New Jersey Manufacturers and Punitive Damages

While New Jersey courts are bound by the statute's manufacturer protections, courts located in other jurisdictions have given the law mixed levels of respect. Most recently, as we saw last month, the Eighth Circuit Court of Appeals, in Winter v. Novartis Pharmaceuticals Corp., 2014 U.S. App. LEXIS 411 (8th Cir., 1/9/14), determined that New Jersey's punitive damages prohibition law was inapplicable to a Missouri plaintiff allegedly harmed by the defendant New Jersey manufacturer's drug products Arendia and Zometa.

What is happening with New Jersey's punitive damages law in other jurisdictions, and why are courts unable to come to a consensus on whether the law applies to non-New Jersey plaintiffs' cases?

The Winter Court Is Not The First to Discount NJ Law

In Hill v. Novartis Pharm. Corp., 2012 U.S. Dist. LEXIS 38516 (E.D. Cal. 2013), the U.S. District Court for the Eastern District of California was asked to throw out the plaintiff's claim for punitive damages based on New Jersey's prohibition on assessment of such damages for harm caused by FDA-approved drugs and devices. The Hill court began its analysis by turning to the choice-of-law rules of its forum state, California. Those rules ask first what the governmental interests of the competing jurisdictions are. If the rules are not materially different, then California law will apply. Frontier Oil Corp. v. RLI Ins. Co., 153 Cal.App.4th 1436 (2007). If there is a material difference ' as there was in Hill, because punitive damages would be allowed under California's law but not New Jersey's ' a court must move on to answer two questions, as described in Frontier Oil.

First, it must determine whether each jurisdiction has an interest in applying its own law. If not, the court should apply the law of the interested jurisdiction. However, if both have an interest, the court must next ask “which jurisdiction has a greater interest in the application of its own law to the issue or, conversely, which jurisdiction's interest would be more significantly impaired if its law were not applied. The court must apply the law of the jurisdiction whose interest would be more significantly impaired if its law were not applied.”

The Hill court determined that New Jersey's interest in enacting its punitive damage prohibition law was to advance the economic health of companies operating within its borders. California's interest in seeing its punitive damage laws applied to tort cases is to punish wrongful acts committed within the state and prospectively deter similar acts in future. Both these states' interests were equally legitimate, the Hill court found.

This being the case, the court turned to another general rule: the maxim that, unless there is a compelling reason to apply the law of a foreign jurisdiction, the presumption is that the law of the forum state should be applied. Novartis attempted to provide the court with a compelling reason to apply New Jersey's law over California's by pointing out that its decision-making actions concerning the marketing and labeling of its product took place in New Jersey. Any harm that came to the plaintiff sprung from this source, it said. But the Hill court found this rationale less than compelling. It concluded that California's interests in the case were greater, in light of the fact that so many other actions that led to the alleged harm complained of took place in California ' i.e., distributing and selling the drug there; paying salespeople employed there to promote the product; and sending promotional materials there. And because California law should be applied, the plaintiffs were entitled to seek the punitive damages available under that law.

In the case of Rowland v. Novartis Pharmaceuticals Corp., 2013 U.S. Dist. LEXIS 166205 (W.D. Pa., 2013), the defendant attempted to obtain a declaration from Pennsylvania's Western District Court that New Jersey law should be applied to the issue of punitive damages, even though all three plaintiffs were Pennsylvania residents who were prescribed and allegedly injured by the defendant's drug Zometa in Pennsylvania. Again, the manufacturer's argument was based on the fact that its corporate decisions regarding Zometa's labeling, as well as its clinical trials, adverse event reporting and marketing decisions, took place in New Jersey.

The Rowland plaintiffs claimed that Zometa caused them to develop osteonecrosis of the jaw (ONJ). Two of them originally filed their claims in Washington, DC, and the third filed his claim in New York. All three cases were conditionally transferred to the Middle District of Tennessee for coordinated pretrial proceedings pursuant to 28 U.S.C. ' 1407, then transferred to the Western District of Pennsylvania, where they were consolidated for consideration of pretrial matters. All parties agreed that the choice of law as to whether New Jersey or Pennsylvania law should apply to the punitive damages claims must, in accordance with 28 U.S.C. ' 1407(a), be determined by the laws of the states from which the cases were transferred. Therefore, the Rowland court had to decide which law as to punitive damages a District of Columbia court would apply to two of the claims, and which state law a New York court would apply to the third claim.

The choice-of-law rules in Washington, DC, begin, as do most, by asking if a true conflict exists between the laws of jurisdictions with interests in the case. If there is no conflict, then District of Columbia law will be applied. However, if there is a conflict, a government interest analysis must be undertaken. Courts will then use the factors set out in Restatement (Second) of Conflicts ' 145 to determine which state has the more significant relationship to the particular dispute. One of the main factors in this analysis is the place of injury. Novartis argued, however, that the plaintiffs' place of injury was “fortuitous” because the alleged harm flowing from the company's New Jersey-made marketing decisions was no more likely to have occurred in Pennsylvania than in any other state.

The court found this argument flawed because the plaintiffs were Pennsylvania citizens who purchased the defendant's drug and used it there; thus, “realistically this particular injury to these particular Plaintiffs could not have occurred anywhere other than Pennsylvania,” stated the court. A second factor to be considered in a ' 145 analysis is the place where the conduct causing the injury took place. Although it agreed with Novartis that the drug maker did in fact conduct research on Zometa and make decisions concerning its marketing, labeling and packaging in New Jersey, the court discounted this element precisely because of New Jersey's pro-business law, stating, “[T]he place where the Defendant engaged in certain conduct is of less significance in situations where a potential Defendant might choose to conduct his activities in a state whose tort rules are favorable.” Going through the other factors in Restatement (Second) of Conflicts ' 145, the court ultimately concluded that Washington, DC's, choice-of-law system would apply Pennsylvania law on punitive damages. And Pennsylvania permits a drug-injured plaintiff to seek punitive damages even if the drug in question has been FDA-approved.

Turning to the case first filed by one of the three plaintiffs in the jurisdiction of New York, the Rowland court next observed that, under New York's choice-of-law rules, the law to be applied to a tort claim is New York law if no conflict exists between the law of interested states. If there is a conflict, then the law of the jurisdiction with the greatest interest in the case will be applied. The place with the greatest interest will generally be the place where the tort occurred and where the parties reside. If the defendant's alleged misconduct and the plaintiff's injuries occurred in different jurisdictions, “the place of the tort is the jurisdiction where the 'last event necessary' to make the defendant liable occurred.” In re September 11 Litig., 494 F.Supp. 2D 232 (S.D.N.Y. 2007) (quoting Schultz v. Boy Scouts of America Inc., 65 N.Y.2d 189 (N.Y. 1985). Using this analysis, the court determined that a New York court would apply the law of Pennsylvania, because “[t]he last event necessary to make [Novartis] liable plainly occurred in Pennsylvania. While [Novartis] may have made corporate decisions regarding Zometa in New Jersey, its liability to these Plaintiffs would not be in dispute had it not marketed Zometa to them and their doctors in Pennsylvania, sold Zometa to them in Pennsylvania, and allegedly failed to warn them in Pennsylvania of Zometa's possible connection to ONJ.”

Contrary Outcomes: NJ Punitive Damage Law Applied

Courts in some jurisdictions are applying New Jersey law on punitive damages to drug injury cases involving plaintiffs outside New Jersey. These courts, including the U.S. District Courts for the districts of Oregon ( Stromenger v. Novartis Pharms. Corp., 941 F. Supp. 2d 1288 (D. Ore. 2013)) and Maryland ( Zimmerman v. Novartis Pharms. Corp., 889 F. Supp. 2D 757 (D.Md. 2012)) agreed with defendant Novartis's argument: that the rationale for imposing punitive damages on corporations is to deter those entities and others like them from engaging in certain undesireable conduct. Thus, the state in which a corporation conducts its business and makes its decisions has the most significant relationship to any undesireable corporate actions and should see its law of punitive damages applied. Courts that adhere to this logic also tend to find that when a company operates nationally (or internationally), the place of plaintiff injury is “fortuitous,” meaning that the place of injury bears no relationship to the cause of the harm. That cause is the decisions made by the company. Therefore, New Jersey law on punitive damages should apply to a New Jersey pharmaceutical manufacturers' conduct if that conduct (i.e., devising and implementing marketing practices and labeling drug products) took place in New Jersey, even if it caused harm elsewhere. It is New Jersey that has the more significant relationship to the question whether punitive damages should be imposed, according to these courts.

Conclusion

New Jersey residents prescribed medications in-state can expect to get no punitive damages if their claims target any of the many drug manufacturers incorporated in or conducting most of their business out of New Jersey. And, as we have seen, even some courts in other jurisdictions are applying New Jersey law to punitive damages claims brought by plaintiffs outside that jurisdiction. Meanwhile, other courts are handing pharmaceuticals companies the bad news that, no matter what the law of the State of New Jersey, it cannot necessarily insulate drug manufacturers from punitive liability when they conduct business outside of New Jersey.

Although various jurisdictions use differing choice-of-law analyses, the deciding factor appears to be whether the jurisdiction in which the filing court sits considers the place with the most significant connection to the harm caused by pharmaceuticals products to be the place where the corporate decisions that led to the the injury were made or the place where the consequences of those decisions ultimately resulted in harm to the claimant. A lot is riding on that factor, for both plaintiffs and New Jersey drug manufacturers doing business outside their home state.

Plaintiffs with viable options for forums in which to file their claims against New Jersey pharmaceuticals manufacturers are well advised to consider this choice carefully. Whether the case is heard in the filing forum or transferred to another jurisdiction, the law of the place of filing may have a profound effect on the amount of damages recoverable.

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

As discussed in Part One of this article, New Jersey's Products Liability Act (Defective Product) (PLA), N.J. Stat. ' 2A:58C-5 (c) (2013), prevents injured plaintiffs seeking compensation from drug and device manufacturers from being awarded punitive damages. The statute, which in an earlier form was enacted in 2008, 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. ' 201et 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.

Other Jurisdictions

While New Jersey courts are bound by the statute's manufacturer protections, courts located in other jurisdictions have given the law mixed levels of respect. Most recently, as we saw last month, the Eighth Circuit Court of Appeals, in Winter v. Novartis Pharmaceuticals Corp., 2014 U.S. App. LEXIS 411 (8th Cir., 1/9/14), determined that New Jersey's punitive damages prohibition law was inapplicable to a Missouri plaintiff allegedly harmed by the defendant New Jersey manufacturer's drug products Arendia and Zometa.

What is happening with New Jersey's punitive damages law in other jurisdictions, and why are courts unable to come to a consensus on whether the law applies to non-New Jersey plaintiffs' cases?

The Winter Court Is Not The First to Discount NJ Law

In Hill v. Novartis Pharm. Corp., 2012 U.S. Dist. LEXIS 38516 (E.D. Cal. 2013), the U.S. District Court for the Eastern District of California was asked to throw out the plaintiff's claim for punitive damages based on New Jersey's prohibition on assessment of such damages for harm caused by FDA-approved drugs and devices. The Hill court began its analysis by turning to the choice-of-law rules of its forum state, California. Those rules ask first what the governmental interests of the competing jurisdictions are. If the rules are not materially different, then California law will apply. Frontier Oil Corp. v. RLI Ins. Co. , 153 Cal.App.4th 1436 (2007). If there is a material difference ' as there was in Hill, because punitive damages would be allowed under California's law but not New Jersey's ' a court must move on to answer two questions, as described in Frontier Oil.

First, it must determine whether each jurisdiction has an interest in applying its own law. If not, the court should apply the law of the interested jurisdiction. However, if both have an interest, the court must next ask “which jurisdiction has a greater interest in the application of its own law to the issue or, conversely, which jurisdiction's interest would be more significantly impaired if its law were not applied. The court must apply the law of the jurisdiction whose interest would be more significantly impaired if its law were not applied.”

The Hill court determined that New Jersey's interest in enacting its punitive damage prohibition law was to advance the economic health of companies operating within its borders. California's interest in seeing its punitive damage laws applied to tort cases is to punish wrongful acts committed within the state and prospectively deter similar acts in future. Both these states' interests were equally legitimate, the Hill court found.

This being the case, the court turned to another general rule: the maxim that, unless there is a compelling reason to apply the law of a foreign jurisdiction, the presumption is that the law of the forum state should be applied. Novartis attempted to provide the court with a compelling reason to apply New Jersey's law over California's by pointing out that its decision-making actions concerning the marketing and labeling of its product took place in New Jersey. Any harm that came to the plaintiff sprung from this source, it said. But the Hill court found this rationale less than compelling. It concluded that California's interests in the case were greater, in light of the fact that so many other actions that led to the alleged harm complained of took place in California ' i.e., distributing and selling the drug there; paying salespeople employed there to promote the product; and sending promotional materials there. And because California law should be applied, the plaintiffs were entitled to seek the punitive damages available under that law.

In the case of Rowland v. Novartis Pharmaceuticals Corp., 2013 U.S. Dist. LEXIS 166205 (W.D. Pa., 2013), the defendant attempted to obtain a declaration from Pennsylvania's Western District Court that New Jersey law should be applied to the issue of punitive damages, even though all three plaintiffs were Pennsylvania residents who were prescribed and allegedly injured by the defendant's drug Zometa in Pennsylvania. Again, the manufacturer's argument was based on the fact that its corporate decisions regarding Zometa's labeling, as well as its clinical trials, adverse event reporting and marketing decisions, took place in New Jersey.

The Rowland plaintiffs claimed that Zometa caused them to develop osteonecrosis of the jaw (ONJ). Two of them originally filed their claims in Washington, DC, and the third filed his claim in New York. All three cases were conditionally transferred to the Middle District of Tennessee for coordinated pretrial proceedings pursuant to 28 U.S.C. ' 1407, then transferred to the Western District of Pennsylvania, where they were consolidated for consideration of pretrial matters. All parties agreed that the choice of law as to whether New Jersey or Pennsylvania law should apply to the punitive damages claims must, in accordance with 28 U.S.C. ' 1407(a), be determined by the laws of the states from which the cases were transferred. Therefore, the Rowland court had to decide which law as to punitive damages a District of Columbia court would apply to two of the claims, and which state law a New York court would apply to the third claim.

The choice-of-law rules in Washington, DC, begin, as do most, by asking if a true conflict exists between the laws of jurisdictions with interests in the case. If there is no conflict, then District of Columbia law will be applied. However, if there is a conflict, a government interest analysis must be undertaken. Courts will then use the factors set out in Restatement (Second) of Conflicts ' 145 to determine which state has the more significant relationship to the particular dispute. One of the main factors in this analysis is the place of injury. Novartis argued, however, that the plaintiffs' place of injury was “fortuitous” because the alleged harm flowing from the company's New Jersey-made marketing decisions was no more likely to have occurred in Pennsylvania than in any other state.

The court found this argument flawed because the plaintiffs were Pennsylvania citizens who purchased the defendant's drug and used it there; thus, “realistically this particular injury to these particular Plaintiffs could not have occurred anywhere other than Pennsylvania,” stated the court. A second factor to be considered in a ' 145 analysis is the place where the conduct causing the injury took place. Although it agreed with Novartis that the drug maker did in fact conduct research on Zometa and make decisions concerning its marketing, labeling and packaging in New Jersey, the court discounted this element precisely because of New Jersey's pro-business law, stating, “[T]he place where the Defendant engaged in certain conduct is of less significance in situations where a potential Defendant might choose to conduct his activities in a state whose tort rules are favorable.” Going through the other factors in Restatement (Second) of Conflicts ' 145, the court ultimately concluded that Washington, DC's, choice-of-law system would apply Pennsylvania law on punitive damages. And Pennsylvania permits a drug-injured plaintiff to seek punitive damages even if the drug in question has been FDA-approved.

Turning to the case first filed by one of the three plaintiffs in the jurisdiction of New York, the Rowland court next observed that, under New York's choice-of-law rules, the law to be applied to a tort claim is New York law if no conflict exists between the law of interested states. If there is a conflict, then the law of the jurisdiction with the greatest interest in the case will be applied. The place with the greatest interest will generally be the place where the tort occurred and where the parties reside. If the defendant's alleged misconduct and the plaintiff's injuries occurred in different jurisdictions, “the place of the tort is the jurisdiction where the 'last event necessary' to make the defendant liable occurred.” In re September 11 Litig. , 494 F.Supp. 2D 232 (S.D.N.Y. 2007) (quoting Schultz v. Boy Scouts of America Inc. , 65 N.Y.2d 189 (N.Y. 1985). Using this analysis, the court determined that a New York court would apply the law of Pennsylvania, because “[t]he last event necessary to make [Novartis] liable plainly occurred in Pennsylvania. While [Novartis] may have made corporate decisions regarding Zometa in New Jersey, its liability to these Plaintiffs would not be in dispute had it not marketed Zometa to them and their doctors in Pennsylvania, sold Zometa to them in Pennsylvania, and allegedly failed to warn them in Pennsylvania of Zometa's possible connection to ONJ.”

Contrary Outcomes: NJ Punitive Damage Law Applied

Courts in some jurisdictions are applying New Jersey law on punitive damages to drug injury cases involving plaintiffs outside New Jersey. These courts, including the U.S. District Courts for the districts of Oregon ( Stromenger v. Novartis Pharms. Corp. , 941 F. Supp. 2d 1288 (D. Ore. 2013)) and Maryland ( Zimmerman v. Novartis Pharms. Corp. , 889 F. Supp. 2D 757 (D.Md. 2012)) agreed with defendant Novartis's argument: that the rationale for imposing punitive damages on corporations is to deter those entities and others like them from engaging in certain undesireable conduct. Thus, the state in which a corporation conducts its business and makes its decisions has the most significant relationship to any undesireable corporate actions and should see its law of punitive damages applied. Courts that adhere to this logic also tend to find that when a company operates nationally (or internationally), the place of plaintiff injury is “fortuitous,” meaning that the place of injury bears no relationship to the cause of the harm. That cause is the decisions made by the company. Therefore, New Jersey law on punitive damages should apply to a New Jersey pharmaceutical manufacturers' conduct if that conduct (i.e., devising and implementing marketing practices and labeling drug products) took place in New Jersey, even if it caused harm elsewhere. It is New Jersey that has the more significant relationship to the question whether punitive damages should be imposed, according to these courts.

Conclusion

New Jersey residents prescribed medications in-state can expect to get no punitive damages if their claims target any of the many drug manufacturers incorporated in or conducting most of their business out of New Jersey. And, as we have seen, even some courts in other jurisdictions are applying New Jersey law to punitive damages claims brought by plaintiffs outside that jurisdiction. Meanwhile, other courts are handing pharmaceuticals companies the bad news that, no matter what the law of the State of New Jersey, it cannot necessarily insulate drug manufacturers from punitive liability when they conduct business outside of New Jersey.

Although various jurisdictions use differing choice-of-law analyses, the deciding factor appears to be whether the jurisdiction in which the filing court sits considers the place with the most significant connection to the harm caused by pharmaceuticals products to be the place where the corporate decisions that led to the the injury were made or the place where the consequences of those decisions ultimately resulted in harm to the claimant. A lot is riding on that factor, for both plaintiffs and New Jersey drug manufacturers doing business outside their home state.

Plaintiffs with viable options for forums in which to file their claims against New Jersey pharmaceuticals manufacturers are well advised to consider this choice carefully. Whether the case is heard in the filing forum or transferred to another jurisdiction, the law of the place of filing may have a profound effect on the amount of damages recoverable.

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