October 09, 2014 Articles

Punitive Damages Involving New Jersey Defendants

By Ellen Relkin and Justin Reiter

Due to the fact that many pharmaceutical and device companies are incorporated and/or headquartered in New Jersey, the state’s law as to punitive damages and its choice-of-law doctrine has determined the availability of such damages in some pharmaceutical and medical-device cases in New Jersey and beyond. However, choice-of-law analysis of other jurisdictions also has dictated differing results with cases from numerous jurisdictions interpreting this evolving law. This all began six years ago following a $9 million punitive-damages verdict against Merck in a Vioxx trial when the New Jersey Appellate Division held that plaintiffs suing New Jersey corporations are preempted from recovering punitive damages in cases involving Food and Drug Administration (FDA)-approved drugs. McDarby v. Merck & Co., Inc., 949 A.2d 223 (2008). This was the first appellate case to interpret the state’s Product Liability Act (PLA) subsequent to the U.S. Supreme Court’s decision in Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001), a decision that held that a cause of action for fraud on the FDA is preempted. The defendant argued that Buckman preempts a plaintiff from proving the requisites of punitive damages under New Jersey law. Since McDarby, defendants have advocated that New Jersey punitive-damage law applies even though they frequently advocate the home-state jurisdiction of the plaintiffs for other law, exercising the doctrine of “dépeçage,” urging application of the home-state liability, statute of limitation, and compensatory-damage law but New Jersey punitive-damage law. These efforts to apply New Jersey punitive-damage law have had mixed success, based on choice-of-law questions and interpretation of Buckman as it applies to the New Jersey PLA. Notably, the New Jersey Multicounty judges as well as multiple federal circuits and district judges have ruled discordantly.

PLA and McDarby
New Jersey’s PLA allows for punitive damages against manufacturers of FDA-approved drugs, devices, and food additives as follows:

Punitive damages shall not be awarded if a drug or device or food or food additive which caused the claimant’s harm was subject to premarket approval or licensure by the federal Food and Drug Administration under the “Federal Food, Drug, and Cosmetic Act,” 52 Stat. 1040, 21 U.S.C. § 301 et seq … and was approved or licensed; or is generally recognized as safe and effective pursuant to conditions established by the federal Food and Drug Administration and applicable regulations, including packaging and labeling regulations. However, where the product manufacturer knowingly withheld or misrepresented information required to be submitted under the agency’s regulations, which information was material and relevant to the harm in question, punitive damages may be awarded.

N.J. Stat. Ann. § 2A:58C-5 (emphasis added).

In McDarby, the court addressed whether the PLA’s limited punitive-damage provision was preempted by the Federal Food, Drug, and Cosmetic Act (FDCA). The plaintiff in that case sued Merck for compensatory and punitive damages when he suffered a heart attack after taking Merck’s drug, Vioxx, claiming that Merck had provided him inadequate warning of the product’s dangers and had intentionally withheld information about the drug’s dangers from the FDA. The jury awarded compensatory and punitive damages.

In its appeal, Merck maintained that McDarby’s PLA claim for punitive damages conflicted with, and was preempted by, federal law, citing Buckman. Merck also argued that the compensatory damages were preempted. At that time, Wyeth v. Levine, 555 U.S. 555 (2009), was pending before the Supreme Court, so the notion of implied preemption of failure-to-warn claims based on the fact that the FDA approved the label was still brewing and was a centerpiece of Merck’s appeal. The Appellate Division handily rejected the preemption argument as to compensatory damages, in a lengthy opinion previewing the analysis seen weeks later by the U.S. Supreme Court in Wyeth v. Levine. However, as to punitive damages, the court agreed with Merck. Buckman, it found, involved the same type of “fraud on the FDA”-type claim of misrepresentation that McDarby had made to the jury. In Buckman, the plaintiffs alleged injuries from the implantation of orthopedic bone screws into their spines. Crafting a novel claim against a defendant who was not a device manufacturer or seller, they had sued the consulting company that assisted the manufacturer in navigating the federal regulatory process for these devices “for making fraudulent representations to the Food and Drug Administration (“FDA”) in order to obtain market approval.” “State-law fraud-on-the-FDA claims,” the Supreme Court held, “inevitably conflict with the FDA’s responsibility to police fraud consistently with the Agency’s judgment and objective” and were preempted. While upholding McDarby’s compensatory-damage claim, the Appellate Division found the punitive-damages claim qualitatively different under New Jersey law—it sought to vindicate a public interest and not just compensate the victim. Thus, it ruled, the Buckman case was dispositive and preempted punitive-damage claims of fraud against the agency because it was the agency’s job to police fraudulent conduct. McDarby, 949 A.2d at 276.

The Court overlooked the fact that unlike Buckman, McDarby was not espousing a cause of action premised on a novel fraud-on-the-FDA cause of action. Instead, the evidence of misleading of the FDA was offered to conform with the PLA statutory requirements that are superimposed on the parallel requirements under the New Jersey Punitive Damage Act to prove “actual malice or accompanied by a wanton and willful disregard.” N.J. Stat. § 2A:15-5.12, New Jersey Punitive Damages Act. This was appreciated by a New Jersey federal judge shortly after McDarby and also Wyeth v. Levine were decided. District Judge Joseph E. Irenas, in Sullivan v. Novartis Pharmaceuticals Corp., 602 F. Supp. 2d 527 (D.N.J. 2009), questioned the Appellate Division’s punitive-damage preemption ruling:

The vitality of McDarby was subsequently cast into some doubt by the Supreme Court’s decision in Wyeth v. Levine, 555 U.S. 555 (2009). In Levine, the Court held that a state tort suit alleging that a pharmaceutical company’s failure to provide an adequate warning on an ethical drug was not preempted. Id. at 559. In so holding, the Court determined that the imposition of state tort duties did not pose an obstacle to the sound operation of the federal drug labeling regulations. Id. at 574.

Sullivan, 602 F. Supp. 2d at 534 n.8.

Judge Irenas went on to explain that “Buckman involved a specific cause of action for fraud-on-the-FDA, whereas the instant [plaintiff] must prove fraud on the FDA merely as a prerequisite to obtaining punitive damages under New Jersey law.” Judge Irenas emphasized “that N.J.S.A. § 2A:58C-5(c) is a cause of action for punitive damages, not one for fraud-on-the-FDA. A showing of fraud-on-the-FDA is simply a gateway, through which plaintiffs must pass before pursuing punitive damages.” Sullivan, 602 F. Supp. 2d at 537.

By 2011, in Forman v. Novartis Pharmaceuticals Corp., 793 F. Supp. 2d 598 (E.D.N.Y. 2011), a senior U.S. district judge from the Eastern District of New York strongly articulated his disagreement with McDarby’s preemption determination, relying on the Second Circuit precedent of Desiano v. Warner-Lambert & Co., 467 F.3d 85 (2d Cir. 2007), affirmed without an opinion by an equally divided court in Warner-Lambert Co., LLC v. Kent, 552 U.S. 440 (2008) (per curiam). Desiano held that Buckman did not preempt the ability of a Michigan plaintiff to maintain a product-liability claim when the Michigan statute required proof of fraud on the FDA to counteract an affirmative defense. Relying on Desiano and other federal precedents, Judge Spatt held as follows:

[T]he Court respectfully disagrees with McDarby’s classification of N.J.S.A. § 2A:58C–5(c) under Buckman because, under Second Circuit precedent, which binds this Court, “Buckman cannot be read as precluding such preexisting common law liability based on other wrongs, even when such liability survives only because there was also evidence of fraud against the FDA.”

. . . .

As stated above, the Supreme Court has recognized that a punitive damages claim based on traditional state tort law principles does not raise the same concerns as a dispositive fraud-on-the-FDA claim. Therefore, the Court respectfully disagrees with the rationale in McDarby that the exception to the punitive damages provision of the NJPLA is preempted because it “impinge[s] upon federal statute and regulation to the same extent that was recognized in Buckman”. 401 N.J. Super. at 94, 949 A.2d at 276; Silkwood, 464 U.S. at 257 (“Paying both federal fines and state-imposed punitive damages for the same incident would not appear to be physically impossible. Nor does exposure to punitive damages frustrate any purpose of the federal remedial scheme.”).

Forman, 793 F. Supp. 2d at 604–9.

The Forman court also found the rationale in McDarby eroded by the subsequent Supreme Court decision Wyeth v. Levine, emphasizing that the presumption against preemption applies whether to punitive or compensatory damages.

Similarly, in Davids v. Novartis Pharmaceuticals Corp., 977 F. Supp. 2d 171 (E.D.N.Y. 2013), the New York plaintiff sought the application of New York punitive-damage law, and Judge Spatt determined that the action would instead be governed by New Jersey law, but nevertheless allowed a punitive-damage charge for reasons akin to his decision in Forman. The court held that punitive damages were available, as long as the plaintiff could show “with clear and convincing evidence that a defendant’s acts and/or omissions were wanton or willful.” Further, the court referred to the New Jersey PLA and found that immunity is unavailable and punitive damages are permitted “where the product manufacturer knowingly withheld or misrepresented information required to be submitted under the agency’s [FDA’s] regulations, which information was material and relevant to the harm in question.” Davids,977 F. Supp. 2d at 181 (citing N.J. Stat. § 2A:58C–5(c)). The jury awarded 10 million dollars, which was reduced to $900,000 to comport with the caps under the New Jersey Punitive Damages Act. Even though New Jersey law governed the action, the plaintiff was able to obtain punitive damages in federal court.

Despite Forman and Davids, the McDarby decision’s interpretation of Buckman has had an impact on the ability of plaintiffs to obtain punitive damages against New Jersey corporations in FDA-approved medical-products cases and has choice-of-law implications because other states may have fewer restrictions on bringing punitive-damage claims. While McDarby involved a New Jersey plaintiff, in cases involving plaintiffs from other states alleging injury by a product made or sold by a New Jersey company, the next step is to resolve choice of law.

The New Jersey Choice-of-Law Test
Shortly after McDarby, the Supreme Court of New Jersey ruled on a choice-of-law dispute in P.V. ex rel. T.V. v. Camp Jaycee, 962 A.2d 453 (N.J. 2008). There, a mentally disabled New Jersey resident who was sexually abused at a summer camp located in Pennsylvania sued the operator, a New Jersey charity, in New Jersey state court. The question before the court was whether New Jersey’s Charitable Immunity Statute, sections 2A:53A-7 to -11 of the New Jersey Statutes, applied to a tort committed in Pennsylvania. In deciding that Pennsylvania law applied in the case, the Supreme Court of New Jersey adopted the “significant relationship” test as enunciated in the Restatement (Second) of Conflict of Laws § 145 (1971). Under this test, the presumption is that the local law of the state of the injury will apply. Camp Jaycee, 962 A.2d at 455. The test also identifies four factors to determine which state’s law should govern an action when there is a choice-of-law conflict:

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury occurred,

(c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and

(d) the place where the relationship, if any, between the parties is centered

Restatement (Second) of Conflict of Laws § 145(2)(a)–(d) (1971).

            Pursuant to section 145(1), these four factors are meant to be considered in light of section 6 of the Restatement (Second) of Conflict of Laws, which discusses choice-of-law principles.  Pursuant to section 6:

(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.

(2) When there is no such directive, the factors relevant to the choice of the applicable rule of law include

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

Restatement (Second) of Conflict of Laws § 6 (1971).

Applying the factors articulated by the Second Restatement, the New Jersey Supreme Court held that Pennsylvania was the state with the most significant relationship to the parties. Camp Jaycee, 962 A.2d at 468.The New Jersey Supreme Court has also tackled choice-of-law issues post- Camp Jaycee in the medical-device context as it relates to the statute of limitations. This decision is nevertheless instructive, although it does not address choice of law as to punitive damages. See Cornett v. J&J, 211 N.J.362, 43 A.3d 1041 (2012).

Camp Jaycee’s Progeny in the Punitive-Damage Context
New Jersey’s choice-of-law standards had significant consequences for a Virginia resident who sued New Jersey-based Novartis in New Jersey. The action was venued in the Mass Tort Court (now known as Multicounty Court) in Middlesex County, before the Honorable Jessica Mayer. The plaintiff, Charles Irby, alleged that he had developed osteonecrosis of the jaw after ingesting the medication Zometa. The parties disagreed on which law should govern punitive damages. Because Irby filed his case in New Jersey, New Jersey choice-of-law rules were applied. Irby v. Novartis Pharms. Corp., 2011 WL 5835414 (2011).

The court looked to the New Jersey Supreme Court’s decision in Camp Jaycee, and applied the “significant relationship” test. In the first step of its analysis, the court concluded there was a conflict of law between New Jersey (where the defendant did business) and Virginia (where the plaintiff resided) on the issue of punitive damages. Although the presumption of the “significant relationship” test is that the local law of the place of injury governs, the court stated this presumption “may be overcome if another state has a more significant interest in the matter than the state where the injury occurred.” Id. at *3. Before the court applied the factors of the “significant relationship” test, the court stated “the place of injury becomes less important when it is simply fortuitous,” and the injury is fortuitous when “it bears little relation to the occurrence and the parties with respect to the particular issue.” Irby (quoting Camp Jaycee, 962 A.2d at 453). Relying on Camp Jaycee, the court found that the location of Irby’s injury was in fact fortuitous and that the location of his injury had little relation to the issue between the two parties. Although Irby’s injury occurred in Virginia, nothing in the defendant’s “sales, marketing, or distribution practices” suggested that the alleged injury was more likely to occur in Virginia than in any other state. The court also found that the plaintiff failed to prove that the defendant’s relevant conduct took place outside New Jersey. Thus, under the “significant relationship” test, the court held that New Jersey had the most significant relationship to the two parties and that the laws of New Jersey should govern the punitive-damages issue.

While the New Jersey Superior Court found that New Jersey law should be applied in Irby, one of the two other Multicounty judges in New Jersey, the Honorable Brian Martinotti of Bergen County, reached the opposite conclusion in a 2013 decision. In In re NuvaRing Litigation, the parties disputed whether New Jersey law or the plaintiffs’ home-state law should govern punitive damages. Applying the “significant relationship” test to determine which state’s law applied, the court held that the issue of punitive damages was governed by the laws of the plaintiffs’ individual states. Unlike the court’s decision in Irby, the Bergen County Multicounty judge held that the location where an injury took place could not be discounted as a fortuity, as the law of that state should be applied “subject only to rare exception,” citing Camp Jaycee, 962 A.2d 453. Judge Martinotti noted that the injuries took place in separate states, each of which has an interest in governing punitive damages, and that the case involved what the drug makers told doctors and plaintiffs in their home states. Balancing all considerations, Judge Martinotti found that the law of each state where the drug or device was prescribed and used governed.

Application of Choice-of-Law Disputes in Federal Actions
Not surprisingly, the issue has percolated to federal courts as well, especially in multidistrict litigations involving New Jersey pharmaceutical corporations. The U.S. District Court for the Eastern District of Missouri in the NuvaRing litigation ruled consistent with its state counterpart in deciding that New Jersey law did not apply in an action seeking punitive damages that was brought against a corporation whose principal place of business was in New Jersey. In In re NuvaRing Products Liability Litigation, 957 F. Supp. 2d 1110 (E.D. Mo. 2013), the plaintiff, Marianne Prather, resided in Missouri, while the defendant’s principal place of business was in New Jersey. Prather was prescribed NuvaRing, a product the defendant marketed and sold in Missouri through the use of sales representatives. Prather alleged that the sales representatives of NuvaRing failed to warn her of the potential health problems that could result from the use of the NuvaRing, and sought punitive damages. This action led to a choice-of-law dispute. Because Prather’s action was originally filed in Missouri, the court found that Missouri choice-of-law rules applied, as “a district court sitting in diversity must apply the choice-of-law rules of the state in which the action was originally filed.” In Missouri, the courts apply the “significant relationship” test established by the Restatement (Second) of Conflicts of Law, just as the Supreme Court of New Jersey did in Camp Jaycee. Weighing the factors of the “significant relationship” test, the court found that Missouri had the most significant relationship to the parties in the case. Specifically, the court found that the majority of misconduct occurred in Missouri and not New Jersey, as the defendant sold and marketed the NuvaRing product in Missouri. Because Missouri law governed the action, the court found that that the NuvaRing label did not “foreclose punitive damages as a matter of law.” In re NuvaRing, 957 F. Supp. 2d at 1119. See also Rowland v. Novartis Pharms. Corp., 983 F. Supp. 2d 615 (W.D. Pa. 2013). In Rowland, all plaintiffs were residents of Pennsylvania, and Novartis was a Delaware corporation with its principal place of business in New Jersey. The court employed choice-of-law rules from the District of Columbia and New York, as the cases were originally filed there, and determined that the place of injury is not fortuitous, noting “although the Court respects New Jersey’s interests in punishing and deterring the conduct of corporations domiciled there on its own terms, the conduct far more relevant to the issue of punitive damages here occurred in Pennsylvania.”

However, only months apart from the NuvaRing decision, plaintiffs who filed a pharmaceutical products-liability claim against Novartis in Florida were less fortunate. In Guenther v. Novartis Pharmaceuticals Corp., 2013 WL 1225391 (M.D. Fla. 2013), the plaintiffs and defendant argued whether Florida or New Jersey law should apply to the plaintiffs’ claim for punitive damages. The court held that New Jersey law applied to the plaintiffs’ punitive-damages claim and followed the rationale of McDarby, holding that the plaintiffs’ claim for punitive damages was preempted by the FDCA. Accord Brown v. Novartis Pharms. Corp., 2012 WL 3066588, at *9 (E.D.N.C.), Talley v. Novartis Pharms. Corp., 2011 WL 2559974, at *4 (W.D.N.C. June 28, 2011), reconsideration denied, 2011 WL 3515858 (W.D.N.C. 2011).

An even more interesting twist was a decision from the multidistrict litigation (MDL) court in the pelvic-mesh litigation, In re Ethicon Pelvic Repair System Product Liability Litigation, 2014 WL 186869 (S.D. W. Va.); Lewis v. Johnson & Johnson, 2014 WL 152374 (S.D. W. Va.). There the court determined that New Jersey law applied, even though the plaintiff was a Texan, but nevertheless found no preemption due to the facts of the 510(k) clearance status of the particular device, which is distinct from pre-market approval (PMA), which falls within the PLA’s immunity provision. Similarly, in the first pelvic mesh case to go to trial in New Jersey Superior Court involving a device that received only PMA clearance two years after the product was implanted in the plaintiff, Judge Carol Higbee found that New Jersey law applied, but there was no preemption because the device did not get FDA approval or licensure. Gross v. Gynecare, No. Atl-L-6966-10 (N.J. Superior Court, Atl. Cnty. July 15, 2014) (transcript of ruling on JNOV motion).

The issue of choice of law as to New Jersey’s PLA has gone up to some circuit courts of appeals and even to the Supreme Court, which then denied a defendant’ s certiorari petition. In Fussman v. Novartis Pharmaceuticals Corp., 509 F. App’x 215 (4th Cir. 2013), cert. denied, 134 S. Ct. 88 (2013), the plaintiff claimed that the defendant failed to warn of the risk associated with the drugs Aredia and Zometa. The defendant, Novartis, appealed the decision of the U.S. District Court for the Middle District of North Carolina, which sustained the jury’s punitive-damages verdict. On appeal, Novartis claimed that the FDCA preempted the jury’s award of punitive damages because the drugs complied with FDA regulations and the FDA has the exclusive authority to enforce the labeling requirements of the FDA. While Novartis’s argument was almost identical to the one made in McDarby, the Fourth Circuit, in the post–Wyeth v. Levine era, took a different approach. Citing Wyeth v. Levine, 555 U.S. 555 (2009), the court held “[i]n no uncertain terms, the Supreme Court has dictated that the FDCA does not preempt state law claims against a drug company whose drug label complies with FDA regulations.” Fussman, 509 F. App’x at 225. Further, the court added, “[h]ad Congress intended to preempt punitive damages recovery, it could have clearly indicated as much—just as it did when it addressed medical devices.”

In Winter v. Novartis Pharmaceuticals Corp.,739 F.3d 405, 409 (8th Cir. 2014), the defendant, Novartis, appealed the U.S. District Court for the Western District of Missouri’s decision in favor of the executor of the deceased plaintiff, who sued Novartis for negligently failing to provide adequate warnings for the drugs Aredia and Zometa. On appeal, Novartis argued that the district court erred in applying Missouri law to the plaintiff’s punitive-damages claim. The Eighth Circuit disagreed and affirmed the district court’s decision, holding that under the “significant relationship test,” Missouri had a more significant relationship to the parties than New Jersey. The Eighth Circuit’s approach mirrored the decision of In re NuvaRing, as it also applied Missouri law instead of New Jersey law in a case brought against a company whose principal place of business was located in New Jersey.

This conflicting application of the PLA has continued to evolve. While this issue has been most litigated New Jersey state courts and MDL federal courts, it recently was briefed and decided in the Philadelphia Court of Common Pleas in the mass tort involving the medication Risperdal. On July 18, 2014, Judge Arnold New denied the plaintiffs’ motion for reconsideration of his order to apply New Jersey punitive-damage law and grant summary judgment on punitive damages. In cases with strong punitive-damage facts, choice of law should be considered by plaintiffs’ counsel before filing a claim, especially when there is the option of direct filing in an MDL or filing in the home venue, because it can materially impact the choice of law governing the claim.

Keywords: mass torts litigation, choice of law, FDA, Product Liability Act, PLA

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