Last week, the Division One of the Arizona Court of Appeals issued an opinion that removes two major barriers to lawsuits against pharmaceutical manufacturers: it recognized that state consumer fraud statutes can be applied against these defendants; and, under the Uniform Contribution Among Tortfeasors Act, abolished the learned intermediary doctrine. This opinion has the potential to radically alter pharmaceutical and medical device litigation in Arizona.

In Watts, the plaintiff, Amanda Watts, sued Medicis, a pharmaceutical manufacturer, claiming that Solodyn, a prescription acne medication, caused her lupus.  She alleged strict liability based on a failure to warn and also raised a claim under Arizona’s Consumer Fraud Act (CFA), contending that Medicis knowingly provided false and misleading warning information. Medicis moved to dismiss the claim, arguing that the Consumer Fraud Act does not apply to pharmaceuticals and also that the learned intermediary doctrine barred her product liability claim. The trial court granted the motion.

The court of appeals reversed. After resolving jurisdictional issues in Watts’s favor, the court turned first to the CFA Rejecting Medicis’s claim that pharmaceuticals are not “merchandise,” and therefore, fall outside the scope of the CFS, the court noted that prescription drugs are “often advertised and sold to consumers in a manner similar to other consumer goods, implicating the need for the protection of the CFA.”  Because Watts had alleged that the Solodyn’s labeling and promotional materials had “affirmatively and falsely” misrepresented the drug’s safety and that she relied on those statements, the court found that she had stated a claim.

Perhaps the larger sea change came with the court’s rejection of the learned intermediary doctrine, which shields a manufacturer from liability for failure to warn when it provides a proper warning to the specialized class of people who are authorized to sell, install, or provide the product. Noting that the Arizona Supreme Court has never formally adopted, the court analyzed it in the context of the Uniform Contribution Among Tortfeasors Act (UCATA). It concluded that UCATA, which abolishes joint and several liability is inconsistent with the learned intermediary doctrine. Looking to the Arizona Supreme Court’s State Farm Ins. Co. v. Premier Manufactured Systems, 217 Ariz. 222, 172 P.3d 410 (2007), which reiterated that Arizona law prevents “a partially responsible defendant from being held liable for the damages by his co-defendant,” the court rejected the learned intermediary doctrine. It concluded “that protecting a prescription drug manufacturer from possible liability for its own actions in distributing a product, simply because another participant in the chain of distribution is also expected to act, is inconsistent with UCATA.”

Importantly, the learned intermediary doctrine is abolished in total, not just with respect to pharmaceuticals. The practical consequences of the Watts decision are still unknown. Juries may well re-affirm what the learned intermediary doctrine always assumed—that doctors and other learned intermediaries alone must be responsible for failing to communicate the warnings that they receive—or they could open a new avenue of liability for manufacturers who can no longer rely on doctors’ and other intermediaries’ duties to warn consumers.  

William F. Auther is the managing partner of the Phoenix, Arizona office of Bowman and Brooke, LLP, where he has an active trial practice in product liability and business litigation.  Amanda Heitz is an associate at Bowman and Brooke.

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As a precondition to participating in the Arizona Health Care Cost Containment System (AHCCCS), Arizona’s Medicaid program, health care providers execute an agreement that they will comply with federal law. Federal law provides that Medicaid providers must accept the Medicaid payment as payment in full for all services rendered. Nevertheless Arizona statutes entitle AHCCCS providers to liens and the ability to collect from third-parties for customary charges for services. In the case of patients whose injuries resulted from a tort, Arizona statutes permitted AHCCCS providers to make up any difference between the Medicaid paid amount and their “customary charges” by a lien against the patient’s tort recovery. 

AHCCCS patients challenged the legality of this system in a class action lawsuit. The patients, some of whom had executed accord and satisfaction agreements to release the AHCCCS liens for a reduced amount, sought declaratory relief that the liens were invalid and unenforceable and an order requiring the hospitals to return any funds paid to release the liens. The superior court granted the hospital’s motion to dismiss the claim.

A unanimous panel of the Arizona Court of Appeals, in Abbott v. Banner, reversed on federal preemption grounds. Recognizing that federal courts “have uniformly interpreted [] federal statute and regulation as precluding a provider from balance-billing a patient for the difference between what the provider normally charges for services and what the provider is paid through Medicaid,” the Court held that this prohibition applies equally to liens on settlement funds from a personal injury lawsuit. ¶ 13. Accordingly, it concluded that the Arizona statutes providing such liens in favor of AHCCCS providers are preempted.

In addition to its obvious implications for tort plaintiffs whose medical care was covered under AHCCCS, this decision is also likely to have a significant impact in settlement negotiations. At least in the case of AHCCCS plaintiffs, the parties will have the ability to discuss hard medical damages as a sum certain rather than a variable amount. As a practical matter, both plaintiffs and defendants understand that medical liens can be settled for less than face value and take this into account as they negotiate (indeed, many plaintiffs in Abbott did negotiate their liens). But the existence of a medical lien introduces uncertainty. When the parties are not sure whether a $1,000,000 lien can be settled for 10 cents on the dollar or 75 cents on the dollar, they may miss a realistic opportunity for settlement for fear of paying too much or not receiving enough. Likewise, eliminating liens removes the possibility of gamesmanship where one party knows the amount necessary to settle the lien, but tries to persuade the other party that the amount is higher or lower as a bargaining tactic to secure a higher or lower settlement amount. 

William F. Auther is the managing partner of the Phoenix, Arizona office of Bowman and Brooke, LLP, where he has an active trial practice in product liability and business litigation.  Amanda Heitz is an associate at Bowman and Brooke.  

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Over a year after the Consumer Products Safety Commission (CPSC) abandoned its appeal, a successful appeal by consumer groups has blown the lid off Company Doe’s secrecy.

In 2012, the CPSC intended to publish a report attributing the death of an infant to a product made by Company Doe.  Company Doe objected and after some wrangling over redactions of misleading information, Company Doe ultimately sued for an injunction in Company Doe v. Tenenbaum, 8:11-cv-02958.  The Maryland District Court granted Company Doe’s requests to proceed confidentially, which resulted in sealing large portions of the docket as well as the court’s rulings on issues.  Consumer groups Public Citizen, Consumers Union, and Consumer Federation of America attempted unsuccessfully to intervene in the lawsuit, seeking access to the sealed documents. Ultimately, the district court granted Company Doe’s motion for summary judgment.  In early 2013, the CPSC declined to pursue an appeal of the decision.  Consumer groups, however, pursued an appeal in the Fourth Circuit.

On Wednesday, the Fourth Circuit issued an opinion reversing the trial court’s sealing orders and will make public Company Doe’s identity, the product at issue, and the complaints about that product. The Fourth Circuit concluded that even though the consumer groups were not parties, “[b]ecause the orders from which [they] appeal[ed] deprive [them] of the very information they claim a right to inspect, their appeal [fell] squarely within the exception allowing nonparties to seek appellate review when necessary to preserve their rights.”

The rest of the Court’s sixty-four page opinion went on to overrule the district court’s orders on First Amendment Grounds.  It found that Company Doe’s concern about reputational harm was not a compelling interest sufficient to defeat the public’s First Amendment right of access.  Therefore, it was an abuse of discretion for the court to seal and/or redact the docket and its rulings.
As we predicted over a year ago, the CPSC’s retreat was not the end of the story. The Fourth Circuit’s opinion substantially curtails companies’ recourses when they are faced with CPSC reports that they believe are inaccurate.  If they cannot resolve the matter with the CPSC—as Company Doe could not—their option to seek an injunction comes with the unattractive caveat that it will mean publicly disseminating through a public court docket the very information that they wanted to prevent the CPSC from disclosing.  In cases like this, where the district court ultimately granted summary judgment to Company Doe—which indicates that the company was justified in opposing the CPSC’s intended report—, it begs the question of whether seeking an injunction is better than permitting the CPSC to proceed as it planned.  

William F. Auther is a partner in the Phoenix, Arizona office of Bowman and Brooke LLP, where he has an active trial practice in product liability and business litigation. Amanda Heitz is an associate at Bowman and Brooke.

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Wednesday's United States Supreme Court opinion in Kiobel v. Royal Dutch Petroleum Co. et al., 569 U.S. ___ (2013), has confirmed that the Alien Tort Statute (ATS) has a limited scope and cannot open the doors of United States courts to lawsuits based on ordinary torts committed by companies outside the territorial confines of the United States.  Although the Court did not meaningfully address the issue of corporate liability, its narrow holding all but guarantees that ATS will not become an issue in lawsuits against corporate clients in products cases.

At first blush, Kiobel does not appear to be the type of case that would interest product liability lawyers.  It involved Nigerian nationals who had obtained asylum in the United States suing foreign corporations that has allegedly aided and abetted the government of Nigeria in committing abuses against its citizens including, among others, extrajudicial killings, crimes against humanity, and torture.  It goes without saying that "crimes against humanity" are topics that are generally outside the pale of the average civil defense attorney's resume.
Representing clients in a global marketplace, however, often necessarily means representing clients who have potential exposure to liability abroad.  Although your client may not be accused of crimes against humanity, the prospect of a German client with an American office being sued in America for building a product in Guatemala that injured someone in Japan is still daunting.  Because ATS has a somewhat broad purpose:  to permit federal courts to recognize "certain causes of action based on sufficiently definite norms of international law,"  569 U.S. ___ (2013), it is conceivable that a clever plaintiffs' attorney would argue that principles of negligence or product liability were "sufficiently definite norms" of international law to warrant jurisdiction.

Whether that argument would be successful is doubtful.  But the Second Circuit, whose opinion the Supreme Court reviewed, had a simple, comforting answer for corporate clients:  ATS does not apply to corporations.  The hypothetical Japanese plaintiff simply could not sue a corporate defendant in America to recover for her injuries.  There would be no need to litigate if the lawsuit involved "sufficiently definite norms of international law." 

Wednesday, the Supreme Court skirted the issue of corporate liability, but announced a rule that should provide a similar degree of certainty to corporate clients.  Its decision did not turn on the corporate status of the defendant, but whether ATS applies extraterritorially.  The Court concluded that it does not. 

Writing for the majority, Chief Justice Roberts concluded that ATS was not intended to bring into the United States Courts claims involving torts committed against foreign subjects outside the territorial confines of the United States.  The majority noted that, historically, ATS had been used only rarely since its 18th century enactment, and historically used only to address claims that a person had violated the law of nations:  violating safe conduct, infringing on the rights of ambassadors, and piracy.  Therefore, it held that to warrant jurisdiction under ATS, a plaintiff's claim must "touch and concern the territory of the United States . . . with sufficient force to displace the presumption against extraterritorial application." 

No justice dissented from the majority opinion, and even the most critical concurrence—by Justice Breyer, joined by Justices Ginsburg, Sotomayor, and Kagan—tended to confirm that corporate clients will not, in the ordinary course of litigation, be faced with jurisdiction based on ATS.  The concurrence advocated reading ATS as permitting jurisdiction over extraterritorial torts when "the defendant's conduct substantially and adversely affects an important American national interest," emphasizing the importance of the United States not becoming a safe harbor for "a torturer or other common enemy of mankind."

In short, although the "easy" ATS answer is now gone, the average corporate client has little to fear from ATS.  Negligence and products liability—while serious allegations—are hardly the stuff from which allegations of being a "common enemy of mankind" are made.     

William F. Auther is the managing partner of the Phoenix, Arizona office of Bowman and Brooke, LLP, where he has an active trial practice in product liability and business litigation.  Amanda Heitz is an associate at Bowman and Brooke.

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Earlier this month the CPSC dropped its Fourth Circuit appeal of Company Doe v. Tenenbaum, 8:11-cv-02958, a Maryland District Court's ruling that it could not publish on the database a misleading complaint about an anonymous company's product.  To the extent manufacturers and businesses may have breathed a sigh of relief, their celebration may have been premature.  Consumer groups Public Citizen, Consumers Union, and Consumer Federation of America maintain their separate challenge to the decision.

Although the consumer groups' appeal does not challenge the entirety of the District Court ruling, it attacks the Company Doe's ability to remain anonymous and suppress the content of the complaint during litigation.  If the groups' challenge succeeds, it could undercut the benefit of the District Court's ruling.

Presumably, the reason the anonymous company challenged the CPSC's decision to publish the misleading complaint was to prevent public dissemination of misinformation about the company and its product.  If the consumer groups succeed in their appeal, a company wishing to challenge the CPSC would be forced to disclose both its name and the content of the complaint.  Essentially, to prevent the dissemination of what it perceives to be misinformation, a company would be required to first publish that same misinformation.

Clearly, the CPSC's retreat is not the end of the story.  If the consumer groups succeed in their appeal, companies will be faced with a catch-22.  They can either allow the CSPC to publish information in the database or they can publish the information themselves by filing a complaint that identifies both the companies involved and the complaints against them.  Either way, the information would be disseminated.

William F. Auther is a partner in the Phoenix, Arizona office of Bowman and Brooke LLP, where he has an active trial practice in product liability and business litigation.  Amanda Heitz is an associate at Bowman and Brooke.

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