DRUG AND MEDICAL DEVICE A Brief Worth Writing Punitive Damages— Which State’s

By Traci L. Shafroth Law Applies? and Nicholas V. Janizeh

When the law of a Eye-popping damages awards in personal injury actions defendant’s home state against pharmaceutical and medical device manufacturers on punitive damages are becoming all too common. Jury awards in the tens of materially favors the millions of dollars have become almost routine—and every month seems to bring at least one will likely have been injured and treated defendant, providing a nine-figure jury verdict in these cases. for his or her injuries there. But the puni- Punitive damages make up the biggest tive damages allegations will center on well-crafted argument component of such awards by far. With conduct by the defendant at its principal manufacturers facing thousands of these place of business. Those allegations gen- for its application can suits and the very real possibility of puni- erally implicate corporate decisions and tive damages awards for each individual actions related to the design, manufac- change everything. case brought to trial, the question of which ture, and marketing of the defendant’s state’s punitive damages law will apply can product. When a defendant is from out of be of paramount importance. Will it be state, then the decisions and actions that the law of the state in which the plaintiff the plaintiff is challenging likely occurred brought the case, or the law of the defen- in the defendant’s home state, not the dant’s home state? plaintiff’s. Under the choice-of-law doctrine of Choice-of-law analyses can be compli- dépeçage (which means “carving up”), cated, thorny affairs, and judges are not the laws of different states may be applied always receptive to them. The upside to a to different substantive issues in the case. favorable ruling for a defendant on which So while the law of a plaintiff’s home state state’s punitive damages law applies, how- will typically govern the causes of action, ever, can completely change the litigation an out-of-state defendant can often make landscape. For drug and device compa- the argument that the law of its home nies, the outcome of each individual case state should govern punitive damages. In can have far-reaching implications. One most cases, a plaintiff will have used the big verdict can generate millions of dollars product (and received any accompanying in ads by plaintiff firms and result in huge warnings) in his or her home state and increases in their inventories of cases.

■ Traci L. Shafroth is counsel in the San Francisco office of Tucker Ellis LLP. Nicholas V. Janizeh is an asso- ciate in the Los Angeles office. Both practice in the area of complex commercial litigation, with a focus on defense of major pharmaceutical and medical device companies in state, federal, and multidistrict litigation across the country. Both authors are DRI members.

60 ■ For The Defense ■ September 2018 © 2018 DRI. All rights reserved. Differences in Punitive Damages awarded over $400 million in a single- to-warn claim. It then walks through Laws in Different Jurisdictions plaintiff case last year, although the judge the choice-of-law analysis undertaken The availability of punitive damages can overturned it posttrial as insufficiently by courts in California and many other vary dramatically from one jurisdiction to supported by the evidence. Several years jurisdictions and explains the interests at the next. Michigan, Nebraska, Washing- ago, a jury in a bellwether trial in a mul- stake and how they should be weighed. ton, and Puerto Rico bar punitive or exem- tidistrict litigation memorably delivered It also demonstrates how to distinguish plary damages altogether. E.g., McAuley a $9 billion verdict against two defend- potentially problematic cases applying the v. Gen. Motors Corp., 457 Mich. 513, 520, ants in favor of a single New York plain- forum court’s law in lieu of that of the 578 N.W.2d 282, 285 (Mich. 1998) (“puni- tiff. The judge slashed the verdict to $37 defendant’s home state. tive sanctions may not be imposed,” with million posttrial, noting that the ratio of a few statutory exceptions not relevant compensatory-­to-­punitive damages was 1 here); Distinctive Printing & Packaging Co. to 5,524 for one defendant and 1 to 8,136 v. Cox, 232 Neb. 846, 857, 443 N.W.2d 566, for the other. But the only check was the Given the scale of 574 (Neb. 1989) (“[P]unitive, vindictive, judge’s determination that the award was or exemplary damages contravene Neb. excessive in light of the constitutional these awards, corporate Const. art. VII, §5, and thus are not allowed limits imposed by the Supreme Court. in this jurisdiction.”); Cruz v. Molina, 788 See, e.g., BMW of N. Am., Inc. v. Gore, 517 defendants sued in “judicial F. Supp. 122, 128 (D.P.R. 1992) (“Puerto U.S. 559 (1996); State Farm Mut. Auto. Rico law does not sanction punitive dam- Ins. Co. v. Campbell, 538 U.S. 408 (2003); hellholes” may have a strong ages.”); Dailey v. N. Cost Life Ins. Co., 919 Philip Morris USA v. Williams, 549 U.S. P.2d 589, 590 (Wash. 1996) (en banc) (puni- 346 (2007). interest in the application tive damages are contrary to public policy and prohibited without express legisla- Advocating for Applying a of the punitive damages tive authorization). Defendant’s Home State’s Other jurisdictions allow punitive dam- Law to Punitive Damages law of their home states. ages, but keep awards in check by capping Given the scale of these awards, corporate the amount of punitive damages allowed. defendants sued in “judicial hellholes” Punitive damages awards in New Jersey may have a strong interest in the applica- Step One: Set Up the may not exceed five times the defendant’s tion of the punitive damages law of their Choice-of-Law Test liability for compensatory damages, or home states. To succeed, a defendant will California, similar to many other juris- $350,000, whichever is greater. N.J. Stat. have to walk a court through what is typi- dictions, applies a flexible “governmen- Ann. §2A:15-5.14(b). Ohio limits punitive cally a complicated choice-of-law analysis tal interest” test to determine which law damages that may be awarded against a de- and persuade the court that the defendant’s governs in tort cases involving multiple fendant in specified personal injury actions home state has a stronger interest in hav- jurisdictions. Offshore Rental Co., Inc. v. to two times the compensatory damages ing its punitive damages law govern the Cont’l Oil Co., 22 Cal.3d 157, 161 (Cal. awarded against that defendant. Ohio Rev. case at hand. 1978). California follows the doctrine of Code Ann. §2315.21(D)(2)(a). Alabama caps Below is a step-by-step illustration of dépeçage, undertaking a separate con- punitive damages in physical injury cases such an analysis, using the example of flict-of-laws inquiry for each issue in the (except for actions for wrongful death or a New Jersey defendant sued in a per- case. Washington Mut. Bank, FA v. Super. intentional infliction of physical injury) to sonal injury case in California by a resi- Ct., 24 Cal.4th 906, 920 (Cal. 2001). Under the greater of three times the compensatory dent plaintiff who alleges that her use of the this approach, even though a plaintiff’s damages or $1,500,000. Ala. Code Ann. defendant’s product caused her to develop underlying claims for compensatory dam- §6-11-21. Texas limits punitive damages cancer. She purchased the product in Cal- ages may be governed by the laws of his to the greater of (1) two times the amount ifornia, used it for many years there, and or her home state, a separate determina- of the economic damages plus the non- was diagnosed with and treated for her tion should be made as to whether the economic damages award, not to exceed cancer in California. She alleges that the defendant’s home state’s laws govern puni- $750,000; or (2) $200,000. Tex. Civ. Prac. defendant failed to provide an adequate tive damages. & Rem. Code Ann. §41.008. warning of the increased risk of cancer Other states, including Pennsylvania, from use of its product, and the inade- Step Two: Walk Through the Missouri, California, and New York, give quate warning was the proximate cause of Choice-of-Law Factors juries free rein over punitive damages. her injuries. As in most jurisdictions that apply it, the Philadelphia juries have awarded numer- The following illustration details how to governmental-­interest test in California ous verdicts in the tens of millions of apply the doctrine of dépeçage to advocate involves three parts. Sullivan v. Oracle dollars over the last year. A St. Louis for the application of New Jersey punitive Corp., 51 Cal.4th 1191, 1202, 254 P.3d 237, jury recently awarded a single plaintiff damages law, despite the clear applicability 245 (Cal. 2011). First, a court determines more than $100 million. A California jury of California law to the plaintiff’s failure- whether the state laws at issue materially

For The Defense ■ September 2018 ■ 61 DRUG AND MEDICAL DEVICE differ from one another. Second, if there tort cases, but it does not impose statu- New Jersey allows punitive damages in is such a difference, the court examines tory limits on punitive damages awards. tort cases under certain circumstances, each jurisdiction’s interest in the appli- See Cal. Civ. Code §3294. In a similar but it limits the amount of punitive dam- cation of its own law under the circum- vein, under New Jersey law, if a substance ages that may be awarded. New Jersey, stances of the particular case to determine is “generally recognized as safe and effec- therefore, has two distinct interests at whether a “true conflict” exists. Third, if tive pursuant to conditions established stake. By allowing punitive damages, New the court finds that there is a true conflict, by the federal Food and Drug Adminis- Jersey furthers its interests in punishing the court “carefully evaluates and com- tration and applicable regulations,” then defendants and deterring future wrong- pares the nature and strength of the inter- New Jersey dictates that “[p]unitive dam- doing. E.g., Lockley v. State of New Jer- ages shall not be awarded,” N.J. Stat. Ann. sey Dep’t of Corr., 828 A.2d 869, 880 (N.J. §2A:58C-5(c), a rule that can have signifi- 2003) (“[T]he purposes underlying puni- cant implications for the analysis in cases tive damages awards [are] to punish tort- By allowing punitive involving FDA-approved products. Cali- feasors and to deter them and others from fornia, in contrast, has no such limitations similar conduct.”). By limiting the situa- damages but limiting on punitive damages. tions in which punitive damages may be recovered, as well as the amount of any them, New Jersey has In This Particular Case, such recovery, New Jersey furthers its There Is a True Conflict interest in protecting defendants from subordinated its interest In our example, in the circumstances of excessive financial liability. Rowe v. Hoff- this particular case, there is a true con- man-­La Roche, Inc., 917 A.2d 767, 772 in punishing and deterring flict. There is a true conflict because New (N.J. 2007) (the New Jersey Products Lia- Jersey has a strong, legitimate interest in bility Act was enacted “to limit the lia- conduct to its interest in the application of its punitive damages bility of manufacturers”). law. The defendant in our illustration is a By allowing punitive damages but lim- protecting the financial New Jersey corporation with its principal iting them, New Jersey has subordinated place of business in New Jersey. The alleged its interest in punishing and deterring security of resident punitive conduct, if it occurred at all, conduct to its interest in protecting the occurred primarily at its principal place financial security of resident defendants defendants by preventing of business in New Jersey, because that by preventing excessive liability. Accord is where the defendant made the major- Hurtado v. Super. Ct., 11 Cal.3d 574, 585 excessive liability. ity of the decisions concerning the man- (Cal. 1974) (by allowing a cause of action ufacture, marketing, and design of the for wrongful death but limiting the dam- product at issue. The defendant should ages allowed, “Oregon had subordinated est of each jurisdiction in the application provide the court with employee decla- its interest in compensating resident sur- of its own law to determine which state’s rations supporting this argument and vivors… to its interest in protecting the interest would be more impaired if its pol- cite the supporting case law. E.g., Meng v. financial security of resident defendants icy were subordinated to the policy of the Novartis Pharm. Corp. Nos. L-7670-07MT, by preventing the imposition of excessive other state.” The court then “applies the L-6027-08MT, 278, 2009 WL 4623715, at burdens.”). Accordingly, New Jersey’s pri- law of the state whose interest would be the *3 (N.J. Super. Nov. 23, 2009) (finding that mary interest in applying its punitive dam- more impaired if its law were not applied.” although plaintiffs alleged that New Jersey ages law is to protect its resident defendants Id. We now will undertake the analysis for defendant failed to inform medical pro- from excessive liability. the example involving the New Jersey de- viders in plaintiffs’ home states of risks California has no comparable inter- fendant and the California plaintiff out- of defendant’s drugs, “Plaintiffs’ claims est in applying its punitive damages law. lined above. stem from Defendant’s business activi- Instead, California’s interest is in com- ties in New Jersey regarding the market- pensating a plaintiff for his or her alleged The Two States’ Punitive Damages ing, distributing, and selling” of the drug); injuries. See, e.g., Kasel v. Remington Arms Laws Materially Differ Deutsch v. Novartis Pharm. Corp., 723 F. Co., 24 Cal. App. 3d 711, 734 (Cal. Ct. New Jersey law governing punitive dam- Supp. 2d 521, 525 (E.D.N.Y. 2010) (find- App. 1972). That interest will be satisfied ages materially differs from California ing that the relevant contacts for punitive by applying California law to a plaintiff’s law. For example, New Jersey allows puni- damages purposes were corporate-­level underlying product liability claims—not tive damages in tort cases, but it limits activities related to drug development and by applying California’s punitive dam- punitive awards to the greater of $350,000 decisions about disclosures, which took ages law. or five times the amount of the compen- place at the defendant’s principal place of Moreover, while California no doubt satory damages award. N.J. Stat. Ann. business in New Jersey, not the plaintiff’s has a legitimate interest in punishing §2A:15-5.14 subs. (a) and (b). In contrast, use of the defendant’s drugs and related and deterring wrongful conduct occur- California allows punitive damages in contacts in plaintiff’s home state). ring in California, it has no comparable

62 ■ For The Defense ■ September 2018 interest with respect to conduct occur- Scott v. Ford Motor Co., 224 Cal. App. financial burdens is a legitimate interest ring primarily outside of California. The 4th 1492 (Cal. Ct. App. 2014), is potentially that must be carefully evaluated to deter- “legitimate interests” of plaintiffs’ home problematic but does not compel a differ- mine if it is in conflict with the law of the states, “after all, are limited to assuring ent conclusion in our illustration. Scott forum. Hurtado, 11 Cal.3d at 580. If it is, that the plaintiffs are adequately compen- involved the determination of whether the court must analyze the “comparative sated for their injuries and that the pro- the law of the plaintiff’s home state of Cal- impairment” of the interested jurisdic- ceeds of any award are distributed to the ifornia or the defendant’s home state of tions to identify the law of the state whose appropriate beneficiaries.” In re Air Crash Michigan governed punitive damages. Id. interest would be most impaired if its law Disaster Near Chicago, Illinois on May at 1503. The Scott court determined that were not applied. Washington Mut. Bank, 25, 1979, 644 F.2d 594, 613 (7th Cir. 1981) California and Michigan law conflicted (citing Hurtado, 11 Cal.3d at 584). Once because California allowed punitive dam- California plaintiffs are “made whole by ages in tort actions, while Michigan law recovery of the full measure of compensa- did not. Id. at 1503–04. The court’s anal- Once California plaintiffs tory damages to which they are entitled” ysis under the governmental-­interest test under California law, California’s inter- should be distinguishable in cases involv- are “made whole by ests “are satisfied.” Id. See also, e.g., Meng, ing other states’ punitive damages law, 2009 WL 4623715, at *3 (holding that the however, because the interests at stake recovery of the full state where the plaintiff took the defen- are unlikely to be the same as those con- dant’s drugs and allegedly was injured sidered by the Michigan legislature. The measure of compensatory “bears almost no relationship to the issue Michigan policy is not based on the type of punitive damages”). of economic rationale on which puni- damages to which they Multiple cases applying California’s tive damages limitations are generally choice-of-law test support this conclusion. grounded—such as an interest in protect- are entitled” under E.g., Arno v. Club Med Inc., 22 F.3d 1464, ing defendants from excessive liability. Id. 1467–68 (9th Cir. 1994) (applying French at 1505 and n.9. The Michigan legislature California law, California’s law prohibiting punitive damages, which based its punitive damages prohibition on prevails in Guadeloupe, where “virtually its unusual view that civil courts should interests “are satisfied.” all of the relevant conduct occurred out- not be in the business of punishing de- side California” and reasoning that Gua- fendants. Id. at 1504–05 (noting the Mich- deloupe “has an interest in encouraging igan public policy that “damages awarded 24 Cal.4th at 920. See also, e.g., Smith v. local industry”); In re Air Crash Disaster by civil courts are appropriate to compen- I-Flow Corp., 753 F. Supp. 2d 744, 748–49 Near Chicago, 644 F.2d at 625 (explaining sate, but not to punish”). Id. at 1504–05. (N.D. Ill. 2010) (“[T]he state in which a de- that state of defendant’s principal place of The Scott court appropriately determined fendant is domiciled has a considerably business and state where alleged miscon- that the Michigan legislature did not have stronger policy interest in whether puni- duct occurred have “the greatest interest” a legitimate interest in imposing “its par- tive damages are available than the state in application of their punitive damages ticular view of the appropriate role of the in which the plaintiff’s injury occurred;” law). In fact, the California Supreme Court courts in adjudicating civil disputes” on the defendant’s home state’s interest in has confirmed that “a jurisdiction ordi- the courts of California. Id. at 1506. Con- “regulating the conduct of its corporate narily has ‘the predominant interest’ in sequently, the court concluded that no citizens far outweigh[s]” the forum state’s regulating conduct that occurs within its “true” conflict of law existed and applied “minimal interest” in assessing puni- borders” and in being able to assure enti- California’s law of punitive damages. Id. tive damages on a nonresident corpora- ties operating within its territory “that at 1508. tion for conduct that occurred outside the applicable limitations on liability set forth Scott is inapposite when a defendant’s forum’s borders). in the jurisdiction’s law will be available state’s rationale for limiting punitive dam- The California Supreme Court’s conflict- to [them] in the event they are faced with ages is economic. To distinguish such of-laws pronouncements support that New litigation in the future.” McCann v. Fos- cases, the defendant should demonstrate Jersey has a legitimate interest in the appli- ter Wheeler LLC, 48 Cal.4th 68, 97–98 for the court that the governmental inter- cation of its punitive damages law. There (Cal. 2010) (applying Oklahoma law where ests at issue are different. In our illustra- is, accordingly, a true conflict, requiring defendant’s tortious conduct occurred in tion, New Jersey, unlike Michigan, limits the court to proceed to step three of the Oklahoma). See also Offshore Rental Co., punitive damages for the economic motive governmental-­interest test. 22 Cal.3d at 164 (holding that “Louisi- of protecting resident defendants from ana’s interest in the application of its law excessive liability. See Rowe, 917 A.2d Which State’s Interest Would Be to the present case is evident” because at 772. Impaired More by Subordinating “defendant is a Louisiana ‘resident’ whose As the California Supreme Court has Its Policy to the Other’s? negligence on its own premises has caused made clear, a state’s interest in protect- New Jersey’s interests would be more the injury in question”). ing resident defendants from excessive impaired than California’s if New Jer-

For The Defense ■ September 2018 ■ 63 DRUG AND MEDICAL DEVICE sey’s law were not applied. In analyzing Stat. Ann. §§2A:15-5.10, 2A:15-5.14 (a). stantial). Thus, while California law does the “comparative impairment” of the two A Legislative Sponsor’s Statement to Bill not specifically cap punitive damages at states’ interests, courts consider the “his- 292, a precursor to the Punitive Damages a 5:1 ratio, such a ratio would be consid- tory and current status of the states’ laws” Act, declares that the bill was “intended to ered very substantial under California law, and “the function and purpose of those limit the use and amount of punitive dam- and it is not as if California law expresses laws.” Offshore Rental Co., 22 Cal.3d at ages which may be awarded in a lawsuit.” an affirmative desire for punitive awards 166. In our example the court’s task is Tarr v. Bob Ciasulli’s Mack Auto Mall, Inc., in the range of 5 to 9 times compensa- not to determine whether the New Jersey 916 A.2d 484, 489 (N.J. Super. Ct. App. Div. tory damages. rule or the California rule “is the better 2002) (citing Sponsor’s Statement, 206- Accordingly, under the “comparative 292, 1st Sess. (N.J. 1994)). The sponsor rec- impairment” analysis, New Jersey has the ognized that “[t]he awarding of punitive more specifically defined policy, and apply- damages was originally intended to pun- ing New Jersey law would allow “maximum In contrast to New ish defendants for malicious or wanton attainment” of both states’ interests. It actions and to deter others from engag- would respect New Jersey’s interest in pro- Jersey’s strong, expressly ing in similar activities.” Id. The sponsor viding a cap, but the cap is high enough to expressed concern, however, that damages satisfy California’s interest in punishing stated interest in capping were being awarded that did not meet the and deterring conduct warranting punitive standard, contributing to “the high cost damages. In addition to these factors, New punitive damages at five of litigation.’” Id. Accordingly, “[t]he [New Jersey has the much stronger interest over Jersey] Legislature’s purpose in enacting defendants that are citizens of New Jersey, times the compensatory the Act was to establish more restrictive particularly when the conduct allegedly standards with regard to the awarding of giving rise to punitive damages occurred award or $350,000, punitive damages.” Pavlova v. Mint Mgmt. in New Jersey. Moreover, given the uni- Corp., 868 A.2d 322, 325 (N.J. Super. Ct. form national scope of decisions related to California has no specific App. Div. 2005). the labeling and distribution of prescrip- In contrast to New Jersey’s strong, tion drug products, having the law of the or expressly stated expressly stated interest in capping puni- one state in which those decisions were tive damages at five times the compen- made govern that conduct protects justified interest in facilitating satory award or $350,000, California has expectations and advances the interests of no specific or expressly stated interest in certainty, predictability, and uniformity of punitive damages in facilitating punitive damages in excess result, as well as ease in the determination of that ratio. In Simon v. San Paolo U.S. and application of the law to be applied. excess of that ratio. Holding Co., Inc., 35 Cal.4th 1159 (2005), Restatement (Second) of Conflicts of Law the California Supreme Court reviewed §6, cmts. d, f, g (1971). For these reasons, U.S. Supreme Court precedent and rec- New Jersey’s interest in regulating activ- or worthier rule, but rather to decide—in ognized that “past decisions and statu- ity committed within its borders is greater light of the legal question at issue and the tory penalties approving ratios of 3 or 4 than any interest California may have in relevant state interests at stake—which to 1 were ‘instructive’ as to the due pro- our example. jurisdiction should be allocated the pre- cess norm.” Id. at 1182 (quoting State Farm dominating lawmaking power under Mut. Auto. Ins. Co. v. Campbell, 538 U.S. Conclusion the circumstances of the present case.” 408, 425 (2003). Simon further recog- The choice-of-law analysis can be gru- McCann, 48 Cal.4th at 97. Among other nized that ratios in excess of single-dig- eling. To be effective, it requires a thor- things, courts consider (1) whether one its are rarely constitutional but that “[m] ough understanding and explanation of state’s policy is more specific than the ultipliers less than nine or 10 are not, the competing interests at stake. But in other’s, and (2) which law would achieve however, presumptively valid under State many cases, the benefit of the application of “maximum attainment of underlying Farm.” Id. (emphasis in original). Simon the punitive-­damages law of a defendant’s purpose” by the competing governmen- noted, “Especially when the compensatory home state is hard to overestimate. tal entities considered together. Offshore damages are substantial or already con- When the law of a defendant’s home Rental, 22 Cal.3d at 166. tain a punitive element, lesser ratios ‘can state on punitive damages materially favors The purpose of New Jersey’s Punitive reach the outermost limit of the due pro- the defendant, providing a well-crafted Damages Act, enacted in 1995, is to bal- cess guarantee.’” Id. (quoting State Farm, argument for its application can change ance New Jersey’s interest in punishing and 538 U.S. at 425). See also Roby v. McKes- everything. It can mean the difference deterring a defendant who has engaged in son Corp., 47 Cal.4th 686, 693 (Cal. 2009) between a quick resolution and years of malicious or wanton misconduct with its (holding that punitive damages were con- protracted litigation, ending with breath- interest in protecting resident defendants stitutionally limited to a one-to-one ratio less press reports of a staggering damages from excessive damages awards. See N.J. where noneconomic damages were sub- award. This is a brief worth writing.

64 ■ For The Defense ■ September 2018