PRODUCT LIABILITY A Movable Feast? Which Parts of Reform Apply

By David Neal Allen, When an Injury Benjamin Smith Chesson, and Anna Christina Majestro Occurs Outside the Forum State?

Since most As part of wide-ranging tort reform in the , has occurred on the state state have enacted a number of measures for level, attorneys to improve their position in defending tort look for opportunities to actions. These reforms range from substantive provisions, including caps on the amount of recov- tort when the invoke a foreign state’s erable , to procedural rules, in- exceeds $150,000. In an action governed by cluding mandatory bifurcation of . Tennessee , that same tort reform in every case And since tort reform is occurring on the is much more likely to receive a state level, personal injury litigation in one single trial on the issues of liability and that presents choice- state may dramatically differ both proce- damages, and she may recover all medi- durally and substantively from personal cal bills billed to her regardless of whether of-law questions. injury litigation in a neighboring state. the bills were ever paid. But in Tennes- For instance, in North Carolina, a per- see, the plaintiff’s noneconomic dam- sonal injury plaintiff may recover only the ages are statutorily capped in all personal medical bills actually paid, or reasonably injury cases. Depending on the nature and necessary to be paid, not the total amount extent of the damages allegedly suffered billed by the provider, and a has by the plaintiff and the allowed a near-­automatic right to bifurcation of any in a bifurcated trial, the same case will be

■ David Neal Allen is a senior partner, Benjamin Smith Chesson is a partner, and Anna Christina Majestro is a litigation associate in Nelson Mullins Riley & Scarborough LLP’s Charlotte, North Carolina, office. Mr. Allen practices in litigation in a variety of industries and has been trying for more than 30 years, with close to 100 empaneled during that time. He is a former president of the North Carolina Association of Defense Attorneys. In addition to serving as national for the world’s largest consumer appliance manufacturer, Mr. Chesson focuses his practice on defense and multi-plaintiff tort litigation. Ms. Majestro’s practice includes general commercial litigation, consumer financial litigation, product lia- bility litigation, toxic tort litigation, and appeals.

68 ■ For The Defense ■ April 2018 © 2018 DRI. All rights reserved. meaningfully different in North Carolina dence, nationality, place of incorporation, exposure. While limited evidence relevant than in Tennessee. and place of business of the parties. to the liability phase may necessarily dis- While the defendant in this example Some states, such as , have cuss a plaintiff’s injuries, the limitation on cannot control if the plaintiff files in North started to move away from the most signif- damages evidence should lessen the risk Carolina or Tennessee, a defendant should icant relationship test in favor of the “gov- of a deciding the liability phase of not be fooled into thinking that the plain- ernment interest analysis” test. Under this the trial based on sympathy, anger, or the tiff’s choice may deprive the de- three-step analysis, determine the defendant’s financial status. It is important fendant of the benefit of certain tort reform governmental policies underlying the per- for a defendant to understand that they do measures simply by filing in another state. tinent and then decide which jurisdic- not lose the benefit of defense-­friendly pro- Instead, when an action is controlled by a tion has an interest in the litigation. Of the foreign state’s substantive law, a defendant that have an interest in the lit- may be able to benefit from both the pro- igation, courts decide which ’s cedural elements of the forum state’s tort policy would be the most advanced or the Regardless of the choice- reform and the substantive elements of most impaired by the application of its law the nonforum state’s tort reform. Since the to the facts of the case. Unlike the other two of-law approach adopted majority of tort reform has occurred on the approaches, the law of the forum presum- state level, a defendant must be on the look- ably applies unless it is demonstrated that by the forum state, a out for opportunities to invoke a foreign another state’s law should apply. state’s tort reform in every case that pres- Regardless of the choice-of-law approach defendant should analyze ents choice-of-law questions. adopted by the forum state, a defendant Choice-of-law issues are interjected into should analyze every potential state that every potential state that a case any time a jurisdiction other than may govern the substantive elements of a the forum state is involved in a tort action. case and argue for application of the state’s may govern the substantive In those cases, the procedural rules of the law with the most favorable tort reforms. case are always governed by the forum In some cases, this argument may also elements of a case and state. But, a defendant will want to argue turn on whether a particular tort reform is that the substantive law is governed by the procedural or substantive law. For exam- argue for application of the jurisdiction with the most defense-friendly ple, mandatory bifurcation is plainly pro- tort reform under the forum state’s choice- cedural, and statutory damages caps are state’s law with the most of-law rules. States use three distinct plainly substantive, but evidentiary limi- approaches to establish the substantive law tations on the type of admissible damages favorable tort reforms. on a case involving multiple states: a tradi- could qualify as either. Each of those tort tional approach, lex loci delici; the “most reform measures is discussed more below. significant relationship” test approach; or cedural rules such as bifurcation merely the “government interest analysis” test. Bifurcation because the substantive aspects of a case The traditional approach, espoused in Mandatory bifurcation is one of the least are governed by a foreign state. the Restatement (First) of , discussed but very influential modifica- Even if a state has not enacted one of the is lex loci delici. Under this rigid approach, tions to traditional personal injury tri- more recent near-­automatic bifurcation the substantive law of is governed by als. Many states have enacted to statutes in high-­exposure product liability the law of the place where the last wrong require separate trials for punitive dam- cases, a majority of states allow bifurcation giving rise to the harm occurred, unless the ages and some have even made it near when the bifurcation avoids the prejudi- foreign law violates the “substantial public mandatory to have separate trials in high-­ cial impact of complex damages evidence, policy” of the forum state. In product lia- exposure personal injury cases. Both types based on consideration of the factors in the bility cases, the last place of wrong is gen- of bifurcation serve to minimize the preju- state’s rule of that allows erally the place of injury. The majority of dice of evidence that is irrelevant to a jury’s a to order separate trials on issues. states have now moved away from lex loci. liability determination, which is likely to Moreover, an increasing number of states The majority approach at present is the generate sympathy toward a plaintiff or are enacting statutes requiring bifurcation “most significant relationship” test, which anger toward a defendant. of claims. These stat- is set forth in the Restatement (Second) of In product liability cases involving com- utes remove the discretion from a Conflict of Laws. The most significant rela- plex or sensitive personal injuries, bifur- to determine whether one of the applica- tionship test is a flexible approach that cation conserves time and resources by ble factors merely warrants bifurcation allows courts to determine the governing limiting the evidence to only what is rele- and instead requires bifurcation. While substantive law by considering factors such vant to the liability determination. In most certain may still allow a plaintiff to as the place where the injury occurred, cases, the excluded evidence relates to a present evidence related to a defendant’s the place where the conduct causing the plaintiff’s injuries or the defendant’s previ- potentially relevant previous conduct, in all injury occurred, and the domicile, resi- ous conduct that may give rise to punitive cases, a judge should exclude any evidence

For The Defense ■ April 2018 ■ 69 PRODUCT LIABILITY of the defendant’s financial wealth until the The statutory damages caps differ signif- whether caps violate a constitutionally second phase of the trial. icantly from state to state. Some apply only guaranteed right to a jury trial. Analyz- to actions, and others apply to ing this issue, many courts have focused Statutory Damages Caps all personal injury actions. Some caps ap- on how the right to a fair trial is defined in The most significant and controversial ele- ply only to noneconomic damages, while the state . For instance, caps ment of tort reform is the enactment of var- others limit both economic damages and have been less likely to survive judicial ious state-­specific caps on noneconomic noneconomic damages. In some states, the review when the state’s constitution pro- damages in personal injury cases. A hand- caps apply to punitive damages as well. But vides an “inviolate” right to a jury trial. ful of the statutory caps have not survived in almost all jurisdictions, juries are not in- Courts have held that an “inviolate” right formed about the caps during their delibera- to a jury trial prohibits any lim- tions. Instead, a court applies a cap to reduce iting the damages awarded by a jury for any jury awards that exceeds the cap. Caps, causes of action that existed at common Even when a forum therefore, can significantly affect the value of law. See, e.g., Atlanta Oculoplastic Surgery v. a product liability case when the majority of Nestlehutt et al., 691 S.E.2d 218 (Ga. 2010). state has not adopted the damages are noneconomic injuries such But even these courts have allowed legisla- as pain and suffering or emotional distress. tures to implement statutory caps on dam- statutory damages caps, In determining whether a defendant ages awarded for causes of action that did gets the benefit of a foreign state’s statutory not exist at . See id. the caps enacted by a damages cap, it appears clear that caps are Courts have been less likely to strike substantive elements of damages law. Thus, down damages caps in states with constitu- foreign state should apply when a foreign state’s law governs a case, so tions that define a jury trial as “preferable” do the statutory damages caps. However, instead of “inviolate.” See, e.g., Etheridge v. when the substantive law since the caps so greatly affect a defendant’s Medical Center Hospitals, 376 S.E.2d 525 potential exposure in litigation, a creative (Va. 1989). And a few state appellate courts is controlled by a state that plaintiff will advance several arguments have extended the arguments upholding opposing the imposition of any caps. At statutory damages caps even when the has enacted a cap covering the outset, most trial courts will refuse to state’s constitution includes an “inviolate” determine the applicability of a cap before provision. See Arbino v. Johnson & Johnson, a personal injury action. a jury awards a exceeding the cap. 880 N.E.2d 420 (Ohio 2007). In these juris- Trial courts generally view a pretrial rul- dictions, the appellate courts have accepted ing on the caps as an advisory opinion on the argument that only a jury’s “fact-find- , but the caps are a powerful an issue that is not yet ripe. A defendant, ing function” is protected but not the jury’s tool for defendants in jurisdictions where therefore, is unlikely to have complete cer- ultimate award of damages. These courts the caps have been upheld or have not yet tainty about the application of foreign stat- have equated statutory damages caps to been reviewed. See, e.g., Moore v. Mobile utory damages caps prior to trial. However, remittiturs or other statutory measures Infirmary Association, 592 So.2d 156 (Ala. a court’s decision on which state’s substan- on damages that constitute public policy 1991); North Broward Hosp. Dist. v. Kali- tive law applies may be a potent indicator choices left to the legislative branch. tan, 219 So.3d 49 (Fla. 2017). Even when a and aid in negotiations. Other courts have accepted arguments forum state has not adopted statutory dam- If and when the time comes for a court that statutory damages caps violate the sep- ages caps, the caps enacted by a foreign to decide on a cap’s constitutionality, the aration of powers, constitute impermissible state should apply when the substantive law plaintiff likely will first argue that the stat- special legislation, violate the open courts is controlled by a state that has enacted a utory cap violates the foreign state’s con- doctrine, or even violate a state’s Equal Pro- cap covering a personal injury action. stitution. For example, in Tennessee and tection and Due Process Clauses. See Best State general assemblies across the coun- Mississippi, the state appellate courts have v. Taylor Machine Work, 689 N.E.2d 1057 try began enacting statutory caps on dam- not reviewed the statutory noneconomic (Ill. 1997).; see also, e.g., Knowles ex. Rel. ages as part of tort damages cap for all personal injury actions. Knowles v. United States, 544 N.W.2d 183 reform in the 1970s. As part of that legisla- If a trial court in a forum state is applying (S.D. 1996); North Broward Hosp. Dist., 219 tive revolution, more aggressive state legis- the substantive law of one of these states, So.3d 49 (holding that the noneconomic cap latures have extended those caps beyond just the trial court (and ultimately the appellate on damages in personal injury cases violates the medical malpractice setting to cover pu- court) in the forum state is put in the pre- the Equal Protection Clause of the Florida nitive damages awarded in any civil action carious position of determining whether Constitution); State ex rel. Ohio Academy of and even all noneconomic damages awarded the statutory damages cap violates the Trial v. Sheward, 715 N.E.2d 1062 in any personal injury action. In total, more enacting state’s constitution with no guid- (Ohio 1999) (finding cap violated the state’s than half of the states have adopted some ance from that state. Due Process Clause). But see Arbino, 880 form of statutory cap on damages in some The constitutional arguments over N.E.2d at 420 (finding new Ohio noneco- or all personal injury cases. statutory damages caps have focused on nomic damages cap enacted in 2007 con-

70 ■ For The Defense ■ April 2018 stitutional). Each of these arguments has offend the public policy or legitimate inter- provider, the patient’s company, also been rejected by state supreme courts est of the forum state. and the patient all know that the medical across the county, but they will no doubt be As mentioned, in a lex loci state, a court provider will never collect the entire billed part of any plaintiff’s argument against en- will consider whether the application of amount from any source. Nonetheless, the forcing foreign statutory damages caps. See, the nonforum state’s law violates the pub- amount billed has traditionally constituted e.g., Miller v. Johnson, 289 P.3d 1098 (Kan. lic policy of the forum state. Whether a law one measure of a plaintiff’s damages. 2012) (cap on noneconomic damages does is contrary to the public policy of a forum In unreformed states, a plaintiff can not violate Equal Protection Clause or sep- state for lex loci purposes is a state-­specific introduce evidence of the entire amount aration of powers doctrine); Gourley ex. rel inquiry. In almost every case, this is simply billed by a medical provider, and a de- Gourley v. Nebraska Methodist Health Sys- a regurgitation of the same contentions of fendant is not permitted to rebut this evi- tem Inc., 633 N.W.2d 43 (Neb. 2003) (cap unconstitutionality. However, here, a plain- dence to establish that portions of a bill that on total damages does not violate the state tiff will tailor the argument to the forum were never paid. This leads to inflated dam- constitution’s Equal Protection Clause, right state’s , because some states have ages for a plaintiff, who receives a wind- to a jury trial, open courts doctrine, sepa- adopted a more expansive approach to fall because she can receive as damages ration of powers, or principles prohibiting the public policy exception than others. A an amount greater than that which was special legislation); Evans v. State, 56 P.3d plaintiff’s attorney may argue, for exam- expended on her medical care. In an effort 1046 (Alaska 2002) (cap does not infringe ple, that the application of the damages to curb these arbitrary and illusory billing on right to trial by jury, does not deny sub- cap violates a citizen’s right to a trial by practices, state legislatures and state courts stantive due process, violate the Equal Pro- jury under the forum state’s constitution, have limited the recovery of damages to tection Clause, , or the and the cap should therefore not apply. In only the amount paid or reasonably nec- prohibition against special legislation).To addition to the counters to this argument essary to be paid to satisfy the outstand- be sure, a defendant must be prepared to that have been previously discussed, a de- ing bill. argue the constitutionality of the damages fendant should examine the scope of the At first glance, such a limitation on dam- caps to any trial court when requesting that public policy exception in the forum state ages appears to be a substantive provision a court apply a damages cap from another to determine whether there is a colorable related to recoverable damages. And if a state. This is especially true when the forum argument that the public policy exception nonforum state has adopted a medical state has not yet adopted a damages cap and does not apply in such a situation. bills-paid rule, then a defendant should the trial court is unfamiliar with the par- Statutory damages caps so greatly affect argue that the rule is substantive. But a de- ticular issues surrounding that legislation. product liability litigation that defendants fendant that does not have the benefit of an Once a defendant overcomes the consti- should be constantly monitoring oppor- applicable nonforum state bills-paid rule, tutional argument, a plaintiff generally will tunities to invoke statutory damages caps and is in a forum state that has enacted a next argue that the statutory damages cap enacted by another state with a connection medical bills-paid rule, still has room to is unenforceable under the forum state’s to the litigation. And defendants should be argue otherwise. The in this area choice-of-law rules. All three of the choice- prepared to fight vigorously to defend the is sparse, and a defendant can make a num- of-law approaches previously described caps against a plaintiff’s onslaught of argu- ber of good-faith arguments that the provi- include some requirement that a trial court ments against enforcement. sion is a procedural rule of evidence instead analyze whether the foreign state’s law vio- of a substantive rule of damages. lates the forum state’s public policy. Even Admissibility of Medical Bills First, it is generally accepted in most in a jurisdiction that adheres to the most One growing tort reform trend involves jurisdictions that the method of proof significant relationship test or the govern- putting limitations on a plaintiff’s right admissible in a case, including damages, is ment interest analysis, because a court con- to present evidence of the total amount a procedural issue governed by the forum siders public policy in the choice-of-law billed by a health-care provider in treat- state. Where a rule prohibits a party from determinations, whether the law violates ing a plaintiff for the injuries that he or she introducing evidence of medical bills, it the constitution of an interested state has sustained. In these jurisdictions, a plaintiff can be argued that the rule limits only the a bearing on the outcome of the choice-of- may present evidence only of the amount method permitted to prove damages, not law analysis. In the most significant rela- actually paid for the medical services ren- the actual damages recoverable. Indeed, tionship or government interest analysis dered. As defendants well know, these rules the Arkansas Supreme Court reached this test, this can take the form of an argument are more important than ever as the med- same result in Johnson v. Rockwell Auto- about whether the law at issue impedes the ical community continues to stray further matic, Inc., 308 S.W.3d 135 (Ark. 2009). forum state’s interest to ensure that its lit- into illusory billing practices. In most juris- In Johnson, the Arkansas Supreme Court igants receive full and fair compensation. dictions, medical providers now regularly addressed the statutory on any evi- Where lex loci is the rule, a court will con- send bills for amounts four or five times the dence of medical bills not actually paid. sider whether the foreign state’s law vio- amount that a medical provider has pre- In striking down the because the lates the public policy of the forum state. viously agreed to accept from a plaintiff’s constitution only permitted the Arkansas Under any test, a defendant must argue insurance company for the medical serv- Supreme Court to enact rules of procedure, that the statutory damages cap does not ices provided. In other words, the medical Tort Reform, continued on page 84

For The Defense ■ April 2018 ■ 71 Tort Reform, from page 71 vania, and Delaware have reached the same the court held that “it is undisputed that conclusion. See Dyet v. McKinley, 139 Idaho the rules of evidence are ‘rules of plead- 526, 81 P.3d 1236 (Idaho 2003), abrogated ing, practice, and procedure.’” Id. at 142. A on other grounds by Verska v. Saint Alphon- defendant in a bills-paid state can use this sus Reg’l Med. Ctr., 81 P.3d 1236, 1238–39 decision to support an argument that such (Idaho 2011); Moorhead v. Crozer Chester a rule is indeed procedural. Medical Center, 765 A.2d 786 (Pa. 2001) While a plaintiff may argue that a rule (abrogated on other grounds); Smith v. barring the introduction of the amount of Mahoney, 150 A.3d 1200, 1206 (Del. 2016). medical bills billed is substantive because A defendant in a bills-paid jurisdiction can it alters the substantive collateral-­source advocate these procedure-­based arguments doctrine, a closer examination reveals that to gain the benefit of evidentiary limita- such a rule does not implicate the forum tions, and in doing so, limit the defendant’s state’s collateral-­source rule. In general, damages exposure in a case. the collateral-­source rule prohibits a party from offering evidence of “[p]ayments Conclusion made to or benefits conferred on the States have provided defendants with a injured party from other sources.” Restate- trove of tools to use in their defense of ment (Second) of Torts §920A (1977). In product liability litigation. Those state spe- addressing the purported conflict between cific tools are not, however, bound by a the collateral-­source rule and a rule limit- state’s geographic boarders. A defendant ing a plaintiff’s medical bills to those paid, is well served to actively analyze all poten- the Supreme Court of California in How- tial sources of governing law and lever- ell v. Hamilton Meats & Provisions, Inc. age all available tort reform measures to held that a medical bills-paid rule does not strengthen its position in litigation. implicate the collateral-­source rule for two reasons. 257 P.3d 1130 (Cal. 2011). First, the court held that the collateral-­source rule is “inapplicable” to “full bills” the plaintiff “never incurred” since the rule “does not speak to losses or liabilities the plaintiff did not incur and would not otherwise be enti- tled to recover.” Id. at 1143. Stated differ- ently, “[t]he collateral source doctrine does not address the amount of damages that a plaintiff can recover in the first instance.” Id. The collateral-­source rule, therefore, cannot apply to bills that have not been paid, will never be paid, and represent an entirely illusory amount. Second, the court held that the contrac- tual insurance discounts given by a medi- cal provider are “not primarily a benefit to the plaintiff” and “not provided as ‘com- pensation’ for [the plaintiff’s] injuries.” Id. at 1143–44 (internal citations omit- ted). Instead, the benefits are to the insur- ance companies and the medical providers who “negotiate rates in pursuit of their own business interests.” Id. In light of this undisputed reality, the discounted rates are not a collateral benefit to any plaintiff. In sum, the court “conclude[d] the negotiated rate differential is not a collateral payment or benefit subject to the collateral source rule.” Id. at 1144. Courts in Idaho, Pennsyl-

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