Establishing Diversity in Medical Device Litigation

A medical device manufacturer served with a product liability lawsuit in state court often prefers to be in federal court, but diversity jurisdiction require-
ments cannot be met because a local hospital that purchased the device and supplied it for use on the plaintiff-patient is a non-diverse co-defendant.

A large percentage of medical devices is designed for use by physicians only and are often single-use, sterile, disposable instruments. These devices are commonly purchased by a hospital at a treating physician's request and kept in stock until needed for a specific procedure. If an untoward event gives rise to a subsequent product liability lawsuit, the hospital is frequently named as a co-defendant.

In cases involving single-use, disposable instruments, the non-diverse hospital might be another species of fraudulently joined defendants. See, e.g., Smith v. Wyeth, Inc., 488 F. Supp. 2d 625, 630 (W.D. Ky. 2007) (fraudulently joined pharmacy companies). In many jurisdictions, the hospital's alleged liability for buying and furnishing the device may be barred by so-called “middleman” or “sealed container” doctrines, rendering plaintiff's claim against the hospital non-actionable.

The “middleman” or “sealed container” doctrine is a long-standing method of protecting an entity that is merely a conduit for passing a pre-packaged and sealed product from manufacturer to end user. See, e.g., Coca-Cola Bottling Co. v. Swilling, 57 S.W. 2d 1029 (Ark. 1933). Under this doctrine, the seller of a product in its original package ' especially in a sealed package ' has no duty to test or inspect the product itself. Consequently, liability may not be predicated on an alleged failure to test, inspect, or discover the defect. See Am Law Prod Liab. 3d ' 11.42.

In determining whether a party is fraudulently joined, the court should examine each of the plaintiff's theories of relief and determine under each count whether the plaintiff states a colorable cause of action under state law. See, e.g., Salisbury v. Purdue Pharma, L.P., 166 F. Supp. 2d 546 (E.D. Ky. 2001). Depending on the specific allegations, the central question may be whether the hospital's agents, servants, and/or employees breached a duty of care by negligently inspecting or maintaining the medical device. When the product in question is single-use, pre-packaged, and sterile, and when the hospital merely serves as a middleman that passes the original packaging from the manufacturer to the doctor, the “middleman” or “sealed container” doctrine may apply.

Middleman or Sealed Container Doctrine

The general rule is that a seller of a product who acts as a conduit for a product made by a reputable manufacturer has no affirmative duty to inspect or test for a latent defect if the product is sold in its original sealed container. See Am Law Prod Liab. 3d ' 11.42. See also Smith v. American Cystoscope Makers, Inc., 266 P. 2d 792, 796 (Wash. 1954) (citing to the Restatement of Torts, 1948 Supp., ' 402, for the proposition that a vendor of chattel, or in this case the Wappler Electro-Surgical Unit, manufactured by a third person “who neither knows nor has reason to know that it is, or is likely to be, dangerous, is not subject to liability for harm caused by the dangerous character or condition of the chattel even though he could have discovered it by an inspection or test of the chattel before selling it.”); Sears, Roebuck & Co. v. Marhenke, 121 F. 2d 598, 599 (9th Cir. 1941) (“Whether we assume that the defects [of a rubber hot water bag] could only be discovered by such investigation as were made by the experts, or could have been ascertained by the simple test of filling the bag with water and inverting it after the stopper had been screwed into its sockt [sic], the appellant ' was under no obligation to make such inspection or test.”); McMeekin v. Gimbel Bros., Inc., 223 F. Supp. 896, 899 (W.D. Pa. 1963) (retailer had no duty to test for latent defect); Odum v. Gulf Tire and Supply Co., 196 F. Supp. 35, 35 (N.D. Fla. 1961) (holding a retailer or wholesaler has no duty to inspect manufactured articles of a complex nature, such as a tire, for defects that are latent); Sutton v. Major Products Co., 372 S.E. 2d 897, 900 (N.C. App. 1988) (finding the rule that there is no duty to inspect or test for a latent defect “is particularly sound where, as here, the product is sold by the supplier in its original, sealed container.”); Brady v. Steyr-Daimer-Puch A.G. Werke Graz Austria, 429 So. 2d 1348, 1348 (Fla. 2d DCA 1983) (where product shipped in sealed container through middleman distributor, no liability as matter of law); Lowe v. American Machine & Foundry Co., 208 S.E. 2d 585, 588 (retailer under no obligation to test article for latent defect and may assume manufacturer has done its duty in properly constructing the article); Guglielmo v. Klausner Supply Co., Inc., 259 A. 2d 608, 614 (Conn. 1969) (no duty to inspect or test in order to discover defect, especially when the product is sold “in the original package in the condition in which it was received from the manufacturer”); Gobin v. Avenue Food Mart, 2 Cal. Rptr. 822, 823-824 (Cal. Ct. App. 1960) (where product passed through retailers hands and broke while being used for purpose for which it was designed, no inference of negligence could be drawn).

No Duty to Inspect or Test

A seller has no duty to inspect or test where doing so would ultimately contaminate the product at issue and render it useless. See Lipari v. National Grocery Co., 198 A. 393, 395 (N.J. 1938) (no duty to inspect a can of tuna fish where doing so would render the can unusable); Levis v. Zapolitz, 178 A. 2d 44, 49 (N.J. 1962) (holding a middleman vendor has no duty to inspect for latent defects where taking a toy sling shot apart to determine the quality of its structure would destroy the product).

Moreover, when the seller does not have the training to make a determination that the product is defective, it has no duty to inspect or test for defect. See, e.g., Burgess v. Montgomery Ward and Company, 264 F. 2d 495, 497-498 (10th Cir. 1959) (holding a retail vendor of an extension ladder manufactured by another cannot be liable in breach of warranty because the defect in the ladder was only discernable to the “trained eye.”); Hoopes v. Deere & Co., 788 P. 2d 201, 206 (Idaho 1990) (where retailer performed visual inspection to insure parts were delivered and product not damaged in shipment, court found no knowledge of alleged defect where retailer did “not have the expertise or technical or engineering personnel” to perform inspection that would reveal possible design defect).

Hospitals

Although not many courts have applied the “sealed container” or “middleman” doctrine to a hospital, there are a few reported decisions. The Louisiana Court of Appeals found that a hospital was not liable for negligence where a needle was left in a patient's throat after a tonsillectomy. Holliday v. Peden, 359 So. 2d 640 (La. 1978). According to the court:

The evidence shows that the hospital relies totally upon the manufacturer to supply defect free suturing needles. It is further shown that the needles come to the hospital in individually sealed packages which are not opened by any members of the hospital's surgical team until they are ready for use by the physician and that the hospital keeps a card file on which it is noted what preparations, instruments, and supplies are requested for each type of operation. Whatever type and grade needle requested by the doctor is laid out for him. Once a needle has been used it is disposed of. Finally, it was established that the hospital has used this procedure for many years without requiring an inspection of the suturing needles by members of its surgical teams prior to their use, without incident. Id. at 643.

Based on these facts, the Louisiana Court of Appeals held that the hospital could not be found liable under a theory of negligence. Id.

In South Highlands Infirmary v. Camp, 180 So. 2d 904 (Ala. 1965), the product at issue was a Stryker Dermatome, an electrical surgical instrument used in removing skin for grafting. In that case, the court found “the equipment furnished by a private hospital for a patient's use should be reasonably fit for the uses and purposes intended under the circumstances, and where a hospital furnishes defective equipment to a patient who, because of such defective equipment suffers injury proximately resulting therefrom, liability can be imposed as for negligence.” Id. at 907.

Unlike the pre-packaged, sterile, single-use, and disposable needle at issue in Holliday, though, the facts of this case are distinguishable. The Stryker Dermatome is a surgical instrument meant to be used time and again. Much like an MRI machine, a hospital must undertake to inspect and maintain a product like the Stryker Dermatome that will be used on multiple patients multiple times, as the hospital is clearly in the best position to take responsibility for a defect that occurs in those circumstances. But where a hospital merely serves as a pass-through entity for pre-packaged, sterile, single use medical devices that remain in their original condition until their use by a qualified physician, the same is not true.

Furthermore, if the medical device is commonly used by non-physicians, middleman protection is more problematic. Richard v. Southwest Louisiana Hospital Association, 383 So. 2d 83 (La. App. 1980), involved a Foley catheter used during a surgical procedure. For a period of time preceding the patient's procedure, the hospital purchased re-usable Foley catheters and would test the products prior to insertion. A year before the procedure at issue in the lawsuit, the hospital began using pre-packaged, pre-sterilized, and disposable Foley catheters and suspended the testing. This was the policy in effect at the time of the plaintiff's procedure. Id. A jury found that the failure of the hospital to test the new Foley catheters under the old procedure was sufficient to hold the hospital liable for negligence. Id. at 88.

'Sealed' Medical Devices

As a practical matter, no agent, servant, and/or employee of a hospital can physically “inspect” or “test” a sealed medical device, such as the needle described in Holliday v. Peden, nor can hospital personnel “maintain” this type of product. Any effort to inspect the sealed package before use destroys the product's usefulness. In addition, pre-packaged, sterile, single use medical devices require no maintenance except to keep the packaging intact. Black's Law Dictionary defines “maintain” as care “for purposes of operation productivity or appearance; to engage in general repair and upkeep.” Black's Law Dictionary 965 (7th ed. 1999). A hospital has no ability to maintain the product or “to engage in general repair and upkeep” when doing so would render the device useless. Instead, the most a hospital employee might do is open the device in the procedure room and pass it on to the physician for use.

Moreover, the nature of these devices often means that the treating physician is the only person with the necessary education, training, experience and access to inspect the device for alleged “defects” before use. The instructions for use that typically accompany these devices are often written for doctors, the ultimate users. Even if a device could be opened prior to a surgical procedure without destroying its usefulness, hospital personnel who do not have the requisite education, training, or experience to use the device also lack the education, training, and experience to test or inspect it.

Fraudulent Joinder of a Middleman

If a hospital providing a sealed medical device falls within the “middleman” or “sealed container” doctrine described, and is a non-diverse party, then the hospital may be fraudulently joined to the action and can be ignored for purposes of removal. 28 U.S.C. ' 1332. See, e.g., Steele v. Ford Motor Co., 2007 U.S. Dist. LEXIS 12543, *6 (E.D. Ky. Feb. 22, 2007) (holding the defendant car dealership was fraudulently joined to a product liability case where the plaintiff failed to allege facts from which the court could infer a breach of express warranty or that the dealership should have been aware of the vehicle's alleged defect). When the allegations against a hospital are based in negligence for failure to “test,” “inspect,” and/or “maintain” a single-use, sterile, disposable instrument, the allegations are non-actionable because the hospital is merely a stop for a medical device on its way to its ultimate destination: use by the physician. The hospital takes no action involving the medical devices beyond passing it from manufacturer to doctor. As such, the plaintiff cannot state a colorable claim of negligence against the hospital for a failure to inspect and maintain allegedly defective medical devices. Under this set of circumstances, the hospital defendant is fraudulently joined and should be ignored for purposes of removal. Id.

John L. Tate, a member of this newsletter's Board of Editors, is a member of Stites & Harbison PLLC and a Fellow of the American College of Trial Lawyers. He is based in Louisville, KY. Holly Neikirk Lankster is an associate in the same office.

A medical device manufacturer served with a product liability lawsuit in state court often prefers to be in federal court, but diversity jurisdiction require-
ments cannot be met because a local hospital that purchased the device and supplied it for use on the plaintiff-patient is a non-diverse co-defendant.

A large percentage of medical devices is designed for use by physicians only and are often single-use, sterile, disposable instruments. These devices are commonly purchased by a hospital at a treating physician's request and kept in stock until needed for a specific procedure. If an untoward event gives rise to a subsequent product liability lawsuit, the hospital is frequently named as a co-defendant.

In cases involving single-use, disposable instruments, the non-diverse hospital might be another species of fraudulently joined defendants. See, e.g., Smith v. Wyeth, Inc. , 488 F. Supp. 2d 625, 630 (W.D. Ky. 2007) (fraudulently joined pharmacy companies). In many jurisdictions, the hospital's alleged liability for buying and furnishing the device may be barred by so-called “middleman” or “sealed container” doctrines, rendering plaintiff's claim against the hospital non-actionable.

The “middleman” or “sealed container” doctrine is a long-standing method of protecting an entity that is merely a conduit for passing a pre-packaged and sealed product from manufacturer to end user. See, e.g., Coca-Cola Bottling Co. v. Swilling , 57 S.W. 2d 1029 (Ark. 1933). Under this doctrine, the seller of a product in its original package ' especially in a sealed package ' has no duty to test or inspect the product itself. Consequently, liability may not be predicated on an alleged failure to test, inspect, or discover the defect. See Am Law Prod Liab. 3d ' 11.42.

In determining whether a party is fraudulently joined, the court should examine each of the plaintiff's theories of relief and determine under each count whether the plaintiff states a colorable cause of action under state law. See, e.g., Salisbury v. Purdue Pharma, L.P. , 166 F. Supp. 2d 546 (E.D. Ky. 2001). Depending on the specific allegations, the central question may be whether the hospital's agents, servants, and/or employees breached a duty of care by negligently inspecting or maintaining the medical device. When the product in question is single-use, pre-packaged, and sterile, and when the hospital merely serves as a middleman that passes the original packaging from the manufacturer to the doctor, the “middleman” or “sealed container” doctrine may apply.

Middleman or Sealed Container Doctrine

The general rule is that a seller of a product who acts as a conduit for a product made by a reputable manufacturer has no affirmative duty to inspect or test for a latent defect if the product is sold in its original sealed container. See Am Law Prod Liab. 3d ' 11.42. S ee also Smith v. American Cystoscope Makers, Inc. , 266 P. 2d 792, 796 (Wash. 1954) (citing to the Restatement of Torts, 1948 Supp., ' 402, for the proposition that a vendor of chattel, or in this case the Wappler Electro-Surgical Unit, manufactured by a third person “who neither knows nor has reason to know that it is, or is likely to be, dangerous, is not subject to liability for harm caused by the dangerous character or condition of the chattel even though he could have discovered it by an inspection or test of the chattel before selling it.”); Sears, Roebuck & Co. v. Marhenke , 121 F. 2d 598, 599 (9th Cir. 1941) (“Whether we assume that the defects [of a rubber hot water bag] could only be discovered by such investigation as were made by the experts, or could have been ascertained by the simple test of filling the bag with water and inverting it after the stopper had been screwed into its sockt [sic], the appellant ' was under no obligation to make such inspection or test.”); McMeekin v. Gimbel Bros., Inc. , 223 F. Supp. 896, 899 (W.D. Pa. 1963) (retailer had no duty to test for latent defect); Odum v. Gulf Tire and Supply Co. , 196 F. Supp. 35, 35 (N.D. Fla. 1961) (holding a retailer or wholesaler has no duty to inspect manufactured articles of a complex nature, such as a tire, for defects that are latent); Sutton v. Major Products Co. , 372 S.E. 2d 897, 900 (N.C. App. 1988) (finding the rule that there is no duty to inspect or test for a latent defect “is particularly sound where, as here, the product is sold by the supplier in its original, sealed container.”); Brady v. Steyr-Daimer-Puch A.G. Werke Graz Austria , 429 So. 2d 1348, 1348 (Fla. 2d DCA 1983) (where product shipped in sealed container through middleman distributor, no liability as matter of law); Lowe v. American Machine & Foundry Co. , 208 S.E. 2d 585, 588 (retailer under no obligation to test article for latent defect and may assume manufacturer has done its duty in properly constructing the article); Guglielmo v. Klausner Supply Co., Inc. , 259 A. 2d 608, 614 (Conn. 1969) (no duty to inspect or test in order to discover defect, especially when the product is sold “in the original package in the condition in which it was received from the manufacturer”); Gobin v. Avenue Food Mart , 2 Cal. Rptr. 822, 823-824 (Cal. Ct. App. 1960) (where product passed through retailers hands and broke while being used for purpose for which it was designed, no inference of negligence could be drawn).

No Duty to Inspect or Test

A seller has no duty to inspect or test where doing so would ultimately contaminate the product at issue and render it useless. See Lipari v. National Grocery Co. , 198 A. 393, 395 (N.J. 1938) (no duty to inspect a can of tuna fish where doing so would render the can unusable); Levis v. Zapolitz , 178 A. 2d 44, 49 (N.J. 1962) (holding a middleman vendor has no duty to inspect for latent defects where taking a toy sling shot apart to determine the quality of its structure would destroy the product).

Moreover, when the seller does not have the training to make a determination that the product is defective, it has no duty to inspect or test for defect. See, e.g., Burgess v. Montgomery Ward and Company , 264 F. 2d 495, 497-498 (10th Cir. 1959) (holding a retail vendor of an extension ladder manufactured by another cannot be liable in breach of warranty because the defect in the ladder was only discernable to the “trained eye.”); Hoopes v. Deere & Co. , 788 P. 2d 201, 206 (Idaho 1990) (where retailer performed visual inspection to insure parts were delivered and product not damaged in shipment, court found no knowledge of alleged defect where retailer did “not have the expertise or technical or engineering personnel” to perform inspection that would reveal possible design defect).

Hospitals

Although not many courts have applied the “sealed container” or “middleman” doctrine to a hospital, there are a few reported decisions. The Louisiana Court of Appeals found that a hospital was not liable for negligence where a needle was left in a patient's throat after a tonsillectomy. Holliday v. Peden , 359 So. 2d 640 (La. 1978). According to the court:

The evidence shows that the hospital relies totally upon the manufacturer to supply defect free suturing needles. It is further shown that the needles come to the hospital in individually sealed packages which are not opened by any members of the hospital's surgical team until they are ready for use by the physician and that the hospital keeps a card file on which it is noted what preparations, instruments, and supplies are requested for each type of operation. Whatever type and grade needle requested by the doctor is laid out for him. Once a needle has been used it is disposed of. Finally, it was established that the hospital has used this procedure for many years without requiring an inspection of the suturing needles by members of its surgical teams prior to their use, without incident. Id. at 643.

Based on these facts, the Louisiana Court of Appeals held that the hospital could not be found liable under a theory of negligence. Id.

In South Highlands Infirmary v. Camp , 180 So. 2d 904 (Ala. 1965), the product at issue was a Stryker Dermatome, an electrical surgical instrument used in removing skin for grafting. In that case, the court found “the equipment furnished by a private hospital for a patient's use should be reasonably fit for the uses and purposes intended under the circumstances, and where a hospital furnishes defective equipment to a patient who, because of such defective equipment suffers injury proximately resulting therefrom, liability can be imposed as for negligence.” Id. at 907.

Unlike the pre-packaged, sterile, single-use, and disposable needle at issue in Holliday, though, the facts of this case are distinguishable. The Stryker Dermatome is a surgical instrument meant to be used time and again. Much like an MRI machine, a hospital must undertake to inspect and maintain a product like the Stryker Dermatome that will be used on multiple patients multiple times, as the hospital is clearly in the best position to take responsibility for a defect that occurs in those circumstances. But where a hospital merely serves as a pass-through entity for pre-packaged, sterile, single use medical devices that remain in their original condition until their use by a qualified physician, the same is not true.

Furthermore, if the medical device is commonly used by non-physicians, middleman protection is more problematic. Richard v. Southwest Louisiana Hospital Association , 383 So. 2d 83 (La. App. 1980), involved a Foley catheter used during a surgical procedure. For a period of time preceding the patient's procedure, the hospital purchased re-usable Foley catheters and would test the products prior to insertion. A year before the procedure at issue in the lawsuit, the hospital began using pre-packaged, pre-sterilized, and disposable Foley catheters and suspended the testing. This was the policy in effect at the time of the plaintiff's procedure. Id. A jury found that the failure of the hospital to test the new Foley catheters under the old procedure was sufficient to hold the hospital liable for negligence. Id. at 88.

'Sealed' Medical Devices

As a practical matter, no agent, servant, and/or employee of a hospital can physically “inspect” or “test” a sealed medical device, such as the needle described in Holliday v. Peden, nor can hospital personnel “maintain” this type of product. Any effort to inspect the sealed package before use destroys the product's usefulness. In addition, pre-packaged, sterile, single use medical devices require no maintenance except to keep the packaging intact. Black's Law Dictionary defines “maintain” as care “for purposes of operation productivity or appearance; to engage in general repair and upkeep.” Black's Law Dictionary 965 (7th ed. 1999). A hospital has no ability to maintain the product or “to engage in general repair and upkeep” when doing so would render the device useless. Instead, the most a hospital employee might do is open the device in the procedure room and pass it on to the physician for use.

Moreover, the nature of these devices often means that the treating physician is the only person with the necessary education, training, experience and access to inspect the device for alleged “defects” before use. The instructions for use that typically accompany these devices are often written for doctors, the ultimate users. Even if a device could be opened prior to a surgical procedure without destroying its usefulness, hospital personnel who do not have the requisite education, training, or experience to use the device also lack the education, training, and experience to test or inspect it.

Fraudulent Joinder of a Middleman

If a hospital providing a sealed medical device falls within the “middleman” or “sealed container” doctrine described, and is a non-diverse party, then the hospital may be fraudulently joined to the action and can be ignored for purposes of removal. 28 U.S.C. ' 1332. See, e.g., Steele v. Ford Motor Co., 2007 U.S. Dist. LEXIS 12543, *6 (E.D. Ky. Feb. 22, 2007) (holding the defendant car dealership was fraudulently joined to a product liability case where the plaintiff failed to allege facts from which the court could infer a breach of express warranty or that the dealership should have been aware of the vehicle's alleged defect). When the allegations against a hospital are based in negligence for failure to “test,” “inspect,” and/or “maintain” a single-use, sterile, disposable instrument, the allegations are non-actionable because the hospital is merely a stop for a medical device on its way to its ultimate destination: use by the physician. The hospital takes no action involving the medical devices beyond passing it from manufacturer to doctor. As such, the plaintiff cannot state a colorable claim of negligence against the hospital for a failure to inspect and maintain allegedly defective medical devices. Under this set of circumstances, the hospital defendant is fraudulently joined and should be ignored for purposes of removal. Id.

John L. Tate, a member of this newsletter's Board of Editors, is a member of Stites & Harbison PLLC and a Fellow of the American College of Trial Lawyers. He is based in Louisville, KY. Holly Neikirk Lankster is an associate in the same office.