supreme Court made clear that its 2014 ruling in Daimler AG v. Bauman precludes the exercise of general jurisdiction over a non-resident defendant unless that defendant has contacts which are so “continuous and systematic” so as to render that defendant essentially at home in the forum state. Thus, the Court rejected multiple theories on which plaintiff attempted to justify jurisdiction over BNSF in Montana.

First, it ruled that the Federal Employers’ Liability Act (“FELA”), a federal law that allows railroad workers to sue their employers for injuries that occur on the job, does not itself create a special rule authorizing jurisdiction over railroads just because they happen to do business in a particular place. Second, and most notably, the Court held that a Montana law that allows courts in the state to exercise jurisdiction over “persons found” was in violation of the Constitution. That is, even if BNSF conceded that it is “found” in Montana, the Court held that exercising jurisdiction over BNSF must still be consistent with the Due Process clause. Under its earlier decision, the Court explained, BNSF Railway can only be sued in Montana if it is “at home” there – something which normally means that the company is either incorporated in the state or has its principal place of business there.

With neither of those criteria met, the railroad was not so “heavily engaged in activity” in Montana as to present the kind of “exceptional” case in which jurisdiction could exist even outside the company’s state of incorporation and principal place of business. Thus, although BNSF could be sued in Montana for claims that are related to its business in Montana, it could not be sued there for claims that aren’t related to anything it did within the state.

Analysis

The Court’s two defense-friendly decisions on jurisdiction should bode well for defendants challenging jurisdiction, even in cases outside these specific factual contexts. General jurisdiction can only exist where a defendant is actually “at home,” and creative efforts – such as California’s “sliding scale” – will not pass constitutional muster to establish specific jurisdiction without a clear connection, such as a wrongful act, actually occurring in the forum state.

Colorado Marijuana Distributor Wins Battle in “First of Its Kind” Pesticide Exposure Lawsuit, But Is the War Just Beginning?

One of Colorado’s largest marijuana distributors and growers, LivWell, Inc., successfully moved to dismiss a “first of its kind” class action lawsuit brought against it for the use of an allegedly harmful petroleum-based fungicide on its marijuana crops. The decision, while favorable to the defense, may also have provided a roadmap for similar suits in the future.

Plaintiffs Lack Standing, Court Finds

Plaintiffs and putative class representatives Brandon Flores andmyclobutanil Brandie Larrabee claimed the pesticide, which contains the active ingredient myclobutanil, emits potentially harmful hydrogen cyanide gas when the marijuana is burned. However, the lawsuit never alleged physical, toxic injury. Instead, plaintiffs asserted causes of action for economic injury (including breach of contract, misrepresentation, and breach of warranty claims), alleging only that they overpaid for the marijuana in light of its “contamination” with myclobutanil.

In issuing its order dismissing the case, the court engaged in a straightforward standing analysis under Wimberly v. Ettenberg, 570 P.2d 535, 539 (Colo. 1977), which requires a plaintiff to demonstrate both that (1) he suffered an injury in fact, and (2) his injury was to a legally protected interest. The court found that:

[p]laintiffs’ sole stated injury is that they overpaid for defendant’s product. There are no allegations that the product did not perform as it was supposed to, and indeed the Complaint alleges that Plaintiffs consumed the product. . .  [n]or are there any allegations that Plaintiffs suffered physical or emotional injury. (citations omitted)

Citing various cases that a claim of diminished value does not state an injury in fact, including Rule v. Fort Dodge Animal Health, Inc., 604 F. Supp. 2d 288 (D. Mass 2009) and Rivera v. Wyeth-Ayerst Laboratories, 283 F.3d 315 (5th Cir. 2002), the court found unavailing authorities cited by plaintiffs because there was no possibility of reselling the marijuana plaintiffs purchased.  As such, the court found that plaintiffs suffered no injury in fact and dismissed the case. Notably, the decision does not represent a substantive finding that the fungicide at issue was safe for human consumption.

A Roadmap for Future Toxic Injury Litigation?

The LivWell suit was dismissed because of a “legal technicality:” plaintiffs lacked standing to proceed in the absence of a legally cognizable injury in fact. However, in so ruling, the court may very well have unwittingly supplied a roadmap for future lawsuits. The court’s explicit statement that plaintiffs made no allegations of physical injury suggests that such an allegation would have been sufficient to satisfy the “actual injury” requirement and would have allowed plaintiffs to proceed with their lawsuit. Thus, future plaintiffs can cure this defect merely by pleading actual injury.

The Bigger Picture

This case highlights a growing area of concern for state governments, and industry participants, involving consumer safety surrounding the use of legalized use of cannabis.

With numerous states cannabisnow allowing marijuana to be legally sold for medical and/or recreational use, individual state regulations are struggling to keep up. For example, in California, the Department of Pesticide Regulation has published a bulletin called “Pesticide Use on Marijuana,” which states that there are no pesticides registered for use on marijuana and the use of pesticides on marijuana plants has not been reviewed for safety and human health effects. In fact, the only pesticide products not illegal on marijuana are those that contain labels with active ingredients exempt from residue-tolerance requirements and registered for use that is broad enough to include use on marijuana plants. The pesticide at issue in the Colorado case was approved for use on certain foods such as grapes, but banned for use on tobacco, creating confusion for those who are in need for products that control pests on their growing crops.

In 2013, the Journal of Toxicology published an article which attempted to quantify to what extent cannabis consumers may be exposed to pesticide and other chemical residues when they inhaled cannabis smoke. The authors noted that in 2009 the Los Angeles City Attorney’s office had tested medical samples available in California dispensaries and found two of the three samples they tested had extremely high levels of bifenthrin, a chemical used in pesticides. Further, the study found that recovery of pesticides in unfiltered smoking media such as glass pipes and water pipes ranged from 69.5% to 42.2%. Recovery from filtered water pipes was significantly lower – only .08% to 10.9%.

Substantial Litigation Risks For A “Growth” Industry?

As more states allow the legal use of cannabis, the state regulatory agencies are beginning to consider regulations for the industry. Inevitably, this leads to questions as to how existing state and federal environmental laws may apply to plants and their associated fertilizers, pesticides and growth agents. As a result, many producers of legal marijuana may be forced to guess what products may work on their crops, what products are safe when marijuana is smoked, what products are safe on plants ingested in foods, as well as what – if any – warnings may be required when their products are sold. At the same time, emerging businesses in the fledgling industry will likely find themselves beset by the same kinds of toxic tort litigation faced by other manufacturers, including pharmaceutical companies, for various alleged injuries as well as failure to warn of those potential injuries. Thus, as the LivWell case demonstrates, more claims for toxic injury may be on the horizon as the industry grows.

California appellate court bucks national trend, allows plaintiff experts to opine that “every asbestos exposure is a substantial factor”

Courts from around the country have rejected efforts by plaintiff experts to testify that every asbestos exposure is a substantial factor in causing disease. On March 3, 2016, California’s second appellate district went the other way, and held in Davis v. Honeywell International, Inc. that the controversial “every exposure counts” theory is admissible under governing expert witness law.   Thus, although trial courts are supposed to play a “gatekeeper” role in keeping out unreliable expert evidence (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747), Davis breaks the gate wide open in allowing a jury, not the trial court in its “gatekeeper” role, to decide whether to accept the theory.

Davis was aGATEPICTURE wrongful death case.  Sam Davis  worked as an auto mechanic and home remodeler from approximately 1963 to 1979.  He performed “one or two” brake jobs per day, and always used Bendix brake linings (for which defendant Honeywell was responsible). These linings contained 50 percent chrysotile asbestos by weight.  He was also allegedly exposed to asbestos as a result of his home remodel work.

Prior to trial, Honeywell filed a motion in limine to preclude plaintiff from presenting expert opinion testimony that every exposure to asbestos above background contributed to decedent’s disease. The motion was denied, and plaintiff’s pathologist (James A. Strauchen, M.D.) and pulmonologist (William Rom, M.D.) were permitted to testify and advance the theory. Ultimately, the jury found for plaintiffs, and Honeywell appealed.

Honeywell’s primary basis for appeal was that the “every exposure counts” testimony of Dr. Strauchen should have been excluded. Honeywell advanced four arguments:  (1) the testimony was speculative and illogical; (2) the regulatory standards Strauchen relied upon cannot establish causation; (3) no appropriate scientific literature supports the theory; and (4) the theory is contrary to California causation law espoused in Rutherford v. Owens Illinois (1997) 16 Cal.4th 953, which held that not every exposure to asbestos is a “substantial factor” in causing disease.

Davis rejected each of Honeywell’s arguments. “Having reviewed much of the commentary and scientific literature cited in support of and against the ‘every exposure’ theory, we conclude that the theory is the subject of legitimate scientific debate.   Because in ruling on the admissibility of expert testimony the trial court ‘does not resolve scientific controversies (Sargon), it is for the jury to resolve the conflict between the every exposure theory and any competing expert opinions.”  The court focused largely on the mere existence of evidence that supported the “every exposure counts” theory, and declined to weigh the evidence or any competing inferences.   “While Honeywell is generally correct that in many (or even most) instances epidemiological studies provide the best evidence of causation, its implied argument that it is improper for an expert to rely upon any other tools to determine causation, such as case reports, is not universally accepted.”  As to Honeywell’s argument that “every exposure” contravenes Rutherford, Davis  interpreted Rutherford as not requiring a “dose level estimation,” instead issuing a sweeping statement interpreting Rutherford as supporting the conclusion that even a very small “dose” could increase the risk of asbestos-related cancer.  Davis distinguished the many cases from other jurisdictions rejecting this argument, including Betz v. Pneumo Abex, LLC (2012) 615 Pa. 504, Bostic v. Georgia-Pacific Corp. (Tex. 2014) 439 S.W.3d 332 and Moeller v. Garlock Sealing Technologies, LLC (6th Cir. 2011) 660 F.3d 950. “[W]e simply disagree” that the “every exposure” theory could not be “reconciled with the fact that mesothelioma and other asbestos-related diseases are dose-dependent.”

The Davis court did state, however, that “[w]e caution that our discussion of the materials Dr. Strauchen relied upon should not be seen as approval of either side in that scientific dispute.  Rather, we rely upon the rule of Sargon that although trial courts ‘have a substantial ‘gatekeeping’ responsibility,’ in evaluating proposed expert opinion . . . the gate tended is not a partisan checkpoint . . . If the opinion is based on materials on which the expert may reasonably rely in forming the opinion, and flows in a reasoned chain of logic from those materials rather than from speculation or conjecture, the opinion may pass, even though the trial court or other experts disagree with its conclusion or the methods and materials used to reach it.  (emphasis added)

Further, although much of the discussion relates to the “any exposure” theory, Davis pointed out that the case did not hinge on that theory.  “In this case, Dr. Strauchen was presented with a hypothetical based on the facts surrounding Davis’ exposure to dust from his work on Bendix brake linings, and testified as to estimates of the amount of asbestos fibers contained in visible dust. Therefore, his conclusion that Davis’ exposure to Bendix brake linings was a substantial factor in contributing to the risk of mesothelioma was not based simply on “any exposure” to asbestos, but instead related to an estimate of actual exposure.”

The decision is not yet final. It is still subject to a petition for rehearing, which could result in a change in the opinion, and to either or both a request for depublication and a petition for review to the California Supreme Court, either of which if granted would make this decision uncitable in California courts, though not necessarily elsewhere.

Welcome to the Hotel California? Out-of-state plaintiffs should check out and leave, says new decision

Lured by the promise of huge jury verdicts and favorable laws, out-of-state asbestos plaintiffs and their counsel have flocked to California in increasing numbers since at least 2000 to avail themselves of California courts.  To avoid having their cases forcibly returned to their home states on forum non conveniens grounds, plaintiffs have made sure to name defendants in their lawsuits subject to jurisdiction only in California.  Although such defendants are characterized as “nominal” or “sham”  by others in the litigation, cases such as American Cemwood Corp. v. American Home Assurance Co. (2001) 87 Cal.App.4th 431, 433, hold that an action cannot be dismissed for forum non conveniens unless all defendants are subject to jurisdiction in the alternate forum.  Thus, the presence of even one “sham” or “nominal” defendant is sufficient under American Cemwood to defeat a forum non conveniens motion seeking dismissal of the action.  Though Hansen v. Owens Corning Fiberglas Corp. (1996) 51 Cal.App.4th 753 still permits a stay, such a stay can be lifted upon a showing that the California-only defendant is not subject to jurisdiction in the alternate forum.  Thus, the doors of the “Hotel California” have historically been wide open to out of state litigants, with no meaningful way for a defendant to close them no matter how strongly the public and private interest factors favor transfer to another state.

While the Hotel California has not yet closed its doors, it may have finally hired a doorman.  A California appellate court has now ruled that the claims of the California-based “nominal” venue defendant could be severed and the action dismissed on forum non conveniens grounds in favor of the remaining parties. the-hotel-california

David v. Medtronic, Inc. was filed in Los Angeles County Superior Court by 37 plaintiffs, none of whom had any connection to Los Angeles.  Indeed, 36 plaintiffs lived out of state, and the only California-resident plaintiff lived far from Los Angeles County in Sacramento.  Plaintiff sued multiple Medtronic and Wyeth entities, who were sued as manufacturers and sellers of an allegedly defective medical device called Infuse.  Neither Medtronic nor Wyeth are California corporations.

The only connection to Los Angeles County was a local physician, Dr. Gary Michelson, who served as plaintiff’s nominal “venue” defendant.  Over the course of litigation defendants were, in fact, able to prove that Dr. Michelson was nominal, having had no involvement in the manufacture or marketing of the device. Medtronic then brought a “three pronged” motion seeking to (1) sever the claims of each plaintiff from each other; (2) to dismiss the claims of the 36 out-of-state plaintiffs on forum non conveniens grounds; and (3) to transfer venue of the California-resident defendant to his home county of Sacramento.  The trial court granted the motion on all three grounds; plaintiffs appealed the court’s rulings as to the first and second.

On appeal, the David court recognized that “this case squarely presents the issue of whether the existence of a nominal defendant, over whom jurisdiction cannot be established in the proposed alternative forum, can defeat a forum non conveniens motion which should otherwise be granted.”  Although David found that the trial court erred in dismissing plaintiffs’ claims against all defendants, including the resident Los Angeles physician, it held that the dismissal of claims against the non-California defendants was proper.  In doing so, the court noted that there was no dispute that Dr. Michelson was a nominal defendant, and cited various federal cases supporting the transfer of cases despite the claims of a nominal defendant.  While the court stopped short of carving out an exception for nominal defendants, it held that it could properly sever the claim of such a nominal defendant, and dismiss the claims against the remaining non-California defendants on forum non conveniens grounds.  Thus, it affirmed the dismissals of the Medtronic and Wyeth entities.

Though not an asbestos case, David will have wide-ranging impact on asbestos litigation, in which individual cases frequently have dozens of defendants, only a handful of which may subject to jurisdiction in California.  The David decision returns rationality to a forum non conveniens analysis ripe for abuse, and potentially deprives plaintiffs of a “hook” to keep cases otherwise unconnected to the state from being tried here, thereby discouraging forum shopping.  Most importantly, it is a win for California citizens and potential jurors, who will find themselves relieved from hearing cases unconnected to the State and the communities in which they live.

While the Hotel California is still open, perhaps more plaintiffs will be forced to check out.

Mesothelioma Linked to Therapeutic Radiation

In the first study of its kind, a cohort analysis using data from the US Surveillance, Epidemiology, and End Results (SEER) Database reports that men who have undergone radiation therapy for prostate cancer are at an increased risk for developing mesothelioma. Specifically, the study concluded that use of external beam radiotherapy, the most common treatment for prostate cancer, provides a “small but detectable risk factor for mesothelioma” and that “[p]atients should be advised of the risk of radiation-induced second malignancies.” (A Farioli, F. Violante, S. Mattioli, S. Curti, D. Kriebel, Risk of mesothelioma following external beam radiotherapy for prostate cancer: a cohort analysis of SEER database, Cancer Causes Control (2013) 24: 1535 – 1545)

ETT BLOG_External beam radiotherapyA causal link between radiation and mesothelioma has been documented in numerous studies over the past decade.  Until now, however, no study has specifically analyzed the causal link between radiation therapy for a specific disease and the development of mesothelioma. According to the study, the incidence rate ratios (IRR) for development of mesothelioma was increased for subjects who underwent the radiotherapy treatment when compared to non-irradiated patients, and that the IRR increased with the latency period. The study found an IRR of 1.08 for irradiated patients 0 – 4 years after treatment, an IRR of 1.31 for irradiated patients 5 – 9 years after treatment, and an IRR of 1.59 for patients irradiated 10 years or more after treatment.

The significance of this link is especially important given that both prostate cancers and mesotheliomas are most common in older men. The study notes that “mesothelioma typically presents in the fifth to seventh decades,” and the American Cancer Society notes that prostate cancer is the second most common cancer in men (after skin cancer), with 6 in 10 prostate cancers being diagnosed in men age 65 and older and the median age of diagnosis being 66. Thus, it is not uncommon to see men diagnosed with mesothelioma also having undergone treatment for prostate cancer.

Importantly, the study’s findings note an increased risk of both pleural and peritoneal mesothelioma. Though the lungs may be located outside the irradiated field, “even organs far from the irradiated field can still be significantly exposed due to scattered radiation, as well as leakage from the radiation source.”  Moreover, three-dimensional conformal radiation, used frequently during the 1990’s, can expose the pleura to an equivalent radiation dose up to 25 mSv, a dose “far from insignificant if we consider that the effective dose for a standard chest radiograph ranges between .05 and .24 mSv.” Solid cancers are expected to begin forming as early as 5 years after radiation therapy.

This study provides additional reason for defense lawyers to focus on medical issues during depositions of mesothelioma plaintiffs, obtaining complete medical histories on any radiation exposures and on prostate cancer treatments in particular. This is especially important given the substantial increase in so-called “low dose” exposure cases in recent years, involving men in their 70’s or 80’s with little to no known history of asbestos exposure and no markers for such exposure on x-ray or HRCT.

Is the MDL a “sophisticated misuser” of California law? California appellate court refuses to apply sophisticated user doctrine, rebukes Feds

A California appellate court has refused to apply the sophisticated user doctrine to bar the claims of the family of a career U.S. Navy shipyard worker who worked with asbestos-containing equipment at Navy shipyards between 1957 and 1989.  In Gottschall v. Crane Co., No. A136516 (First Appellate District, October 8, 2014), the First District reasserted the view that the sophisticated user defense under California law, is limited to situations where the end-user/plaintiff is knowledgeable does not apply where it is the purchaser/employer that is “sophisticated.”

The issue in Gottschall came up in a roundabout manner.  The plaintiff filed two wrongful death cases:  one in San Francisco Superior Court, which named the defendant and appellee Crane Co., and one in the U.S. District Court for the Northern District of California, naming six different defendants.  While Crane Co. continued to litigate in San Francisco, the federal case was subsequently transferred to the Eastern District of Pennsylvania, which was assigned to handle multidistrict asbestos litigation.  On December 8, 2011, the MDL (Robreno, J.)  granted a summary judgment motion filed by defendant General Dynamics Corp., holding that the U.S. Navy was a sophisticated user under California law, and therefore the plaintiffs could not maintain a claim.

Crane Co. filed its own summary judgment motion in San Francisco Superior Court predicated on this ruling, and arguing that the doctrine of collateral estoppel compelled the same result.   The court agreed, applied collateral estoppel and granted the motion.

The Court of Appeal reversed. First, it refused to apply the doctrine of collateral estoppel, finding that the sophisticated user issue was a “pure question of law,” and cited Jenkins v. County of Riverside (2006) 138 Cal.App.4th 593, 618 for the premise that collateral estoppel should not be applied in a way that prevents a California court from making a “proper interpretation” of its own law.  Then, in a stunning rebuke of the federal court, the Court of Appeal found that the MDL court’s “application of California law was wrong, as any reading of the evolution of California’s sophisticated user defense demonstrates.”

Gottschall distinguished the seminal case of Johnson v. American Standard, Inc. (2008)43 Cal.4th 56, on the ground  that the case involved a certified HVAC technician whose training and experience made him a sophisticated user, capable of understanding the hazards of the products with which he worked.  Then, the Court of Appeal relied on Stewart v. Union Carbide Corp. (2010) 190 Cal.App.4th 23 (2010) and Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, both of which turned on the sophistication of the user – the individual using the products – and not the employer.  Thus, the First District stated plainly that “the Pennsylvania federal court was wrong in ruling as it did. Necessarily, the San Francisco Superior Court was wrong in holding that appellants were collaterally estopped by the Pennsylvania federal court’s decision.”

Though Johnson was initially received with much fanfare by the defense bar, Gottschall is only the latest in a string of decisions significantly limiting Johnson’s application.  While Gottschall classifies this as an “evolution of California’s sophisticated user defense,” the reality may be that the appellate courts, not the MDL, are the “sophisticated misusers” of Johnson’s holding.

Though Johnson did decide the issue of the application of the defense to a specific HVAC contractor, the decision makes clear that the point of the doctrine is to protect the manufacturer from the need to warn a sophisticated purchaser, and cites with approval Fierro v. International Harvester Co. (1982) 127 Cal.App.3d 862 and In re Related Asbestos Cases (N.D.Cal. 1982) 543 F.Supp. 1142, 1151.  Indeed, in In Re Asbestos, the court noted that “the Navy, as an employer, was aware of the dangers of asbestos as were defendants and that the Navy nonetheless misused the products, thereby absolving defendants of liability for failure to warn the Navy’s employees of the product dangers” (emphasis added).  The Supreme Court may yet get involved to clarify its application of Johnson.

An Enticement to Double Recovery?

CALIFORNIA COURT REFUSES TO ALLOW POST-VERDICT SETOFFS OF POTENTIAL BANKRUPTCY TRUST CLAIMS

Evidence of claims by plaintiffs to asbestos bankruptcy trusts is critical to the defense of any asbestos case. In California, for example, Volkswagen of America Inc. v. Superior Court (Rusk) (2006) 139 Cal.App.4th 1481, highlighted the importance of the discovery of such claims for purposes of setoffs and establishing a defendant’s proportional share of damages.

Volkswagen held that “[s]ince each party who shares responsibility for any asbestos-related disease from which a claimant suffers is liable only for its proportionate share of noneconomic damages, each will understandably be concerned to determine whether the claimant has overstated its share of responsibility.  . . . The number of days and the conditions under which a claimant was exposed to the asbestos-containing materials of one responsible party bears directly upon the extent of the liability of the others. Each therefore will have very good reason to compare what a claimant has said in this regard in supporting a claim against another responsible party.”

Perhaps recognizing the uphill battle they face in protecting such claims from disclosure in discovery, plaintiffs in the litigation have modified their tactics. Instead of making claims to the asbestos bankruptcy trusts prior to or during litigation, many plaintiffs now wait until after their civil case has settled or gone to trial to make these claims. The purpose is deception and double recovery. If no claims have been made, there is nothing to discover, and therefore nothing to offset against a plaintiff’s verdict. So what is a defendant to do?

Paulus v. Crane Co., No. B246505 (2/21/14) considered an appeal that presented two issues, one of which was whether the trial court erred in not reducing the damages awarded against defendant Crane Co. to account for settlements plaintiffs could obtain from asbestos bankruptcy trusts, but had not at the time of trial. The trial court’s decision was affirmed.

Crane argued that California Code of Civil Procedure section 877 and the court’s broad equitable powers gave it the authority to offset potential claims. In just a single page of analysis in the 15-page decision, Paulus focused on the language of 877 restricting setoffs to settlements given “before verdict or judgment,” and further found that the court’s equitable powers did not give it the power to modify a judgment for a settlement that “may or may not be sought.”

Of particular concern was the court’s rejection of Crane’s argument that refusing a setoff in this case was tantamount to permitting a double recovery, finding that “[i]f a later settlement subsequently allows plaintiff a double recovery, that does not retroactively make the instant judgment improper.” (emphasis in original) Paulus also rejected Crane’s argument that plaintiff’s failure to obtain available settlements constituted failure to mitigate damages, holding that the duty to mitigate is a matter to be decided by the fact finder at trial, and “not something to be raised on new evidence after judgment.”

A step backward from Volkswagen?

The abbreviated discussion of the bankruptcy trust issue in Paulus masks the significance of its holding, which is effectively that so long as a plaintiff waits to make a bankruptcy trust claim, he may double recover at will.  Although Paulus may be technically correct that California Code of Civil Procedure 877 says “before judgment,” it gives short shrift to the court’s broad equitable powers, giving a ruling that is effectively form over substance and frustrates the Volkswagen court’s policy aims of ensuring that plaintiffs are not permitted double recovery.

Lessons from Paulus

After Paulus, a defendant would be well advised to look carefully at a plaintiff’s work history in a pending action, and proffer appropriate evidence to the trier of fact relating to claims that could be made but were not.

This is not the first time courts of appeal have failed to award offsets to defendants in asbestos cases, where defendants have not had evidence about future settlements in asbestos cases. See Garcia v. Duro-Dyne 156 Cal.App.4th 92 (2007). Recent efforts by defendants have shown that pursuit of discovery about exposure to bankrupt entities’ products during the case has led to inconsistent claiming patterns.

Defendants can and should make efforts to obtain their own affirmative evidence, rather than rely on the “goodwill” of the court on what might happen. This evidence can support affirmative defenses such as mitigation of damages, or affirmatively support claims for offset, and make it harder for trial courts and courts of appeal to turn a blind eye to these practices.