New Jersey Manufacturers and Punitive Damages

The New Jersey statute affecting punitive damages in drug and device tort litigations, known as the Products Liability Act (Defective Product) (PLA), N.J. Stat. ' 2A:58C-5 (c) (2013), provides, in pertinent part:

Punitive damages shall not be awarded if a drug or device … which caused the claimant's harm was subject to premarket approval or licensure by the federal Food and Drug Administration under the “Federal Food, Drug, and Cosmetic Act,” 52 Stat. 1040, 21 U.S.C. ' 301 et seq. or the “Public Health Service Act,” 58 Stat. 682, 42 U.S.C. ' 201 et seq. and was approved or licensed; or is generally recognized as safe and effective pursuant to conditions established by the federal Food and Drug Administration and applicable regulations, including packaging and labeling regulations. However, where the product manufacturer knowingly withheld or misrepresented information required to be submitted under the agency's regulations, which information was material and relevant to the harm in question, punitive damages may be awarded.

(Note: Earlier versions of the law have provided similar immunity since 2008).

New Jersey courts have been strict in affording drug manufacturers the protections of the PLA by disallowing punitive damages claims that flow from the use of FDA-approved drugs or devices. See, e.g., Re: Andrew Nelson v. Biogen Idec Inc., 2013 U.S. Dist. LEXIS 57920 (D. N.J., 2013) (summary dismissal of punitive damages claim required because “the PLA provides ' in no uncertain terms ' that punitive damages 'shall not be awarded' in a products liability case based on an FDA-approved drug.”) Emphasis in original.

Even a showing of a drug company's knowing withholding or misrepresentation of information before the FDA ' the exception to the ban on punitive damages awards found in the PLA ' will not help a plaintiff seeking such relief in a New Jersey court; the New Jersey Appellate Division held in 2008 that the exception enunciated in the New Jersey law is preempted by federal law, as it requires a showing of fraud on the FDA. McDarby v. Merck & Co. Inc., 401 N.J. Super 10 (App. Div. 2008).

Missouri Patient, New Jersey Manufacturer

New Jersey's PLA recently became the subject of litigation in another part of the country, where the Eighth Circuit Court of Appeals was asked about the application of New Jersey law to a Missouri plaintiff's suit. Winter v. Novartis Pharmaceuticals Corp., 2014 U.S. App. LEXIS 411 (8th Cir., 1/9/14). The patient there, now deceased, had been prescribed two drugs, Arendia and Zometa. After having two teeth removed, she developed osteonecrosis, which is characterized by a break-down of a bone or bones due to failure to regenerate new bone material as the old diminishes. The patient's executor sued the drugs' manufacturer, Novartis, which is incorporated in Delaware but whose principal place of business is New Jersey. The plaintiffs claimed that Novartis failed to adequately warn the patient's doctor about the risk of osteonecrosis with the use of the two drugs. Novartis asked the district court, sitting in Missouri, to apply New Jersey substantive law to the matter. The court instead applied Missouri law.

The jury in Winter found in the plaintiff's favor and awarded her $225,000. None of that award was for punitive damages, yet, on appeal, Novartis asserted that because the trial court improvidently applied Missouri and not New Jersey law, the jury heard evidence in support of punitive damages and was thereby unduly prejudiced.

To answer the question whether the trial court should have applied Missouri law to the case, or if New Jersey was the correct choice, the court began by observing that a district court sitting in diversity is required to apply the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941). Missouri's choice-of-law rules hold that courts should apply the substantive law of the state with the “most significant relationship” to the occurrence and the parties. Fuqua Homes Inc. v. Beattie, 388 F.3d 618 (8th Cir. 2004), citing Thompson v. Crawford, 833 S.W.2d 868, 870 (Mo. Banc 1992). The Restatement (Second) of Conflict of Laws, which Missouri has
adopted, tells courts to consider four factors when determining the applicable law for tort actions: 1) “the place where the injury occurred”; 2) “the place where the conduct causing the injury occurred”; 3) “the domicile, residence, nationality, place of incorporation and place of business of the parties”; and 4) “the place where the relationship, if any, between the parties is centered.” Fuqua Homes, 388 F.3d at 621, citing Restatement (Second) of Conflict of Laws ' 145 (1971).

In addition to all of these considerations, as stated in Thompson, Missouri has an overriding general presumption that the law of the place of injury should be applied unless another state has a more significant relationship to the matter.

In support of its argument before the appeals court that New Jersey had the more significant relationship with the injury, Novartis pointed out that the drugs the patient took were labeled in New Jersey, and that its marketing programs were formulated and conducted from there.

The Eighth Circuit was not moved, and concluded that Novartis's claims could not overcome Missouri's presumption that the state with the most significant relationship to a tort action is the place of the injury. Said the court, “Missouri is where Novartis's sales representatives failed to warn [the patient's] doctor, making it also, at least in part, the state of the conduct causing the injury. New Jersey may have an interest in its corporations being governed by its punitive damages provisions, but as the district court held, Missouri has a strong interest in applying its punitive damages laws to deter conduct by corporations doing business in Missouri that harms Missouri residents.” The Eighth Circuit concluded, therefore, that the district court properly applied Missouri law to the Winter action because “New Jersey's interest, balanced against Missouri's, does not overcome Missouri's presumption that the law of the place of injury should apply.”

Next month, we will discuss how courts in several other jurisdictions have handled New Jersey manufacturers' arguments concerning choice of law when tort claims are brought by non-New Jersey domiciliaries.

Janice G. Inman is Editor-in-Chief of this newsletter.

The state of New Jersey is home to the headquarters of 17 of the the top 20 drug-producing companies in the world. State of New Jersey Business Portal, http://bit.ly/1c79kpf. These include pharmaceuticals producers Wyeth, Merck and Co. and Johnson & Johnson.

Why are so many of these manufacturers located in this one state? According to the State of New Jersey, it is “known as 'The Medicine Chest of the World' for good reason ' providing an effective formula of great location, educated workforce and high quality of life.” Id. Perhaps so, but another incentive for pharmaceuticals manufacturers to move to or stay in New Jersey is surely its business-friendly laws. One such law has been at the center of several litigations nationwide, as New Jersey drug manufacturers try to export to other states the favorable treatment they receive in their home state. These other states' courts are not necessarily buying it.

New Jersey's Law

The New Jersey statute affecting punitive damages in drug and device tort litigations, known as the Products Liability Act (Defective Product) (PLA), N.J. Stat. ' 2A:58C-5 (c) (2013), provides, in pertinent part:

Punitive damages shall not be awarded if a drug or device … which caused the claimant's harm was subject to premarket approval or licensure by the federal Food and Drug Administration under the “Federal Food, Drug, and Cosmetic Act,” 52 Stat. 1040, 21 U.S.C. ' 301 et seq. or the “Public Health Service Act,” 58 Stat. 682, 42 U.S.C. ' 201 et seq. and was approved or licensed; or is generally recognized as safe and effective pursuant to conditions established by the federal Food and Drug Administration and applicable regulations, including packaging and labeling regulations. However, where the product manufacturer knowingly withheld or misrepresented information required to be submitted under the agency's regulations, which information was material and relevant to the harm in question, punitive damages may be awarded.

(Note: Earlier versions of the law have provided similar immunity since 2008).

New Jersey courts have been strict in affording drug manufacturers the protections of the PLA by disallowing punitive damages claims that flow from the use of FDA-approved drugs or devices. See, e.g., Re: Andrew Nelson v. Biogen Idec Inc., 2013 U.S. Dist. LEXIS 57920 (D. N.J., 2013) (summary dismissal of punitive damages claim required because “the PLA provides ' in no uncertain terms ' that punitive damages 'shall not be awarded' in a products liability case based on an FDA-approved drug.”) Emphasis in original.

Even a showing of a drug company's knowing withholding or misrepresentation of information before the FDA ' the exception to the ban on punitive damages awards found in the PLA ' will not help a plaintiff seeking such relief in a New Jersey court; the New Jersey Appellate Division held in 2008 that the exception enunciated in the New Jersey law is preempted by federal law, as it requires a showing of fraud on the FDA. McDarby v. Merck & Co. Inc. , 401 N.J. Super 10 (App. Div. 2008).

Missouri Patient, New Jersey Manufacturer

New Jersey's PLA recently became the subject of litigation in another part of the country, where the Eighth Circuit Court of Appeals was asked about the application of New Jersey law to a Missouri plaintiff's suit. Winter v. Novartis Pharmaceuticals Corp., 2014 U.S. App. LEXIS 411 (8th Cir., 1/9/14). The patient there, now deceased, had been prescribed two drugs, Arendia and Zometa. After having two teeth removed, she developed osteonecrosis, which is characterized by a break-down of a bone or bones due to failure to regenerate new bone material as the old diminishes. The patient's executor sued the drugs' manufacturer, Novartis, which is incorporated in Delaware but whose principal place of business is New Jersey. The plaintiffs claimed that Novartis failed to adequately warn the patient's doctor about the risk of osteonecrosis with the use of the two drugs. Novartis asked the district court, sitting in Missouri, to apply New Jersey substantive law to the matter. The court instead applied Missouri law.

The jury in Winter found in the plaintiff's favor and awarded her $225,000. None of that award was for punitive damages, yet, on appeal, Novartis asserted that because the trial court improvidently applied Missouri and not New Jersey law, the jury heard evidence in support of punitive damages and was thereby unduly prejudiced.

To answer the question whether the trial court should have applied Missouri law to the case, or if New Jersey was the correct choice, the court began by observing that a district court sitting in diversity is required to apply the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487 (1941). Missouri's choice-of-law rules hold that courts should apply the substantive law of the state with the “most significant relationship” to the occurrence and the parties. Fuqua Homes Inc. v. Beattie , 388 F.3d 618 (8th Cir. 2004), citing Thompson v. Crawford , 833 S.W.2d 868, 870 (Mo. Banc 1992). The Restatement (Second) of Conflict of Laws, which Missouri has
adopted, tells courts to consider four factors when determining the applicable law for tort actions: 1) “the place where the injury occurred”; 2) “the place where the conduct causing the injury occurred”; 3) “the domicile, residence, nationality, place of incorporation and place of business of the parties”; and 4) “the place where the relationship, if any, between the parties is centered.” Fuqua Homes, 388 F.3d at 621, citing Restatement (Second) of Conflict of Laws ' 145 (1971).

In addition to all of these considerations, as stated in Thompson, Missouri has an overriding general presumption that the law of the place of injury should be applied unless another state has a more significant relationship to the matter.

In support of its argument before the appeals court that New Jersey had the more significant relationship with the injury, Novartis pointed out that the drugs the patient took were labeled in New Jersey, and that its marketing programs were formulated and conducted from there.

The Eighth Circuit was not moved, and concluded that Novartis's claims could not overcome Missouri's presumption that the state with the most significant relationship to a tort action is the place of the injury. Said the court, “Missouri is where Novartis's sales representatives failed to warn [the patient's] doctor, making it also, at least in part, the state of the conduct causing the injury. New Jersey may have an interest in its corporations being governed by its punitive damages provisions, but as the district court held, Missouri has a strong interest in applying its punitive damages laws to deter conduct by corporations doing business in Missouri that harms Missouri residents.” The Eighth Circuit concluded, therefore, that the district court properly applied Missouri law to the Winter action because “New Jersey's interest, balanced against Missouri's, does not overcome Missouri's presumption that the law of the place of injury should apply.”

Next month, we will discuss how courts in several other jurisdictions have handled New Jersey manufacturers' arguments concerning choice of law when tort claims are brought by non-New Jersey domiciliaries.

Janice G. Inman is Editor-in-Chief of this newsletter.