Application of a Universal Law in Multidistrict Litigation

One must only take a simple product liability example to illustrate the potential troubles in applying universal law. Assume a product liability case in which either Arizona or Indiana law could apply. Even a cursory look at applicable laws shows drastic differences. Without going into unnecessary detail: Arizona follows the hindsight test in product liability actions, but no Indiana court appears to have considered whether to adopt this test; Indiana does not recognize the tort of negligent misrepresentation outside of the employment context, while Arizona follows the Restatement (Second) of Torts '552, which generally recognizes the tort in the context of commercial transactions; Arizona allows parents to bring loss-of-consortium claims for injuries to their adult children, while Indiana allows only loss-of-services actions, and only for harm to minor children; Arizona follows the collateral source rule, while an Indiana statute, in contrast, requires trial courts to admit “evidence of … proof of collateral source payments” with certain limited exceptions; and with respect to punitive damages, Arizona imposes no quantitative limit while Indiana limits punitive damages to the greater of three times compensatory damages or $50,000.

It Is Inappropriate for a Court to Apply a Universal Law in the MDL Setting

The U.S. Supreme Court's decision in Phillips Petroleum Co. v. Shutts et al., ruled ' due in no small part to the vast differences in substantive laws such as the ones discussed above ' that application of a universal law would violate the due process rights of parties who are guaranteed to have the appropriate law applied to their various claims. Phillips Petroleum, 472 U.S. 797, 823 (1985). In Phillips Petroleum, a class had been sought to pursue claims concerning interest on overdue royalty payments stemming from gas leases. Class members resided in all 50 states, the District of Columbia, and several foreign countries. Phillips Petroleum claimed that the claims of all class members could not be decided by applying Kansas law to all the transactions. The Supreme Court agreed, holding that a state court cannot apply one substantive law to all claims, even if they were properly consolidated. Similarly, numerous federal courts have found that in an MDL, the choice-of-law rules to be applied as to each case in such a proceeding, presuming the cases are in federal court based upon diversity jurisdiction, are the rules of the states where the actions were originally filed. See In re Air Crash Disaster near Chicago., 644 F.2d 594, 610 (7th Cir. 1981) (applying the laws of no less than eight states to cases in an MDL, holding, ” … it is not disputed that, since federal jurisdiction is based on a diversity of citizenship, the choice-of-law rules to be used are those choice-of-law rules of the state where the actions were originally filed.”); Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 309 F. Supp. 1053 (E.D. Pa. 1969); In re Air Crash Disaster at Boston, 399 F. Supp. 1106 (D. Mass. 1975).

The Exception ' and Why It Happened

At least one federal court has applied a universal substantive law to a major MDL that consolidated product liability cases for pretrial purposes. In re “Agent Orange” Product Liability Litigation, 580 F. Supp. 690, 693 (E.D.N.Y. 1984). In Agent Orange, the court addressed the preliminary issue of what substantive law should apply in an action by plaintiffs ' Vietnam War veterans and their families ' against defendant “Agent Orange” manufacturers for injuries suffered as a result of plaintiff veterans' exposure to Agent Orange during the Vietnam War.

In response to the court's decision to apply a universal federal law to all claims, plaintiffs argued that such application would be inappropriate. The plaintiffs argued that: 1) federal common law may only be applied where there is a substantial federal question at stake; 2) the Second Circuit's decision ' that diversity of citizenship and not federal question, gave the federal court jurisdiction ' constituted a determination binding on the court that no such federal interest existed; and 3) the court could not, therefore, apply federal or “national consensus” common law to any issue. Further, the plaintiffs suggested that no single national consensus substantive law existed.

In response, the court defended its position to apply a universal federal common law. First, the court explained that issues involving the federal government dominated the case: “This suit involves tens of thousands of servicemen and their wives and children alleging injury abroad in time of war as a result of a military decision. As opposed to the general policy behind products liability which encompasses all those injured by defective products, there is a far more specific federal policy of ensuring compensation for injured members and veterans of the armed forces.” Second, the court minimized the importance of the states' interests: “At most, a state's contacts in an 'Agent Orange' suit would consist of the individual plaintiff veteran's residence in that state ' a factor readily subject to change in our transient society ' and the fact that one of the seven defendant companies is either incorporated, has its principal place of business or manufactured its Agent Orange in that state. At the risk of restating the obvious, those contacts are dwarfed by the national contacts in the case.”

Thus, Judge Weinstein's opinion in Agent Orange went to enormous lengths to justify its decision as not being violative of due process. Nevertheless, many commentators have criticized Judge Weinstein's opinion as an obvious attempt to streamline complex litigation in order to coerce parties into settling the case, despite knowing that the application of a universal substantive law was inappropriate. See 52 Ark. L. Rev. 9, 27 (1999); see also, 97 Colum. L. Rev. 1971, 1989 (1997) (commenting that “in Agent Orange Judge Weinstein, pursuing the goal of settlement, applied what he knew was not generally understood as the law, and did everything he could to make sure that the train he was conducting was not derailed by the Court of Appeals.”). Commentary on this issue further supports the conclusion that the MDL court cannot disregard the substantive law that would apply in each transferor court. While the MDL court can avoid or finesse conflict issues to a certain degree, the MDL court will eventually have to deal with issues that involve state law. When defenses are based on statutory or other types of “national” law, such as the federal statutes, government contracts, or the U.S. Constitution, choice-of-law issues are largely eliminated. This is not the case for many decisions, eg, a statute of limitations defense, which would likely present various potential laws, requiring an MDL court to either force all parties into a universal law or face the burden of learning the substantive law in each state.

Further Complications

Aside from the obvious difficulties raised by trying to apply one substantive law to cases arising from jurisdictions with vastly different substantive law, there are additional complications. When a case is remanded back to the transferor court, the transferor court gains exclusive jurisdiction of the case. Although it is possible for transferor courts to overturn, vacate, or modify transferee court rulings, most commentators have indicated that this is a rare occurrence.

The ruling in In re The Upjohn Antibiotic “Cleocin” Products Liability Litigation explicitly supports the transferor court's sole jurisdiction following remand while simultaneously offering implicit support for its ability to modify MDL rulings. After the MDL court had remanded the cases, the plaintiffs requested that the MDL court modify a previous order regarding discovery seeking, inter alia, a protective order to quash depositions of previously deposed witnesses. The MDL court denied the plaintiffs' motion and found that after remand the MDL court no longer had jurisdiction over the matter. Essentially, the court held that after remand, decisions are in the transferor court's hands. See Upjohn, 508 F. Supp. 1020, 1021 (E.D. Mi. 1981) (“When a case has been transferred by the multidistrict panel, venue has been changed and the transferor court no longer has any jurisdiction of the matter. It can issue no further order and any further action it takes has no effect.”). This said, it is difficult to imagine a transferor court overturning substantive decisions made during the MDL. This begs a number of questions: Must the transferor court apply the substantive law chosen by the MDL Judge? Must summary judgment motions be reheard if the applicable substantive law would yield a potentially different result?

Conclusion

Turning back to the Ephedra MDL, Judge Rakoff thankfully chose the appropriate course of action when, at the Sept. 10, 2004, Status Conference in the Ephedra MDL, the court made clear that the application of a universal substantive law was tempting, but inappropriate. The court stated:

Yes. I need to add, I have doubt about my power, even if all the parties were agreed, to say well, the law for all these cases is Restatement 3d, torts, state X, which clearly it isn't, we'll take an extreme, the state court has rejected, if there is any such statement as a theoretical proposition. I don't know if on consent, I don't know that we can say we can apply the law of Restatement 3d.

To go further and suggest that the court has the power to say well, even though the case law is unequivocal in Jurisdiction X, that the Restatement 2d should apply, I know in my heart that they would now adopt the third Restatement. I think that is beyond my power.

Judge Rakoff realized that however tempting the application of a universal law may be ' as it streamlines proceedings and saves the MDL judge from analyzing the substantive law of numerous states ' it is legally unsound.

When product liability cases are consolidated through Multidistrict Litigation (“MDL”) proceedings, the proceedings are rife with complexities, and the obvious temptation for an MDL judge is to streamline and simplify these proceedings as much as possible. MDL judges have many appropriate tools at their disposal, such as case management orders and adoption of uniform discovery requests, to facilitate the proceedings. While certain techniques used to simplify and consolidate are appropriate, application of a “universal law” ' in which one substantive law is applied to cases from various jurisdictions ' is not. Application of a universal law violates due process and places consolidation and expediency above the interests of justice. Such a dangerous proposition was briefly suggested during the Ephedra MDL proceedings, involving hundreds of cases consolidated for pretrial purposes in the Southern District of New York.

Judge Jed S. Rakoff of the Southern District of New York is overseeing the cases consolidated in In re Ephedra Products Liability Litigation, No. 04-1598 (S.D.N.Y) (the “Ephedra MDL Proceeding”). In his Case Management Order No. 6 (“CMO No. 6″), Judge Rakoff invited the parties to the proceeding to make oral presentations as to the possibility of applying the Restatement (Third) of Torts (the “Restatement”) as the universal law applicable to all claims in the Ephedra MDL Proceeding.

In accordance with '11.211 of the Manual of Complex Litigation (4th Ed.), which recommends that the court and parties attempt to identify and resolve disputed issues of law early in the case management process, counsel are invited to make oral presentations at the September status conference about whether the Restatement (Third) of Torts can provide a uniform substantive law for all claims of personal injuries in these cases.

One must only take a simple product liability example to illustrate the potential troubles in applying universal law. Assume a product liability case in which either Arizona or Indiana law could apply. Even a cursory look at applicable laws shows drastic differences. Without going into unnecessary detail: Arizona follows the hindsight test in product liability actions, but no Indiana court appears to have considered whether to adopt this test; Indiana does not recognize the tort of negligent misrepresentation outside of the employment context, while Arizona follows the Restatement (Second) of Torts '552, which generally recognizes the tort in the context of commercial transactions; Arizona allows parents to bring loss-of-consortium claims for injuries to their adult children, while Indiana allows only loss-of-services actions, and only for harm to minor children; Arizona follows the collateral source rule, while an Indiana statute, in contrast, requires trial courts to admit “evidence of … proof of collateral source payments” with certain limited exceptions; and with respect to punitive damages, Arizona imposes no quantitative limit while Indiana limits punitive damages to the greater of three times compensatory damages or $50,000.

It Is Inappropriate for a Court to Apply a Universal Law in the MDL Setting

The U.S. Supreme Court's decision in Phillips Petroleum Co. v. Shutts et al., ruled ' due in no small part to the vast differences in substantive laws such as the ones discussed above ' that application of a universal law would violate the due process rights of parties who are guaranteed to have the appropriate law applied to their various claims. Phillips Petroleum, 472 U.S. 797, 823 (1985). In Phillips Petroleum, a class had been sought to pursue claims concerning interest on overdue royalty payments stemming from gas leases. Class members resided in all 50 states, the District of Columbia, and several foreign countries. Phillips Petroleum claimed that the claims of all class members could not be decided by applying Kansas law to all the transactions. The Supreme Court agreed, holding that a state court cannot apply one substantive law to all claims, even if they were properly consolidated. Similarly, numerous federal courts have found that in an MDL, the choice-of-law rules to be applied as to each case in such a proceeding, presuming the cases are in federal court based upon diversity jurisdiction, are the rules of the states where the actions were originally filed. See In re Air Crash Disaster near Chicago., 644 F.2d 594, 610 (7th Cir. 1981) (applying the laws of no less than eight states to cases in an MDL, holding, ” … it is not disputed that, since federal jurisdiction is based on a diversity of citizenship, the choice-of-law rules to be used are those choice-of-law rules of the state where the actions were originally filed.”); Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 309 F. Supp. 1053 (E.D. Pa. 1969); In re Air Crash Disaster at Boston, 399 F. Supp. 1106 (D. Mass. 1975).

The Exception ' and Why It Happened

At least one federal court has applied a universal substantive law to a major MDL that consolidated product liability cases for pretrial purposes. In re “Agent Orange” Product Liability Litigation, 580 F. Supp. 690, 693 (E.D.N.Y. 1984). In Agent Orange, the court addressed the preliminary issue of what substantive law should apply in an action by plaintiffs ' Vietnam War veterans and their families ' against defendant “Agent Orange” manufacturers for injuries suffered as a result of plaintiff veterans' exposure to Agent Orange during the Vietnam War.

In response to the court's decision to apply a universal federal law to all claims, plaintiffs argued that such application would be inappropriate. The plaintiffs argued that: 1) federal common law may only be applied where there is a substantial federal question at stake; 2) the Second Circuit's decision ' that diversity of citizenship and not federal question, gave the federal court jurisdiction ' constituted a determination binding on the court that no such federal interest existed; and 3) the court could not, therefore, apply federal or “national consensus” common law to any issue. Further, the plaintiffs suggested that no single national consensus substantive law existed.

In response, the court defended its position to apply a universal federal common law. First, the court explained that issues involving the federal government dominated the case: “This suit involves tens of thousands of servicemen and their wives and children alleging injury abroad in time of war as a result of a military decision. As opposed to the general policy behind products liability which encompasses all those injured by defective products, there is a far more specific federal policy of ensuring compensation for injured members and veterans of the armed forces.” Second, the court minimized the importance of the states' interests: “At most, a state's contacts in an 'Agent Orange' suit would consist of the individual plaintiff veteran's residence in that state ' a factor readily subject to change in our transient society ' and the fact that one of the seven defendant companies is either incorporated, has its principal place of business or manufactured its Agent Orange in that state. At the risk of restating the obvious, those contacts are dwarfed by the national contacts in the case.”

Thus, Judge Weinstein's opinion in Agent Orange went to enormous lengths to justify its decision as not being violative of due process. Nevertheless, many commentators have criticized Judge Weinstein's opinion as an obvious attempt to streamline complex litigation in order to coerce parties into settling the case, despite knowing that the application of a universal substantive law was inappropriate. See 52 Ark. L. Rev. 9, 27 (1999); see also, 97 Colum. L. Rev. 1971, 1989 (1997) (commenting that “in Agent Orange Judge Weinstein, pursuing the goal of settlement, applied what he knew was not generally understood as the law, and did everything he could to make sure that the train he was conducting was not derailed by the Court of Appeals.”). Commentary on this issue further supports the conclusion that the MDL court cannot disregard the substantive law that would apply in each transferor court. While the MDL court can avoid or finesse conflict issues to a certain degree, the MDL court will eventually have to deal with issues that involve state law. When defenses are based on statutory or other types of “national” law, such as the federal statutes, government contracts, or the U.S. Constitution, choice-of-law issues are largely eliminated. This is not the case for many decisions, eg, a statute of limitations defense, which would likely present various potential laws, requiring an MDL court to either force all parties into a universal law or face the burden of learning the substantive law in each state.

Further Complications

Aside from the obvious difficulties raised by trying to apply one substantive law to cases arising from jurisdictions with vastly different substantive law, there are additional complications. When a case is remanded back to the transferor court, the transferor court gains exclusive jurisdiction of the case. Although it is possible for transferor courts to overturn, vacate, or modify transferee court rulings, most commentators have indicated that this is a rare occurrence.

The ruling in In re The Upjohn Antibiotic “Cleocin” Products Liability Litigation explicitly supports the transferor court's sole jurisdiction following remand while simultaneously offering implicit support for its ability to modify MDL rulings. After the MDL court had remanded the cases, the plaintiffs requested that the MDL court modify a previous order regarding discovery seeking, inter alia, a protective order to quash depositions of previously deposed witnesses. The MDL court denied the plaintiffs' motion and found that after remand the MDL court no longer had jurisdiction over the matter. Essentially, the court held that after remand, decisions are in the transferor court's hands. See Upjohn, 508 F. Supp. 1020, 1021 (E.D. Mi. 1981) (“When a case has been transferred by the multidistrict panel, venue has been changed and the transferor court no longer has any jurisdiction of the matter. It can issue no further order and any further action it takes has no effect.”). This said, it is difficult to imagine a transferor court overturning substantive decisions made during the MDL. This begs a number of questions: Must the transferor court apply the substantive law chosen by the MDL Judge? Must summary judgment motions be reheard if the applicable substantive law would yield a potentially different result?

Conclusion

Turning back to the Ephedra MDL, Judge Rakoff thankfully chose the appropriate course of action when, at the Sept. 10, 2004, Status Conference in the Ephedra MDL, the court made clear that the application of a universal substantive law was tempting, but inappropriate. The court stated:

Yes. I need to add, I have doubt about my power, even if all the parties were agreed, to say well, the law for all these cases is Restatement 3d, torts, state X, which clearly it isn't, we'll take an extreme, the state court has rejected, if there is any such statement as a theoretical proposition. I don't know if on consent, I don't know that we can say we can apply the law of Restatement 3d.

To go further and suggest that the court has the power to say well, even though the case law is unequivocal in Jurisdiction X, that the Restatement 2d should apply, I know in my heart that they would now adopt the third Restatement. I think that is beyond my power.

Judge Rakoff realized that however tempting the application of a universal law may be ' as it streamlines proceedings and saves the MDL judge from analyzing the substantive law of numerous states ' it is legally unsound.