Don’t Be An Unhappy “CAMP”er: Ignoring Second Circuit Mediation May Result In Grievance Panel Referral

 Three people talking - 3d renderThe Second Circuit advises litigants on its website that its mediation and settlement program (known as “CAMP”) is a long-standing and integral part of the court’s appellate process.  The Second Circuit assigns “experienced and skilled circuit mediators” to work with counsel and their clients to resolve disputes on the court’s civil docket at no cost to the parties. Although the mediation process is considered “voluntary,” failing to appear at a CAMP may result in sanctions and, possibly, a referral to the Court’s Grievance Panel.

In late 2015, parties to a Second Circuit appeal were directed to appear at the offices of a prominent mid-town New York law firm for a CAMP mediation.  The mediator appointed by the Court was a well-regarded litigation partner at the law firm.  Appellant’s counsel failed to appear at the mediator’s office at the appointed time.  By order, dated January 26, 2016, Circuit Judge Danny Chin ordered the parties “to show cause why disciplinary or other corrective measures should not be imposed on them” for failing to appear for the mediation.

In response to Judge Chin’s order to show cause, counsel advised the Court that that the appellant had “replaced” him as counsel and revoked his authority to speak on appellant’s behalf.  Counsel anticipated that appellant’s new counsel would make a formal substitution of counsel, but apparently never did so.  Judge Chin observed in his Order, dated March 14, 2016, that a party’s decision to replace counsel did not relieve counsel of their obligation to comply with Court orders until such time as the Court granted counsel’s party to be relieved.  “As counsel of record, they were obligated to respond to the Court’s order that they appear at a mediation conference, at the very least to notify the appointed mediator that their representation was in question and to request an adjournment.” However, Judge Chin found it more troubling that appellant’s counsel viewed the court’s mediation program as optional. Judge Chin found it remarkable that counsel did not even show the court appointed mediator the professional courtesy of a telephone call to advise her that they were not intending to appear.

Judge Chin determined that he would not refer the matter to the Court’s Grievance Panel based upon his determination that: (1) counsel’s conduct was limited to one case and not likely to be repeated; (2) counsel accepted responsibility and conceded error; and (3) counsel did not act in bad faith.

Practice Tips 

First, merely because a client has relieved a lawyer as his counsel, in both the trial court and on appeal, counsel should not assume that his judicial obligations have ended.  Until such time as a motion for substitution of counsel is filed and granted by the court, counsel’s failure to respond to court orders may result in the imposition of sanctions.  At a minimum, counsel should alert the court (or, in this case, the court-appointed mediator) that a substitution of counsel is in the offing.  As a practical matter, this communication may provide the client additional time to effectuate a substitution of counsel.  It also apprises the court and the adversary that conducting a mediation before the change of counsel has been effectuated would not be efficacious in resolving the dispute.

Second, a party’s failure to appear at a court-directed “voluntary” mediation, during either a trial court or appellate proceeding, also may result in the imposition of sanctions.  In the SDNY, an increasing number of civil cases are being referred to mediation.  Although the mediation process is confidential and the parties’ stated positions during mediation are never disclosed to the judge or magistrate handling the matter, it may be brought to the court’s attention if a party fails to appear for the mediation or, in the judgment of the mediator, fails to participate in the mediation in good faith.  Although court-annexed mediation proceeds on a separate track from the court’s discovery scheduling order, the mediation program is an integral part of the judicial resolution process and must be treated as such by the litigants.

Fallout From the Actos Verdict: Asbestos Plaintiffs Bar Seeks New Clients

The stunning $9 billion verdict in Louisiana this past April against Takeda and Eli Lilly for their manufacture and sale of Actos as a medication (Actos is a thiazolidinedione or TZD drug) for the treatment of diabetes has been well reported. Many plaintiffs firms have sought to capitalize on this result by advertising their services to prospective plaintiffs diagnosed with bladder cancer.  Published studies and the FDA have posited that prolonged use of Actos increases the risk of contracting this cancer. TV ads and proclamations of expertise abound on websites that are linked to “Actos” as a search term.

The lure to the plaintiffs bar must be compelling as the pool of prospective plaintiffs is large.  The American Cancer Society has reported that as many as 73,000 cases of bladder cancer were diagnosed in the United States in 2012.  The published five-year survival rate for bladder cancer, while good if the diagnosis is made early, is very dire if the disease is found late.

The economics of cancer research, and not just the litigation that follows the introduction of new therapies, is impressive.  An article in the June 3 San Francisco Chronicle describes the efforts of Genentech to pursue a new therapy for bladder cancer.  A new immuno-oncology treatment has shown promise and the article in the business section of the paper includes a prediction that cancer immunotherapies will be a $35 billion industry worldwide “in less than a decade.”

In the print version of this same paper, on page A10 in the opinion section, there is a large ad titled “Actos and Bladder Cancer” placed by Weitz & Luxenberg P.C. The ad proclaims, “The manufacturers and marketers of Actos have recently been found liable for Actos causing bladder cancer.”  It goes on to urge Actos users, “Even if you have not developed bladder cancer, it is in your best interest to contact us (through our website or phone) in order to receive helpful information updates in the future.”  While Weitz & Luxenberg are perhaps best known as asbestos litigation attorneys, it notes in the ad, “Weitz & Luxenberg are NATIONWIDE LEADERS in the Actos and Bladder Cancer field.”

Clearly, high stakes are involved in the development of cancer therapies, and just as clearly high stakes are involved in any potential subsequent litigation.  But if the entire worldwide market for immunotherapies over the next 10 years is predicted to be approximately $35 billion, one must wonder whether the prospect of facing a civil case verdict of as much as $9 billion might impact the decisions of companies such as Genentech in pursuing new therapies and ultimately how to price such therapies.

Asbestos Personal Injury, Wrongful Death Plaintiffs May Seek Punitives in NYC Cases

For the first time in 18 years, asbestos personal injury and wrongful death plaintiffs may seek punitive damages in cases filed in New York City.

NYC asbestos cases are managed by a separate docket.  The 1988 Case Management Order (CMO) that governed all NYC asbestos cases was amended in 1996 to require that all punitive damages claims be deferred until such time as the court deems otherwise.  The deferral decision was based on “fairness.”  The court reckoned that it would be unfair to charge companies with punitive damages for wrongs committed 20 to 30 years prior, sometimes by predecessor companies.  Awarding punitive damages would serve no corrective purpose and would deplete resources that could be used to compensate injured parties.  Moreover, it seemed unfair to subject companies to repeated punishment for the same wrong.

On a motion seeking to lift the deferral of punitive damages, the plaintiffs in In re: New York City Asbestos Litigation argued, among other things, that punitive damages are allowed in other counties of New York and in other states, the ban is ethically and constitutionally suspect, and allowing punitive damages would encourage settlements and serves the public policy goal of deterring tortious conduct.

In New York Supreme Court Judge Sherry Klein Heitler’s April 8, 2014, decision, she concluded that the deferral provision of the CMO should be removed and applications for permission to charge the jury on the issue of punitive damages will be made on a case-by-case basis at the conclusion of the evidentiary phase of the trial.  The decision recognized that punitive damages are generally permitted in New York State as a matter of public policy and are a societal remedy rather than a private compensatory remedy.  However, the court noted that punitive damages are only permitted when the defendant’s wrongdoing is not simply intentional but evinces a high degree of moral turpitude and demonstrates such wanton dishonesty as to imply a criminal indifference to civil obligations.  The court noted that it is the “singularly rare case” in which punitive damages are appropriate.

The court also noted that defendants are safeguarded by the due process clause of the Constitution, which has been found to limit the amount of punitive damages that can be awarded.  The judge’s confidence that the Constitution will hold back unwarranted punitive awards is not necessarily borne out in other jurisdictions.

Finally, the court cautioned the plaintiffs’ bar not to overstep requests for punitive damages.  “Punitive damages should only be sought in the most serious cases to correct for the most egregious conduct, and must present a valid reference to correction action.”  It will be interesting to see whether there will be any cases that can meet this standard, i.e., where corrective action is still possible, as asbestos has been largely banned since the 1970s and 1980s.

The New York City Asbestos Litigation Just Became More Complicated

Pursuant to the Decision and Order of the Hon. Sherry Klein Heitler, dated April 8, 2014, asbestos plaintiffs for the first time since 1996 may seek permission from the New York City trial judges to charge the jury on the issue of punitive damages. Until Judge Heitler’s ruling, the New York City Asbestos Litigation (“NYCAL”) Case Management Order, as amended May 26, 2011 (“CMO”), provided that counts for punitive damages were to be “deferred” until such time as the Court deemed otherwise, upon notice and hearing. Therefore, punitive damages still could be sought, but only after a hearing to determine if it was appropriate to award them.

The importance of Justice Heitler’s ruling cannot be understated. As she notes, “tens of thousands of complex, time-consuming asbestos personal injury actions have been filed in New York County Supreme Court alone.” Her ruling is likely to have an impact on the thousands of future or presently pending cases.

Justice Helen E. Freedman, who oversaw the creation of the CMO in 1988, which governs all NYCAL cases, explained in a well-reasoned Southwestern Law Review article published in 2012, why she added the provision in 1996 that punitive damages claims should be deferred. According to Justice Freedman:

1. Punitive damages have little or no place in asbestos litigation. To charge companies with punitive damages for wrongs committed twenty or thirty or more years before, serves no correct purpose. In many cases, the wrong was committed by a predecessor company, not even the company now charged, and the responsible individuals are long gone;

2. Punitive damages only deplete financial resources that are better used to compensate injured parties;

3. Since some states do not permit punitive damages, and the federal MDL, precludes them, disparate treatment among plaintiffs would result if permitted in New York City; and

4. No company should be punished repeatedly for the same wrong.

Justice Freedman’s rationale is as valid today as it was in 1996. The only thing that has changed is that multiple bankruptcies, oftentimes involving companies whose only wrongdoing was to acquire the stock of another entity with some asbestos involvement, continue to corrode the fiber of American industry and plaintiffs have look farther and farther afield to find “fresh” defendants, many of whom have only de minimis relationship to asbestos.

Although Justice Heitler contends that the defendants, in opposing the motion, failed to provide empirical proof that punitive damages awards have contributed to bankruptcies, she overlooks the reality that defendants make oversized settlements based upon their potential exposure and that the threat of punitive damages increases that exposure calculus exponentially. One only need read the Garlock decision written by the Hon. George R. Hodges, United States Bankruptcy Judge for the Western District of North Carolina, to appreciate how settlement negotiation leverage in asbestos litigation can contribute to corporate insolvency.

Justice Heitler bases her ruling on constitutional equal protection grounds. And yet, paradoxically, she seeks to minimize the potential repercussions of her ruling (and reassure defendants) by demonstrating how other New York asbestos courts have been restrained in awarding punitive damages due to both New York’s “heavy burden” for seeking punitives and federal due process standards. If the award of punitives in New York courts outside NYCAL’s jurisdiction is so difficult to obtain, where is the loss of equal protection by requiring the filing of a notice and conducting a hearing in NYCAL?

Justice Heitler was reassured by the plaintiff asbestos lawyers that, if punitives were to be permitted, they would not abuse this long sought after opportunity and only seek punitives in the most egregious cases. However, after giving the foxes the keys to the hen house, what leverage did she retain to ensure restraint? The Decision and Order seems to suggest that these particular foxes would be content to take one plump hen and be content. She writes:

“While Plaintiffs have evinced their intention not to abuse this opportunity, it is appropriate for the court to caution the plaintiffs’ bar not to overstep this permission by attempting to seek punitive damages indiscriminately. Punitive damages should only be sought in the most serious cases to correct for the most egregious conduct, and must present a valid reference to corrective action.”

Every plaintiff lawyer has a duty to maximize his client’s recovery in a personal injury action, particularly when the client is suffering from a horrific illness like mesothelioma. If the lawyer believes he can elicit a more attractive offer from a defendant by threatening to seek punitive damages, how could he not do so within the bounds of ethical conduct? Justice Heitler notes that the use of asbestos peaked in the 1960’s and 1970’s when asbestos was used in the more than 3,000 industrial applications. Today, there are probably none. If that is the case, how can a plaintiff make a “valid reference to corrective action” in any demand for punitive damages?

A New Era For Private Cost Recovery Litigation?

In its precedent breaking decision in United States v. Atlantic Research Corporation, decided in June 2007,  the United States Supreme Court held that the plain language of CERCLA  §107(a)(4)(B) authorizes any private party, including PRPs, to commence an environmental cost recovery action.  The Supreme Court added as dictum that it  “assume[d] without deciding”  that §107(a) provided these PRP plaintiffs with the right to pursue a claim for joint and several liability.   CERCLA  §107 is a strict liability scheme that permits a plaintiff to seek joint and several liability without the burden of proving causation.  Prior to Atlantic Research, only the United States or an “innocent landowner” could wield §107’s heavy club.  In the wake of Atlantic Research, any PRP (i.e. polluter) can bring a §107 claim against other PRPs to recover costs.  The only exception is that PRPs who have been defendants in actions brought against them by the United States pursuant to CERCLA  §106 or  §107 must pursue their recovery pursuant to §113, which only permits the recovery of costs on a pro rata basis via contribution.  To those unlucky plaintiffs, §107 is not available.

Are we at the dawn of a new era of private cost recovery litigation?  In traditional §113 actions, the PRP plaintiff has the burden of demonstrating that neither plaintiff nor third parties bear any percentage allocation of responsibility for the cleanup costs at issue.  If this burden now passes from the plaintiff to defendants, defendants may be disinclined to run the risk of being held jointly and severally liable for all of a site’s cleanup costs in the event that their proof falls short.  This risk factor should make defendants more willing to come to the bargaining table earlier.  The same risk consideration should motivate corporate PRP plaintiffs to file §107 suits rather than to let grass grow under their feet.

In weighing possible unfairness to §107 defendants, the Supreme Court noted that  a defendant PRP in  a §107 suit could blunt any inequitable distribution of costs by filing a §113(f) counter-claim.  Thus, once CERCLA liability is established, defendants may avoid joint and several liability by establishing that they caused only a divisible portion of harm. Of course, this course of action is easier said than done and requires a significant commitment of legal manpower to see through to the end.  One court recognized that by providing a RPP with an opportunity to pursue joint and several liability against other PRPs, §107 further encourages a PRP to quickly and voluntarily cleanup a site in the hopes that it might recover its response costs from other PRPs. Raytheon Aircraft Company v. United States, 532 F.Supp. 2d 1306, 1310 (holding that the Court’s decision to permit plaintiff-PRP to pursue joint and several liability under §107(a) found support in Atlantic Research).  In my judgment, the environmental bar should expect that a large number of cost recovery cases will be filed over the next 12 months.