United States: Product Liability Update: October 2017

MASSACHUSETTS

Massachusetts Federal Court In Multi-District Litigation Holds Under Six States' Laws That Manufacturer Of Brand-Name Pharmaceutical Is Not Liable For Injuries Caused By Generic Equivalents Whose Manufacturers Were Required To Adopt Branded Manufacturer's Allegedly Inadequate Warnings

In In re Zofran (Ondansetron) Products Liability Litigation, 2017 U.S. Dist. LEXIS 130965 (D. Mass. Aug. 4, 2017), a multi-district litigation ("MDL") in the United States District Court for the District of Massachusetts, parents and guardians of children with birth defects sued the manufacturer of a brand-name prescription anti-nausea drug, asserting claims for misrepresentation and negligent undertaking in promoting the drug off-label for pregnancy-related nausea and not adequately disclosing birth defect risks. A number of plaintiffs alleged maternal exposure only to generic equivalents of the brand-name drug, but asserted the branded or innovator manufacturer was liable as it had "created a market" for pregnancy use, should have known generic alternatives would enter that market and knew generic manufacturers were legally required to copy the branded manufacturer's labeling. Defendant moved to dismiss these "innovator liability" claims on the ground that its product had not caused plaintiffs' harm.

The court first noted that none of the highest courts in the six states whose law governed plaintiffs' claims—Georgia, Indiana, Kentucky, Massachusetts, New York and Oklahoma—had directly ruled on the issue. On the other hand, the overwhelming majority of courts, "including all seven federal circuits to have addressed the issue," have held that a brand-name manufacturer cannot be held liable for injuries caused by a generic equivalent. Moreover, the general tort law jurisprudence of the states in question supported adherence to the majority position and hence dismissal of plaintiffs' claims.

Regarding plaintiffs' request at least to certify the question to the highest courts of the states that have a certification procedure (all but New York), the court found certification unnecessary under Georgia law because an intermedi ate appellate court had directly decided the issue, or under the laws of Indiana, Kentucky and Oklahoma because the Sixth and Tenth Circuits had decided the issue under those states' laws without requesting certification. While there was "some su perficial appeal" to certifying the question to the Massachusetts Supreme Judicial Court ("SJC"), two Massachusetts trial courts had recently followed the "overwhelming and well-reasoned majority view" and hence the MDL court concluded it could make an informed and intelligent prediction that the SJC would do likewise. The court expressed awareness that its ruling would leave consumers injured by generic drugs without a remedy, because the United States Supreme Court had held claims against generic manufacturers preempted by the federal law requirement that their labeling be identical to that of the brand-name manufacturer. Nonetheless, just because Congress had exempted generic manufacturers from liability, it did not follow that branded manufacturers should bear that liability.

Massachusetts Federal Court Holds Medical Device Distributor Not Fraudulently Joined As Design Defect and Failure-to-Warn Claims Not Preempted by FDA Regulations That Do Not Prohibit But Merely Require Notification of Design or Labeling Changes, and Distributor May Be Liable On Implied Warranty Claims Even Without Taking Title to Product

In In re Stryker LFIT V40 Femoral Head Prods. Liab. Litig., 2017 U.S. Dist. LEXIS 140808 (D.Mass., Aug. 31, 2017), plaintiffs in three state court actions brought claims against two out-of-state manufacturers and a Massachusetts distributor for breach of the implied warranty of merchantability (the Massachusetts nearequivalent of strict liability) for injuries allegedly caused by a hip replacement device based on design defect and failure-to-warn theories. The manufacturers removed the actions to the United States District Court for the District of Massachusetts, where a related multi-district litigation was pending, asserting diversity jurisdiction and alleging the non-diverse distributor was fraudulently joined. Plaintiffs moved to remand to state court.

In opposing plaintiffs' motion, the manufacturers first argued plaintiffs' claims against the distributor were preempted by 21 C.F.R. §§ 807.81 and 807.20(a)-(c), United States Food and Drug Administration ("FDA") regulations which the manufacturers asserted prohibited a medical device distributor from altering the design or warnings of FDAregulated devices. The court found, however, that the plain language of the regulations required a distributor to register and submit a premarket notification before repackaging or relabeling a device, but did not prohibit those actions. Accordingly, a distributor's position differs from that of a generic pharmaceutical manufacturer, whose labeling federal law unequivocally requires be identical to that of the corresponding FDA-approved brand-name drug, and plaintiffs' claims against the distributor were not preempted.

The manufacturers next argued the distributor could not be liable for breach of warranty, as it never actually took title to the hip implants but merely acted as a "conduit" in their sale. The court noted that Massachusetts Supreme Judicial Court ("SJC") precedent cited by the manufacturers merely addressed whether a product sale had occurred, and not whether it was necessary for a warranty claim that defendant have held title. Moreover, Mass. Gen. L. ch. 106, § 2-318 eliminates any requirement of privity in breach of warranty actions against a "manufacturer, seller, lessor or supplier of goods," suggesting possession of title was not required. And other SJC rulings had specifically held distributors may be liable for implied warranty product liability claims. As there was a reasonable legal basis for plaintiffs' claims against the distributor, the court granted plaintiffs' motion to remand.

Massachusetts Federal Court Holds Commercial Breach of Implied Warranty Claims For Purely Economic Loss Require Contractual Privity

In Organic Mulch & Landscape Supply of New Eng., LLC v. Probec, Inc., 2017 U.S. Dist. LEXIS 113716 (D. Mass. July 21, 2017), a corporation asserted a claim for breach of the implied warranties of merchantability and fitness for a particular purpose against the manufacturer of allegedly defective industrial ice-bagging equipment sold to plaintiff by a distributor, whom plaintiff also sued after the distributor refused to remove the equipment, refund the purchase price and pay consequential damages. The manufacturer moved for judgment on the pleadings based on lack of contractual privity with plaintiff.

Plaintiff argued the motion should be denied because the Massachusetts legislature unambiguously abolished the privity requirement through the enactment of Mass. Gen. Laws ch. 106, § 2-318, which provides that "[l]ack of privity between plaintiff and defendant shall be no defense in any action brought against the manufacturer" of goods for breach of warranty. In the alternative, plaintiff asked the court to certify the question of whether privity was required to the Massachusetts Supreme Judicial Court ("SJC").

The court denied the request for certification and granted the manufacturer's motion. The court first pointed to a line of SJC cases recognizing certain distinctions under section 2-318 between contract-based and tort-based warranty claims, and quoted SJC dicta that "contract-based warranty claims involving commercial transactions may generally call for different treatment than tort-based warranty claims." Then, citing opinions by four different federal district court judges, the court asserted that based on the SJC authority "courts have since uniformly held that a contract-based breach of warranty claim arising in a commercial context requires a showing of privity of contract." In light of this uniformity, there was no need to certify the question.

First Circuit Rejects Fraud And Unfair And Deceptive Practices Claims Based On Allegedly Inflated "Compare At" Price Tag For Lack of Actual Injury Where No Allegation Product Was Not Worth Price Paid; Unjust Enrichment Claim Fails Due To Existence Of Sales Contract

In Shaulis v. Nordstrom, Inc., 865 F.3d 1 (1st Cir. 2017), plaintiff filed a putative class action in Massachusetts Superior Court against a clothing retailer alleging fraud, breach of contract, unjust enrichment and violations of the Code of Massachusetts Regulations ("CMR"), Federal Trade Commission Act ("FTCA") and Mass. Gen. Laws ch. 93A, the Massachusetts unfair and deceptive practices statute. Plaintiff purchased a sweater from the retailer with a "Compare At" price on its tag that purported to identify a 77% savings, but plaintiff asserted the tag was deceptive as the retailer never sold the sweater at that price and absent the tag she would not have purchased the sweater.

Defendant removed the action to the United States District Court for the District of Massachusetts and moved to dismiss, arguing plaintiff failed to allege a legally cognizable injury under any theory. The district court agreed. Plaintiff did not allege the sweater was worth less than she paid, and her disappointment concerning the bargain she was receiving did not suffice. Further, although the "Compare At" tag violated both the CMR and FTCA, neither regime provided a private right of action.

On plaintiff's appeal as to her Chapter 93A and common law claims, the United States Court of Appeals for the First Circuit affirmed. The court first noted that the Massachusetts Supreme Judicial Court's ("SJC") recent decisions under Chapter 93A held that a plaintiff cannot rely on a "per se" theory of injury but rather must show "real economic damages." Here, plaintiff failed to allege any damages beyond being induced to make a purchase she would not have made, which impermissibly merged the alleged deception with the injury. Plaintiff also lacked any objective claim she expected to receive a higher quality product than she did. Plaintiff's argument that her travel costs to and from the retailer constituted actual injury also failed, as she had not alleged the price tag induced her travel.

Regarding plaintiff's common law claims, her fraud claim failed for the same reasons as her ch. 93A claim. There was no breach of contract claim as plaintiff agreed to pay the stated price. Nor could she recover for unjust enrichment, as under Massachusetts law that equitable remedy cannot override an otherwise valid contract.

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