If the manufacturer of a defective product sells its assets and goes out of business, can a party injured by the product sue the purchaser of the assets on a products liability theory? The general rule of successor liability is that purchaser is not liable for the debts and liabilities of the transferor, unless (1) the purchaser agreed to assume the liabilities, (2) the transaction amounts to a consolidation or merger, (3) the purchaser is a mere continuation of the seller, or (4) the transaction was entered into fraudulently to escape liability.
In Gonzalez v. Standard Tools and Equipment Co., the plaintiff sought to add a fifth exception to the no-liability rule, called the "product line" exception. Courts in other states have adopted that exception, holding that, where a successor company continues to produce the same type of product as the original company, the successor assumes tort liability for defects in units from the same product line. The Court of Appeals last month rejected plaintiff's argument, declining to add a new exception to the "long-established rule" of successor liability.
In Gaeta v. Perrigo Pharmaceuticals Co.,the Ninth Circuit this week joined its sister circuits in holding that the Supreme Court case Wyeth v. Levine, 129 S. Ct. 1187 (2009), which established that failure-to-warn cases against brand name drug manufacturers are not preempted by federal law, also established no preemption of such claims against generic drug manufactures.
In Gaeta, a minor child had been treated with a "hepatotoxic" drug -- one know to cause liver failure -- after having two benign moles removed. He was prescribed ibuprofen for pain but his parents purchased Perrigo's generic over-the-counter ibuprofen. The child developed a fever and was eventually referred to the emergency room with a diagnosis of liver failure. He received a liver transplant.
The child's parents filed suit against Perrigo alleging, among other things, that Perrigo failed to warn prescribing physicians and consumers of the increased risk of acute liver injury and renal failure when ibuprofen is taken concurrently with other hepatotoxic drugs.
Perrigo opposed the claim on two preemption grounds: First, that it is impossible for Perrigo to comply with both state law duties to warn and the FDA regulations governing generic drugs; and, alternatively, that plaintiffs' state law claim obstructs the full accomplishment of the purposes and objectives of Congress in enacting the approval process for manufacturers of generic drugs.
The Ninth Circuit rejected both arguments, finding that California's state law duty to warn -- by placing an appropriate label on generic ibuprofen -- would neither be impossible to comply with nor obstruct the objectives of Congress. The Court further held that, absent evidence that the FDA would have rejected the specific hepatotoxicity warnings proposed by plaintiffs, their state law failure-to-warn claim was not preempted by FDA regulations.
When the US Supreme Court decided Williams v. Philip Morris in 2007, it created a challenge for judges instructing juries on punitive damages. The Due Process Clause prevents a jury from imposing punitive damages to punish a defendant directly for harm it causes to non-parties. But a jury can consider evidence of harm to others when assessing the reprehensibility of defendant's conduct as part of setting the amount of punitive damages. How to instruct juries to avoid improper use of evidence of harm to others is where the problem lies.
On Thursday, the Oregon Supreme Court in Schwarz v. Philip Morris vacated a $100 million punitive damages award in a tobacco products liability case because the jury instructions didn't appropriately distinguish between proper and improper uses of evidence of harm to third parties. The court determined that the Uniform Civil Jury Instruction in effect at the time of the 2002 trial could have led the jury to believe that it could "use evidence of harm to others in arriving at its punitive damages verdict" and lacked an explanation of the limits of permissible use.
The court remanded for a new trial limited to the question of punitive damages.
Mayola Williams' products liability case has completed its third journey to the U.S. Supreme Court, as the Court today dismissed Philip Morris' appeal of a $79.5 million punitive damages award.
Williams' husband died in 1997 of cancer after years of smoking cigarettes sold by Philip Morris USA. A Multnomah County jury awarded to Williams $821,485.50 in compensatory damages for wrongful death (later reduced to $521,485) and $79.5 million in puntive damages against Philip Morris. The trial judge reduced the punitive damages to $32 million, but the Oregon Court of Appeals reinstated the jury's award.
The U.S. Supreme Court in two separate appeals directed the Oregon Supreme Court to reconsider whether the punitive damages were excessive under the Due Process Clause of the Constitution. Last year the Oregon Supreme Court declined to reach the constitutional issue, affirming the punitive damages on state law procedural grounds.
Today's dismissal in Philip Morris USA v. Williams ends the U.S. Supreme Court's inquiry into whether the Oregon Supreme Court properly avoided the Due Process issue in its most recent decision. The Court's order states it had "improvidently granted" review last June, and as a consequence the punitive damages verdict stands.
In an opinion long-awaited in product liability circles, the U. S. Supreme Court today affirmed the Vermont Supreme Court and held that federal food and drug law does not pre-empt state law failure-to-warn tort claims. Wyeth v. Levine is a pharmaceutical case brought by a patient who was injured following administration of Wyeth's drug Phenergan. Wyeth argued that the state law claims were pre-empted because it is impossible for the company to comply with both the state law duties underlying those claims and the company's federal labeling duties. The Court rejected that argument. The Court also rejected Wyeth's reliance on the preamble to a 2006 regulation which declared that state law failure-to-warn claims threaten the FDA's statutorily-prescribed role. Justice Stevens delivered the opinion of the Court. You can find that opinion and the concurrences and dissent here .
When it agreed to review the judgment in Philp Morris v. Williams for a third time, the U.S. Supreme Court asked whether the Oregon Supreme Court properly affirmed the punitive damages based on a state law defect in Philip Morris's proposed jury instructions. Accounts of yesterday's oral argument indicate the justices are concerned that the Oregon court affirmed the judgment by applying state procedural rules in lieu of analyzing whether the damages were excessive under the federal Due Process Clause, as the Court had signalled in remanding the case in 2007.
But by the end of yesterday's oral argument, it appeared that the Court may abandon the procedural question, and proceed directly to the ultimate issue: did the $79.5 million award violate Philip Morris's due process rights? Chief Justice John Roberts's suggestion that the Court may request additional briefing on the constitutional issue could mean no prompt ending to this 10-year-old litigation.
On Wednesday, the U.S. Supreme Court will hear oral argument in an appeal from the Oregon Supreme Court. In Philip Morris USA, Inc. v. Williams, a Multnomah County jury awarded $79.5 million in punitive damages -- equal to 97 times compensatory damages -- to the widow of a smoker. This is the third time the U.S. Supreme Court has considered the case; at issue now is whether the Oregon Supreme Court properly upheld the award based on a state procedural rule, instead of applying federal due process standards.
Last week, the Oregon Court of Appeals held the federal Vaccine Act, which creates a special program for compensation for a vaccine-related injury or death, does not bar family members of a person who has suffered a vaccine-related death from filing a civil action seeking damages for their own injuries.
In reaching its decision in Hobart v. Holt, the Court of Appeals relied on the text of 42 U.S.C. section 300aa-11(a)(9), which states that the Vaccine Act program provides compensation only to persons who have themselves sustained a vaccine-related injury or death. Based on that statute, the Court held the Vaccine Act is not preclusive where the legal representative of an injured person has accepted compensation under the program for the decedent's losses and a subsequent civil action seeks to recover only for the derivative loss suffered by others.
The Court also rejected the argument that Oregon's wrongful death statute prohibits the decedent's children from bringing a civil action since they already received compensation via the Vaccine Act benefits paid to the decedent's estate. A wrongful death action is a derivative action because the decedent's children may bring an action only if the decedent might have maintained an action had the decedent lived. The defendants argued the decedent could not have maintained an action against them for her injuries had she lived because her estate accepted the judgment issued under the Vaccine Act program. In interpreting the wrongful death statute, the Court noted that the temporal benchmark for determining the decedent's ability to maintain an action is at the time of her death. Thus, it is not relevant that the decedent's estate later elected to accept compensation from the Vaccine Act program, because at the time of her death nothing would have precluded her from bringing an action against the defendants for her vaccine-related death.
The U.S. Supreme Court has agreed to review for the third time the $79.5 million in punitive damages that a Multnomah County jury awarded in a tobacco products liability case. The court today accepted review in Williams v. Philip Morris USA, following the Oregon Supreme Court's decision earlier this year to affirm the punitives award of 97 times compensatory damages. The state court reached that result by citing a state law defect in a proposed jury instruction on punitive damages, thereby avoiding the question of the instruction's compliance with the federal constitutional standards for due process.
The U.S. Supreme Court today agreed to review only whether the state court was prohibited from, in effect, ignoring its directive to apply the federal constitutional standard. It will not address whether the punitive damages are excessive under the Due Process Clause.
In a unanimous opinion with one concurrence, the Oregon Supreme Court yesterday upheld the dismissal of a large class action of smokers who sought injunctive relief for "medical monitoring, smoking cessation and education." Plaintiffs are some 400,000 smokers who have no present symptoms, but sought to have a group of tobacco companies fund a program to cover the cost of CT scans and other diagnostic tests to identify future harm from smoking. Even though they lack of any present injury, plaintiffs contended they could maintain an action for such relief based on the defendant tobacco companies' negligence. The Court disagreed, holding that a common law negligence claim requires a present physical injury: "The complaint does not allege that plaintiff has suffered any present physical harm as a result of defendants' conduct. The complaint alleges only that plaintiff has suffered a 'significantly increased risk of developing lung cancer' in the future." The Court continued:
"Oregon law has long recognized that the fact that a defendant's negligence poses a threat of future physical harm is not sufficient, standing alone, to constitute an actionable injury. As this court has explained, 'the threat of future harm, by itself, is insufficient as an allegation of damage in the context of a negligence claim.' Zehr, 318 Or at 656; see also Bollam v. Fireman's Fund Ins. Co., 302 Or 343, 347, 730 P2d 542 (1986) (holding that "'[t]he threat of future harm, not yet realized, is not enough'") (quoting W. Page Keeton, Prosser & Keeton on Torts 165 (5th ed 1984)). As Prosser explains,
Since the action for negligence developed chiefly out of the old form of action on the case, it retained the rule of that action, that proof of damage was an essential part of the plaintiff's case. Nominal damages, to vindicate a technical right, cannot be recovered in a negligence action, where no actual loss has occurred. The threat of future harm, not yet realized, is not enough. Negligent conduct in itself is not such an interference with the interests of the world at large that there is any right to complain of it, or to be free from it, except in the case of some individual whose interests have suffered.
Keeton, Prosser & Keeton on Torts at 165 (footnotes omitted). Accordingly, a plaintiff's cause of action does not accrue, and the statute of limitations on that cause of action does not begin to run, until the plaintiff has suffered an "'actual loss.'" Bollam, 302 Or at 347 (quoting Prosser and Keeton on Torts at 165)."
You can find the full opinion here.