It is a simple fact that product liability plaintiffs almost always prefer state court and product liability defendants almost always prefer federal court. This is a major reason why removal fights, sometimes intertwined with personal jurisdiction fights, happen so often in these types of cases. Another reason is that product liability plaintiff lawyers like to sue peripheral defendants along with obvious defendants, looking for deep pockets, dissension in the ranks, nuisance settlements, and non-diverse defendants. Our “pages” contain many posts relating to the legal theories asserted against these peripheral defendants and whether they have been fraudulently joined to defeat federal court diversity jurisdiction. Other realities are that California has some of the most pro-plaintiff, pro-product liability laws around and that federal courts in California are very tough on removal. So, it is not surprising that we see a decision on a somewhat unusual species of removal coming from a California state court in a case where the peripheral, non-diverse defendants were, at most, mere sellers of the product.
In Rubalcava v. Medline Indus., Inc., No. 23-cv-01060-AJB-DDL, 2023 WL 9010545 (S.D. Cal. Nov. 15, 2023), a California plaintiff alleged that the medical walker he purchased broke, causing him to fall and sustain injury. He sued the Illinois manufacturer of the medical walker in California state court, asserting negligence and strict product liability claims. Simple removal for diversity (and an eventual challenge to personal jurisdiction), right? No, the plaintiff also sued a series of entities (we will call them all “UHC entities”) that were involved in providing him insurance and other benefits, at least some of which were from California. He did so because one of them sold him the walker, presumably at a discount because these same walkers are readily available at major online and brick-and-mortar retailers. Removal by the manufacturer based on the fraudulent joinder of these entities, right? No, California law is broad in imposing liability on sellers even if they do not alter the product or its warnings, as long as they are engaged in the business of selling. (We will set aside why the California law is unfair for “mom and pop” retailers, favors state courts deciding these cases, and arguably would not cover most or all of the UHC entities.) Instead, the UHC entities removed based on the Federal Officer Removal Statute (“FORS”). Since the Supreme Court decision in Watson v. Philip Morris Cos., 551 U.S. 142 (2007), mere regulation of the product or conduct at issue—the medical walker is a non-prescription, Class I medical device with general controls only—is not a basis for removal under this statute. In Watson, even though it was about FTC regulation, the Court took a shot at the notion that drug and device companies might try to remove their myriad product liability cases based on this statute if interpreted to cover mere regulation. But the UHC entities included Medicare Advantage Organizations (“MAOs,” not to be confused with monoamine oxidase inhibitors or any particular potentate) regulated by the Centers for Medicare and Medicaid Services (“CMS”) applying various Medicare laws and regulations.
Put simply, among the morass of Medicare are provisions governing Medicare Advantage programs, which companies can elect to provide and eligible people can elect to receive. Among the benefits that can be provided are the sale of “eligible over-the-counter (“OTC”) items via an online catalog,” which CMS approves. That is how plaintiff bought his medical walker and why we are talking about federal officer removal. This is not the same as federal question removal, as defined in Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005), which comes up not infrequently in drug and device product liability cases. In those cases, the question is often whether the claims put FDA compliance at issue or whether the defenses do. Complaints are routinely written to omit mentions of FDA, the FDCA, and regulatory compliance to avoid both preemption and federal question removal. Federal officer removal is narrower, although Congress did amend FORS after Watson through the aptly named Removal Clarification Act to, as the Fifth Circuit put it, “broaden federal officer removal to actions, not just causally connected, but alternatively connected or associated, with acts under color of federal office.” In addition, as Rubalcava pointed out, FORS is to be “’liberally construed’ so that federal officials and/or their agents have access to a federal forum in which they may respond to claims that arise out of their official duties.” Even with these considerations, removal here was a stretch.
Under post-Watson authority in the Ninth Circuit, the key factors in FORS removal are whether “a causal nexus exists between plaintiff’s claims and the actions the defendant took pursuant to a federal officer’s direction” and whether “it has a colorable federal defense to plaintiff’s claims.” Despite the Removal Clarification Act’s expansion of removal to acts “for or relating to any act under color” of federal office, Ninth Circuit precedent seems to ignore the italicized language and require a “causal nexus.” The UHC entities offered a number of arguments that involve details of Medicare Part C that we will leave to others. The bottom line, however, is that the package of benefits that the MAO offers is up to the MAO. The UHC entities did not have to offer the sale of OTC items and the sale of the particular device, even if on a list that CMS approved, was “an action separate and distinct from the federal duty of providing Medicare benefits or making Medicate coverage determinations.” That means there can be no causal nexus between the claims for selling an allegedly defective product and the acts taken pursuant to CMS’s direction. In the Ninth Circuit at least, that means no removal.
In terms of lessons for drug and device companies, we are probably pretty much back where we started. When sued in California state court with a non-diverse defendant that merely sold a product or otherwise seems to be sued as a mere anchor, the chances for removal, whether by the diverse manufacturer or the non-diverse peripheral defendant, remain low. That does not mean that various theories of removal should not be considered. If the allegations against an MAO seller involve the failure to do something that CMS directly forbade, for instance, then even removal by the co-defendant MAO under FORS might have a shot. Rubalcava did not discuss the specific allegations of why any defendant was purportedly liable, except to say that a wheel on the walker detached, which counsels diving into the actual allegations and judicially noticeable facts when pursuing FORS removal, just as one would with removal based on a federal question or fraudulent joinder.