Case Notes

First Circuit: Plaintiff Lacks Standing to Recover for Allegedly Defective Product

In Kerin v. Titeflex Corp., 2014 U.S. App. LEXIS 21057 (1st Cir. Nov. 4, 2014), the plaintiff owned a home with an outdoor fire pit supplied with natural gas through corrugated stainless steel tubing (CSST). Although CSST can fail when exposed to powerful electrical forces such as lightning, it is widely used and approved by both government and industry regulatory bodies. Even though the plaintiff's CSST had never caused a problem, he sued its manufacturer in the United States District Court for the District of Massachusetts for negligence and breach of the implied warranty of merchantability (the Massachusetts near-equivalent of strict liability).

Citing reports of 141 home fires that “involved” both CSST and lighting, the plaintiff alleged that his CSST was defectively designed because, in the event of a nearby lightning strike, it was vulnerable to puncture and fire, and the defendant had failed to warn of this risk. The plaintiff sought damages in the amount of his “overpayment” for the allegedly defective product or, in the alternative, the cost of remedying the alleged safety issue.

The district court dismissed for lack of standing under Article III of the United States Constitution, holding “it is obvious that Plaintiff cannot clear the 'injury in fact' hurdle.” The court reasoned that the “strand of conjecture ' is simply too attenuated,” requiring both a lightning strike and one that effects a puncture in the CSST. The court also concluded that even if the plaintiff had standing, he failed to state a claim because he did not allege “an applicable standard against which [the defendant's] due care could be measured” as required to claim economic injury from a defective product under Massachusetts law.

On appeal, the First U.S. Circuit Court of Appeals affirmed, although it deviated somewhat from the district court's reasoning. The appellate court first noted that “the law of probabilistic standing is evolving, and it is conceivable that product vulnerability to lightning might, in some circumstances, constitute injury.” Typically, plaintiffs suing based on an enhanced risk of harm allege two types of injury ' 1) the risk of future harm itself; and 2) the present cost or inconvenience created by the increased risk ( e.g., the cost of mitigation or replacement) ' either of which can confer standing so long as the alleged injury is not too speculative. Whether the risk of future harm is too speculative depends on the chances the harm will occur, and here the plaintiff failed to allege facts sufficient to calculate or even estimate that risk.

It was impossible to evaluate the significance of 141 alleged fires that “involved lightning and CSST” in the absence of allegations concerning the time frame over which these fires occurred, the frequency of lightning strikes in general, the proportion of homes struck by lightning or the likelihood of fire from such strikes. Nor did the plaintiff allege that CSST was the cause of the damage in the 141 fires. Finally, the fact that regulatory bodies had studied the risk of lightning-related CSST failures and concluded it was both permissible and manageable supported the district court's conclusion that the risk of future harm was not so great as to confer standing.

Similarly, the plaintiff's “overpayment” or cost-of-replacement injury theory was also too speculative to confer standing. The court noted that such a theory is more likely to support standing where the product at issue violates, or may soon violate, a statute, regulation or standard of conduct; in such a case, the legislature or executive agency has already identified the risk as injurious and thus the need for mitigating action is clearer. Here, however, the plaintiff conceded the CSST did not violate any regulatory standard, which is required to state a claim for a defective product in the absence of actual damage. Thus, his alleged present economic injury was entirely dependent on his unsupported allegation that the CSST was defective, coupled with a risk of future injury the court had already found was too speculative.

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MA Federal Court: Defendants Not Subject to General Personal Jurisdiction

In Federal Home Loan Bank of Boston v. Ally Financial, Inc., 2014 U.S. Dist. LEXIS 140975 (D. Mass. Sep. 30, 2014), a plaintiff bank sued, among others, certain credit rating agencies in the U.S. District Court for the District of Massachusetts, alleging they understated the risk of private label mortgage-backed securities sold to the plaintiff. The agencies moved to dismiss for lack of personal jurisdiction, arguing that their contacts with Massachusetts were not such as to render them “essentially at home” in the state, as is required for the exercise of general or “all-purpose” jurisdiction. The court denied the motion, but shortly thereafter the United States Supreme Court held in Daimler AG v. Bauman , 134 S. Ct. 746 (2014), that “only a limited set of affiliations with a forum will render a defendant amenable to all-purpose jurisdiction there,” the paradigmatic examples being the defendant's place of incorporation or principal place of business. The defendants then moved for reconsideration of their motion to dismiss. The plaintiff opposed, and also argued that even if the court lacked personal jurisdiction, it should sever and transfer the claims against the rating agencies to the Southern District of New York, where personal jurisdiction existed.

Regarding general jurisdiction, the court first noted that the Supreme Court's opinion in Daimler made clear that whether a defendant is “essentially at home” in the forum state is not determined by the quantity of the defendant's contacts there, as “[a] corporation that operates in many places can scarcely be deemed at home in all of them.” Under this “tighter assessment of the standard,” the rating agencies could not be subject to general jurisdiction. Although they had activities in Massachusetts that generated significant revenue, they had similarly substantial contacts with dozens of other states. Moreover, the agencies were neither incorporated nor had their principal places of business in the state, and there was no indication this was an “exceptional case” under Daimler such that general jurisdiction should be extended beyond those paradigmatic forums.

Regarding the plaintiff's request for severance and transfer, two statutes potentially authorized such a transfer but there were unsettled questions regarding the applicability of each. The plaintiff principally relied on 28 U.S.C. ' 1631, which permits a “court” that finds “there is a want of jurisdiction” to transfer a suit to another “court” in which the suit “could have been brought.” There is substantial disagreement among courts, however, as to whether the statute applies when either subject matter or personal jurisdiction is lacking, or only when the former is. Although the First U.S. Circuit Court of Appeals has acknowledged this controversy, it has declined to weigh in. The district court held the statute applies only when subject matter jurisdiction is lacking, noting the legislative history indicates the statutory objective was to ameliorate that kind of defect, and there is some textual support for that position as the statute's definition of “court” includes appellate and administrative tribunals where subject matter jurisdiction is often an issue.

The plaintiff also argued that the case could be transferred under 28 U.S.C. ' 1406(a), which authorizes transfer of a case “laying venue in the wrong district ' to any district or division in which it could have been brought.” Notwithstanding the statute's textual limitation to venue-related issues, it has commonly been cited by courts as authorizing a transfer to cure a lack of personal jurisdiction. The court noted, however, that although it is clear that where venue is improper, the statute authorizes transfer to a district with proper venue, even if the defendant was not subject to jurisdiction in the original district, it remains uncertain whether the statute “may be a vehicle for transfer when venue is proper in the original district, as here ' that is, where there is no venue defect calling for correction.” Accordingly, the court also declined to transfer the case under ' 1406(a), and dismissed all claims against the rating agencies to permit an immediate appeal to the First Circuit to clarify the interpretation of both transfer statutes. ' David Geiger , Foley Hoag LLP

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First Circuit: Plaintiff Lacks Standing to Recover for Allegedly Defective Product

In Kerin v. Titeflex Corp., 2014 U.S. App. LEXIS 21057 (1st Cir. Nov. 4, 2014), the plaintiff owned a home with an outdoor fire pit supplied with natural gas through corrugated stainless steel tubing (CSST). Although CSST can fail when exposed to powerful electrical forces such as lightning, it is widely used and approved by both government and industry regulatory bodies. Even though the plaintiff's CSST had never caused a problem, he sued its manufacturer in the United States District Court for the District of Massachusetts for negligence and breach of the implied warranty of merchantability (the Massachusetts near-equivalent of strict liability).

Citing reports of 141 home fires that “involved” both CSST and lighting, the plaintiff alleged that his CSST was defectively designed because, in the event of a nearby lightning strike, it was vulnerable to puncture and fire, and the defendant had failed to warn of this risk. The plaintiff sought damages in the amount of his “overpayment” for the allegedly defective product or, in the alternative, the cost of remedying the alleged safety issue.

The district court dismissed for lack of standing under Article III of the United States Constitution, holding “it is obvious that Plaintiff cannot clear the 'injury in fact' hurdle.” The court reasoned that the “strand of conjecture ' is simply too attenuated,” requiring both a lightning strike and one that effects a puncture in the CSST. The court also concluded that even if the plaintiff had standing, he failed to state a claim because he did not allege “an applicable standard against which [the defendant's] due care could be measured” as required to claim economic injury from a defective product under Massachusetts law.

On appeal, the First U.S. Circuit Court of Appeals affirmed, although it deviated somewhat from the district court's reasoning. The appellate court first noted that “the law of probabilistic standing is evolving, and it is conceivable that product vulnerability to lightning might, in some circumstances, constitute injury.” Typically, plaintiffs suing based on an enhanced risk of harm allege two types of injury ' 1) the risk of future harm itself; and 2) the present cost or inconvenience created by the increased risk ( e.g., the cost of mitigation or replacement) ' either of which can confer standing so long as the alleged injury is not too speculative. Whether the risk of future harm is too speculative depends on the chances the harm will occur, and here the plaintiff failed to allege facts sufficient to calculate or even estimate that risk.

It was impossible to evaluate the significance of 141 alleged fires that “involved lightning and CSST” in the absence of allegations concerning the time frame over which these fires occurred, the frequency of lightning strikes in general, the proportion of homes struck by lightning or the likelihood of fire from such strikes. Nor did the plaintiff allege that CSST was the cause of the damage in the 141 fires. Finally, the fact that regulatory bodies had studied the risk of lightning-related CSST failures and concluded it was both permissible and manageable supported the district court's conclusion that the risk of future harm was not so great as to confer standing.

Similarly, the plaintiff's “overpayment” or cost-of-replacement injury theory was also too speculative to confer standing. The court noted that such a theory is more likely to support standing where the product at issue violates, or may soon violate, a statute, regulation or standard of conduct; in such a case, the legislature or executive agency has already identified the risk as injurious and thus the need for mitigating action is clearer. Here, however, the plaintiff conceded the CSST did not violate any regulatory standard, which is required to state a claim for a defective product in the absence of actual damage. Thus, his alleged present economic injury was entirely dependent on his unsupported allegation that the CSST was defective, coupled with a risk of future injury the court had already found was too speculative.

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MA Federal Court: Defendants Not Subject to General Personal Jurisdiction

In Federal Home Loan Bank of Boston v. Ally Financial, Inc., 2014 U.S. Dist. LEXIS 140975 (D. Mass. Sep. 30, 2014), a plaintiff bank sued, among others, certain credit rating agencies in the U.S. District Court for the District of Massachusetts, alleging they understated the risk of private label mortgage-backed securities sold to the plaintiff. The agencies moved to dismiss for lack of personal jurisdiction, arguing that their contacts with Massachusetts were not such as to render them “essentially at home” in the state, as is required for the exercise of general or “all-purpose” jurisdiction. The court denied the motion, but shortly thereafter the United States Supreme Court held in Daimler AG v. Bauman , 134 S. Ct. 746 (2014), that “only a limited set of affiliations with a forum will render a defendant amenable to all-purpose jurisdiction there,” the paradigmatic examples being the defendant's place of incorporation or principal place of business. The defendants then moved for reconsideration of their motion to dismiss. The plaintiff opposed, and also argued that even if the court lacked personal jurisdiction, it should sever and transfer the claims against the rating agencies to the Southern District of New York, where personal jurisdiction existed.

Regarding general jurisdiction, the court first noted that the Supreme Court's opinion in Daimler made clear that whether a defendant is “essentially at home” in the forum state is not determined by the quantity of the defendant's contacts there, as “[a] corporation that operates in many places can scarcely be deemed at home in all of them.” Under this “tighter assessment of the standard,” the rating agencies could not be subject to general jurisdiction. Although they had activities in Massachusetts that generated significant revenue, they had similarly substantial contacts with dozens of other states. Moreover, the agencies were neither incorporated nor had their principal places of business in the state, and there was no indication this was an “exceptional case” under Daimler such that general jurisdiction should be extended beyond those paradigmatic forums.

Regarding the plaintiff's request for severance and transfer, two statutes potentially authorized such a transfer but there were unsettled questions regarding the applicability of each. The plaintiff principally relied on 28 U.S.C. ' 1631, which permits a “court” that finds “there is a want of jurisdiction” to transfer a suit to another “court” in which the suit “could have been brought.” There is substantial disagreement among courts, however, as to whether the statute applies when either subject matter or personal jurisdiction is lacking, or only when the former is. Although the First U.S. Circuit Court of Appeals has acknowledged this controversy, it has declined to weigh in. The district court held the statute applies only when subject matter jurisdiction is lacking, noting the legislative history indicates the statutory objective was to ameliorate that kind of defect, and there is some textual support for that position as the statute's definition of “court” includes appellate and administrative tribunals where subject matter jurisdiction is often an issue.

The plaintiff also argued that the case could be transferred under 28 U.S.C. ' 1406(a), which authorizes transfer of a case “laying venue in the wrong district ' to any district or division in which it could have been brought.” Notwithstanding the statute's textual limitation to venue-related issues, it has commonly been cited by courts as authorizing a transfer to cure a lack of personal jurisdiction. The court noted, however, that although it is clear that where venue is improper, the statute authorizes transfer to a district with proper venue, even if the defendant was not subject to jurisdiction in the original district, it remains uncertain whether the statute “may be a vehicle for transfer when venue is proper in the original district, as here ' that is, where there is no venue defect calling for correction.” Accordingly, the court also declined to transfer the case under ' 1406(a), and dismissed all claims against the rating agencies to permit an immediate appeal to the First Circuit to clarify the interpretation of both transfer statutes. ' David Geiger , Foley Hoag LLP

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