Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

Continuing that long line of cases rejecting claims by third party payors seeking to recover sums paid for medicines that allegedly were promoted for off-label uses is Southeast Laborers Health & Welfare Fund v. Bayer Corp., Case No. 08-1928-MD-Middlebrooks/Johnson, slip op. (S.D. Fla.) (registration with Law 360 required to access link).  In Southeast Laborers, the trial court had given plaintiff two extra opportunities to plead a claim under RICO or the New Jersey Consumer Fraud Act. 

Plaintiffs alleged that Bayer promoted the $1,000-per-dose drug Trasylol for off-label use in controlling surgical bleeding despite its knowledge that there were cheaper, more effective medicines that presented less risks of kidney damage and other harms.  In the Second Amended Complaint, plaintiff alleged that it "paid enormous sums of money to Bayer that they would not have paid had they been aware that Trasylol was not safer, more efficacious or of greater value than available alternatives that were significantly cheaper," and it "would never have incurred this expense had Bayer been honest about the safety and efficacy of Trasylol."  Slip op. at 10.  

The court held that this failed to plead the necessary proximate causation under RICO because it was tantamount to a "fraud-on-the-market" theory that nearly every court to consider the question has rejected outside of the securities context.  Slip op. at 12.  As the court explained:

Although Plaintiff argues that it had an independent choice of whether or not to pay for Trasylol, it does not explain how/why it made the choice to pay for Trasylol and how/why Bayer's alleged concealment of the dangers of Trasylol led Plaintiff to pay for Trasylol.  Ultimately, Plaintiff has not established a different premise of proximate causation and still has not met the Holmes requirement that it demonstrate a direct relation between its payment for Trasylol and Bayer's alleged fraudulent concealment.

Id. at 13.  The court thus dismissed the RICO claim with prejudice.

For similar reasons, the court dismissed the New Jersey Consumer Fraud Act claim with prejudice, holding that plaintiff had failed to properly allege proximate causation.  Id. at 16 ("Plaintiff has not alleged a premise of proximate causation that is distinguishable from one that relies on a fraud-on-the-market analysis.").  Plaintiff argued that a fraud-on-the-market analysis applies only where a plaintiff argues that the price was inflated by the alleged misrepresentations.  But the court rejected this argument, saying that even where plaintiff alleges that it would not have paid any amount for the medicine and seeks a complete rescission of all sales, this, too, is a fraud-on-the-market analysis that has been rejected repeatedly.  Id.

Plaintiff had added to the Second Amended Complaint express and implied warranty theories.  The court dismissed the express warranty theory without prejudice for plaintiff's failure to identify any affirmation of fact, promise, or description of Trasylol that it had received that had become part of the basis of the bargain.   Id. at 18-19.  The court dismissed the implied warranty claim without prejudice because the complaint did not allege that Trasylol was unfit for the intended purpose of preventing perioperative bleeding.  Id. at 20.

The court dismissed plaintiff's common law fraud and negligent misrepresentation claims with prejudice for failure to identify any reasonable reliance and/or proximate causation.  Id. at 22.

And the court dismissed the unjust enrichment count because such claims generally are "not allowed to proceed where all of the plaintiff's other tort claims have failed because of the remoteness of a plaintiff's injuries from a defendant's wrongdoing.  Id. at 23.

Southeast Laborers joins a growing body of law that prevents remote parties from bringing suits for speculative harm allegedly arising out of hundreds or thousands of individual doctor-patient decisions.

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New Yorkers always warn: "Don't buy a dog at a pet store!  They all come from puppy mills, are sick, and were raised in deplorable conditions."

But I bought my dog at a mall pet store.  I wasn't shopping for a dog nearly two years ago when Ted came into my life.  But decisions have consequences, and the decision to kill time at a pet store while waiting for friends to arrive for dinner at a nearby restaurant resulted in me sharing my apartment with Mr. Ted E. Bear.

I didn't know much about where he came from.  His papers said a farm in Missouri, my home state.

And frankly, I didn't care.  Although I sincerely hoped he had not come from a puppy mill, he had a very chill personality and I could tell we would get along well together.  If he had the croup and I had to pay for a vet visit, so be it.  (Thankfully, he didn't.)

Given this experience, I read Martinelli v. Petland, Inc., 2010 WL 376921 (D. Ariz. Jan. 26, 2010) with great interest.  In Martinelli, 32 plaintiffs brought a class action against Petland, alleging that they defrauded consumers by selling sick dogs that were raised in puppy mills while representing to the public that the puppies were "healthy," "the finest available," bred by "professional and hobby breeders who have years of experience in raising quality family pets," and "bred under safe and humane conditions by a reputable breeder with proper canine husbandry practices."  Plaintiffs plead causes of action under RICO, state consumer protection statutes, and unjust enrichment.

The court in Martinelli dismissed all but two plaintiffs' RICO and consumer protection claims for failure to adequately plead causation.  The complaint was chock full of allegedly fraudulent statements made by Petland and the breeder, The Hunte Corporation, on websites and in written materials.  Conspicuously absent from the complaint, however, were allegations saying that these statements caused them to make their purchase.  The court noted that "not a single Plaintiff has alleged that he or she ever visited Defendants' websites, received Defendants' written brochures, or relied on a written health certificate or warranty."  Id. at *3.

The court held that "absent some allegation of reliance, Plaintiffs have not pled a 'direct and proximate causal relationship' between Plaintiffs' injuries and [the] purported fraudulent scheme."  Id.  The plaintiffs argued that causation should be inferred as a matter of common sense, as no one would want to purchase defective goods.  But the court noted that even if plaintiffs had received the alleged misrepresentations, the court could not presume that they were material to the plaintiffs' decisions to purchase the animals:

[T]here is no single, common-sense reason for a puppy purchase.  A person might buy a puppy because he falls in love with it in the store window, he has heard it will make a good guard dog, he likes the price, he is referred to the store by a friend, or he finds the store convenient.  It is not necessarily true that every purchaser would base his or her decision on the fact that the puppy was "the finest available" or was bred by professional, hobby, or USDA-approved breeders -- key misrepresentations identified in the amended complaint.

In making their common-sense causation argument, Plaintiffs focus exclusively on the health of the puppies, asserting that "it is illogical that Plaintiffs would purchase their sickly or dying puppy mill puppy absent a misrepresentation as to its health. . . . A person who falls in love with a puppy in the store window might well purchase the puppy in the absence of any representation concerning its health.  However unwise, some people may even buy a sick puppy in order to provide it a good home and nurse it back to health.  It simply cannot be said that a representation concerning the puppy's health is obviously relied on in the same way that a consumer looking for car wax relies on the product's label as "car wax" or in the same way that a person paying for a tax service relies on the assumption that the service will be available.  Plaintiffs conspicuously have failed to allege that they relied on representations concerning the puppies' health, and the Court cannot assume that such representations were the reason Plaintiffs purchased the puppies.

Id. at *4 (citations omitted).

The court dismissed the RICO claims of all plaintiffs except two -- Plaintiffs Moskow and Galatis -- who alleged reliance upon oral representations made by Petland (but not the breeder, Hunte).  Plaintiff Galatis allegedly was specifically reassured by a Petland employee that the puppy was healthy and "(1) it had never been sick, (2) was up to date on his shots, (3) was not hypoglycemic, and (4) was lethargic and quiet only because he was stuck in a cage all day long."  Id. at *5.  Plaintiff Moskow asked whether his puppy was from a puppy mill and he was assured that it was not.  The court held that these oral representations were part of the scheme alleged in the complaint, and it inferred that plaintiffs had relied upon them in making their purchase.  Thus, the RICO claim survived for Plaintiffs Moskow and Galatis.

The court applied the same analysis to the Rule 9(b) challenge to the complaint and to the state consumer protection act claims.  The generic allegations of the vast majority of the plaintiffs failed to sufficiently plead causation:

Plaintiffs assert that reliance is not an element of many state consumer protection claims.  But plaintiffs do not dispute that causation is an essential element.  Indeed, "whether it be termed an issue of reliance or an issue of proximate cause, an appropriate rule is that where the defendant is alleged to have made material misrepresentations or misstatements, there must be a cause and effect relationship between the defendant's acts and the plaintiff's injuries.  Thus, regardless of whether reliance is a required element under state consumer protection statutes, Plaintiffs "must at least allege that they were exposed to the offensive conduct."  Plaintiffs other than Moskow and Galatis have made no such allegation.

Id. at *9 (citations omitted).

The court thus dismissed the state consumer protection claims except for Plaintiff Moskow's claim under the Maine consumer protection act.  (Plaintiff Galatis was from Massachusetts, but the Massachusetts act had not been pled in the amended complaint.)  It also dismissed the unjust enrichment claims for all plaintiffs except Moskow and Galatis; because the two had adequately pled a fraud-based claim, the unjust enrichment claim could stand, the court held.

Finally, the court rejected the defendant's assertion of the economic loss doctrine as a defense to the claims.  Petland argued that because plaintiffs allegedly received damaged goods, they therefore were asserting typical warranty claims that give rise to purely economic loss.  The court disagreed, observing that plaintiffs were seeking damages for being fraudulently induced into entering into the sales contract.

Martinelli is an interesting decision because it parses through the possible motivations underlying the purchase decision and holds that, after already having been given one chance to amend the complaint, a plaintiff cannot plead consumer fraud or RICO without pleading a causal connection between the allegedly fraudulent statements and the reason he made the purchase.  Because this is an essential element of each class member's claim, it seems clear that individual issues would predominate a trial, making class certification unlikely. 

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You may not know it, but I'm famous!  Well, not really famous -- but I was mentioned in the New York Times yesterday.  And well, it wasn't really me, but my doppelganger.  They screwed my name up, calling me "Jackson Russell."  Nevertheless, there I was, sort of, being part of an article about a woman who has sued a mobile phone manufacturer and a mobile service provider because, according to the three-page complaint, they "failed to properly warn of the hazard of cell phone use while driving that created a reasonably foreseeable risk of an accident," allegedly resulting in an accident that killed the plaintiff's mother.  The plaintiff has sued in Oklahoma state court for compensatory and punitive damages in excess of $10 million.

My brief mention in the article was on the common knowledge defense.  It is commonly known that using a handheld mobile phone without a hands-free device increases the risk of accidents.  Manufacturers warn about it in the product literature.  Service providers post billboards about it.  Governmental authorities and public interest groups erect signs warning against it.  And most notably, it is illegal, and all licensed drivers are charged with knowledge of that law.  On this point, tort law is clear:  one has no duty to warn of a commonly known hazard.  And what sort of warning would possibly alter the behavior of the driver who insists on using a hand-held mobile phone while possessed of the common knowledge about the risks?  Simply put, there is none.

Interestingly, the Times reporter actually spoke with the driver of the truck that collided with the plaintiff's mother, who had pled guilty to negligent homicide.  The driver does not blame the mobile phone company, and is quoted as saying:  "It's our choice if we're going to talk on the cellphone while driving or walking down the street or in the office."

The article about the Oklahoma lawsuit appeared with a much larger article in the author's "Driven to Distraction" series, entitled "Promoting the Car Phone, Despite Risks."  This article reads like a plaintiff's complaint, attempting to establish "who knew what when" and pairing the history of marketing for early mobile phones called "car phones" and the scientific research about the risks of distracted driving.  It continually suggests that using hands-free devices does not eliminate the risk of using mobile phones while driving because the problem is "the distraction that comes from focusing on a conversation, not the road."  (Of course the same could be said for conversations with passengers, as well as the distraction that results from eating fast food, drinking beverages, singing along with the radio, putting on make-up or operating an electric razor while driving.)  The article mentions critics who demand "placing overt warnings on the packaging and screens of cellphones."  But in the end, drivers are charged by law with the duty to operate their vehicles responsibly and focusing on the road, regardless of the potential activity that may distract them, and regardless of whether they are "warned" to do so.

In light of the larger Times article, I thought it might be useful to offer more analysis of such claims, rather than my doppelganger's mere mention of the common knowledge doctrine.  To begin with, it would be tough for the plaintiff in a case such as this to establish a legal duty running from the phone manufacturer -- and particularly the service provider -- to someone other than their customer.  A product seller does not owe a duty to the world, and particularly where the product has functioned properly and injury has resulted only from the purchaser's misuse of the product, there can be no duty imposed on the product seller.  This is true in cases where firearm manufacturers are sued for injuries caused to third parties from criminal activity, and it presumably would be true if a plaintiff sued McDonald's for causing driver distraction by selling a billboard-advertised "extra value" meal to a driver from the "drive-thru" window.

Similarly, any duty running from the product seller to the purchaser who injures himself driving while using a hand-held mobile phone may be extinguished in many states by the illegal acts doctrine, which basically holds that a person who injures himself performing an illegal activity may not sue to recover for injuries incurred during that illegal activity.

Moreover, finding a viable cause of action will be difficult for mobile phone plaintiffs as well.  There are two basic product liability theories that could be asserted in these cases:  (1) design defect, and (2) failure to warn.  The design defect claim hardly seems plausible.  Although the "Promoting the Car Phone" article describes one engineer who suggested in the 1960s that there be a lock on the dial to prevent dialing while driving, the simple fact is that it would be difficult to posit a feasible alternative design that did not also detract from the benefits of having a mobile phone in the car.  It is recognized that mobile phones contribute to automobile safety by allowing us to report dangerous driving and accidents, obtain emergency roadside repairs, and receive directions in unfamiliar locations without consulting maps.  Indeed, there have been lawsuits against some automobile manufacturers seeking to impose liability for not having digital mobile assistance capabilities in their cars, and one Oklahoma court even refused to dismiss a cause of action against a mobile service provider who failed to provide a customer with triangulation information to help locate the customer's mother, who had disappeared on the way to the doctor and, allegedly as a result of the delay in locating her, lost the opportunity for rescue and medical attention.  See Frey v. AT&T Mobility LLC, 2008 WL 4415328 (N.D. Okla. Sept. 23, 2008).

As I previously noted, the failure to warn theory would be difficult not only because of common knowledge about the risks of using hand-held mobile phones while driving, but also because the mobile phone manufacturers already include such warnings in their product literature. 

Actual causation and proximate causation also would be extremely difficult to prove.  What kind of warning actually would change the conduct of a driver who, in this day and age, insists on using a hand-held mobile phone while driving?  And given the remoteness of the manufacturer and the service provider from the injured plaintiff -- and the intervening illegal conduct of the driver -- can there be causation as a matter of law?

The few cases to have addressed the question squarely answer the question in the negative.  For example, in Williams v. Cingular Wireless, 809 N.E.2d 473 (Ind. App. 2004), a plaintiff sued a mobile phone company for giving its customer a mobile phone that the customer was using when he collided with the plaintiff.  The court first concluded that there was no relationship between the mobile phone company and the plaintiff that would give rise to a legal duty on the company to protect the plaintiff.  Moreover, even though many states were adopting statutes that made driving while using a hand-held mobile phone illegal, the court held that there was no foreseeability:

Although we agree that it may be foreseeable that a person who is using a cellular phone while driving might be in an accident, we do not agree with the leap in logic Williams urges us to make that it is likewise foreseeable to a legally significant extent that the sale of the phone would result in an accident.  A cellular phone does not cause a driver to wreck a car.  Rather, it is the driver's inattention while using the phone that may cause an accident.  Drivers frequently use cellular phones without causing accidents, and, of course, cellular phones are used in all sorts of places other than in vehicles.  We do not conclude that there was a high degree of foreseeability that the sale of the phone would result in an accident.

 Id. at 478 (citation omitted).

The court went on to consider where public policy requires placing the responsibility for safe driving:

Simply because an action may have some degree of foreseeability does not make it sound public policy to impose a duty.  For example, many items may be used by a person while driving, thus making the person less attentive to driving.  It is foreseeable to some extent that there will be drivers who eat, apply make up, or look at a map while driving and that some of those drivers will be involved in car accidents because of the resulting distraction.  However, it would be unreasonable to find it sound public policy to impose a duty on the restaurant or cosmetic manufacturer or map designer to prevent such accidents.  It is the driver's responsibility to drive with due care.  Similarly, Cingular cannot control what people do with the phones after they purchase them.  To place a duty on Cingular to stop selling cellular phones because they might be involved in a car accident would be akin to making a car manufacturer stop selling otherwise safe cars because the car might be negligently used in such a way that it causes an accident.

. . . Ultimately, sound public policy dictates that the responsibility for negligent driving should fall on the driver.  Legislation has already been drafted to address the issue of cellular phone use while driving and to place the responsibility on the driver to refrain from doing so.  We are confident that the legislature is taking appropriate measures to protect public safety, and that is both its right and duty.

Id. at 478-79; see also Steele v. Cingular Wireless LLC, 2007 WL 2456104 (Cal. App. Aug. 30, 2007) (describing trial court's demurrer on plaintiff's claim that mobile phone provider owed a duty to plaintiff, who was injured in an accident allegedly caused by the provider's customer while talking on a mobile phone).

At the end of the day, I don't expect lawsuits against mobile phone companies for traffic-related harm to gain much traction.  The problems with duty, foreseeability, and causation are simply too great to make this a lucrative area for litigation.  The simple fact is that there are many potential distractions for drivers:  fast food, beverages, the radio, electronic billboards, and mobile phones, just to name a few.  But the legal responsibility for driving safely and avoiding dangerous distractions rests with the driver, and as a matter of public policy it simply makes no sense to impose on product manufacturers liability that would simply be passed through to their customers in the form of increased prices.

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