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It’s often hard to know how seriously to take the issue of sovereign state power any more, with various attempts at nationwide class actions and arguments that one state can pass a law – like a consumer protection statute – and expect it to be applied to transactions that take place on the other side of the country.

But every now and then an opinion comes down that makes us stop and think that maybe there’s still something to that rickety 217-year-old structure after all. See Johansen v. Combustion Engineering, Inc., 170 F.3d 1320, 1333 (11th Cir. 1999) (“punitive damages must be based upon conduct in a single state – the state where the tortuous conduct occurred”); In Re Brand Name Prescription Drugs Antitrust Litigation, 123 F.3d 599, 613 (7th Cir. 1997) (“[a] state cannot regulate [prescription drug] sales that take place wholly outside it”); Yu v. Signet Bank/Virginia, 82 Cal. Rptr. 2d 304, 314 (Cal. App. 1999) (federalism “prohibit[s] an award of punitive damages herein to punish or deter respondents’ conduct with respect to consumers in states other than California”); American Libraries Ass’n v. Pataki, 969 F. Supp. 160, 176 (S.D.N.Y. 1997) (“comity. . .mandates that one state not expand its regulatory powers in a manner that encroaches upon the sovereignty of its fellow states”); Geressy v. Digital Equipment Corp., 950 F. Supp. 519, 521 (E.D.N.Y. 1997) (“punitive damage can not be awarded to punish or deter acts in other states which do not affect the forum state”).

We recently became aware of another such case, Republic Services, Inc. v. Liberty Mutual Insurance Co., 2006 WL 3500875 (E.D. Ky. Dec. 1, 2006). This case has nothing to do with drugs, medical devices, or even personal injury. It involved a rather run-of-the-mill contract dispute, dressed up like a tort case, about whether certain workers compensation claims had been mishandled. Because of the tort theories, however, punitive damages were asserted, and that’s where things got interesting.

For some reason the case was filed in Kentucky, even though very few of the affected claims involved Kentucky claimants. For the big claims, it turned out that there weren’t any at all. Only five Kentucky claims met the dollar criteria that the plaintiffs put on their own theories. Discovery took place and it turned out that “none [of those five] resulted in any disallowance, or damage” to the plaintiff. 2006 WL 3500875, at *2.

Relying upon a less-well-known portion of the celebrated decision in State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003), the court in Republic Services dismissed the punitive damages claim as a matter of law because none of the challenged conduct involved the state in which the suit was pending. The court followed the federalist reasoning in Campbell to its logical conclusion – “the jury in this case cannot award punitive damages against [defendants] because Kentucky does not have a legitimate interest in punishing the [defendant’s] extraterritorial conduct.” 2006 WL 3500875, at *2.

Campbell had reaffirmed what the Court termed a “basic principle of federalism” that each state only has the power to punish conduct occurring within its borders, and cannot act as an officious intermeddler against conduct in other, co-equal states. “[E]ach State may make its own reasoned judgment about what conduct is permitted or proscribed within its borders, and each State alone can determine what measure of punishment, if any, to impose on a defendant who acts within its jurisdiction.” Campbell, 538 U.S. at 422. Thus, to permit one state “to operate beyond the jurisdiction of that State” and to award punitive damages against conduct that occurred entirely outside its boundaries would “throw[] down the constitutional barriers by which all the States are restricted within the orbits of their lawful authority.” Id. at 421 (citation and quotation marks omitted).

That was enough for the court in Republic Services. Because there were no disallowances or damages in the five Kentucky claims, “there [wa]s simply no specific proof that any of the alleged wrongdoing occurred in Kentucky.” Without in-state conduct, there was no basis for a court sitting in Kentucky to punish conduct elsewhere. Thus the court granted summary judgment and dismissed the punitive damages claim altogether. 2006 WL 3500875, at *3-4.

That’s of interest to us because of the increased aggregation of pharmaceutical and medical device product liability litigation. Multidistrict litigations and similar agglomerations are created – and plaintiffs nationwide are drawn to these litigation “honeypots.” The hope is that “safety in numbers” will allow plaintiffs to keep weak cases alive, avoid having to much work throughout protracted litigation, and generally use the fact of aggregation to increase settlement value.

Especially after Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998), prevented plaintiffs in transferred MDL cases from threatening to take cases to trial in the transferee jurisdiction, there’ve been quite a few filings that make no geographic sense. Example: Arizona plaintiff brings suit against New Jersey company in a federal court in Louisiana. Nothing in the facts concerning either the plaintiff or the defendant has anything to do with Louisiana, but because that’s where the multidistrict litigation is situated, that’s where suit is brought.

There’s been very little anyone on the defense side can do as a practical matter to deter this sort of piling on – and to be sure there are good logistical reasons why some defendants positively encourage it in some cases. The significance of the Republic Services case, and of the territorial analysis in Campbell generally, is that there’s at least a potential price to be paid for the luxury of filing in a far-flung jurisdiction simply because other plaintiffs have. That price can be preclusion of claims for punitive damages.