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We’ve been thinking about how our clients, prescription drug and device manufacturers, could do a better job of promoting diversity – diversity jurisdiction, that is. For you non-lawyers, “diversity” refers here to diversity of citizenship. That in turn depends upon whether the defendants are residents of different states than the plaintiffs. Diversity of citizenship matters to lawyers like us because, for reasons going back to the founding of the USA, lawsuits in which the parties are citizens of different states may, at the defendants’ option, be heard in federal, rather than just state, courts. The current diversity statute is 28 U.S.C. §1332.
The reason for diversity jurisdiction is that out-of-state residents sued in a plaintiff’s home state were thought to be vulnerable to what lawyers call “home cooking” – that local judges would favor local plaintiffs (and their lawyers) over folks from out of state, particularly when those folks are richer than the local folks. In the words of a prominent plaintiff’s lawyer:

[W]hat I call the ‘magic jurisdiction,’ . . . [is] where the judiciary is elected with verdict money. The trial lawyers have established relationships with the judges that are elected; they’re State Court judges; they’re popul[ists]. They’ve got large populations of voters who are in on the deal, they’re getting their [piece] in many cases. And so, it’s a political force in their jurisdiction, and it’s almost impossible to get a fair trial if you’re a defendant in some of these places. The plaintiff lawyer walks in there and writes the number on the blackboard, and the first juror meets the last one coming out the door with that amount of money. . . . The cases are not won in the courtroom. They’re won on the back roads long before the case goes to trial. Any lawyer fresh out of law school can walk in there and win the case, so it doesn’t matter what the evidence or the law is.

Dickie Scruggs, as quoted in PointOfLaw.
Federal courts, where the judges are appointed for life rather than elected, where the districts are larger than the counties by which state courts are typically structured, and where there are uniform nationwide procedural rules (mostly), were thought to give out-of-state defendants a fairer shake.
Anyway, those of us who defend large out-of-state corporate defendants accused of injuring in-state plaintiffs – such as the “out-of-state multi-million dollar drug manufacturers” mentioned in the concurring opinion in State ex rel. Johnson & Johnson Corp. v. Karl, 647 S.E.2d 899, 917-18 (W. Va. 2007), that we blogged about previously – think that these concerns are still valid in all too many places (and we’re not just talking about the so-called “hellhole jurisdictions”).
This assessment is shared by plaintiffs’ lawyers like Mr. Scruggs.
Which brings us back to the point of this post – promoting diversity jurisdiction. Just say you’re a plaintiffs’ lawyer and you’re interested in inviting a drug or medical device manufacturer into your jurisdiction for a little home cooking. The problem is that the deep-pocketed out-of-state defendant is, well, out of state. To avoid having the defendant be able to move (technically “remove”) the case to the corresponding federal district court, you’ve got to sue somebody else as well, somebody who lives in the same state as the plaintiff. That way, under the statute, all of the defendants are no longer from other states, and there’s no diversity jurisdiction.
The plaintiff doesn’t have to want to pursue this in-state defendant. All the plaintiff has to do is keep him/her/it around for a year. The statute governing how to get cases into federal court prohibits removal on the basis of diversity jurisdiction once the action has been pending in state court for a year. 28 U.S.C. §1446(b). After that the plaintiff can cut the fellow in-stater loose with no jurisdictional consequence.
In that situation, the enterprising plaintiff’s lawyer has a number of choices. One choice would be to sue the prescribing physician for malpractice. In most places, that would be a viable claim (unless the statute of limitations has run), but it has a major disadvantage: as we’ve discussed, given the learned intermediary rule, the prescribing physician is probably the most important fact witness in the whole case. Unless they’ve got a real good malpractice case, most plaintiffs aren’t going to want to get on their “learned intermediary’s” bad side by suing him/her.
Another possibility, if the plaintiff received the targeted drug or device in a hospital setting, would be to sue the hospital as an intermediate “supplier” of a defective product. The biggest problem there, is that in the overwhelming majority of jurisdictions that kind of claim just won’t fly. Most places view hospitals as providers of services rather than products, e.g., Perlmutter v. Beth David Hospital, 123 N.E.2d 792, 794 (N.Y. 1954), or otherwise bar strict liability-type pass-through liability claims against hospitals. E.g., Budding v. SSM Healthcare System, 19 S.W.3d 678, 682 (Mo. 2000); La. Rev. Stat. §40:1299.41(A)(8).
For quite a few years, the non-diverse defendant of choice in this situation was the pharmacy from which the plaintiff had obtained the drug or (less commonly) medical device. This resulted in some pharmacies in plaintiff-favored counties having more suits pending against them than they could keep track of. Such a state of affairs, however, can have the unfortunate consequence of driving pharmacies out of the area – which inconveniences the local jury pool and might make them more receptive to tort reform arguments.
More, importantly, the law has also been shifting in the direction of exempting pharmacies from liability, unless they did something affirmatively wrong such as filling a prescription with the wrong drug. Requiring pharmacies simply to give drug warnings interfered with the prescriber’s responsibilities under the learned intermediary rule. E.g., Madison v. American Home Products Corp., 595 S.E.2d 493, 495-96 (S.C. 2004); Moore v. Memorial Hospital, 825 So.2d 658, 662 (Miss. 2002); Cottam v. CVS Pharmacy, 764 N.E.2d 814, 819-20 (Mass. 2002); Frye v. Medicare-Glaser Corp., 605 N.E.2d 557, 559-61 (Ill. 1992); Coyle v. Richardson-Merrell, Inc., 584 A.2d 1383, 1386088 (Pa. 1991). The proliferation of precedent precluding suits against non-negligent pharmacies has made them less inviting targets to home cooking plaintiffs.
The result has been an explosion of claims over the past few years of claims being made against entities affiliated with the manufacturer defendants – intermediate distributors and (especially) manufacturers’ representatives.
A number of manufacturers, particularly in the medical device field, use a network of intermediate distributors to get their products from the factory into the hands of the doctors and hospitals who prescribe and use their products. In recent years, these distributors have increasingly found themselves in the legal cross-hairs. Ellis v. C.R. Bard, Inc., 311 F.3d 1272, 1280 (11th Cir. 2002); Maher v. Novartis Pharmaceuticals Corp., 2007 WL 2330713, at *4 (S.D. Cal. 2007); Goss v. Schering-Plough Corp., 2006 WL 2546494, at *2 (E.D. Tex. Aug. 30, 2006); In re Prempro Products Liability Litigation, 2006 WL 617981, at *2 (E.D. Ark. Mar. 8, 2006); King v. Centerpulse Orthopedics, Inc., 2006 WL 456478, at *4 (N.D. Ohio Feb. 24, 2006); Martin v. Merck & Co., 2005 WL 1984483, at *3-4 (E.D. Cal. Aug. 15, 2005); Aronis v. Merck & Co., 2005 WL 5518485, at *1 (E.D. Cal. May 3, 2005); Fagan v. AmerisourceBergen Corp., 356 F. Supp.2d 198, 207-10 (E.D.N.Y. 2004); Landree v. University Medical Products USA, Inc., 2004 WL 413287, at *2 (D. Minn. Mar. 1, 2004); Chamian v. Sharplan Lasers, Inc., 2004 WL 2341569, at *8 (Mass. Super. Sep. 24, 2004).
Distributors have some defenses available, such as tort-reform statutes that exempt non-manufacturing intermediate distributors from liability in quite a few states, as long as the manufacturer is solvent and subject to suit. The other category, sales representatives, unfortunately, cannot avail themselves of such protection.
The result has been a veritable explosion of suits alleging personal liability against manufacturers’ sales representatives in prescription medical product liability litigation: Legg v. Wyeth, 428 F.3d 1317, 1325 (11th Cir. 2005); Southern v. Pfizer, Inc., 471 F. Supp.2d 1207, 1216-1217 (N.D. Ala. 2006); Anderson v. Merck & Co. Inc., 417 F. Supp.2d 842, 847-848 (E.D. Ky. 2006); Kite v. Zimmer US, Inc., 2006 WL 3386765, at *2 (D. Nev. Nov. 22, 2006); Thompson v. Medtronic, Inc., 2006 WL 3544937, at *2-3 (D. Nev. Dec. 7, 2006); Gordon v. Pfizer, Inc., 2006 WL 2337002, at *6-7 (N.D. Ala. May 22, 2006); Prempro, 2006 WL 617981, at *1; Bloodsworth v. Smith & Nephew, 2005 WL 3470337, at *6-7 (M.D. Ala. Dec. 19, 2005); Baker v. Merck & Co., 2005 WL 5517236, at *2 (D. Nev. Sept. 13, 2005); Faison v. Wyeth, Inc., 353 F. Supp.2d 1273, 1278-79 (S.D. Ga. 2004); Catlett v. Wyeth, Inc., 379 F. Supp.2d 1374, 1381-82 (M.D. Ga. 2004); Braden v. Wyeth, 2004 WL 3569804, at *2 (N.D. Ala. June 30, 2004); Davis v. Wyeth, Inc., 2004 WL 3569806, at *5 (M.D. Ga. June 10, 2004); Sobkowski v. Wyeth, Inc., 2004 WL 3581799, at *3-4 (M.D. Fla. June 24, 2004); Fowler v. Wyeth, 2004 WL 3704897, at *4 (N.D. Fla. May 14, 2004); Lewis v. Wyeth, 2004 WL 3569843, at *4 (N.D. Fla. Apr. 29, 2004); Petty v. Wyeth, 2005 WL 2893734, at *4 (N.D. Fla. Apr. 28, 2004); Lizana v. Guidant Corp., 2004 WL 3316405, at *2-3 (S.D. Miss. Jan. 21, 2004).
This list (as you should expect by now) is simply the cases since 2004 where the claims against the sales representatives were dismissed. We aren’t in the habit of doing research that plaintiffs could use, and we aren’t starting here. You’ll just have to take our word for it that there are quite a few other cases where the unfortunate sales representatives have been held in the litigation past a motion to dismiss.
All this litigation that threatens to expose distributors and sales representatives to separate liability is obviously disruptive to manufacturers’ sales networks – not to mention to their relationships with the people and entities who now find themselves being sued individually. We’ve thought about this, and concluded that it’s gotten to the point where manufacturers might well wish to consider taking steps to defend not only themselves, but those who are increasingly being caught up as pawns in the games that plaintiffs’ counsel are playing to try to force litigation into their preferred, non-federal fora.
What we’re suggesting won’t work in all situations – a lot of states are just too big – and it might also prove to be too expensive or too inefficient to work in others. But, it would be effective in keeping manufacturers out of quite a few jurisdictions they’d rather avoid. And it would help get sales representatives and distributors out of litigation in quite a few places.
If manufacturers want to keep their distributors and sales representatives from being sued simply to defeat diversity, make sure that these entities are themselves diverse. That is – if a manufacturer has, say, a sales rep in Biloxi and another across the state line in Bogalusa, have Biloxi service Bogalusa, and vice versa. If the plaintiffs can’t get any advantage in terms of defeating diversity from suing a sales representative, then they’ll presumably stop doing it (if only to save service of process fees). These claims were almost never brought before plaintiffs started to view sales representatives and distributors as targets to defeat diversity. If the bull’s-eye is removed from these entities’ backs, then it’s reasonable to assume that the recent explosion in litigation against them will abate.
Sure, it will be a little more expensive and time-consuming, having to travel across state lines. But look at it this way. Avoiding just one Madison or St. Clair County megaverdict can pay for quite a few local motel room rentals made by St. Louis-based sales representatives.
Anyway, that’s our thought for the day. Corporations are used to structuring things to reduce their potential exposure to legal liability. Indeed, the corporate form itself came into being as a way to shelter investors from unlimited liability. Given what’s been happening lately, it’s probably past time to considering structuring the distribution network for prescription drugs and medical devices (and maybe other products as well) to try to avoid the increased prospect of liability that exists whenever plaintiffs are able to make defendants sample their home cooking.