Bexis recently filed a personal jurisdiction amicus brief in Pennsylvania – ground zero in the battle over general jurisdiction by “consent” due to a foreign corporation’s registration to do business in the state (technically, commonwealth).  As is readily apparent from our 50-state survey on general jurisdiction by consent, most states reject such an expansive reading of corporate domestication statutes.  But those states that don’t rely on a hoary United States Supreme Court decision, Pennsylvania Fire Insurance Co. v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917), from deep within the old “territorial” age of personal jurisdiction, an age that ended over 70 year ago when International Shoe Co. v. Washington, 326 U.S. 310 (1945), supplanted Pennoyer v. Neff, 95 U.S. 714 (1877).

In Pennsylvania, where Bexis filed, that reliance has a Tinker to Evers to Chance flavor to it.  Webb-Benjamin, LLC v. International Rug Group, LLC, 192 A.3d 1133 (Pa. Super. 2018), followed Bors v. Johnson & Johnson, 208 F. Supp.3d 648 (E.D. Pa. 2016), which we blogged about here.  Bors, in turn, refused to “ignore” (208 F. Supp.3d at 652) the pre-Bauman Third Circuit decision in Bane v. Netlink, Inc., 925 F.2d 637 (3d Cir. 1991).  Bane had this to say about general jurisdiction by consent back in 1991:

[Defendant’s] application for a certificate of authority can be viewed as its consent to be sued in Pennsylvania under section 5301(a)(2)(ii), which explicitly lists “consent” as a basis for assertion of jurisdiction over corporations. Consent is a traditional basis for assertion of jurisdiction long upheld as constitutional.  See Hess v. Pawloski, 274 U.S. 352, 356-57 (1927).

Id. at 641 (other citation omitted).  Those three sentences are the entirety of the discussion of “consent” in Bane.  Right now, you could say those three sentences are the bane of our existence.

Hess, finally, relied on Pennsylvania Fire:

The mere transaction of business in a state by nonresident natural persons does not imply consent to be bound by the process of its courts.  The power of a state to exclude foreign corporations, although not absolute, but qualified, is the ground on which such an implication is supported as to them.  Pennsylvania Fire Insurance Co. v. Gold Issue Mining Co., 243 U. S. 93 [(1917)].

274 U.S. at 355 (other citation omitted).  See also Knowlton v. Allied Van Lines, Inc., 900 F.2d 1196, 1198 (8th Cir. 1990) (also relying on Hess for the proposition “[t]:he doing of various acts within the State . . . was equated, by statute, with consent or submission to the jurisdiction, even by nonresidents”).

Other courts in the post-Bauman minority rely on Pennsylvania Fire much more directly.  For example, take a look at the only other post-Bauman appellate decision allowing general jurisdiction by consent:

In this appeal, we consider whether [defendant] consented to general personal jurisdiction in New Mexico courts when it registered to do business here.  To answer this question, we must determine whether the United States Supreme Court’s decision in Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917) . . . remain binding precedent in light of the evolution of general jurisdiction jurisprudence. . . .  We recognize the tension between the two lines of cases.  Nevertheless, because we conclude that . . . Pennsylvania Fire . . . [is] are still binding, we conclude that [defendant] consented to general jurisdiction in New Mexico.

Rodriguez v. Ford Motor Co., ___ P.3d ___, 2018 WL 6716038, at *1 (N.M. App. Dec. 20, 2018).

The rigor of briefing an issue – rather than writing blogposts – required Bexis to go back and actually read a number of the foundational Supreme Court personal jurisdiction decisions for the first time, probably, since law school.  It was a useful exercise, one that led him to conclude that, not only is Pennsylvania Fire no longer good law in light of Bauman, as so many recent decisions in our 50-state survey have concluded, but that Pennsylvania Fire has already been expressly overruled – more than 40 years ago.  The United States Supreme Court just didn’t overrule it by name.

We start with International Shoe Co. v. Washington, 326 U.S. 310 (1945), which discussed the demise of the “fictional” concept of corporate “presence” in a state under the new non-territorial version of Due Process.

Since the corporate personality is a fiction . . . it is clear that unlike an individual its “presence” without, as well as within, the state of its origin can be manifested only by activities carried on in its behalf by those who are authorized to act for it.  To say that the corporation is so far “present” there as to satisfy due process requirements . . . is to beg the question to be decided.  For the terms “present” or “presence” are used merely to symbolize those activities of the corporation’s agent within the state which courts will deem to be sufficient to satisfy the demands of due process.  Those demands may be met by such contacts of the corporation with the state of the forum as make it reasonable, in the context of our federal system of government, to require the corporation to defend the particular suit which is brought there. . . .

Id. at 316-17 (citations omitted) (emphasis added).  Indeed, the concept of “consent” was no longer needed for the exercise of what becomes known as “general” personal jurisdiction.

“Presence” in the state in this sense has never been doubted when the activities of the corporation there have not only been continuous and systematic, but also give rise to the liabilities sued on, even though no consent to be sued or authorization to an agent to accept service of process has been given.

Id. at 317 (citation omitted) (emphasis added).  Likewise, “consent” is not essential to what becomes known as “specific jurisdiction.  As to “the commission of some single or occasional acts of the corporate agent in a state”:

True, some of the decisions holding the corporation amenable to suit have been supported by resort to the legal fiction that it has given its consent to service and suit. . . .  But more realistically it may be said that those authorized acts were of such a nature as to justify the fiction. . . .  Whether due process is satisfied must depend rather upon the quality and nature of the activity in relation to the fair and orderly administration of the laws which it was the purpose of the due process clause to insure.

Id. at 318-19 (citations omitted) (emphasis added).  “Consent” in the context of corporate activity, was thus repeatedly denounced in International Shoe as a “fiction,” while what was henceforth determinative was the “quality and nature of the [corporation’s] activity.”

The Court returned to the “fiction” of corporate “consent” in Shaffer v. Heitner, 433 U.S. 186 (1977), rejecting “statutory presence” of intangible property (corporate securities) as a basis for personal jurisdiction.  The Court expressly abandoned “the fiction[] of implied consent to service on the part of a foreign corporation” in favor of “ascertain[ing] what dealings make it just to subject a foreign corporation to local suit.”  Id. at 202-03

Shaffer also observed that Pennoyer had “approved the practice of considering a foreign corporation doing business in a State to have consented to being sued in that State.”  433 U.S. at 201 (citing 95 U.S. at 735-36).  However, this “consent” theory was difficult to administer in practice:

[B]oth the fictions of implied consent to service on the part of a foreign corporation and of corporate presence required a finding that the corporation was “doing business” in the forum State.  Defining the criteria for making that finding and deciding whether they were met absorbed much judicial energy.

Id. at 202 (citations omitted).

International Shoe drastically changed all that:

Thus, the inquiry into the State’s jurisdiction over a foreign corporation appropriately focused not on whether the corporation was “present” but on whether there have been “such contacts of the corporation with the state of the forum as make it reasonable, in the context of our federal system of government, to require the corporation to defend the particular suit which is brought there.”  Mechanical or quantitative evaluations of the defendant’s activities in the forum could not resolve the question of reasonableness.

Id. at 203-04 (quoting International Shoe, 326 U.S. at 317).

Now we get to the good part.  Shaffer went on to bring the jurisdictional rules for in rem actions into line with International Shoe’s dramatic change[s],” id. at 205, to in personam personal jurisdiction.  Id. at 205-10.  The state statute before the court had “the express purpose . . . to compel the defendant to enter a personal appearance.”  As such, it was unconstitutional:

In such cases, if a direct assertion of personal jurisdiction over the defendant would violate the Constitution, it would seem that an indirect assertion of that jurisdiction should be equally impermissible.  The primary rationale for treating the presence of property as a sufficient basis for jurisdiction to adjudicate claims over which the State would not have jurisdiction if International Shoe applied. . . .

Id. at 209.

With that, the Court in Shaffer held that a state statute that sought to create a jurisdictional basis “to adjudicate claims over which the state would not have jurisdiction” under International Shoe Due Process was unconstitutional.  That’s exactly what the “general jurisdiction” language in the Pennsylvania Long Arm Statute does.  Critically, Shaffer reinforced its point by expressly overruling all contrary Pennoyer-era precedent:

We therefore conclude that all assertions of state-court jurisdiction must be evaluated according to the standards set forth in International Shoe and its progeny.39

39 It would not be fruitful for us to re-examine the facts of cases decided on the rationale[] of Pennoyer . . . to determine whether jurisdiction might have been sustained under the standard we adopt today.  To the extent that prior decisions are inconsistent with this standard, they are overruled.

Id. at 212 & n. 39 (emphasis added).  That’s the 40+ years ago.  And we think “all” does mean all.

Given what the Court had already held in Shaffer about:  (1) the “fiction” of corporate “consent”; (2) its origins in Pennoyer; (3) that state statutes couldn’t gin up jurisdiction that doesn’t exist under International Shoe; and (4) that “all assertions” of personal jurisdiction must accord with International Shoe, there should be no doubt that Pennsylvania Fire (and its lesser-known adjunct Neirbo Co. v. Bethlehem Shipbuilding Corp., Ltd., 308 U.S. 165 (1939)), is among the prior “inconsistent” decisions that Shaffer expressly overruled.

We could end this post here, but we didn’t stop reading there, either.  So we find the overruling of Pennsylvania Fire is further bolstered by what the Supreme Court has done since.  We start with the admonition in Bauman itself that Pennoyer-era cases “should not attract heavy reliance today.”  Daimler AG v. Bauman, 571 U.S. 117, 138 n.18 (2014).  But the Supreme Court has said considerably more related specifically to general jurisdiction by consent.  That includes Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 445 (1952), which has since became Bauman’s “exceptional” case.  Perkins also rejected ipso facto personal jurisdiction based on a corporation’s “secur[ing] a license and [] designat[ing] a statutory agent upon whom process may be served” – those actions only “provide[] a helpful but not a conclusive test” for specific jurisdiction.  Id. at 445.  Ditto for McGee v. International Life Insurance Co., 355 U.S. 220 (1957):

[W]here this line of limitation falls has been the subject of prolific controversy, particularly with respect to foreign corporations.  In a continuing process of evolution this Court accepted and then abandoned ‘consent,’ ‘doing business,’ and ‘presence’ as the standard for measuring the extent of state judicial power over such corporations.

Id. at 222 (citations and quotation marks omitted) (emphasis added).

The Court’s most comprehensive, relatively recent, analysis of consent jurisdiction took place in Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694 (1982) (“ICI”).  Each and every one of the “variety of legal arrangements” recognized as “consent” in ICI were grounds for case specific – not general − jurisdiction:

  • “[S]ubmi[ssion] to the jurisdiction of the court by appearance”;
  • “[P]arties to a contract may agree in advance”;
  • “[A] stipulation entered into by the defendant”;
  • “[C]onsent [is] implicit in agreements to arbitrate”;
  • “[C]onstructive consent to the personal jurisdiction of the state court [inheres] in the voluntary use of certain state procedures;”
  • “[W]aive[r] if not timely raised”; and
  • “[F]ail[ure] to comply with a pretrial discovery order.”

Id. at 704-06 (citations and quotation marks omitted).  These are all actions that take place on a one-off basis in particular cases.

The only item on the ICI list that could possibly encompass general jurisdiction by consent – “constructive consent” due to “voluntary use of certain state procedures – really doesn’t.  The ICI Court gave two examples of what it was describing, both of which were likewise specific to individual cases.  See Adam v. Saenger, 303 U.S. 59, 67-68 (1938) (non-resident plaintiff consents to counterclaims); Chicago Life Insurance Co. v. Cherry, 244 U.S. 25, 30 (1917) (“filing a plea in abatement, or taking the question to a higher court”).  Those are the kind of things that parties decide to do (or not) on a case-by-case basis.  Thus, while there is reason to believe that Adams and Chicago Life are not victims of Shaffer’s global overruling of Pennoyer-era precedent, conversely, there is no basis for saving Pennsylvania Fire.  In accordance with Shaffer, ICI did not even recognize corporate registration as a modern form of “consent.”

Then, in Burnham v. Superior Court, 495 U.S. 604 (1990), similarly to Shaffer, the Court again expressly “cast aside” “consent” arguments for general jurisdiction as “purely fictional”:

We initially upheld [corporate registration] laws under the Due Process Clause on grounds that they complied with Pennoyer’s rigid requirement of either “consent,” or “presence.”  As many observed, however, the consent and presence were purely fictional.  Our opinion in International Shoe cast those fictions aside. . . .

Id. at 617-18 (citations omitted) (plurality opinion).

Finally, the fate of general jurisdiction by consent is also discussed in the “stream of commerce” case, J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873 (2011).  The plurality listed “consent” as one of four possible bases of jurisdiction.  Id. at 880-81.  Absent consent, “those who live or operate primarily outside a State have a due process right not to be subjected to judgment in its courts.”  Id. at 881.  “Purposeful availment” was a basis for the “more limited form,” specific jurisdiction, only.  Id.  Interestingly, in Nicastro, the more pro-jurisdiction dissenters were even less kind to notions of “consent”:

Finally, in International Shoe itself, and decisions thereafter, the Court has made plain that legal fictions, notably “presence” and “implied consent,” should be discarded, for they conceal the actual bases on which jurisdiction rests. “[T]he relationship among the defendant, the forum, and the litigation” determines whether due process permits the exercise of personal jurisdiction . . ., and “fictions of implied consent” or “corporate presence” do not advance the proper inquiry. . . .  [C]onsent [a]s the animating concept draws no support from controlling decisions of this Court. Quite the contrary, the Court has explained, a forum can exercise jurisdiction when its contacts with the controversy are sufficient; invocation of a fictitious consent, the Court has repeatedly said, is unnecessary and unhelpful.

Id. at 900-01 (citations omitted) (Ginsburg +2, dissenting). Thus, even the justices who were inclined to interpret personal jurisdiction more expansively in Nicastro weren’t willing to endorse the “consent” notions that animated Pennsylvania Fire.

Based on the above analysis, we think it is entirely proper, not only for defendants in general-jurisdiction-by-consent cases to argue that Pennsylvania Fire should not be followed because it is obsolete and inherently inconsistent with Bauman, but to go further and argue that Pennsylvania Fire – and thus the entire concept of general jurisdiction by consent – was already expressly overruled on its jurisdictional holding in Shaffer.  Overruling Pennsylvania Fire 40+ years ago is entirely consistent with how the United States Supreme Court has since treated that decision and the “consent” concept.  First, International Shoe and Shaffer thoroughly trashed the notion of “consent” as a basis for general jurisdiction.  Second, Pennsylvania Fire has not been cited for any jurisdictional proposition whatever since Shaffer (as opposed to its holding about the Full Faith and Credit clause, 243 U.S. at 96-97, which appears to remain valid).  Third, every Supreme Court case since Shaffer has treated “consent” jurisdiction generally as a factor for resolving specific jurisdiction, not general jurisdiction.

Finally, we’d also recommend that our readers share this post with anyone in their firms who is engaged in asbestos litigation.  While defeating general jurisdiction by consent is important to our drug/device clients, it is absolutely critical in asbestos litigation.  Asbestos plaintiffs typically sue dozens of corporate defendants, so that litigation requires a general, not specific, jurisdiction theory to continue aggregating cases in plaintiff-friendly places where plaintiffs don’t reside.  Defeating general jurisdiction by consent in asbestos cases will force asbestos plaintiffs to stay home, where they can assert specific jurisdiction over most (if not all) of their defendants.  Otherwise, asbestos litigation tourists should stand to lose 95% or so of the defendants they sue to personal jurisdiction defenses.

Last week, in Timbs v. Indiana, ___ S. Ct. ___, 2019 WL 691578 (U.S. Feb. 20, 2019), the Court unanimously held that the Excessive Fines Clause of the U.S. Constitution’s Eighth Amendment applies to the states:

Under the Eighth Amendment, “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” Taken together, these Clauses place “parallel limitations” on “the power of those entrusted with the criminal-law function of government.” Directly at issue here is the phrase “nor excessive fines imposed,” which limits the government’s power to extract payments, whether in cash or in kind, as punishment for some offense. The Fourteenth Amendment, we hold, incorporates this protection.

Id. at *3 (citations and quotation marks omitted).

The historical and logical case for concluding that the Fourteenth Amendment incorporates the Excessive Fines Clause is overwhelming. Protection against excessive punitive economic sanctions secured by the Clause is, to repeat, both fundamental to our scheme of ordered liberty” and “deeply rooted in this Nation’s history and tradition.

Id. at *5 (citation and quotation marks omitted).

So why should readers of the DDLaw Blog care?  After all prescription medical product liability litigation is a far cry from Timbs, which involved whether a state can, through civil forfeiture, seize property worth four times what the maximum criminal fine could be.

We think, as the Court stated, “it makes sense to scrutinize governmental action more closely when the State stands to benefit.”  Id. at *4 (citation and quotation marks omitted).  We’ve complained several times before about states farming out claims against our clients to contingent fee lawyers who also “stand to benefit” if they can convince courts and juries to agree to expansive readings of consumer protection and other statutes and impose the same fine 10,000 times over for a single instance of purportedly “illegal” off-label promotion (to take one example). Interpreting such statutes to impose huge multiples of the maximum possible fine for the same conduct by treating every recipient of a message as a separate statutory violation seems to us to be the epitome of an “excessive fine” that bears strict scrutiny because “fines are a source of revenue, while other forms of punishment cost a State money.”  Id. at *4 (citation and quotation marks omitted).

Indeed, we specifically mentioned a discussion of the Excessive Fines Clause in In re Zyprexa Products Liability Litigation, 671 F. Supp.2d 397, 462-63 (E.D.N.Y. 2009), as a possible defense to an Attorney General action.  Another such case, State v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., 777 S.E.2d 176 (S.C. 2015), made our “bottom ten” list in 2015.  In that case, the state recovered a verdict of $327 million (later somewhat reduced), representing thousands of letters, sample packs, and detailing visits, counted separately, because the FDA ordered a “correction” of a Dear Healthcare Provider letter.  Id. at 203 (“[t]he State argued, and the trial court agreed, that the distribution of each sample box containing the deceptive labeling, each DDL, and each follow-up sales call to the DDL . . . constituted a separate SCUTPA violation”).  The South Carolina Supreme Court rejected an excessive fines argument, but the argument at that point was supported only by cases over 50 years old.  Id. at 205.  Perhaps having a new, unanimous, definitive Supreme Court incorporation of the clause will convince lower courts to treat this part of the constitution with more respect.

After all, if a civil seizure around four times the maximum criminal fine plausible implicates the Excessive Fines Clause, then the kind of artificially inflated, contingent-fee-driven litigation that our clients have had to put up with certainly should.

At minimum, something to watch, and perhaps plead as a defense.

 

We’ve reviewed the transcript of the oral argument in Merck Sharp & Dohme Corp. v. Albrecht, No. 17-290 (U.S.), e.g., the United States Supreme Court appeal from the horrible decision in In re Fosamax (Alendronate Sodium) Products Liability Litigation, 852 F.3d 268 (3d Cir. 2017), which we ranked as the worst case in all of 2017.  Our one sentence reaction – We’d rather be us than them.

The Fosamax plaintiffs have a lot of problems with their position in Albrecht, chief among them that the FDA itself, as amicus curiae in this case, disputes their interpretation of what the Agency knew and did.

Briefly, plaintiffs argued that:  (1) the FDA’s rejection of the defendant’s “stress fracture” warning was because stress fractures and the injury at issue in the litigation – now called “atypical femur fractures” (or “AFF” for short) − were two different things; (2) the FDA only rejected the imprecise term “stress fracture,” and didn’t reject an AFF warning, and (3) the rest of the regulatory record consists of FDA “musings” that plaintiffs are free to contradict and juries would be free to disregard.  Albrecht Tr. at 35-38, 42-44, 61-63.

Equally briefly, defendant argued that:  (1) its rejected “stress fractures” warning encompassed AFF (a term only created later), demonstrated by language about “complete” and “non-traumatic” fractures; (2) the FDA’s rejection was based on insufficient data about AFF, since a short time later the Agency set up a task force to study AFF before changing labels for this drug class (bisphosphonates); and (3) the FDA does not simply reject scientifically valid warnings for grammatical reasons.  Albrecht Tr. at 3-5, 10-12, 16-19, 65-66.

The FDA, represented by the Solicitor General’s office, agreed with the defendant’s depiction of its regulatory actions regarding AFF, arguing that the Agency obeyed the law and did not reject the defendant’s label for imprecise language, but rather because the link between AFF and bisphosphonates was not supported by sufficient scientific data at the time  Albrecht Tr. at 20-22, 27-30.

At the oral argument another problem for the plaintiffs was evident:  Justice Stephen Breyer.  A member of the majority in Wyeth v. Levine, 555 U.S. 555 (2009), and an anti-preemption dissenter in the more recent PLIVA, Inc. v. Mensing, 564 U.S. 604 (2011), and Mutual Pharmaceutical Co. v. Bartlett, 570 U.S. 472 (2013), decisions, Justice Breyer is a “must get” vote for plaintiffs in Albrecht.  They don’t have him:

JUSTICE BREYER: I’m leading to this, that, when you talk about the standard, drugs are important to people.  They cure millions, or thousands, anyway, of people who need to be cured or helped.

Now, when you put on, and at the same time there will be a smaller subset that can be hurt, so our solution to that is labels.

Now, when you say displacing state law or something, you’re talking like a lawyer, which is what you’re supposed to do, but what worries me is, if you go too far in allowing the tort jury to find mislabeling by not including things, you are hurting the vast majority of − of women here or −or whatever who can benefit from this medicine.

On the other hand, if you don’t go far enough, you will hurt that minority. Now that’s the general framework in which I’m trying to figure out the answer to the question.  And that’s why Justice Gorsuch’s question was − was quite relevant.

All the earmarks here are that Merck took this as a letter saying we’re not certain enough this is really going to hurt people and we don’t want you to put it on.

Now, obviously, somebody must have picked up the phone when they got that letter and they must have phoned somebody in FDA and say:  Do you really mean that? What do you mean?  Because I can change those words, “stress fracture,” in two seconds.  Or do you mean you don’t know enough about it?

Now the appointment of the later task force suggests that they felt they didn’t know enough about it, and, therefore, Merck couldn’t have done it.

Albrecht Tr. at 40-41 (emphasis added).  That wasn’t so much a question as it was a speech, and one that we very much applaud.  But that’s not all.

JUSTICE BREYER: . . .  But what’s actually bothering me about the approach that you’re taking is that, in this particular area, in this particular area of medicines, I don’t really see how we’re going to benefit by 50 different states really giving different signals to the manufacturers, and I can see a lot of ways in which, from a health point of view, we’re going to lose.

That doesn’t mean the law is wrong.  It doesn’t mean − you know, it’s just a question of emphasis. And, here, we have an emphasis.

The next page from the one you cited, the FDA says in 2010, FDA’s review of the data did not show an increase in this risk, the relevant risk, in women using these medications.

So there are indications in this record . . . that they thought that it is more dangerous to put the label − to put the risk in the label than it is to leave it out. . . . And then they set up a task force and decide they were wrong.

Albrecht Tr. at 51-52 (emphasis added) (attempts by plaintiffs’ counsel to get a word in edgewise omitted).

To us defense counsel, these comments by Justice Breyer were the highlight of the argument.

We were also paying attention to Justice Gorsuch, a conservative, but known skeptic of the administrative state, who might not have much deference to the FDA’s actions.  Indeed, Justice Gorsuch had some tough questions for defense counsel about creating a “moral hazard” that might encourage submission of “inartful” warnings, about the availability of unilateral CBE warning changes, and about when “new information” existed.  Albrecht Tr. at 13, 18-19.  But in each instance, counsel provided persuasive answers: (1) that the FDA’s actions belied any such “moral hazard” here; (2) that CBE scientific support standards are identical to the pre-approval process the defendant used; and (3) that new evidence in this instance meant the findings of the FDA task force announced shortly after Agency’s rejection of the warning at issue. Id. at 13-14, 18-19.  If skeptical of the FDA, Justice Gorsuch didn’t show it, not speaking during the SG’s argument. Justice Gorsuch’s later comments, during the plaintiffs’ argument, were clearer:

We have, though, the March 2010 safety statement from the FDA which pretty clearly says that they do not think that there is science enough to support a causal link between the drug and atypical femoral fractures.

So whatever was missing in the complete response letter from the FDA seems to come in March of 2010.

Albrecht Tr. at 34-35.

[T]hat’s why it [the FDA] set up the task force at the same time to go study the issue, and it said up to that point we don’t have enough, but we’re going to go study it. . . . And so why isn’t that − tell us everything we need to know about what its complete response letter was about, as a matter of law?

Id. at 36-37.

As for the two specific holdings that the Third Circuit made in Fosamax – that “clear evidence” means preemption is decided under a “clear and convincing evidence” standard, and that determining what the FDA would have done is a question for the jury – the first was, surprisingly, not mentioned at all. Since plaintiffs abandoned this argument in their briefing, it will be interesting to see what (if anything) the Court holds about the standard of proof. The judge/jury issue received some scrutiny during the plaintiffs’ argument, with plaintiffs backpedaling furiously in response to a question from Justice Alito.:

We agree with Merck that, because of the complete response letter . . . was a legal document that a judge can interpret.  We believe that, based on a sound interpretation of the letter, it doesn’t prove impossibility.

Albrecht Tr. at 58-59.  Then the some other justices got into the discussion, after plaintiffs tried to have it both ways, with the remarkable statement that “the warning that the FDA has to reject has to be adequate to address the risks under state law.”  Id. at 59.  Then was what the FDA had to do a legal question (for the judge) or a factual question (for the jury)?

JUSTICE KAGAN: . . . But that’s the question. And that’s a legal question, is that correct?

[Plaintiffs’ Counsel]: It is a legal that question, but it has factual components.

JUSTICE KAGAN: But a judge can decide that question.

[Plaintiffs’ counsel] : A judge can decide the core legal question, but in all constitutional questions, there are usually fact issues, and we consign those to juries to decide what the fact issues….

JUSTICE BREYER: Not always. There are a lot of mixed issues where, because they’re predominantly legal, the judge does it; patents, for example, Markman [v. Westview Instruments, Inc., 517 U.S. 370 (1996)] is a case of that, and does coerced confessions. I mean, there are a number. . . .  It seems to me that this is in that number because it’s predominantly a legal question and there could be factual disputes on the brute [sic] facts. But, here, I don’t think there are really.

Id. at 59-60 (plaintiffs’ counsel’s attempt to get a word in edgewise omitted). If, in the end, both Justices Kagan and Breyer are skeptical of the idea of preemption/FDA actions as a jury question as they seemed at the oral argument, then the defendant will prevail on this issue as well.

Finally, we’d be remiss not to mention the plaintiffs’ “swing and a miss,” where counsel missed a softball from Justice Sotomayor so badly that the Justice had to provide the right answer:

JUSTICE SOTOMAYOR: Well, we know that the FDA − assuming the theory that the FDA doesn’t believe the label is adequate, what could they have done −

[Plaintiffs’ Counsel]: They could −

JUSTICE SOTOMAYOR:   − absent the study?

[Plaintiffs’ Counsel]: They –

JUSTICE SOTOMAYOR: Meaning because the study obviously changed the FDA’s mind. You’re saying, you, [defendant], could have done it.

[Plaintiffs’ Counsel]: Yes. . . .

Albrecht Tr. at 57.  When that happened to Rick Perry, his response was “Oops.” At least counsel recovered to answer the question more thoroughly.

Justice Ginsburg was absent, and Justice Thomas, as usual, asked no questions.  The usual split would have Justice Ginsburg voting against preemption and Justice Thomas voting for it.

Anyway, we’re not in the business of predicting Supreme Court results. But all in all, after the oral argument, I’d much rather be on our side than not.

We’ve always hated the concept of cy pres class action settlements.  A cy pres distribution is an admission that, even without opposition, the plaintiffs cannot prove who was injured and by how much.  Cy pres also takes money supposedly belonging to the injured class and give it to charities not injured by anyone, so the charities can use the money to encourage more litigation.  To us, cy pres not only encourages abusive class action litigations, but violates all kinds of basic legal rules, such as Due Process, the Rules Enabling Act, and the First Amendment (not all absent class members necessarily agree with the views of the charities being allowed to take their money).

We won’t prolong this post with any detailed discussion of what “cy pres” means in this context.  Basically it’s a misapplication of an estates doctrine (legal French beginning with the words “cy pres”) invoked to allow class action settlement funds not to be given to the class at all, because it’s supposedly “too hard” to figure out damages, and the money purportedly owned by the class is given to charities instead.  It’s a gimmick to facilitate class actions that otherwise would fall of their own weight.

We lambasted the cy pres settlement at issue in the pending Supreme Court case, Frank v. Gaos, No. 17-961, as a “poster child” for class action abuse well before the Supreme Court granted certiorari.  It had everything going against it:  class members getting zero, and cy pres charities taking everything (after a huge chunk of attorney fees were removed, of course), the charities were not selected by any set criteria and had connections to the parties or counsel (such as being class counsel’s law schools), use of cy pres money to “increase awareness” of cyber security issues – a euphemism for soliciting more litigation, cy pres being used to bloat the settlement numbers for purposes of calculating attorney fees.

Thus, we thought Frank was the perfect case to cause the Supreme Court to recoil in disgust from a process with no foundation in statute, common law, or rule.

Now Franks has been argued, and we think we were half right.  From their statements, and how they formed their questions, it’s pretty clear that none of the justices liked cy pres – certainly not the 100% version at issue here.  See Transcript at:

  • “[T]here may be a question about whether the trial court adequately determined feasibility.”  Tr. at 5-6 (Sotomayor, J.).
  • “[T]his is a full cy pres award, meaning there’s no direct benefit to the class.”  Id. at 10 (Sotomayor, again).
  • “[I]s any effort made — and would it even be possible — to determine whether every absent class member or even most of the absent class members regard the beneficiaries of the cy pres award as entities to which they would like to make a contribution?”  Id. at 13 (Alito, J.).
  • “So the parties and the lawyers get together and they choose beneficiaries that they personally would like to subsidize?”  Id. at 14 (Alito, again).
  • “I think you either decide the cy pres award provides relief or it doesn’t provide relief.  If it doesn’t provide relief, you don’t get a fee for it.”  Id. at 26 (Roberts, C.J.).
  • “[D]o you think that problem is going to be meaningfully redressed by giving money to AARP?”  Id. at 42 (Roberts, again).
  • “Including a group that engages in — engages in political activity, having nothing to do with the inability of elderly people to conduct searches?”  Id. at 43 (Roberts, again).
  • “[W]here they [the absent class members] get nothing, under those circumstances, . . . what’s happening in reality is the lawyers are getting paid and they’re making sometimes quite a lot of money for really transferring money from the defendant to people who have nothing to do with it.”  Id. at 46-47 (Breyer, J.).
  • “Isn’t it always better to at least have a lottery system, then, that one of the plaintiffs, one of the injured parties gets it [the settlement funds], rather than someone who’s not injured?”  Id. at 51 (Kavanaugh, J.).
  • “But there is the appearance, as the district court said in the hearing, the appearance of favoritism and alma maters of — of counsel.”  Id. at 55 (Kavanaugh, again).
  • “[D]on’t you think it’s just a little bit fishy that the money goes to a charity or a 501(c)(3) organization that [defendant] had contributed to in the past?”  Id. at 56 (Roberts, again).
  • “The appearance problem here . . . is symptomatic of a broader question, which is why is it not always reasonable . . . to try to get the money to injured parties.”  Id. at 58-59 (Kavanaugh, again).
  • “[T]he appearance of favoritism and collusion . . . is rife in these cases.”  Id. at 61 (Kavanaugh, yet again).
  • “And at the end of the day, what happens? The attorneys get money, and a lot of it.  The class members get no money whatsoever.  And money is given to organizations that they may or may not like and that may or may not ever do anything that is of even indirect benefit to them.”  Id. at 63 (Alito, again).

Ouch.  Those are scathing comments from five justices (Thomas, J. rarely says a word) on both sides of the political spectrum, and most of them commented more than once.  So we’re reasonably confident that, if the Court addresses the so-called “cy pres doctrine,” it will not fare well.

But that’s the other half of the problem – standing is a major issue.  Two justices, Gorsuch and Kagan, did not ask any questions about cy pres at all.  They were totally focused on standing.  Standing, in this context, means that none of the plaintiffs, even assuming the privacy of their Internet searches was violated, had established that they had suffered any concrete or distinct harm from the claimed breach.  That may well be a good argument, leading to a standing decision that seriously clips the wings of class actions focused on various breaches of cybersecurity.  During the oral argument, more than half of the Justices were also interested in the standing question. Indeed, at one point they talked over each other in their eagerness to refocus the argument on that issue:

JUSTICE KAGAN: Mr. Frank –

JUSTICE GORSUCH: We – I’m sorry.

JUSTICE KAGAN: Sorry. No, go ahead.

JUSTICE GORSUCH: Oh, please go ahead.

JUSTICE KAGAN: No.

CHIEF JUSTICE ROBERTS: Justice Kagan.

JUSTICE KAGAN: I was going to change the subject.

(Laughter.)

JUSTICE GORSUCH: So was I.

(Laughter.)

JUSTICE GORSUCH: Jurisdiction?

JUSTICE KAGAN: Yes.

JUSTICE GORSUCH: Go for it.

Tr. at 14-15.  Lack of standing, of course, would mean that “the whole class action is thrown out.”  Id. at 17 (Roberts, C.J.).  We’re not going into detail, but from the discussion, it appears that the trial judge’s standing ruling was required by a Ninth Circuit decision that has since been reversed by the Supreme Court, Spokeo, Inc. v. Robins136 S. Ct. 1540 (2016).  See Tr. at 70 (the district court “believed its hands were tied by the Ninth Circuit precedent”).  We also note that, shortly after the oral argument, the Court issued an order requiring supplemental briefing on the standing issue, with such briefing to be completed by December 21, 2018.  Merry Christmas.

A decision dismissing the entire class for lack of standing would be good for privacy class action defendants – and bad for their opponents – but it would leave the doctrine of cy pres free to continue its reign of error in the lower courts.

Or maybe not.

While a decision that the entire class action fails for lack of standing would moot the original question that the Court accepted about cy pres distributions as a settlement tool, there is an exception to mootness where an issue is “capable of repetition yet evading review.”  E.g., Spencer v. Kemna, 523 U. S. 1, 17 (1998).  Since lousy, no-injury class actions and cy pres settlements go together like . . . death and taxes, perhaps, the mootness doctrine might apply here, as invocation of cy pres is indicative of class actions that should never have been brought in the first place because no individualized injury can be proven.

The Court’s request for supplemental briefing is a sign that, rather than remanding, the Court is inclined to address the standing question itself – and if it does that, it could also smack down cy pres even if it concludes standing is absent.  At least we can hope.

An unexpected bit of good news as we go into November. Bexis will be presenting at the Reed Smith annual client CLE program on big-deal pending cases.  In preparation, he took a look at the SCOTUSBlog page for Merck Sharp & Dohme Corp. v. Albrecht, No 17-290 (that’s the Supreme Court name for In re Fosamax in the Third Circuit).  There’s a new entry from last Friday: “Justice Alito is no longer recused in this case.”  See also, from the Supreme Court’s official docket:

Oct 26 2018 Justice Alito is no longer recused in this case.

That’s good news for our side, because as we mentioned at the time certiorari was accepted:

We do note one unfortunate aspect of the order granting review: “Justice Alito took no part in the consideration or decision of this petition.” Since Justice Alito has historically supported preemption – he wrote the dissent in Wyeth v. Levine, 555 U.S. 555 (2009) – that means we’re short a vote.

Not any more. Our understanding, based on something we heard several years ago, is that Justice Alito at one time held stock in Merck. Evidently not any longer. While we’re not counting our chickens in Albrecht before they’ve hatched, we’re not playing a man short any longer, either. So we like our side’s chances in Albrecht even better now.

For more of our Albrecht/Fosamax coverage see here, here, here, and here.

We would be hard pressed to think of a recent judicial decision we have blasted as hard or often as the Third Circuit’s Fosamax opinion.  We deemed it the worst case of 2017.  It was bad enough that our hometown federal appellate court held that it was up to a jury whether the FDA would have rejected a stronger drug warning.  It was worse that the court held that a defendant had to prove by clear and convincing evidence that the FDA would have rejected the warning.  And it was still worse, and kind of weird, that the Third Circuit arrived at this holding in a case where the FDA actually had rejected a stronger warning.  The result of the Fosamax decision was that summary judgement in favor of the defense on preemption became a pipe dream, and ultimate victory at trial became a lot tougher.

Right from the start, we thought Fosamax was reversal bait.  The excellent certiorari briefing made us more sure of that.  Then, when SCOTUS invited the government to lob in an amicus brief, we became still surer.  Now that we have read the government’s brief, we are even surer. Lawyers from the Solicitor General’s office and the Department of Health and Human Services are on the brief.  These lawyers are typically brilliant and the positions they stake out typically command a lot of respect from courts.

When we clerked, our Judge always paid a lot of attention to government amicus briefs.  In the last SCOTUS case we worked on, the government’s position turned out to be pretty much dispositive.  We represented a father who had been tossed in the clink because he had failed to pay child support.  It was a civil contempt proceeding that ushered him into jail.  The state (South Carolina) did not provide him counsel because it wasn’t a criminal case.  We argued that however the case was styled, if imprisonment was a possibility, the right to counsel was implicated.  The other side was represented by then Penn Law professor, now Third Circuit Judge, Stephanos Bibas, who was an amazingly effective advocate for what we thought was a weak position.  We argued that counsel had to be provided and he argued not so.  Then the SG’s office filed a brief, and its answer split the difference: sometimes.  Guess what SCOTUS decided?  Sometimes won.

What do we have here with the government’s Fosamax brief?  The headline is that the government argues for reversal of Fosamax.  It argues that the Third Circuit erred in holding that, under Wyeth v. Levine, a jury must resolve the preemption defense “As a factual matter subject to a clear-and-convincing evidence standard.”  Yay. But is there a ‘sometimes’ aspect to the government’s position that makes us a bit uneasy?  Yes, there is.

As always, the statement of the Question Presented sets the tone.  Here is how the government frames the inquiry:  “Whether a state failure-to-warn claim alleging the insufficiency of brand-name drug labeling is preempted by the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. 301 et seq., when the Food and Drug Administration, after the drug manufacturer provided it with the relevant scientific data, rejected the manufacturer’s application to modify its labeling to warn about the risk underlying the tort claim.”

The first thing we notice is that the government is focusing on the fact that the FDA did actually reject a proposed warning.  That rejection came in the form of a Complete Response Letter in 2009.  The central point in the government’s brief is that the meaning and effect of that Complete Response Letter presents legal questions that a judge, not jury, must resolve. It was a federal agency decision, and courts, not juries, interpret agency decisions.  Even if factual findings are necessary to interpret the federal agency decision, such factual findings are decided by the court, not the jury.

The government’s arguments on these points are compelling, and it is hard to see how reversal can be avoided.  But how useful would reversal on this ground be for the rest of us?  Whenever the FDA actually rejects an enhanced warning, there will be an agency decision, and the government’s analysis would kick in and make the issue legal, not factual.  But what if there is no rejection?  What if the defendant wants to argue that there are other circumstances, not quite reaching the level of an actual agency rejection, that demonstrate that such rejection would have been inevitable?  Are we still in fact-land, as opposed to legal-land?  The ruling in Fosamax might end up a little narrower than we’d like.

Let’s not dwell on these questions for now.  No point in being a nervous Nellie.  There are other goodies in the government’s brief.  For instance, while the Third Circuit in Fosamax speculated that possibly the FDA’s rejection was a result of dissatisfaction with the specific language proposed by the pharmaceutical company, the government smacks that position down and restores the focus to the proper place: the state of the scientific evidence. Look again at the Question Presented.  Hone in on this language:  “relevant scientific data.” The FDA looked at the data in the available literature and adverse events reports.  “No sound basis thus exists for concluding that the FDA determined in May 2009 that the data was sufficient to warrant a warning but that it rejected petitioner’s proposal because of petitioner’s proposed text.”  If SCOTUS adopts this reasoning, as it should, plaintiffs will have one less arrow in their speculative quiver to stave off summary judgment on preemption.

Even better is how the government brief eviscerates the clear-and-convincing evidence standard.  First, the brief makes the undeniable point that the Wyeth v. Levine decision simply did not address this issue.  Thus, we are thrust upon first principles.  This is a product liability case. It is a civil action for money damages, and “nothing warrants a higher standard of proof to resolve the preemption question here.”  Absent legislative specification, there is no basis to impose a higher evidentiary standard on defendants seeking to available themselves of SCOTUS preemption doctrine.  We are not entirely fond of the government’s explanation of the Wyeth “clear evidence” language, seeming to tie it into a presumption against preemption, but we are trying not to be churlish.  In any event, we are content with the government’s fundamental point that the Wyeth v. Levine  “clear evidence” formulation was not intended “as a shorthand for a formal clear-and-convincing evidentiary standard, but merely to indicate that a manufacturer asserting preemption must show that a labeling charge was not warranted under the relevant statutory and regulatory framework.”

Once the government shows that resolving the Fosamax case requires resolving a legal issue, that no factual findings are required, and that the preponderance of the evidence standard applies, the case becomes easy.  The FDA rejected the proposed warning because the data was not yet in place to justify the warning.  The Third Circuit got it wrong, the district court got it right, and the litigation should be over.

Nothing emphasizes the impermanence of just about everything as Hawaii – where Bexis is right now on vacation.  On Kauai, Bexis had a boat drop scheduled to Kalalalu Beach, for three days on the Kalalau Trail, all permits obtained.  But several months ago, the heavens opened, and the Na Pali Coast received over an inch of rain an hour for more than a day.  A large number of avalanches, floods, and sinkholes ensued.  The road washed out in numerous places, as (more importantly) did people’s homes – so the best trail in Kauai is closed indefinitely.

That’s not even the worst of it. At least there are plans (on Hawaiian time) to reopen both the road and the trail.  But our favorite resort on the Big Island has been closed for several years.  The Kona Village Resort was damaged by the same 2011 tsunami caused all that horrible destruction in Japan.  For almost a decade, it has been abandoned on the shore at Kaupulehu tied up in layers of debt and litigation.  Although now there’s a rumor that it might reopen in 2019 – we’ve seen those before, so we’ll believe it when we see it.

But even that’s not the worst of it.  Our last trip to the Big Island, we swam in some lovely naturally heated tide pools.  We won’t be able to do that again.  They’re now covered by hundreds of feet of lava from the “Fissure 8” eruption that started on May 2, 2018.  In a geologically active area such as Hawaii, even the land itself is impermanent.

Impermanence is also a legal phenomenon.   Long-time readers of the blog may recall a series of posts from the Mark Herrmann era describing how the two of us fought an ultimately losing battle during the American Law Institute’s Aggregate Litigation Principles Project to keep the ALI from endorsing the practice of “cy pres.”  Not-so-long-time readers might be wondering, “what the heck is that?”  Here’s our description of cy pres from an earlier post:

For those of you new to all this, “cy pres” is the name given to schemes – virtually exclusively in class actions – whereby courts take money supposedly belonging to class members that class counsel can’t or won’t (due to expense) identify and give it to non-class members (mostly charities) who were not damaged in any way by the claimed conduct of the defendants. We know of no legal power invested in the judiciary to take money away from supposedly injured litigants and give it to persons who are essentially bystanders.  There are methods of doing this.  When done privately, it’s called “theft.”  Publicly, it would involve the powers to tax, appropriate, and levy fines, which belong to branches of government other than the judiciary.  We further believe that use of cy pres to facilitate class actions violates the Rules Enabling Act, since procedural rules (such as Rule 23) can’t change the substantive law.  There’s not much more “substantive” than taking money supposedly belonging to injured litigants and giving it to non-parties.

The result was Principles of Aggregate Litigation §3.07 (ALI 2010), entitled “Cy Pres Settlements,” which seemed to enshrine into black-letter law the doctrine that it’s OK to give away purported class members’ money to whatever charity the judge and the lawyers decide to favor.

We kept up a rear-guard battle against cy pres, however, helping draft a proposal for Lawyers for Civil Justice to amend Fed. R. Civ. P. 23 to abolish cy pres. That was a long shot, since the very judges whose power cy pres augmented would have to approve such a change.  Also, were heartened by Chief Justice Roberts’ concurring opinion in Marek v. Lane, 134 S.Ct. 8 (2013), suggesting that the Supreme Court might also have concerns about this peculiar institution.

Then, last May, the Supreme Court granted certiorari in a case we had previously described as a “poster child” for cy pres abuse.  In re Google Referrer Header Privacy Litigation, 869 F.3d 737 (9th Cir. 2017).  This appeal, now called Frank v. Gaos, No. 17-961, 138 S. Ct. 169 (April 30, 2018), features just about everything we don’t like about cy pres:

  • Excessive counsel fees – class counsel stands to walk away with fully 38% of the settlement as fees.  869 F.3d at 747.
  • Lack of classwide recovery – the court declared the entire settlement “non-distributable” because, even without opposition, neither the class members nor their damages could be determined.  Id. at 742.
  • Excessive cy pres – nothing is more excessive than 100% − six uninjured charities took 100% of what class counsel left behind, and the 129 million supposedly injured class members took nothing.  Id. at 743.
  • Rampant conflict of interest − Three of the charities were law schools – and they all had ties to counsel in the case.
  • Litigation industry self-perpetuation – cy pres recipients were expected solicit more lawsuits by “educat[ing]” the public and “publiciz[ing]” privacy issues.  Id. at 746-47.

By now, with briefing completed, we thought we’d take a look at the arguments that are being made to the Supreme Court in opposition to the use of cy pres class action settlements.

First and foremost is the petitioner’s brief, filed by friend-of-the-blog Ted Frank.  As we expected, he pulls no punches about the impropriety of a procedure that we’ve said amounts to judicially sanctioned theft.  The brief starts off by describing cy pres as “one of the most notorious devices used to create the illusion of compensation.”  Id. at 2.  “All the money went to class counsel and to favored nonprofit organizations affiliated with class counsel and the defendant.”  Id.  Petitioner seeks (pp. 15-16) five cy pres-related holdings from the Court:

  1. A settlement that compromises a class’s claims, but seeks to pay class counsel an amount disproportionate with the actual and direct benefit to the class, is not fair or reasonable under Rule 23(e).

Here, the fundamental fact of Due Process is, that “settlement-fund proceeds, having been generated by the value of the class members’ claims, belong solely to the class members.”  Neither courts nor counsel can “divert that property to third parties.”  Id. at 17.

All that courts need to accomplish this result is to apply a simple principle to the Rule 23 fairness hearing: regardless of whether a settlement is “adequate,” it is not fair or reasonable if the settlement pays attorneys’ fees that are disproportionate to the actual and direct benefit realized by the class compromising its claims.

Id. at 21.  Cy pres provisions are a means to “structure the deal to obfuscate the true [a]llocation . . . by larding the [settlement] analysis with hypothetical class recoveries and amorphous ‘benefits’ that ultimately have little value to the class.”  Id. at 23.

First, basing a fee award solely on the “size of the cy pres fund” allows “class attorneys . . . to reap exorbitant fees regardless of whether the absent class members are adequately compensated.”  Id. at 28.  Second, cy pres is “an enticing settlement feature for lawyers interested in promoting their own personal political or charitable preferences.”  Id. at 29.  The brief contains several examples of such conduct.  Id. at 29-30.  Second, with “no resistance from class attorneys,” defendants can even use cy to “benefit themselves” by directing funds to their preferred charities.  Id. at 30.  Again, several concrete examples are discussed.  Id. at 30-33.  Third, cy pres awards to non-parties “fail to redress class members’ alleged injuries for which they are waiving their rights.”  Id. at 33.  Here, another of our primary gripes comes into play.  “Rule 23 cannot operate to ‘abridge, enlarge or modify any substantive right,’” id., but altering who owns what is as “substantive” an application as we can think of.  More examples.  Id. at 33-35.  Fourth, cy pres “permit[s] otherwise unthinkable class certifications” and “induce[s] plaintiffs to pursue doubtful class claims” because they can settle without proving causation or damages. Id. at 35.

[C]y pres incentivizes both the bringing of otherwise unprofitable “strike suits” that would be infeasible to litigate due to unmanageability or questionable merit and their settlement on terms mutually agreeable to class counsel and the defendant.

Id.  A “class action that yields fees for class counsel and nothing for the class − is no better than a racket.” Id. at 36 (quoting In re Walgreen Co. Stockholder Litigation, 832 F.3d 718, 724 (7th Cir. 2016)).  Fifth, cy pres results in subsidizing the “political . . . preferences of class counsel or the defendant without regard to the views of “a substantial proportion, or even a majority, of class members.

Requiring class members to surrender their rights to subsidize speech by a third party that he or she does not wish to support raises serious First Amendment concerns.

Id. at 36.  If a union can’t even collect dues from its own members because of their First Amendment rights, see Janus v. AFSME, Council 31, 138 S. Ct. 2448, 2478 (2018) (“draw[ing] the line at . . .requir[ing] all employees to support the union irrespective of whether they share its views”), how can a court impose a charitable donation on unknown class members?  Sixth, cy pres “often create the appearance or reality of judicial conflicts of interest.”  Id. at 37.  “[A]n open-ended cy pres doctrine is fundamentally incompatible with the judicial role” of “providing relief to claimants . . . who have suffered, or will imminently suffer, actual harm.”  Id. at 38.

Petitioner also argues that all-cy-pres settlements simply cannot be approved under Rule 23:

Any settlement, like this one, that provides no direct benefit to the class, cannot be approved.  “Because the settlement yields fees for class counsel and zero benefits for the class, the class should not have been certified and the settlement should not have been approved.”

Id. at 39 (quoting In re Subway Footlong Sandwich Marketing Litigation, 869 F.3d 551, 557 (7th Cir. 2017)).  We would go further, since we don’t think any cy pres settlements should be approved.  Indeed, the existence of a cy pres component is an admission that, even with no legal opposition, plaintiffs are unable to prove causation or damages.  Such suits should not be brought.  We have criminal prosecutors and other governmental entities to handle such cases.  “[N]early every consumer class-action settlement leaves over 90%, and often over 99%, of the class uncompensated.”  Id. at 45.  We don’t need civil lawyers who are perversely incentivized through cy pres to do as little work as they can possibly get away with.

  1. Cy pres awards are inappropriate in class-action settlements where it is feasible to distribute settlement proceeds to class members.  Whether it is feasible to distribute settlement proceeds is determined by whether such relief can be distributed to some identifiable class members . . .  and not whether the proceeds could be distributed to every potential class member.

Plaintiffs, who have resolutely opposed any ascertainability prerequisite to class certification, do a backflip when it comes to cy pres and settlement.  “Under the standard set by the Ninth Circuit, it is not considered ‘feasible’ to provide any compensation to class members when it would be infeasible to compensate all of them.”  Petitioner’s br. at 49 (emphasis original).  This is using ascertainability to prevent compensation of class members.  “[I]t is nearly always feasible to distribute settlement funds to some class members.”  Id. at 50 (emphasis original).  “[C]y pres distribution when distribution to some of the class is possible is ‘contrary to the interests’ of the class.”  Id. at 51 (quoting In re BankAmerica Corp. Securities Litigation, 775 F.3d 1060, 1068 (8th Cir. 2015)).  Using cy pres to take money from any class members when some are identifiable thus violates class counsel’s “fiduciary duty to class members.”  Id. at 50-51.

  1. If a class-action settlement cannot provide direct relief to the class, the settlement class cannot be certified.

Again, we agree, even though we might go further.  If “it is somehow impossible to make any distribution to the class, that simply suggests that it was error to certify this settlement class.”  Petitioner’s br. at 52.

In short, the class action is not “superior to other available methods for fairly and efficiently adjudicating the controversy” because every single class member is worse off than if they opted out and reserved their claims to litigate individually.

Id. at 53.  That’s what a zero-dollar settlement like this one means.  Class members are giving up something and not getting anything.

  1. If cy pres is to be permitted at all, there should be strict restrictions against the payment of money to recipients with any significant current or prior relationship with the parties, attorneys, or judge.

In particular, this argument rejects “distribution of cy pres funds to class counsel’s alma mater instead of the class.”  Petitioner’s br. at 54.  This is just another questionable practice enabled by the creation of a “remedy” that is outside of both the law and the rules, and thus essentially ungoverned.

The better rule is to require settling parties to have the burden to demonstrate that neither the court nor any “party has any significant prior affiliation with the intended recipient that would raise substantial questions about whether the selection of the recipient was made on the merits.”

Id. at 55-56 (quoting – ironically – Principles of Aggregate Litigation §3.07, comment b).  Once again, bright line, prophylactic rules are best.  The potential for conflict of interest is simply too great to allow any cy pres award to an entity with ties to the litigants or to the court.

  1. At a minimum, courts should substantially discount cy pres distributions relative to direct payments to class members for purposes of calculating attorneys’ fees based on a percentage of the recovery.

In one paragraph, petitioner’s final argument is that the “indirect and attenuated” – if any – value of a cy pres settlement to any class member requires that such payments “should at least be heavily discounted in the fee calculation to better align incentives.”  Petitioner’s br. at 56-57.

If even a quarter of these arguments succeed, then cy pres distributions of class action settlements will – quite rightly in our view – be cast into the proverbial dustbin of history.  Perhaps Congress, or a state legislature for a state class action, could create such a remedy, but they haven’t.  Our bottom line is that no authority currently exists to allow courts, with or without the connivance of counsel, to take money belonging to certain persons (here, absent class members) and give that money to other persons (here, lawyer-selected charities) without the express approval of the original owners.

As one might expect, the Frank case also produced a bunch of interesting amicus briefs.  Since we spent much longer than we had expected on Ted’s brief, our rundown of the objector-side amici will be significantly briefer – but we’re providing links so anyone interested can read them in their entirety.

Of greatest interest, of course, is the position taken by the government itself – as to which we find a lot to like:

United States of America

The cy pres question need not be reached because Spokeo casts substantial doubt on whether the class representatives suffered sufficiently significant injury to confer Article III standing.  Brief at 11-15.

Cy pres as used in the trust area is irreconcilable with its use in class-action settlements.  Id. at 16-17.

Cy pres raises serious concerns where class members receive no compensation.  Id. at 18.

Cy pres raises serious concerns about collusion against the interests of absent class members.  Id. at 19-20.

Cy pres raises serious concerns about conflicts of interest by counsel and even courts.  Id. at 20.

Cy pres raises serious concerns about the creation of new, extra-statutory remedies.  Id. at 20-21.

Cy pres is improper unless it redresses the specific injuries of the plaintiff class.  Id. at 22-26.

Cy pres is improper when there is any non-arbitrary way of distribution to class members.  Id. at 26-28.

Cy pres distributions should be discounted, ideally entirely, in calculating attorneys’ fees.  Id. at 28-32.

In a nutshell, here are the highlights of other important amicus curiae briefs in Frank v. Gaos:

State Attorneys General – eighteen of them

Cy pres in consumer class actions diverts money away from injured consumers, aggravating the original problems, and should not be recognized.  Brief at 4-8.

Cy pres settlements circumvent statutory and judicial class action standards in violation of the Rules Enabling Act.  Id. at 8-11.

Once again, the Ninth Circuit is out of line.  Id. at 11-13.

Cy pres-only settlements should be per se invalid.  Id. at 13-16.

Cy pres awards should be disregarded in the calculation of attorneys’ fees.  Id. at 16-20.

Chamber of Commerce of the USA

If class actions were better policed at the front end, by denying class certification to no-injury class actions in the first place, the problems with cy pres settlements would never have arisen.  Brief at 5-11.

Cy pres settlements would not be needed if courts properly enforced Rule 23’s commonality and predominance requirements.  Id. at 11-13.

Injury should not be presumed for purposes of class certification.  Id. at 14-15.

Cy pres settlements are symptomatic of meritless, but expensive, class action litigation.  Id. at 16-18.

Conflicts between class counsel and absent class members are inherent in cy pres settlements.  Id. at 18-22.

If allowed at all, cy pres settlements should be strictly regulated.  Id. at 22-26.

Lawyers for Civil Justice

Cy pres awards are inherently inconsistent with Rule 23’s requirement that settlements be “fair, reasonable, and adequate.”  Brief at 9-10.

Cy pres, as it previously existed in non-adversarial trust law, has nothing to do with adversary class actions.  Id. at 11-14.

Cy pres is an improper exercise of judicial power under Article III of the constitution.  Id. at 14-18;

Cy pres violates the Rules Enabling Act by permitting fines against defendants not recognized by substantive law.  Id. at 18-20.

If otherwise permitted, cy would violate the Due Process rights of absent class members.  Id. at 20-21.

Compelling diverse class members to finance speech by either plaintiff-side or defendant-side advocacy groups violates the First Amendment.  Id. at 21-22.

The existence of a cy pres award indicates that the action itself cannot support class certification.  Id. at 23-24.

Cato Institute & Americans for Prosperity

Cy pres violates the Due Process and First Amendment rights of absent class members whose property is being taken and given to charities for the purpose of plaintiff-side advocacy.  Brief at 4-7.

Constitutional rights could be better protected by requiring opt-in class actions.  Id. at 8-10.

Cy pres inevitably leads to self-dealing and violation of professional ethics by class counsel.  Id. at 12-15.

Class counsel use cy pres to increase personal gain at the expense of absent class members.  Id. at 16-18.

Defendants utilize cy pres to lower settlement costs.  Id. at 18-19.

Cy pres erodes judicial neutrality through conflicts of interest in selecting recipients.  Id. at 19-20.

Zero dollar class actions cannot be “superior” to anything.  Id. at 21-22.

There are always better alternatives to cy pres awards.  Id. at 22-24.

Cy pres is a disguise for parties and courts to lobby for special benefits.  Id. at 24-25.

Once again, the Ninth Circuit is out of line.  Id. at 25-29.

Compelling diverse class members to finance speech by either plaintiff-side or defendant-side advocacy groups violates the First Amendment.  Id. at 29-34.

Manhattan Institute for Policy Research

Unlike cy pres in the trust area, which is legislatively recognized, cy pres in the class action context is not based on any recognized grant of power.  Brief at 7-13.

Cy pres violates the Rules Enabling Act by modifying substantive legal remedies.  Id. at 14-15.

Payments to charities are not a remedy recognized by substantive law.  Id. at 16-21.

Cy pres is only allowable where recognized by substantive law.  Id. at 21-23.

Center for Constitutional Jurisprudence & Atlantic Legal Foundation

A class action that cannot deliver any relief to class members does not present an Article III “case or controversy.”  Brief at 4-6.

Compelling diverse class members to finance speech by either plaintiff-side or defendant-side advocacy groups violates the First Amendment.  Id. at 6-8.

Center for Individual Rights

Compelling diverse class members to finance speech by either plaintiff-side or defendant-side advocacy groups violates the First Amendment.  Brief at 3-6.

Opt-out class actions violate the First Amendment.  Id. at 6-10.

New Jersey Civil Justice Institute

Cy pres converts Rule 23 class actions into a substantive remedial scheme.  Brief at 2-8.

An all-cy pres settlement cannot be “superior” under Rule 23 standards.  Id. at 9-16.

There are a couple of other briefs filed by persons with more narrow interests related to copyrights or internet privacy that we don’t think would be of sufficient interest to our members to bother with.

Finally, in accordance with the parties’ agreed-upon schedule, that appears to have been adopted by the Court, the pro-cy pres forces won’t start filing their briefs until the end of August.  With that schedule, it is quite possible that oral argument will occur before the end of the year.

When Justice Gorsuch was first nominated for the Supreme Court, we took a look at his preemption decisions and were favorably impressed.  We’re doing the same thing today with respect to the new nominee, Brett Kavanaugh, currently a judge on the United States Court of Appeals for the District of Columbia.  Our job today won’t be as easy because there isn’t nearly as much state-law-based diversity tort litigation in the DC Circuit.  Heck, there aren’t even any states in the DC Circuit.  So it’s not likely that we’ll find a Caplinger v. Medtronic, Inc., 784 F.3d 1335 (10th Cir. 2015), in Judge Kavanaugh’s judicial resumé.

But we can try.

Our search for Kavanaugh opinions containing some form of the word “preempt!” produced 19 cases.  Over half of them could be eliminated immediately, because “preempt!” appears only in a different opinion, one not written by the possible next Supreme Court justice.

We found only two Kavanaugh opinions concerning preemption that weren’t in the administrative context.  The most significant of those was Doe v. Exxon Mobil Corp., 473 F.3d 345 (D.C. Cir. 2007), where Judge Kavanaugh dissented, in part on preemption grounds, from the court’s decision not to hear an appeal in one of those now (thankfully) eliminated Alien Tort claims involving plaintiffs and conduct that took place entirely overseas.  In dissent, Judge Kavanaugh would have dismissed the Alien Tort claims on non-justiciability grounds due to interference with American foreign policy . Id. at 359-64.  A few remaining state-law tort claims would be preempted  for essentially the same reason:

[T]he possibility that state law (in this case, D.C. tort law) will produce something more than incidental effect in conflict with express foreign policy of the National Government requires preemption of the state law.  Although we need not resolve the issue here, the state-law tort claims are likely preempted as a result of the State Department’s specific statement of harm to foreign policy.

Id. at 365 (dissenting opinion) (citations omitted).  The Doe case rattled around the DC Circuit for quite some time.  Judge Kavanaugh dissented again in Doe v. Exxon Mobil Corp., 654 F.3d 11 (D.C. Cir. 2011), vacated, 527 F. Appx. 7 (D.C. Cir. 2013), but did not reach preemption in that opinion.  Finally, he participated in the ultimate dismissal of the case after Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013), again not reaching preemption.  See Doe v. Exxon Mobil Corp., 527 F. Appx. 7 (D.C. Cir. 2013).

Another Kavanaugh opinion that wasn’t administrative in nature was Mills v. Giant of Maryland, LLC, 508 F.3d 11 (D.C. Cir. 2007).  It was a garbage class action, filed on behalf of DC residents who allegedly were lactose intolerant but didn’t know that yet.  The district court had dismissed the case on FDCA preemption grounds – that the warning plaintiffs demanded was different from the labeling required by the FDA.  Id. at 13.  Judge Kavanaugh, however, didn’t reach preemption.  Instead, he found that DC “tort-law principles foreclose failure-to-warn liability when the risk that some people might have an adverse reaction to the food is ‘widely known.’”  Id. at 13-14.  Having affirmed dismissal on state-law grounds, there was no need to reach preemption.  Id. at 15-16.  At least that ruling suggests that Judge Kavanaugh is a tort conservative.

Interestingly, both Doe and Mills are from 2007 and were Judge Kavanaugh’s first preemption decisions, since he joined the DC Circuit the year before, in 2006.  He does not appear to have encountered preemption in the common-law tort context since.

A lot of the DC Circuit’s docket is administrative in nature, and in that procedural posture it is often the plaintiffs – various regulated businesses of one sort or another – that seek preemption, specifically additional preemption of state regulations beyond that recognized by the relevant federal agency.  That’s not an easy position to win, as it arrays the government on the side against preemption.  One of the administrative cases is Illinois Public Telecommunications Ass’n v. F.C.C., 752 F.3d 1018 (D.C. Cir. 2014), involving telephone refunds.  Preemption was rejected.  First, since the FCC had issued only a voluntary (“may, but are not required”) order covering the subject at issue.  State decisions not to issue refunds thus were not preempted.  Id. at 1024.  Second, given the statutory scheme, the FCC’s decision not to preempt state decisionmaking was not “arbitrary or capricious.”  Id. at 1025-26.  Another such Kavanaugh decision – indeed, the with opinion the most occurrences of “preempt!” − was a total bust, as the preemption argument in American Road & Transportation Builders Ass’n v. E.P.A., 705 F.3d 453 (D.C. Cir. 2013), was both barred by the statute of limitations and previously adjudicated in a different court.

That’s basically it. In no other opinion has Judge Kavanaugh used “preempt!” in the Supremacy Clause context that interests us.

So our conclusion is that, unlike a lot of areas, Judge Kavanaugh has not left a lot of tort preemption footprints during the course of his judicial career.  What little there is, we like.  And that one administrative preemption opinion?  It doesn’t bother us much.  Shockingly, not all preemption arguments are meritorious, and from the discussion in Illinois Public, we might not even have found preemption.

Today, on the last day of the United States Supreme Court’s 2018 Term, the Court issued an order granting review (“certiorari”) in Merck Sharp & Dohme Corp. v. Albrecht, No. 17-290 – which is the Supreme Court docket name for the defendant’s appeal from the horrible preemption decision (our worst case of the year for 2017) in In re Fosamax (Alendronate Sodium) Products Liability Litigation, 852 F.3d 268 (3d Cir. 2017).  The brief Supreme Court order did not alter the question presented in the petition for review, which is:

Is a state-law failure-to-warn claim preempted when the FDA rejected the drug manufacturer’s proposal to warn about the risk after being provided with the relevant scientific data; or must such a case go to a jury for conjecture as to why the FDA rejected the proposed warning?

That’s a nice, broad question that should encompass all of the subsidiary issues – burden of proof, judge vs. jury, and clear evidence, to name three – implicated by the Fosamax decision.

Here at the Blog, we had repeatedly supported Supreme Court review.  We do note one unfortunate aspect of the order granting review:  “Justice Alito took no part in the consideration or decision of this  petition.”  Since Justice Alito has historically supported preemption – he wrote the dissent in Wyeth v. Levine, 555 U.S. 555 (2009) – that means we’re short a vote.  Conversely, the anti-preemption side might lose the vote of Justice Kennedy’s replacement (Justice Kennedy was in the Levine majority).  But even with Justice Thomas (who supports only “impossibility” preemption), a combination of Roberts, Gorsuch, Thomas, and ______ would only get us to a 4-4 tie.  However, we think that the Fosamax decision is bad enough that we should be able to draw a vote from one of the others (most likely Kagan or Breyer), at least on the procedural issues.

We immediately called for the further appeal and reversal of the hideous decision in In re Fosamax (Alendronate Sodium) Products Liability Litigation, 852 F.3d 268 (3d Cir. 2017).  However, we’re just bloggers.  Thus, we were greatly pleased when the United States Supreme Court, on December 8, 2017, requested the views of the Solicitor General on whether to grant certiorari in the Fosamax appeal, now known as Merck, Sharp & Dohme Corp. v. Albrecht, No. 14-1900 (U.S.).

We’re even more pleased, now that we have read the Solicitor General’s responsive brief, which we have just received.  Getting right to the point – the bottom line:

In the view of the United States, the petition for a writ of certiorari should be granted.

United States Amicus br. at 1.  Even though “[n]o circuit conflict yet exists,” the issue in its MDL context is sufficiently “significant” to grant certiorari now.  Id. at 12.

Although the question is close, . . . this Court should grant certiorari.  The underlying issue in this preemption case is a significant one:  whether the meaning and effect of an FDA labeling decision is a question of law for courts to resolve or a question of fact for lay juries to determine.  The petition cleanly presents that issue in an MDL context in which hundreds of separate cases . . . turn on its proper resolution.

Id. at 22-23.

First, the Solicitor General believes that preemption is a legal issue, not one for the jury, as the Third Circuit held in its unprecedented ruling:

The court of appeals erred in holding that a jury must determine whether FDA’s . . . decision − which declined to approve petitioner’s proposal to revise [the drug’s] Warnings and Precautions section . . . − preempted respondents’ state-law failure-to-warn claims arising from that same type of injury.  Where, as here, FDA renders a decision declining to approve a drug-labeling change, the interpretation of that administrative decision and its significance for a failure-to-warn claim are legal questions for a court to resolve, not factual questions for a jury.

Id. at 12.  “The meaning and effect of such agency action is a legal question within the exclusive province of a court.”  Id. at 13.  “Judges, rather than lay juries, are best suited to evaluate the scope of an agency’s legal determination in light of the relevant statutory and regulatory context.”  Id. at 14.

Second, the Solicitor General believes that the FDA’s rejection of the defendant’s request for a label change was “clear evidence” supporting preemption:

[B]ecause FDA’s decision here prevented petitioner from modifying the relevant labeling before late 2010, the court of appeals erred in rejecting petitioner’s impossibility-preemption defense.

Id. at 12.  “Nothing is ‘hypothetical’ about FDA’s actual 2009 decision in this case.”  Id. at 16.

[Levine] did not resolve how to determine the meaning and effect of an actual FDA labeling-supplement decision. . . .  [T]he court of appeals erred in transplanting [Levine’s] discussion about a hypothetical regulatory scenario to support a requirement for “clear evidence” about the scope and effect of the actual agency labeling decision in this case.

Id. at 16-17 (emphasis added).  The FDA was not quibbling about language when it rejected the label change at issue, but instead the “FDA’s decision thus was based on the lack of adequate data to support a warning.”  Id. at 21.  “Indeed, nearly a year later, FDA announced − after reviewing further data − that it had yet to find any ‘clear connection’” between the drug and the alleged risk.  Id. at 22.

Third, “clear evidence” was used in Levine “not in its ‘strict evidentiary sense’ but merely as a ‘useful reminder’ that a general presumption concerning a legal interpretation should control if substantial doubt exists.”  Id. at 18.  Thus, the Third Circuit’s “clear and convincing” evidentiary gloss in Fosamax was also error.  Rather, “to establish impossibility preemption, a name-brand drug manufacturer cannot rely on speculation or merely plausible interpretations of ambiguous features of FDA’s regulatory framework and practices.  Id. at 18-19.

Now we wait. If the Court grants review, Albrecht will likely be the most significant preemption decision since Levine itself.