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U.S. District Court Examines Standing to Challenge Special Elections

Jackie Nichols v. City of Rehoboth Beach, Sam Cooper, and Sharon Lynninvolved a motion to dismiss a lawsuit filed by a city resident against the city alleging violations under the Fourteenth Amendment and under 42 U.S.C. §§ 1983 and 1988, arising from a special election to authorize the issuance of municipal bonds. The United States District Court for the District of Delaware concluded that the city resident lacked standing to bring the lawsuit because she did not suffer a concrete personal injury, and thus, that the Court lacked subject matter jurisdiction to hear the action. Accordingly, Judge Gregory M. Sleet granted the city’s motion to dismiss.

By way of factual background, Plaintiff Jackie Nichols ("Nichols")was a resident, property owner, and taxpayer of the City of Rehoboth Beach ("Rehoboth").On April 27, 2015, the Board of Commissioners of Rehoboth adopted a resolution proposing the issuance of up to $52,500,000 general obligation bonds of Rehoboth to finance an ocean outfall project (the "Ocean Outfall Project"), and ordering a Special Election to authorize the city to issue these and other objectives. On June 27, 2015, Rehoboth conducted the Special Election. The costs of the Special Election were paid from the Rehoboth treasury. Section 40(h) of the Rehoboth Charter, which governs voting procedures for Special Elections to authorize the borrowing of money, states:

At the said Special Election, every owner or leaseholder, as defined in this Charter, of property, whether an individual, partnership or corporation, shall have one vote and every person who is a bona fide resident of the City of Rehoboth Beach, but who is not an owner or leaseholder, as defined in this Charter, of property within the corporate limits of the City of Rehoboth Beach and who would be entitled at the time of holding of the said Special Election to register and vote in the Annual Municipal Election if such Annual Municipal Election were held on the day of the Special Election shall have one vote whether or not such person be registered to vote in the Annual Municipal Election.

Section 40 of the Rehoboth Charter does not define the phrase "bona fide resident." Section 7(d) of the Rehoboth Charter, relating to the manner of holding annual elections, requires that to be eligible to vote, the term "resident" means "an individual actually residing and domiciled in the City of Rehoboth Beach for a period of 6 months immediately preceding the date of the election." At the Special Election, Rehoboth only accepted as voters those who had been residents for a minimum of six (6) months and property owners. Rehoboth granted the right to vote more than once to those who met the residency requirement and owned (directly or through an entity) property in Rehoboth. Corporations and other artificial entities owning property in Rehoboth were permitted to vote. Individuals who owned multiple parcels in Rehoboth through ownership of multiple artificial entities were permitted to vote one (1) time for each property owned through such artificial entities. After the polls were closed, Rehoboth announced that there were 637 votes in favor of borrowing for the Ocean Outfall Project, and 606 votes against borrowing for the Ocean Outfall Project.

On July 16, 2015, Nichols filed a lawsuit against Defendants, Rehoboth, Rehoboth Mayor Sam Cooper, and Rehoboth City Manager Sharon Lynn (collectively, "Defendants"). In her complaint, Nichols alleged violations under the Fourteenth Amendment of the United States Constitution and under 42 U.S.C. §§ 1983 and 1988. The complaint contained four (4) counts: (1) declaratory relief for the Fourteenth Amendment Residency Requirement, (2) injunctive relief for the Fourteenth Amendment Residency Requirement, (3) declaratory and injunctive relief for the Fourteenth Amendment One Person, One Vote claim, and (4) Delaware State Law-Exceeding Authority. Defendants filed a motion to dismiss and opening brief on August 26, 2015. Nichols filed an answering brief in opposition on September 9, 2015. Defendants filed a reply brief on September 21, 2015.

The Court began its analysis by explaining that Federal Rule of Civil Procedure 12(b)(1) provides that a party may bring a motion to dismiss for lack of subject matter jurisdiction, and that a motion to dismiss for lack of standing is also properly brought pursuant to Federal Rule 12(b)(l) “because standing is a jurisdictional matter.” See St. Thomas-St. John Hotel & Tourism Ass'n v. Gov't of the V.I., 218 F.3d 232, 240 (3d Cir. 2000) ("The issue of standing is jurisdictional."); Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727, 733 (3d Cir. 1970) ("We must not confuse requirements necessary to state a cause of action... with the prerequisites of standing.").

The Court further explained that a party invoking federal jurisdiction “bears the burden of establishing that she possesses the requisite standing to bring an action.” See FOCUS v. Allegheny Cnty. Ct. Com. Pl., 75 F.3d 834, 838 (3d Cir. 1996) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)). The Court noted that in examining a challenge to a party's standing, “the court must accept as true all material allegations set forth in the complaint and construe those facts in favor of the nonmoving party,” and that at the motion to dismiss stage, "general factual allegations of injury resulting from the defendant's conduct may suffice." See Warth v. Seldin, 422 U.S. 490, 501 (1975); Storino v. Borough of Point Pleasant Beach, 322 F.3d 293, 296 (3d Cir. 2003); Ballentine v. U.S., 486 F.3d 806, 810 (3d Cir. 2007).

In their motion to dismiss, the Defendants made the following arguments: (1) the challenge to the City's Special Referenda Election was too late, (2) Nichols failed to make any claims whatsoever against Defendants Cooper and Lynn, (3) the State of Delaware was the real party in interest, (4) Nichols lacked standing, (5) Rehoboth did not exceed its authority in paying for an advertisement in support of the Special Referenda Election, and (6) the Court should abstain and stay the case.

The Court first addressed the Defendants’ argument that Nichols lacked standing, as that challenge went to the Court’s jurisdiction. Regarding the standing issue, Defendants argued that Nichols lacked standing to challenge the six (6)-month residency requirement in the charter because she suffered no injury. Specifically, they argued that she was never denied the opportunity to vote in the Special Referenda Election. Nichols responded that she possessed taxpayer standing. She claimed that she was suing in her capacity as a municipal taxpayer to challenge taxpayer-funded elections, the resultant authorization of the issuance of municipal debt instruments, and the expenditure of tax revenues to buy advertisements to influence a bond referendum.

The Court explained that in order to satisfy the standing requirements of Article III, a plaintiff must show: "(1) it has suffered an 'injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." See Friends of the Earth, Inc. v. Laidlaw Environmental Servs., Inc., 528 U.S. 167, 180-81 (2000) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)).

The Court further explained that in a “voting case,” voters need to show a disadvantage to themselves as individuals, which requires "a plain, direct and adequate interest in maintaining the effectiveness of their votes.” See Baker v. Carr, 369 U.S. 186, 206 (1962); Coleman v. Miller, 307 U.S. 433, 438 (1939). The Court noted that a claim of the right possessed by every citizen "to require that the government be administered according to law" does not suffice for purposes of standing. See Fairchild v. Hughes, 258 U.S. 126, 129 (1922). See also Lance v. Coffman, 549 U.S. 43 7, 442 (2007) (Finding that plaintiffs lacked standing where the only injury alleged was that the law had not been followed in the election and not a particularized impact on the plaintiffs' votes).

Upon review of the facts of the case, the Court agreed with Defendants that Nichols lacked standing. First, the Court noted that it agreed with Defendants that Nichols was not contesting the expenditure of tax funds, but the legality of the Special Election. Second, the Court noted that Nichols suffered no particularized injury as a result of the Special Election. The Court explained that Nichols was a property owner in the city who had the right to vote in the Special Referenda Election, and thus, she lacked the concrete personal injury necessary to bring suit. As a result, the Court concluded that it lacked subject matter jurisdiction to hear the action, and thus, granted Defendants' motion to dismiss without considering Defendants’ remaining arguments.

Jackie Nichols v. City of Rehoboth Beach, Sam Cooper, and Sharon Lynn, No. 15-062-GMS (United States District Court for the District of Delaware, December 14, 2015), available at:http://www.ded.uscourts.gov/sites/default/files/opinions/gms/2015/december/15-602.pdf

Submitted By: Marisa A. Trasatti and Richard J. Medoff, Semmes, Bowen & Semmes

B1695315.DOCX

Federal Law Requiring Preclearance to Market Medical Devices Does Not Preempt State Tort Law

In a recent decision, the United States District Court for the Southern District of West Virginia held that federal law requiring that medical device manufacturers obtain preclearance to market their products did not preempt state tort law related to design defects.

Plaintiffs sued Defendants related to Defendants’ design, manufacturing, and distribution of Tension-free Vaginal Tape (“TVT”), “a mesh product [intended] to treat stress urinary incontinence.”  After experiencing complications from the product, Plaintiffs (along with approximately 23,000 other similarly situated individuals) sued Defendants, asserting, inter alia, claims for strict liability design defect and negligent design. 

Defendants moved for summary judgment on the grounds of federal preemption.  Defendants noted that, in PLIVA, Inc. v. Mensing, 131 S. Ct. 2567, 2580-81 (2011), the Supreme Court held that “when a party cannot satisfy its state duties without the Federal Government’s special permission and assistance, which is dependent on the exercise of judgment by a federal agency, that party cannot independently satisfy those state duties for pre-emption purposes,” and thus the state duties were preempted by federal law.  Applying that holding, in Mutual Pharm. Co. v. Bartlett, 133 S. Ct. 2466, 2476 (2013), the Supreme Court held that federal law preempted a state duty affecting generic prescription labels because generic drug manufacturers could not change their labels without permission from the FDA.  Analogizing to these cases, Defendants noted that section 510(k) of the Food, Drug, and Cosmetic Act, codified at 21 U.S.C. § 360(k), required them to obtain clearance from the Food and Drug Administration (FDA) prior to distributing TVTs in interstate commerce.  Thus, if Plaintiffs were successful in establishing that TVTs were defectively designed, West Virginia would essentially be imposing a duty on Defendants to adjust the design of TVTs, which they could not do without obtaining preclearance from the FDA if they wished to continue to market TVTs.  Because they could not unilaterally adjust the design of TVTs, Defendants argued it was impossible for them to comply with both federal law and the state duty.

Judge Joseph R. Goodwin disagreed, stating that he did not believe that Defendants’ argument sufficed to show that the state law posed some impediment to Defendants’ ability to comply with federal law.  First, the Court noted that there is a strong presumption against preemption, especially where the preemption of a state’s police powers, such as a state’s imposition of a tort duty, is at issue.  Absent the clear intent of Congress to preempt such powers, Defendants’ argument would fail.  The Court, therefore, looked to Medtronic v. Lohr, 518 U.S. 470 (1996), a case in which the Supreme Court held that Congress did not intend the 510(k) preclearance procedures to preempt state tort law relating to design defects.  According to the Supreme Court, such procedures were intended simply to ascertain whether a substantially similar product was already in existence on the health market in order to prevent products from gaining an unfair foothold on the market while other products cleared separate regulatory hurdles.  The Supreme Court therefore held that, in light of this limited purpose, the 510(k) procedures preserved the status quo with respect to the possibility that a medical device manufacturer would have to defend itself in a design defect lawsuit.  In view of this precedent, the Court was compelled to conclude that the 510(k) procedures did not preempt state tort law.

The Court rejected Defendants’ attempts to shift the Court’s attention from Lohr.   Defendants contended that, because the FDA could reject their altered design, just like the defendants in Mensing and Bartlett, it could not comply with a state tort duty and the FDA’s approval procedures.  The Court, however, noted that it was a firm impossibility for the state duties at issue in Mensing and Bartlett to be reconciled with federal regulation.  In those cases, the Supreme Court found that it was entirely impossible for generic drug manufacturers to comply with a state duty to adjust the warning labels on their products when federal law required them to maintain warning labels identical to those on the brand name drugs.  By contrast, here, Defendants could both make a reasonably safe product and obtain clearance from the FDA to place it on the market.  As a result, the Court concluded that federal law did not preempt the state tort duty.

United States District Court for the Southern District of West Virginia

Terreski Mullins, et al. v. Ethicon, Inc., et al. (December 4, 2015)

http://www.wvsd.uscourts.gov/sites/default/files/opinions/2-12-cv-02952.pdf

Submitted By: Marisa A. Trasatti and Matthew J. McCloskey, Semmes, Bowen & Semmes

Allegations of Gender Discrimination Were Undermined

Plaintiff’s Allegations of Gender Discrimination Were Undermined by Defendant’s Efforts to Improve Her Work Performance.
In a recent opinion, the United States District Court for the Northern District of West Virginia held that the plaintiff did not adduce evidence sufficient to establish her various claims relating to workplace discrimination and retaliatory discharge.  Plaintiff was hired by Defendant as a warehouse manager in 2009.  In 2011, her supervisors became concerned by certain aspects of her job performance, including improper maintenance of the warehouse, untimely responses to inquiries by employees and clients, and inaccurate inventory packing for customer deliveries.  As a result, her supervisors implemented a Performance Improvement Plan, and counseled her approximately twenty (20) times over the next thirteen (13) months regarding her performance.  When her performance did not improve by February 2013, Defendant fired Plaintiff.

Plaintiff brought suit against Defendant alleging: gender discrimination, retaliatory discharge, and hostile work environment.  She alleged that Defendant asked her to engage in questionable conduct with which she expressed disagreement, including refraining from listing employees with Driving Under the Influence (“DUI”) charges and not filing an incident report for a broken light bulb.  She also alleged that her supervisor yelled at her, referred to her as “sweetheart,” and assigned her secretarial tasks.  Furthermore, Plaintiff alleged that, one week before her termination, she contacted Defendant’s human resources manager and expressed that she felt harassed and disagreed with her supervisors’ assessments of her work performance.  The human resources manager informed her that she could file a complaint and that an investigation could be conducted, but Plaintiff never filed a formal complaint.

After discovery, Defendant moved for summary judgment, arguing that Plaintiff did not establish a prima facie case of gender discrimination, and even if she did, that Plaintiff was fired for a legitimate, nondiscriminatory reason, namely her deficient work performance.  Moreover, Defendant argued that Plaintiff’s retaliatory discharge claim was baseless because Plaintiff was fired over a year after she engaged in a protected activity, and that there was no proof of a hostile work environment. 

The District Court granted Defendant’s motion.  The Court concluded that Plaintiff did not establish a prima facie case of gender discrimination, as the record reflected that Defendant had approximately twenty (20) discussions with Plaintiff regarding her deficient performance in the thirteen (13) months preceding her discharge.  The Court stated: “It would be quite unusual for an employer engaging in discriminatory conduct to pursue such corrective and positive endeavors for the benefit of the plaintiff.”  Furthermore, even if Plaintiff had established a prima facie case, the record contained ample uncontradicted evidence demonstrating that Defendant had fired Plaintiff for the legitimate, nondiscriminatory reason that her work performance was deficient.  In so concluding, the Court noted that evidence that Plaintiff presented indicating that her coworkers thought she had done a good job was irrelevant, as it was only the perception of the decisionmaker, i.e., Plaintiff’s supervisors, which mattered in determining whether the employee’s work performance was adequate.

With respect to Plaintiff’s retaliatory discharge claim, the Court concluded that Plaintiff’s expressions of disagreement with Defendant regarding listing an employee with a DUI charge and not filing an incident report regarding a broken light bulb did not constitute protected activities sufficient to establish a claim for retaliatory discharge.  Even if they did, the expressions occurred over a year before Plaintiff was fired and were inconsequential in nature, which undermined any inference that her eventual discharge was related to the incidents.  Regarding Plaintiff’s conversation with the human resources manager, the Court concluded that merely talking with the manager did not constitute a protected activity where Plaintiff’s supervisors were unaware that the conversation had occurred at the time they fired Plaintiff.  Had Plaintiff actually filed a complaint for harassment, however, she may have been able to establish a prima facie case in this regard.

Finally, regarding Plaintiff’s claim that Defendant created a hostile work environment, the Court determined that Plaintiff’s allegations were “questionable at best” and unsupported by the evidence adduced in discovery.  Plaintiff’s coworkers never observed any instance of harassment as alleged by Plaintiff; and the work that Plaintiff was asked to do was no more “secretarial” than the work other managers did.  Moreover, Plaintiff’s discussion with the human resources manager involved feeling harassed as a result of her work performance, not her gender.  This crucial distinction undermined Plaintiff’s claim that Defendant fostered a work environment hostile to her because of her gender.  As a result, the Court granted Defendant’s motion for summary judgment as to all of Plaintiff’s claims.

Cacie Biddle v. Fairmont Supply Company (September 24, 2015)

https://ecf.wvnd.uscourts.gov/cgi-bin/show_public_doc?2014cv0122-104

United States District Court for the Northern District of West Virginia

Submitted By Marisa A. Trasatti and Matthew J. McCloskey, Semmes, Bowen & Semmes

Unusual Amicus Brief to the Volkswagen Emissions Scandal

Submitted by John W. Sinnott, Irwin Fritchie Urquhart & Moore LLC, New Orleans, Louisiana (@JohnWSinnott)

Litigation over the Volkswagen emissions scandal is still in its infancy. Well over 100 class actions have been filed, and multiple plaintiffs have filed motions with the Judicial Panel on Multidistrict Litigation seeking transfer to a single federal court. The panel will hear argument on those motions in December.

Settlement is inevitable at some point years down the road, but it's way too early to be talking about that now, right? Not if you're Ted Frank (@tedfrank), founder of the Center for Class Action Fairness (@ccaf). The CCAF "stands for the principles that settlement fairness requires that the primary beneficiary of a class-action settlement should be the class, rather than the attorneys or third parties; and that courts scrutinizing settlements should value them based on what the class actually receives, rather than on illusory measures of relief."

On October 20, 2015, the CCAF took the unusual step of filing an amicus brief with the JPML, arguing that the panel, in order to promote a just and efficient outcome, should transfer the Volkswagen "clean diesel" litigation to Judge Alsup in the Northern District of California due to his exceptional record in scrutinizing class action settlements. 28 U.S.C. § 1407 requires the Panel to consider whether transfer will "promote a just and efficient outcome." The brief points to the "feeding frenzy" of me-too filings by plaintiff attorneys eager to be appointed class counsel in a litigation "where the class is large (over 500,000 owners and lessees of affected vehicles); potential damages are in the billions or hundreds of millions; the defendant has already admitted some wrongdoing; and plaintiffs will be able to piggyback off of government investigations of Volkswagen's conduct."

CCAF asserts that settlement is the one critical area where plaintiffs' counsel and defendants have a "common but perverse interest" – "neither wishes the transferee court to closely scrutinize the class action settlements that will inevitably be reached." The problem, according to CCAF, is that plaintiffs' counsel and defendants do not want a transferee judge who will closely scrutinize a class action settlement, as doing so "will benefit absent class members at the expense of class counsel's fees and the defendants' attempt to minimize litigation expense." Judge Alsup in the Northern District of California has a unique track record of concern for absent class members and has already issued a pretrial order in a Volkswagen case pending before him that addresses the need for a class action settlement to avoid self-serving provisions that benefit class counsel at the expense of the class. On that basis, CCAT's amicus brief urges transfer to Judge Alsup.

CCAF's amicus brief is available at https://cei.org/sites/default/files/Competitive%20Enterprise%20Institute%20-%20Amicus%20Brief%20-%20Volkswagen%20-%2010202015.pdf

In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation, MDL No. 2672.

NEVADA ADOPTS CUMIS INDEPENDENT COUNSEL RULE-HOLDS RESERVATION OF RIGHTS IS NOT A PER SE CONFLICT

On September 24, the Nevada Supreme Court adopted the “Cumis” independent counsel doctrine first adopted in California over 30 years ago.  In State Farm Mut. Auto. Ins. Co. v. Hansen, 131 Nev. Adv. Op. 74 (9/24/2015) the court held policyholders are entitled to independent defense counsel, at the insurer’s expense when the insurer’s reservation of rights creates an actual conflict of interest for defense counsel.  The court also agreed with California that not every reservation of rights creates a conflict of interest requiring independent counsel, thus requiring case by case analysis rather than adopting a per se conflict of interest rule. 

Nevada is a tripartite relationship state, where insurer-appointed defense counsel has two clients, the policyholder defendant and the liability insurer.  Under Nevada law, the appointed defense attorney represents both the policyholder and the insurer.  Nevada Yellow Cab Corp. v. Eighth Judicial Dist. Ct., 123 Nev. 44, 152 P.3d 737 (2007).  That dual representation was the key factor in the Nevada Supreme Court’s decision.  The court held “Because Nevada is a dual-representation state, counsel may not represent both the insurer and the insured when their interests conflict and no special exception applies.” 

The Nevada court then proceeded to examine what would a create a conflict of interest entitling the policyholder to independent defense counsel.  It concluded the insurer’s issuance of a reservation of rights did not per se create a conflict requiring independent counsel.  Instead, it held a case by case analysis was necessary because the purpose of the rule is to enforce attorney conflict of interest rules.  It thus tied the entitlement to independent counsel to whether defense counsel has an actual conflict of interest under Nevada’s Rule of Professional Conduct 1.7.  It explained “This means that there is no conflict of interest if the reservation of rights is based on coverage issues that are only extrinsic or ancillary to the issues actually litigated in the underlying action.” 

By declining to adopt a bright line rule regarding when a conflict necessitating independent counsel exists, and by using the Rules of Professional Conduct for attorneys as the standard, the Nevada Supreme Court has established a standard that may lead to more litigation and additional disputes.    In addition, because the rule is a common law one, much as Cumis was before it was modified and clarified by statute, there is no standard for what reasonable fees are for independent defense counsel, which is likely also to create more litigation.  

Courts May Review EEOC

Courts May Review Whether the EEOC Has Met Statutory Obligation to Conciliate Discrimination Claims. In Mach Mining, LLC v. EEOCNo. 13–1019 (Supreme Court of the United States, April 29, 2015), the Supreme Court held that the Equal Employment Opportunity Commission’s (“EEOC”) conciliation efforts may be judicially reviewed.

The employer (“Mach Mining”) was accused of sex-based discrimination in violation of Title VII of the Civil Rights Act of 1964. A female job applicant filed a complaint with the EEOC. After the EEOC found there was reasonable cause to believe the employer had discriminated against the applicant, they issued a letter inviting the parties to engage in informal conciliation and notified them that a representative of the EEOC would contact them to begin this process. The EEOC has a statutory requirement to conciliate and try to settle cases before initiating a lawsuit under Title VII. The employer claimed it did not hear back until the EEOC determined that conciliation efforts had failed. After a lawsuit was filed, the employer claimed the EEOC failed to make a good faith effort to engage in “informal methods of conference, conciliation, and persuasion,” as required by Title VII.

The question before the Supreme Court was whether the EEOC’s efforts to conciliate or settle discrimination claims under Title VII of the Civil Rights Act of 1964 were subject to judicial review. The district court found that the EEOC’s efforts were subject to judicial review. The Seventh Circuit reversed and found that the efforts were not subject to judicial review. The Supreme Court, in its 9-0 opinion, agreed with the district court and found that the EEOC’s efforts were subject to judicial review, and remanded the case for further proceedings. Thus, the Supreme Court has granted employers a way, albeit a limited way, of challenging and fighting suits filed by the EEOC.

The Supreme Court held that the scope of judicial review is narrow due to the “expansive discretion” given to the EEOC under Title VII. Moreover, because the statute does not expressly state that the agency has the power to police itself, there is a strong presumption in favor of judicial review. Ultimately, the review is to be “relatively barebones . . . enforcing only the EEOC’s statutory obligation to give the employer notice and an opportunity to achieve voluntary compliance.” Moreover, a sworn affidavit from the EEOC indicating that the agency has notified the employer of the specific allegation and allowed the employer the opportunity to remedy the alleged discriminatory practice, suffice to fulfill the EEOC’s obligations under Title VII. If an employer provides evidence that the EEOC either: (1) did not provide the requisite information about the charge; or (2) did not attempt to engage in a discussion about conciliating the claim, then the court may engage in judicial review. In the case where the EEOC does not meet these criteria, the relief would be to stay the proceeding while the agency meets its obligation to conciliate. Thus, the relief to employers is limited.

Mach Mining, LLC v. EEOC No. 13–1019 (Supreme Court of the United States, April 29, 2015)

available at: http://www.supremecourt.gov/opinions/14pdf/13-1019_c1o2.pdf

Submitted by Marisa A. Trasatti and Nida Kanwal, Semmes, Bowen & Semmes

Claim revested through bankruptcy proceeding not subject to dismissal

On January 4, 2010, a car driven by Schlotzhauer was struck by a vehicle operated by Kevin Morton in the parking lot of a post office in Centreville, Maryland. Later that year, on October 6, 2010, Schlotzhauer filed a voluntary petition for Chapter 7 bankruptcy in the United States Bankruptcy Court for the District of Maryland, but failed to list the accident as a potential claim/asset or to request an exemption.  Her debts were discharged on January 19, 2011, and the bankruptcy proceeding was closed.   After the close of the bankruptcy proceeding, but before the three year statute of limitations, Schlotzhauer filed a personal injury claim against Morton and Uni-Select USA, Morton’s employer (herein jointly referred to as “Uni-Select”). 

After the close of discovery Uni-Select moved for summary judgment on the basis that Schlotzhauer did not have standing to assert her claim, as bankruptcy law had vested her bankruptcy trustee with the right to pursue the claim.  Schlotzhauer moved the bankruptcy court to reopen her matter so she could file amended schedules and to issue an order exempting her $1.5 million dollars personal injury claim from her assets.   While Uni-Select opposed the motion, the Court granted the relief and determined that the right to pursue the claim would revest with Schlotzhauer (31) days after the order.  At the same time, the Circuit Court, who was holding the matter sub curia until the resolution by the bankruptcy court, issued an order granting summary judgment on the basis of Schlotzhauer’s lack of standing.  Schlotzhauer petitioned the bankruptcy court to issue an order relating her right to the claim back to the date of filing of the original petition in 2010, and also filed a motion for the Circuit Court to reconsider their decision. Uni-Select opposed both motions, but the bankruptcy court found they had no standing and granted the relief.  In the Circuit Court, Uni-Select argued that Schlotzhauer had to file a new action because the present was a nullity, but that action would be barred by the statute of limitations.  The Circuit Court issued a pro forma denial of the motion for reconsideration. Schlotzhauer appealed the denial of her post-trial motions. 

The Court of Special Appeals addressed the question of whether the trial court erred in denying the motion for reconsideration of the order granting summary judgment.  In finding that the trial court did err, the Court noted that the trial court’s ruling on the motion for summary judgment was based on the fact that the bankruptcy court had not issued a determination on the status of the personal injury claim asset.  This was factually incorrect, as the bankruptcy court had recently issued its order, thereby re-vesting Schlotzhauer with the right to pursue the claim. 

The Court further held that even though Schlotzhauer had errantly brought the suit when she did not have standing to do so, she had the right to maintain the suit once she reacquired the claim from the bankruptcy court. When she reacquired the claim, otherwise in the possession of the bankruptcy trustee, she replaced him as the party in interest, and her rights related back to the commencement of the lawsuit.  “In other words, as a matter of federal bankruptcy law, when the bankruptcy court allowed the exemption that Schlotzhauer had claimed in her amended schedules, it was as though she had owned her claims all along.”  The bankruptcy court’s second order, relating the exemption back to the date of the petition, definitively determined that, as a matter of federal law, Schlotzhauer owned the claim all along. 

The Court of Special Appeals held that the trial court erred by not granting the motion to reconsider the grant of the motion for summary judgment when it was presented with new information regarding the legal status of Schlotzhauer’s right to pursue the claim.  The order of the trial court was reversed and the matter was remanded to the trial court for further proceedings.

Schlotzhauer v. Morton, 2015 Md. App. LEXIS 98, *1 (Md. Ct. Spec. App. July 30, 2015), publicly available at http://www.mdcourts.gov/opinions/cosa/2015/0049s14.pdf

Submitted by Marisa A. Trasatti and Gregory Emrick

Epilogue to Banff 2015 Amarin and Caronia

Amarin/Caronia: What Lies Ahead for Tort Preemption?

It is a coincidence that the death of Frances Oldham Kelsey on August 7, 2015 coincided with the release of the decision in Amarin v. FDA, 1:15-CV-03588-PAE, Doc. 73 (SDNY Aug. 7, 2015). Ms. Kelsey is generally credited with the regulatory changes that require evidence of efficacy before a product can be marketed for a specific use. Those changes came about because of the promotion of thalidomide, a drug that physicians prescribed for nausea during pregnancy, which caused profound deformities in developing fetuses.

The Amarin court addressed a related issue—whether manufacturers could be prevented from disseminating information concerning indications, dosages, durations, or in combinations not in the Food and Drug Administration (FDA) approved label (i.e. off-label). The court concluded that more, not less, truthful information was needed, observing that off-label use is often recognized as the standard of care in medicine and has been recognized as such by the United States Supreme Court. Id. at 5-9. It is an unassailable truth that no one has ever died or been injured because they had too much truthful scientific or medical information. Health care is improved and lives are saved when doctors have unrestricted access to truthful information concerning the safety and effectiveness of FDA-regulated products for on-label use, and the health benefits are even greater when the information concerns off-label uses.

In Amarin, the court rejected the government’s misreading of the landmark opinion in U.S. v. Caronia,703 F.3d 149 (2d Cir. 2012), and significantly curtailedthe FDA’s power to bar a manufacturer from disseminating truthful, non-misleading scientific and medical information.Less obvious and potentially more significant for manufacturers, is the issue of tort duties that can arise when the FDA’s oversight is limited. 

The terms “promotion,” “advertising” and “off-label” are not defined in the Food Drug and Cosmetic Act, and to no one’s surprise, the FDA’s regulation of speech concerning promotional activities and advertising related to off-label use has been a muddled mess. The lack of a clear set of rules has allowed the FDA unfettered discretion in defining the applicability of these terms in civil and criminal enforcement proceedings. The Amarin court details the current regime for disseminating truthful scientific information concerning new uses and the narrative reveal a regulatory scheme worthy of Monty Python and the Bridge of Death. For a detailed analysis and discussion of the due process, deference and First Amendment considerations underlying this issue see The First Amendment and the Emerging Tort of Off-Label Promotion, Washington Legal Foundation, No. 183, April 2013) and “Parallel” State Law Tort Claims or Does the FDA Really Favor Private Enforcement of the FDCA? Federation of Defense and Corporate Counsel, July 2015.

In Amarin, the court observed the landmark significance of Caronia stating that the “Second Circuit’s 2012 decision in Caronia addressed, for the first time, the interplay between the FDCA’s misbranding provisions and the First Amendment. Amarin, supra at 18, emphasis added. The government may have been too clever in its strategy regarding Caronia. If it had read the opinion like the rest of the legal community, it might have recognized the folly in not appealing the Caronia decision. As the Amarin court observed: “Had the FDA believed that Caronia gravely undermined the drug approval process, it should have sought review of that decision.” Id. at 67.

The court in Amarin flatly rejected the position the FDA has been touting for decades— that it was not prosecuting speech but conduct that is evidence of intent. The court ruled that “the FDA may not bring such an action based on truthful promotional speech alone, consistent with the First Amendment.” Id. at 45.

The court further rejected the government’s attempt to rewrite the holding in Caronia:

Where the speech at issue consists of truthful and non-misleading speech promoting the off-label use of an FDA-approved drug, such speech, under Caronia, cannot be the act upon which an action for misbranding is based. Id. at 49.

The Caronia and Amarin cases hold far more than academic importance. These cases sit at the juncture of free speech and preemption. When the FDA cannot prevent a manufacturer from providing truthful scientific and medical information about its product, a manufacturer may have a state law duty to speak and its ability to defeat a claim on preemption grounds is threatened.

TheFDA has never been comfortable balancing due process and First Amendment concerns with its desire to pursue enforcement. The result has been a regime under constant criticism as violating due process guarantees, producing regulatory determinations not worthy of court deference and trampling the First Amendment. Despite the uproar, FDA’s threats of criminal sanctions, debarment and civil penalties overwhelmed industry, and the FDA reaped more than $12 billion in penalties. Nonetheless, the growing assault on the FDA’s stranglehold continued, most notably with the landmark decision in Caronia, a watershed decision that most commentators, except the FDA and former government lawyers, predicted would change how the FDA regulates industry communications. 

The Speech/Preemption Dilemma – What Is That Light At The End Of The Tunnel?

Before applauding the demise of FDA’s stranglehold on the dissemination of truthful scientific information too loudly, manufacturers are well advised to heed the Amarin court’s suggestion to “consult with the FDA before promoting off-label use” Id. at 53 because the light at the end of the tunnel might be a freight train of tort claims. An FDA stamp of approval on a company’s marketing efforts may be a lifeline to preserve a preemption challenge. In what may turn out to be the more frequently quoted statement in Amarin, the court highlighted the duty owed by manufacturers stating:

Amarinbears the responsibility, going forward, of assuring that its communications to doctors regarding off-label use… remain truthful and non-misleading. Id. at 66.

If history is any guide, tort claimants may pose a more formidable threat to manufacturers than the FDA. Only time will tell whether they have won the battle only to lose the war.

At the Drug Device and Biotechnology meeting at the FDCC 2015 annual meeting in Banff we discussed Amarin, Allergan et al. v. Athena, 738 F.3d 1350 (Fed. Cir. 2013), cert. denied (No. 13-1286) (June 29, 2015), and the evolving landscape of preemption for off-label tort claims, particularly in light of the FDA’s permissive approach.  Stay tuned for our discussion of how we might anticipate the road ahead. To be continued.…

Sanctions not warranted where no prejudice was found

Sanctions not warranted where no prejudice was found from corporate designee’s improper and inadequate preparation for deposition.

Osborne v. Mountain Empire Operations LLC, et al, No. 1:2014cv00042 - Document 63 (W.D. Va. 2015), available at http://law.justia.com/cases/federal/district-courts/virginia/vawdce/1:2014cv00042/94492/63/

On July 7, 2012, Plaintiff fell out of her wheelchair, while in the care of Defendant’s nursing home.  The fall caused multiple facial fractures, and she allegedly developed pneumonia due to the aspiration of blood from her broken nose. 

During the litigation, Plaintiff sought the deposition of the corporate Defendant’s designee, pursuant to Fed. R. Civ. Proc. 30(b)(6). Plaintiff served a notice of deposition identifying the areas of inquiry to which Defendant did not object.   According to the Motion for Sanctions, filed on May 11, 2015, the corporate designee testified that she had only reviewed the records, had not performed any investigation, and had only spoken with defense counsel.  As a result, she responded approximately 163 times that she did not have personal knowledge and could not answer the questions. Plaintiffs also alleged that defense counsel instructed the witness not to answer properly raised questions, and otherwise coached the witness on how to respond and what particular questions to respond to. 

Two (2) months after the deposition, Plaintiffs filed a Motion for Sanctions, which the Defendant opposed. 

The parties shortly thereafter participated in mediation and settled the case, which included an agreement that Plaintiff would withdraw the motion.

Despite being informed of the settlement, Judge James Jones of the United States District Court of the Western District of Virginia determined that the settlement did not divest the Court of the discretion to render an opinion on the alleged violation of Federal Rules of Civil Procedure.  Citing Perkins v. Gen. Motors Corp., 965 F.2d 597, 600 (8th Cir. 1992), Judge Jones noted that the Court had an independent obligation to enforce the Rules that the parties could not bargain away.

The Court concluded that the Rules had been violated in two (2) ways.   First, the Defendant’s corporate designee was not adequately prepared to respond to the identified areas of testimony, as required by Fed. R. Civ. Proc. 30(b)(6). The Court found that even though the answers were supplied by the client, not the attorney, defense counsel had failed to properly prepare the witness. The counsel had instructed the witness to only rely upon documents, not to talk to potentially knowledgeable employees or conduct any other investigation. 

The Court also found that defense counsel improperly instructed the witness not to respond to certain properly trained questions during the deposition.  The instructions were not properly raised to “preserve a privilege, to enforce a limitation ordered by the court, or to present a motion under Rule 30(d)(3).” Citing Fed. R. Civ. Proc. 30(c)(2).  While the Rules provided a procedure for terminating the deposition for objectionable questions and promptly receiving a ruling from the court, it did not permit the defense counsel to instruct the witness not to answer.  The court also found that defense counsel improperly made speaking objections that had the effect of coaching the witness’s responses.

Despite the violations of the Rules, the Court noted that there was no prejudice to the Plaintiff.  Further, the motion had been filed over two (2) months after the deposition and not long before trial, effectively precluding the court from constructing appropriate remedial sanctions, such as conducting the deposition at Defendant’s cost.  As such, the Court denied the motion. 

Submitted by Marisa A. Trasatti and Gregory Emrick, Semmes, Bowen & Semmes

 

Rooker-Feldman Doctrine Requires Remand

Murray v. Midland Funding, LLC, Civ. No. JKB-15-0532 (June 23, 2015), was removed from State to Federal court under the Class Action Fairness Act (“CAFA”), codified at 28 U.S.C. § 1332(d) and § 1453.  The Plaintiff filed a Motion to Remand, which was granted in part and denied in part by the Court.  The Court determined that Defendant’s removal was timely under CAFA, but that the Rooker-Feldman doctrine required remand of Counts I andII to State court.  The case proceeded in Federal court as to Counts III, IV, and V, since Burford abstention was not applicable.

Plaintiff filed a Class Action Complaint & Request for Jury Trial in Anne Arundel County Circuit Court.  She asked that the Plaintiff Class be defined as the persons sued by Defendant in Maryland State courts from October 30, 2007 through January 14, 2010 for whom Defendant obtained a judgment for an alleged debt, interest or costs, including attorney’s fees in her favor in an attempt to collect a consumer debt.  Plaintiff alleged that Defendant employed multiple entities and persons in thousands of collection actions for purposes of collecting debts on its behalf in Maryland.  Plaintiff further alleged that Defendant did not have the collection agency license mandated by Maryland law during the relevant Class time period.  Plaintiff alleged that the judgments obtained by Defendant before it received its license were void.  The complaint sought declaratory and injunctive relief for the putative class members and a money judgment for the Plaintiff Class in excess of $75,000 based upon alleged violations of Maryland common law and statutory law.  Plaintiff later amended her Complaint and added a new count for the common law causes of action “money had and received” and in the new count, claimed on behalf of the Plaintiff Class a money judgment of $10,000,000.

Plaintiff advanced two (2) bases for remanding this case to state court. First, she claimed removal was untimely, and second, she argued the Court lacked subject matter jurisdiction because of the Rooker-Feldman doctrine.  Alternatively, Plaintiff requested that, if the Court determined removal was timely and Rooker-Feldman required remand of only Counts I and II, then the Court should remand Counts I and II but stay proceedings on Counts III, IV, and V pending state court resolution of Counts I and II pursuant to Burford abstention.

As a threshold issue, the Court rejected Plaintiff’s argument that removal was untimely.  The basic diversity rule did not apply—the CAFA’s diversity rule applied, which meant that the Complaint only came within CAFA jurisdiction after its sum or value exceeded $5,000,000, if it was a class action in which “any member of a class of plaintiffs is a citizen of a State different from any defendant,” and the total number of members of the aggregated plaintiff classes is at least 100.  28 U.S.C. § 1332(d)(2)(A), (5)(B).  Murray’s original Complaint did not meet these parameters because the amount in controversy fell short.  The pleading did not become removable until it was amended and claimed a money judgment of $10,000,000, and it was timely removed by Defendant within thirty (30) days after that amendment.

The Rooker-Feldman doctrine derives its name from two (2) Supreme Court cases, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and Dist. of Columbia Ct. of Appeals v. Feldman, 460 U.S. 462 (1983).  The doctrine is confined to cases brought by state court losers complaining of injuries caused by state court judgmentsrendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.  Such cases are not permitted because they would allow the federal district courts to exercise appellate jurisdiction, when only the Supreme Court may entertain a proceeding to reverse or modify a state-court judgment.  The doctrine is narrowly construed, however; and so, if the federal plaintiff presents some independent claim, albeit one that denies a legal conclusion that a state court has reached in a case to which he was a party, then there is jurisdiction and state law determines whether the defendant prevails under principles of preclusion. 

Based on the application of the doctrine, the Court determined that Counts I and II of the Complaint, which were predicated upon the requested declaration of void judgments, should be remanded.  The Complaint’s remaining counts, however, did not invite review and rejection of the allegedly void judgments obtained by Defendant.  Rather, they alleged violations of Maryland law by Defendant in seeking and enforcing the judgments.  Thus, the injury in the remaining counts was not caused by the judgments themselves but by Defendant’s allegedly illegal actions.  They were separable and collateral to the merits of the state court judgment.  Ultimately, the Court remanded only the portion of the case that did not fall within the district court’s original jurisdiction (Counts I and II), and retained jurisdiction over the remaining counts of the Complaint (Counts III, IV, and V).

Finally, the Court addressed Plaintiff’s argument that if the Rooker-Feldman remand of the entire case was unwarranted, then the Court should stay proceedings on Counts III, IV,and V pending the outcome of Counts I and II in State court, under Burford abstention, citing Burford v. Sun Oil Co., 319 U.S. 315 (1943).  The Court determined that a stay of the remaining counts was inappropriate.  Burford abstention is limited to two (2) particular circumstances: (1) when there are difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case at bar; or (2) where the exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.  Neither circumstance was present in this case.  Furthermore, Burford abstention largely applies only in the context of state administrative processes.  Since the case did not involve any state administrative process or orders that could be jeopardized by proceeding to adjudication on the remaining counts, the doctrine was inapplicable. 

In sum, Defendant’s removal was timely, but the Rooker-Feldman doctrine required remand of Counts I andII to State court, while Federal court retained jurisdiction over Counts III, IV, and V.  No attorneys’ fees were awarded to Plaintiff in connection with the partial remand of the case either.

Rooker-Feldman Doctrine Requires Remand of Part of Plaintiff’s Class Action Complaint, but Remaining Counts Will Remain in Federal Court

Murray v. Midland Funding, LLC Civ. No. JKB-15-0532, United States District Court for the District of Maryland (June 23, 2015) Available at:  https://cases.justia.com/federal/district-courts/maryland/mddce/1:2015cv00532/307500/51/0.pdf?ts=1435228201

Submitted by Marisa A. Trasatti and Colleen K. O’Brien, Semmes, Bowen & Semmes

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