BABY STEPS OR SEISMIC SHIFTS? RECENT DEVELOPMENTS IN TOXIC TORT LAW CROWELL & MORING LLP WASHINGTON,...

BABY STEPS OR SEISMIC SHIFTS?

RECENT DEVELOPMENTS IN TOXIC TORT LAW

CROWELL & MORING LLP

WASHINGTON, DC

THURSDAY, JUNE 9, 2011

Introduction & Welcome

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Scott Winkelman

Scott Winkleman is a partner in Crowell & Moring LLP’s Washington, DC office, where he is chair of the firm’s Torts Practice. He litigates class actions, multidistrict proceedings, and other complex litigation nationwide in products and commercial matters. His tort practice involves representations in a range of industry sectors, including automotive, computer, aviation, food, alcohol, chemical, rail, and information technology. Mr. Winkelman also co-chairs the firm's Product Risk Management Practice, representing clients in proceedings before the National Highway Traffic Safety Administration, the Consumer Product Safety Commission and related regulatory bodies. Mr. Winkelman is a Six Sigma “black belt” and advises clients on process improvements in the practice of law. Mr. Winkelman is co-author of “Recent Developments in Toxic Torts and Environmental Law” to be published later this year in the Tort Trial & Insurance Practice Law Journal.

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Beth M. Kramer

Beth M. Kramer is a partner in Crowell & Moring LLP’s Torts Group. Her environmental and toxic tort practice has developed over the past decade through her defense of companies facing personal injury and property damage claims resulting from alleged environmental and occupational exposures as well as through her litigation of environmental insurance coverage claims. For the past several years she has been defending neighborhood tort claims arising from groundwater contamination at the site of a former beryllium machining plant in Florida as well as personal injury and medical monitoring claims arising from alleged exposure to airborne beryllium from the same site. Other environmental tort matters she has defended recently include personal injury and property damage claims filed by neighbors of a former wood-treating facility in Florida, medical monitoring claims brought by persons alleging exposure to an air plume emanating from a train derailment fire in Ohio, and a medical monitoring case brought under the Clean Air Act. Ms. Kramer is a Vice-chair of the TIPS Toxic Torts & Environmental Law Committee and co-author of “Recent Developments in Toxic Torts and Environmental Law” published in the Winter 2010 Tort Trial & Insurance Practice Law Journal. She is co-author of an article of the same title to be published later this year in the Tort Trial & Insurance Practice Law Journal.

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Gloria Martinez Trattles

Gloria Martinez Trattles is a counsel in Crowell & Moring LLP’s Torts Group. For more than a decade, her torts practice has concentrated on representing companies with respect to asbestos-related litigation. Her asbestos work has included representation of companies facing premises liability and product liability claims and insurance companies handling defense and indemnity of asbestos claims. She also serves as national coordinating counsel for a multinational corporation in connection with the company's national and international asbestos litigation docket. Ms. Martinez Trattles is a co-author of “Recent Developments in Toxic Torts and Environmental Law” published in the Winter 2010 Tort Trial & Insurance Practice Law Journal. She is co-author of an article of the same title to be published later this year in the Tort Trial & Insurance Practice Law Journal.

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Jennifer E. Schlosser

Jennifer E. Schlosser is a counsel in Crowell & Moring LLP’s Washington, DC office, where she practices in the Torts and Product Risk Management groups. Ms. Schlosser represents clients involved in complex commercial and tort litigation in a broad range of industries, including information technology, transportation, chemicals, and consumer products. Ms. Schlosser counsels clients on issues involving preserving privileged communications, negotiating contractual disputes, Consumer Product Safety Commission (CPSC) compliance, and early litigation risk assessment. Her litigation experiences include tort class actions, fraud and RICO litigation, international arbitration, and defending personal injury cases alleging work-place exposure to chemicals. Ms. Schlosser is co-author of “Recent Developments in Toxic Torts and Environmental Law” to be published later this year in the Tort Trial & Insurance Practice Law Journal.

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AGENDA

I. Scientific Evidence

II. Medical Monitoring

III. Asbestos Household Exposure Cases and Duty to Warn of Third Party’s Product

IV. Experts and Arbitration at the Class Certification Stage

V. Class Action Fairness Act

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Use and Admissibility of Scientific Evidence

Recent Developments

Daubert: Developments

» 2011 Wisconsin Act 2– Wisconsin, via statute, adopted a standard similar to

Daubert.– Wisconsin Supreme Court had previously rejected Daubert

(and Frye).– Wisconsin courts had been applying their own relevancy

standard for expert testimony:• The testimony is relevant;• The witness is qualified based on his or her

“specialized knowledge;” and • The testimony will help the trier of fact in determining

an issue of fact.

» Act also added punitive damage cap

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» Arizona Rev. Stat. 12-2203– By legislation, Arizona adopted a modified Daubert

standard of admissibility.– Courts shall consider whether the expert’s testimony

or technique can be tested and has been subject to peer review; the potential rate of error of the expert opinion; and whether the opinion is generally accepted in the field.

– Arizona Supreme Court had not adopted Daubert, and instead continued to adhere to the Frye standard.

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BUT WAIT . . . » Lear v. Fields, 245 P.3d 911 (Ariz. Ct. App.

2011) – The standard on admissibility of expert evidence is a

procedural rule and within the Arizona Supreme Court’s jurisdiction.

– § 12-2203 invalid on separation of powers grounds.

» The Arizona Supreme Court has yet to rule.

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Tamraz v. Lincoln Electric Co.,

620 F.3d 665 (6th Cir. 2010)» 6th Circuit overturned a $20.5 million jury verdict

upon concluding that the testimony of a medical expert for plaintiff should have been excluded.

» The expert had testified that manganese exposure caused plaintiff’s Parkinson’s disease.

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» 6th Circuit: expert’s differential diagnosis “suffers from a lack of foundation both for why manganese could cause Parkinson's Disease and why manganism caused this case of Parkinson's Disease.”– Too many “speculative jumps” in the “chain of

causation”– Expert’s “efforts to ‘rule in’ manganese exposure as a

possible cause or to ‘rule out’ other possible causes turned on speculation, not a valid methodology.”

» Remanded

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Pluck v. BP Oil Pipeline, No. 09-4572,

2011 WL 1794293 (6th Cir. May 12, 2011)»Toxic tort case alleging benzene exposure»Plaintiff appealed district court’s exclusion of his specific-causation expert, who had opined that the benzene caused plaintiff’s Non-Hodgkin's lymphoma (“NHL”).

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» 6th Circuit: Daubert requires an inquiry to determine whether the testimony is reliable, and “whether the reasoning or methodology underlying the testimony is scientifically valid.”

» Differential diagnosis is an “appropriate method” for determining causation for an “individual incidence of disease.”– Differential diagnosis: “‘a standard scientific technique

of identifying the cause of a medical problem by eliminating the likely causes until the most probable one is isolated.’”

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» 6th Circuit rejected expert testimony because:– Expert could not “reliably ‘rule in’ benzene as the

cause of [Plaintiff's] NHL”• Did not determine or know level of benzene

exposure, or• Whether exposure levels exceeded EPA safety

regulations– Not enough to show existence of toxin; must offer

“proof that level of exposure could cause . . . symptoms.”

– Failed to “rule out” alternative causes for the NHL (differential diagnosis requirement)

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Scientific Evidence

Lone Pine

Lone Pine

» Derives from Lore v. Lone Pine Corp., a 1986 New Jersey Superior Court case

» In Lore, state court required that plaintiffs provide (1) evidence of exposure, and (2) medical expert evidence showing that the toxins caused the injury at the outset of the case. – Plaintiffs unable to provide information– Court dismissed

» Used as case management tool to require a prima facie showing of injury, causation, and/or damages.

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Lone Pine

Avila v. Willits Environmental Remediation Trust, 633 F.3d 828 (9th Cir. 2011)

»Trial court required – as part of its case management order – that plaintiffs who never lived in the town where the defendant operated, or who lived there after the machine shop ceased operations make a prima facie showing of exposure and causation.

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Lone Pine

» Ninth Circuit finds Lone Pine order permissible:– District courts have “broad discretion to manage

discovery and to control the course of litigation.”– Rule 16(c)(2)(L): courts can adopt “‘special

procedures for managing potentially difficult or protracted actions that may involve complex issues, multiple parties, difficult legal questions, or unusual proof problems.’”

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Lone Pine

» Upheld the use of this Lone Pine order– Order narrowly tailored– Case raised difficult issues of proof on exposure and

causation– Case had been pending for 5 years

» Upheld district court’s dismissal of plaintiffs who did not complete Lone Pine requirements by extended deadline.

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Medical Monitoring

Typical Elements of Medical Monitoring

(1) exposure greater than normal background levels

(2) to a proven hazardous substance

(3) caused by defendant's tortious conduct

(4) as a proximate result of the exposure, plaintiff has a significantly increased risk of contracting a serious latent disease

(5) a monitoring procedure exists that makes early detection of disease possible

(6) the prescribed monitoring regime is different from that normally recommended absent exposure

(7) the prescribed monitoring regime is reasonably necessary according to contemporary scientific principles

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Injury or No injury?

» Jurisdictions generally permitting medical monitoring claims absent injury– AZ, CA, CO, DC, FL, GM, MA, MO, NJ, OH, PA, UT, VT, WV

» Jurisdictions not permitting medical monitoring claims absent injury– Federal common law, AL, AR, CT, GA, KS, KY, LA, MI, MN, MS,

NE, NV, NC, ND, OK, OR, RI, SC, TN, TX, VA, VI, WA

» Jurisdictions with no apparent decisions or unclear/ divided decisions– AK, DE, HI, ID, IA, IL, IN, ME, MD, MT, NH, NM, NY, PR, SD,

WI, WY

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The Realpolitik of Medical Monitoring

» Lawsuits without injury» Monitoring happens all the time – but should it

be court-ordered?» A task better suited to legislatures?» Balancing benefits and risks» Scaring the community» Court supervision -- for decades» The exercise of equitable discretion

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A Claim v. A Form of Relief?

» Some jurisdictions recognize medical monitoring as a stand-alone claim– Bower v. Westinghouse Elec. Corp., 522 S.E.2d 424, 431 (1999)

(“We . . . conclude that a cause of action exists under West Virginia law for the recovery of medical monitoring costs . . .)

– Redland Soccer Club, Inc. v. Dep't of the Army & Dept. of Def. of the U.S., 696 A.2d 137 (1997) (Pennsylvania law) (same)

– Hansen v. Mountain Fuel Supply Co., 858 P.2d 970 (Utah 1993) (Utah law) (same)

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A Claim v. A Form of Relief?

» Others recognize medical monitoring as form of damages available upon proof of negligence or other tort– Potter v. Firestone Tire & Rubber Co., 863 P.2d 795, 823 (Cal.

1993) (“Recognition that a defendant's conduct has created the need for future medical monitoring does not create a new tort. It is simply a compensable item of damage when liability is established under traditional tort theories of recovery.”)

– Ayers v. Jackson Twp., 525 A.2d 287, 312 (N.J. 1987) (“[W]e hold that the cost of medical surveillance is a compensable item of damages . . . .”)

– Meyer ex rel. Coplin v. Fluor Corp., 220 S.W.3d 712 (Mo. 2007) (a form of damages)

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A Claim: Massachusetts

» Medical Monitoring as Stand-Alone Claim– Donovan v. Philip Morris USA, Inc., 914 N.E.2d 891

(Mass. 2009)• Massachusetts, for first time, recognizes claim of

medical monitoring– “When competent medical testimony establishes that

medical monitoring is necessary to detect the potential onset of a serious illness or disease due to physiological changes indicating a substantial increase in risk of harm from exposure to a known hazardous substance, the element of injury and damage will have been satisfied and the cost of that monitoring is recoverable in tort.”

» Id. at 901.

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A Claim: New York (?)

» Caronia v. Philip Morris USA, Inc., No. 06-CV-224, 2011 WL 338425 (E.D.N.Y. Jan. 13, 2011)– EDNY predicts New York would recognize stand-

alone medical monitoring claim• “The Court is persuaded that the New York Court

of Appeals, given the opportunity, would likely permit asymptomatic plaintiffs to recover the sort of medical monitoring that the plaintiffs are requesting here: a defendant-created and maintained comprehensive monitoring program.”

– Id. at *7.

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Medical Monitoring & Punitives

» Perrine v. E.I. du Pont de Nemours and Co., 694 S.E.2d 815 (W. Va. 2010)– Punitive damages not available in West Virginia in

connection with medical monitoring claim• “‘Because the respondents have not asserted

personal injury claims, as they have not suffered any actual, present physical injuries from their alleged exposure to petitioners' products, punitive damages simply should not be available . . . .’”

» Id. at 880.

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Medical Monitoring & Punitives

» One other jurisdiction, E.D. Pa, has addressed the issue specifically– Hess v. A.I. DuPont Hospital for Children, No. 08-

0229, 2009 WL 595602, at *13 (E.D. Pa. Mar. 5, 2009) (punitive damages unavailable for medical monitoring claim); Guinan v. A.I. duPont Hospital for Children, 579 F. Supp. 2d 517, 540 n.10 (E.D. Pa. 2009) (same)

• But see Carlough v. Amchem Products, Inc., 834 F. Supp. 1437, 1460 (E.D. Pa. 1993) (suggesting that punitive damages are available for medical monitoring claims).

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As Equitable Relief?

» Xavier v. Philip Morris USA, Inc., No. C 10-02067, 2010 WL 3956860 (N.D. Cal. Oct. 8, 2010)– ND CA refused to allow stand-alone medical

monitoring claim where purely equitable relief was sought

• Plaintiffs tried to distinguish California Supreme Court decisions denying stand-alone claims by arguing plaintiffs in those cases sought only money for monitoring

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As Equitable Relief?

» The court said this misconstrued applicable law – “Plaintiffs ask too much. With Potter, California joined

the minority of jurisdictions endorsing recovery in tort without present physical injury. . . . True, the Court did not rule out equitable medical monitoring as a stand-alone claim. But there is no indication that it was the legal nature of the lawsuit in Potter that prevented the Court from characterizing its decision as one creating a new tort.”

• Id. at *3

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How Much Risk Is “Significant”?

» Element 4: “as a proximate result of the exposure, plaintiff has a significantly increased risk of contracting a serious latent disease”

» [A] plaintiff must not only show exposure, but must prove that he was exposed beyond what would normally be encountered by a person in everyday life, so that the plaintiff's risk of being injured from the exposure is greater, in some way, than the normal risks all of us encounter in our everyday lives.

• Redland Soccer Club, Inc. v. Dep't of Army of U.S., 55 F.3d 827, 846 (3d Cir. 1995)

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How Much “Risk” Is “Significant”

» Is 1-in-1 million “significant”?

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» Thus, even assuming there were a million members in this class who had been exposed to this level of dioxin over their entire lives, and assuming causation, presumably only one of them would develop cancer because of the exposure. Plaintiffs seek to commence medical monitoring based on this one in a million risk. While Plaintiffs, without citing any authority, contend that whether the risk is significant is a question for the jury, courts have found risks higher than in the instant matter to be insignificant as a matter of law.– Mann v. CSX Transp., Inc., No 1:07-CV-3512, 2009

WL 3766056 (N.D. Ohio Nov. 10, 2009)

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» Other courts reach similar conclusions– O’Neal v. Dep’t of the Army, 852 F. Supp. 327, 336

(M.D. Pa. 1994) (finding 0.3% increased risk insignificant)

– Pohl v. NGK Metals Corp., No. 733, 2003 WL 24207633 (Pa. Com. Pl. July 9, 2003) (rejecting risk that 1% of population of 200,000 might develop future disease)

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Asbestos

Household Exposure Cases and Duty to Warn of Third Party’s Product

Asbestos – Household Exposure

Premises Owner’s or Employer’s Duty in Household Exposure Cases

Does a premises owner have a duty to warn its contractor’s employees about the dangers of household exposure to asbestos?

Does an employer owe a similar duty to warn its own employees of hazards posed to household members?

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– High courts of 7 states have ruled• Delaware, Georgia, Iowa, Michigan, New Jersey,

New York, Tennessee.– The majority (Delaware, Georgia, Iowa, Michigan and

New York) held no duty.– Tennessee held an employer had a duty to prevent

household contamination by its employees.– New Jersey held a duty runs from premises owner to

family members of contractor employees.

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State LegislationOhio and Kansas have enacted legislation that appears to bar all household exposure claims against premises owners in asbestos cases. Ohio Rev. Code 2307.941(A)(1) (2004); Kan. Stat. Ann. 60-4905(a) (2006).

In 2010, the Ohio Supreme Court confirmed that its legislation completely bars all household exposure claims against a premises owner, regardless of the theory of liability. Boley v. Goodyear Tire & Rubber Co., 929 N.E.2d 448 (Ohio 2010).

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Courts tend to divide into two camps:

Camp 1: Foreseeability of harm as dominant consideration

Camp 2: Relationship between premises owner/employer and plaintiff is dominant Concerned by possibility of limitless liability

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DELAWARE

Delaware Supreme Court is revisiting the question in Price v. E. I. du Pont de Nemours & Co.

The court is to decide whether such a claim stated as a claim of misfeasance (affirmative misconduct), as opposed to nonfeasance, is viable.

This question was left open by the court’s prior decision in Riedel v. ICI Americas, Inc., 968 A.2d 17 (Del. 2009), in which the court found that an employer did not owe a duty to warn of household exposure dangers when the claim was stated as one of nonfeasance – that is, a claim grounded on the employer’s failure to act.

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ILLINOIS

The Illinois Supreme Court is addressing the issue for the first time in Simpkins v. CSX Corp.

The court is reviewing a 2010 decision of the Fifth District appellate court that held that an employer did owe a duty. Simpkins v. CSX Corp., 929 N.E.2d 1257 (Ill. App. 2010).

Simpkins is in conflict with the decision of the Second District appellate court in Nelson v. Aurora Equipment Co., 909 N.E.2d 931 (Ill. App. 2009), which held that the employer, lacking a “special relationship” with its employee’s wife, owed no duty. The Illinois Supreme Court denied review of Nelson.

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Asbestos – Manufacturer Duty to Warn

Does a manufacturer of equipment (e.g., a valve or pump) have a duty to warn of hazards posed by asbestos-containing products manufactured by another party that might be used in conjunction with or as a component of the manufacturer’s product?

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Washington State Supreme Court

Braaten v. Saberhagen Holdings, 198 P.3d 493 (Wash. 2008)

Simonetta v. Viad Corp., 197 P.3d 127 (Wash. 2008)

In a pair of cases, the Washington court holds there is no duty, under either negligence or strict liability principles, where the manufacturer did not “manufacture, sell, or supply the asbestos[-containing product]” used by the purchaser in conjunction with the manufacturer’s product.

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Issue has been addressed by a handful of trial and intermediate appellate courts in asbestos cases around the country, including courts in Delaware (applying Idaho law), New York, Ohio, Pennsylvania, and the Texas MDL court.

Majority have held that there is no duty to warn where . . .

The manufacturer did not place the asbestos-containing product in the stream of commerce in any way

The manufacturer did not specify or require that asbestos-containing components be used with its product

The manufacturer’s product did not need an asbestos-containing component in order to function for its “intended purpose” (i.e., other non-hazardous products could have been used)

The manufacturer did not know that components used in conjunction with its own product would “necessarily be made from asbestos”

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California Supreme Court to Address the Issue

Four cases are currently on appeal before the court:

Merrill v. Leslie Controls, Inc., 101 Cal. Rptr. 3d 614 (Ct. App. 2009)

O’Neil v. Crane Co., 99 Cal. Rptr. 533 (Ct. App. 2009)

Hall v. Warren Pumps LLC, 2010 WL 528489 (Cal. Ct. App. Feb. 16, 2010)

Walton v. William Powell Co., 108 Cal. Rptr. 3d 412 (Ct. App. 2010)

Supreme Court to consider and decide O’Neil first. O’Neil is at odds with an earlier appellate decision – Taylor v. Elliot Turbomachinery Co., 90 Cal. Rptr. 3d 414 (Ct. App. 2009) – in which the Supreme Court denied review.

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Taylor v. Elliot Turbomachinery

The plaintiff sued several manufacturers of valves and pumps used in the propulsion system of the Navy ship on which he served. At the time of the plaintiff’s exposure, the valves and pumps contained asbestos components (e.g., gaskets and packing) manufactured and sold/supplied by third parties.

The plaintiff argued that a manufacturer should have a duty to warn of all hazards arising from foreseeable uses of its own product, including hazards of incorporated products that, although manufactured and supplied by a third party, are part of the normal and intended use of the manufacturer’s own product.



The First District disagreed, holding that the defendant manufacturers had no duty to warn under strict liability or negligence principles.

Strict liability would not attach because

Manufacturers have no duty to warn unless they are in the “chain of distribution” of the hazardous product.

Manufacturers have no duty to warn of defects in products supplied by others and used in conjunction with the manufacturer's product unless the manufacturer's product itself causes or creates the risk of harm.

Manufacturers or suppliers of nondefective component parts bear no liability when they simply build a product to a customer's specifications but do not substantially participate in the integration of their components into the final product.



The court likewise rejected the contention that the manufacturers should bear a duty to warn under negligence principles because the use of asbestos-containing materials with their equipment was both foreseeable and anticipated.

The court noted that foreseeability, standing alone, is not sufficient and was outweighed by policy considerations. It further challenged the plaintiff’s view of what was foreseeable, asking:

“[C]an a manufacturer reasonably be expected to foresee the risk of latent disease arising from products supplied by others that may be used with the manufacturer's product years or decades after the product leaves the manufacturer's control?”



As to the policy considerations,

Little moral blame can be attached to the manufacturer’s failure to warn two decades after they sold their valves and pumps to the Navy.

Imposing liability on the valve and pump manufacturers would not serve to prevent future harm.

The manufacturers and suppliers of the asbestos products with which the plaintiff came into contact were in the best position to investigate and warn of the dangers posed by their own products.

Imposing liability would burden the valve and pump manufacturers with a duty to warn persons “far outside the distribution chain” of their products.

Merrill, Hall and Walton (all issued by the Second District) followed Taylor.


O’Neil v. Crane Co.

Plaintiff sued Crane alleging exposure to asbestos gaskets and packing that were not manufactured by Crane, but were incorporated in Crane’s valves.

Commenting that “Taylor misses the mark,” a different division of the Second District held that “a manufacturer is liable in strict liability for the dangerous components of its products, and for dangerous products with which its product will necessarily be used.”

Crane was therefore liable for exposures to the asbestos components supplied with its valves, even though it had not manufactured them.


O’Neil v. Crane Co.

Crane further argued that, putting aside whether it could be held liable for asbestos components (gaskets, packing and insulation) sold with its valves, it could not be liable for the plaintiff’s exposure to replacement asbestos components that were later incorporated into the valves during routine maintenance because Crane had neither manufactured nor sold/supplied those replacement asbestos components.

The court rejected that line of defense as well. The court reasoned that Crane had incorporated asbestos products into its valves, which needed those asbestos products to function. Liability attached because the plaintiff’s injury was caused by the operation of the valves with replacement asbestos products which Crane knew would be used with its valves and which had the same dangerous propensities as the original parts.

Experts and arbitration at the class certification stage

Experts At the Class Stage

» Must/can a court determine the admissibility of an expert’s testimony before class certification?

» How about when that testimony is essential to certification?

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Historically

» Qualms about tackling or touching expert questions– class v. merits– deferring to class proponents– class decisions are conditional, “provisional”– ducking hard questions– a ton of work– the “gatekeeper” function kicks in later

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The result: uncertainty

» 7th Circuit grants review given the “uncertainty surrounding the propriety of conducting a Daubert analysis at the class certification stage

. . . .”– American Honda Motor Co. v. Allen, 600 F.3d 813 (7th

Cir. 2010)

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Illustrative: Honda v. Allen (N.D. Ill. 2009)

» Allen seeks certification of class of motorcycle owners, alleging “wobble” design defect produces shaky steering

» Allen proffers Dr. Ezra to establish (b)(3) predominance

» Honda moves to strike Ezra report at the class stage under Daubert

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Honda v. Allen (N.D. Ill. 2009)

» District court– proper to decide admissibility at the class stage– finds “reservations” regarding Dr. Ezra’s wobbly

decay standard– yet declines to exclude report “at this early stage of

the proceedings”– certifies the Allen classes

» 264 F.R.D. 412, 425–437

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Sister courts similarly equivocal

» “The Eight Circuit does not appear to expressly require district courts to engage in a full Daubert inquiry at the class stage.”– In re Zurn Pex Plumbing Products Liability Litigation,

267 F.R.D. 549, 556 (D. Minn. 2010)

» Dukes v. Wal-Mart, 509 F.3d 1168, 1174, 1179 (9th Cir. 2007) (withdrawing prior opinion holding that Daubert finding should not be made at class stage)

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A Break In the Wall: Allen v. Honda (7th Cir. 2010)

» Trial court “must conclusively rule on any challenges to the expert’s qualifications or submissions prior to ruling on a class certification motion”– including “a full Daubert analysis” if need be– courts must reach “a conclusion” about reliability,

admissibility– 600 F.3d 813, 815–820

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Allen v. Honda (7th Cir. 2010)

» “early stage” beside the point» “provisional” approach rejected» even where class and merits considerations

“overlap”» so long as expert evidence is “integral to the

plaintiff’s satisfaction of Rule 23’s requirements”

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Sher v. Raytheon (11th Cir. March 9, 2011)

» Trial court certifies class, declines to resolve Daubert challenge

» 11th Circuit:– “We consider [Allen v. Honda] persuasive”– “It was error for the district court to decline to declare

a proverbial, yet tentative winner” on expert challenge– “Tough questions must be faced and squarely

decided” (quoting Allen)– 2011 WL 814379

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And yet:

» In re Zurn Pex Plumbing (D. Minn. 2010)– class proponents urge a quick look: is proffered

expert testimony “so flawed it cannot provide any information as to whether the requisites of class certification have been met”

– trial court collects cases in 8th Circuit declining to “engage in a full Daubert analysis at the class certification stage”

– rejects Allen v. Honda– court proceeds with “at this stage” analysis– denies motions to strike (for now)

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The State of Play

» Unclarity remains– Will Allen v. Honda become law of the land?

» No definitive split in the circuits» The “can” and “must” questions –

• permissive? • mandatory?

– both remain in play in most circuits

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Whither Class Arbitration?

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Whither Class Arbitration?

» The issue: class action waiver provisions in consumer contracts– mandating arbitration

– mandating bilateral proceedings – i.e., barring class arbitration

» Class action waivers as between commercial entities long upheld, enforced– Even where contract waiver is silent on the class question

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp, 130 S.Ct. 1758 (2010)

» What about as to consumers?

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The Tensions

» State authority v. Federal Arbitration Act» Class action benefits v. public policy favoring

arbitration» Differential bargaining power (contracts of

adhesion) v. sanctity of contracting and free will» Unconscionability doctrine v. a favored form of

dispute resolution» Choice v. paternalism

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AT&T Mobility LLC v. Concepcion

» The merits question: Could AT&T charge consumers sales tax on phones it allegedly advertised as free?

» The class question: Is the AT&T contractual class waiver enforceable?– AT&T consumer contracts in question

• mandate arbitration• bar class arbitration

– claims must be brought in “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding”

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AT&T v. Concepcion (cont’d)

» The arbitration agreement at issue: decidedly consumer-friendly– simple initiation of arbitration– AT&T pays all costs of non-frivolous claims– venued in customer’s county– proceeds by phone or on paper at consumer’s

election– AT&T cannot seek fees– prevailing consumer gets fees minimum $7500 and 2x

fees (if award greater than AT&T’s last written settlement offer)

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The courts below

» District court: arbitration clause unconscionable, barred by California’s Discover Bank rule– Discover Bank: waiver in consumer contract of

adhesion unconscionable when allegation is cheating of large numbers of consumers out of small sums each

• 36 Cal. 4th 148, 113 P. 3d 1110 (2005)

» 9th Circuit: agrees

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AT&T v. Concepcion 130 S.Ct. 3322 (2011)

» “California’s Discover Bank rule is preempted by the FAA”

» FAA favors arbitration» State law must not frustrate FAA objectives» State law must not disfavor arbitration» Class action waivers are to be enforced

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The majority’s reasoning

» Arbitration agreements, with consumers and otherwise, must be on same footing as other contracts

» FAA’s savings clause (§2) preserves “generally applicable contract defenses,” but– cannot disfavor arbitration

– does not bar class action waivers that foster arbitration

» Class arbitration, unless chosen by parties, interferes with “fundamental attributes of arbitration”

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An exercise in realpolitik

» Discover Bank applied only to contracts of adhesion– “but the times in which consumer contracts were

anything other than adhesive are long past”

» Discover Bank applied only to small-$$ claims– this limiting principle “toothless and malleable”

» Individual arbitration works well – and better than class proceedings

» Arbitration of consumer claims won’t occur unless provisions enforced as written

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Questions In the Wake of Concepcion

» Less consumer-friendly clauses?» Complex claims?» Has an agreement to proceed individually in fact

been formed?– click-through agreements– purchases through retailers

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What the future holds

» How slender is the Concepcion majority?» Will states adopt Concepcion workarounds?

– “Of course States remain free to take steps addressing the concerns that attend contract of adhesion – for example, requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted”

» Might the FAA be amended?

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Class Action Fairness Act

Recent Developments

CAFA: Overview

» Expands diversity jurisdiction– Action filed as a putative class action– Amount in controversy (aggregated) exceeds $5

million– Minimal diversity

• E.g., “Any member of a class of plaintiffs is a citizen of a different state from any defendant.” 28 U.S.C. 1332(2)(A).

» In certain circumstances, court may decline jurisdiction.

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CAFA: Overview

» Key Diversity Jurisdiction Carve Outs– Aggregated amount in controversy less than $5

million– Class actions with under 100 members– Local disputes– States, state officials, or certain other government

entities are “primary defendants”– Certain claims that pertain to securities and fiduciary

claims– Relates to “internal affairs or governance” of a

business/corporation

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CAFA: Overview

» Removal made easier– Any defendant can remove without consent of other

defendants– Forum state citizenship restrictions removed– Eliminates one-year removal limitation

» Appellate review of remand order permitted and expedited

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CAFA: Overview

» When remand is required

– Home state exception

• 2/3 or more of members of proposed plaintiff class AND

• “primary defendants”

Are citizens of the forum state.

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CAFA: Overview

» Local controversy exception– More than 2/3 of members of proposed plaintiff

classes are citizens of forum state; – At least one defendant from whom “significant relief”

is sought and whose alleged conduct forms a “significant basis for the claims asserted” is a citizen of the forum state;

– The principal injuries were incurred in the state where the action was filed; and

– No other class action “asserting the same or similar factual allegations on behalf of the same or other person” has been filed in the past 3 years.

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CAFA: Recent Developments

Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805 (7th Cir. 2010)

»After the district court denied class certification, it remanded the case.»Seventh Circuit held that CAFA jurisdiction does not depend on class certification and did not eliminate subject-matter jurisdiction under the Act.

– Avoiding CAFA circumvention: Seventh Circuit concerned that a case could be remanded to a state with different class action rules, allowing it to proceed as a class action.

– Exception for obviously frivolous class action claims: Unless class claims are deemed frivolous, federal jurisdiction will survive denial of a motion for class certification.

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» Cunningham added to growing split of federal circuit courts– Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1268

n.12 (11th Cir. 2009) (CAFA jurisdiction does not depend on certification); see also USW, AFL-CIO, CLC v. Shell Oil Co., 602 F.3d 1087, 1089 (9th Cir. 2010) (same).

– In re TJX Cos. Retail Sec. Breach Litig., 564 F.3d 489, 492–93 (1st Cir. 2009) (CAFA jurisdiction depends on class certification and in the absence of certification, remand is appropriate).

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In re Burlington Northern Santa Fe Railway Company, 606 F.3d 379 (7th Cir. 2010)

»After CAFA jurisdiction upheld, the plaintiffs amended their complaint to omit class action allegations. The district court remanded.»The Seventh Circuit held that “jurisdiction under CAFA is secure even though, after removal, the plaintiffs amended their complaint to eliminate the class allegations.”

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Westerfeld v. Independent Processing, LLC, 621 F.3d 819 (8th Cir. 2010)

» The Eighth Circuit held that any doubt regarding whether the local controversy exception applies must be resolved against plaintiff and in favor of removal.

» The party invoking the exception bears the burden of proving its applicability.– Congress “contemplated broad federal jurisdiction with

only narrow exceptions.”– In making “significant defendant” determination all claims

in the action must be considered.

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» Other circuit courts agree– Kaufman v. Allstate New Jersey Ins. Co., 561 F.3d

144, 153 (3d Cir. 2009) (burden shifts to party challenging federal jurisdiction to show that local controversy exception applies); see also Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1024 (9th Cir. 2007) (same); Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675, 680 (7th Cir. 2006) (same); Frazier v. Pioneer Arms. LLC, 455 F.3d 542, 546 (5th Cir. 2006) (same); Evans v. Walter Indus., Inc., 449 F.3d 1159, 1165 (11th Cir. 2006) (same).

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Coleman v. Estes Express Lines, Inc., 631 F.3d 1010 (9th Cir. 2011)

» Local Controversy Requirements: Interpreting the requirements of 28 U.S.C. 1332(d)(4)A)(i)(II)(aa) & (bb)

(II) at least 1 defendant is a defendant –(aa) from whom significant relief is

sought by members of the plaintiff class;(bb) whose alleged conduct forms a significant basis for the claims asserted

by the proposed plaintiff class; and (cc) who is a citizen of the State in which

the action was originally filed; and . . .

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» Court concluded that based on the language in (aa) – “sought – and in (bb) – “alleged” – that the district court can only consider the complaint and not extrinsic evidence to determine if these requirements are met.– Courts can permit plaintiffs to amend complaint to address

relevant CAFA criteria; and– Ruling limited to sections (aa) and (bb).

» Other Circuit Courts– 10th and 3d Circuits agree– 11th considered using extrinsic for (bb), but issue not

properly before it.– Some district courts have concluded extrinsic evidence

can be used if (aa) and (bb) requirements are met.

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Blomberg v. Services Corp. Int’l, No. 11-8009, 2011 WL 1405144 (7th Cir. April 14, 2011)

» Party opposing jurisdiction based on amount in controversy must prove jurisdictional facts by a preponderance of the evidence.

» A good-faith estimate is acceptable if it is plausible and adequately supported by the evidence. – 7th Circuit concerned that plaintiffs could undervalue

damages to avoid jurisdiction– It is a pleading requirement, not a demand for proof.

» Court held that defendant demonstrated (through extrinsic evidence) a plausible, good-faith estimate of $5 million in controversy.

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Back Doctors v. Metropolitan Property and Casualty Ins. Co., 637 F.3d 827 (7th Cir. 2011)

» Amount in controversy: “unless recovery of an amount exceeding the jurisdictional minimum is legally impossible, the case belongs in federal court.”

» When removing, the defendant is entitled to present its own estimate and is not bound by the plaintiffs’ estimate.

» Plaintiffs cannot identify any case showing punitive damages are impossible– Punitive damages common in Illinois fraud actions– Juries can award damages not requested– Plaintiffs did not file a limiting document when it filed its

complaint (subsequent statement cannot be considered)» Amount in controversy possible and requirement satisfied

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Westwood Apex v. Contreras, No. 11-55362, 2011 WL 1744960 (9th Cir. May 2, 2011)

» The defendant filed class action counterclaims against the plaintiff/counterclaim defendant, and newly-added counterclaim defendants. The additional (newly-added) counterclaim defendants then removed per CAFA.

» Ninth Circuit had to determine whether counterclaim defendants are “any defendant” under 29 U.S.C. 1453(b).

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The Ninth Circuit answered NO:“While CAFA eliminated several important roadblocks

to removal of class actions commenced in state court, we hold that 28 U.S.C. 1453(b) did not

change the longstanding rule that a party who is joined to such an action as a defendant to a

counterclaim or as a third party defendant may not remove the case to federal court.”

The only other court of appeals to address the issue, the Fourth Circuit, AGREES

Palisades Collections LLC v. Shorts, 552 F.3d 327, 328 (4th Cir. 2008) (counterclaim defendant may not

remove under CAFA)

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