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Post written by Mark Behrens, partner at Shook, Hardy & Bacon L.L.P. and co-chair of SHB's Public Policy Group

The New York Court of Appeals, the state's highest court, today rejected an equitable medical monitoring claim brought by longtime heavy smokers who have not been diagnosed with a smoking-related disease. The court said that medical monitoring is only available after a physical injury has been proven. The court explained that the "requirement that a plaintiff sustain physical harm before being able to recover in tort is a fundamental principle of our state's tort system" and that this physical injury requirement is important because "it defines the class of persons who actually possess a cause of action, provides a basis for the fact-finder to determine whether a litigant actually possesses a claim, and protects court dockets from being clogged with frivolous and unfounded claims."

The court also stated it "undoubtedly has the authority to recognize a new tort cause of action, but this authority must be exercised responsibly...." Echoing arguments previously articulated by SHB - and citing a Missouri Law Review article by Victor Schwartz and Leah Lorber - the court summarized some of the policy problems that could occur from creating a new, full-blown tort cause of action. For instance, the court acknowledged that countless plaintiffs could come forward to recover monitoring costs, "effectively flooding the courts while concomitantly depleting the tortfeasor's resources for those who have actually sustained damage." "Moreover," the court added, "it is speculative at best, whether asymptomatic plaintiffs will ever contract a disease; allowing them to recover medical monitoring costs without first establishing physical injury would lead to the inequitable diversion of money away from those who have actually sustained an injury as a result of the exposure." The court also noted that, from a practical standpoint, "it cannot be overlooked that there is no framework concerning how such a medical monitoring program would be implemented and administered." Again citing the article by Victor & Leah, the court concluded, "The Legislation is plainly in the better position to study the impact and consequences of creating such a cause of action, including the costs of implementation and the burden on the courts in adjudicating such claims."

Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

Recently, the Manhattan Institute released its latest Trial Lawyers, Inc. publication on patent "trolling," a practice that involves companies accumulating the rights to large patent portfolios and suing those who engage in unlicensed usage. One of the major problems with this practice has been that these so-called Patent Assertion Entities have been able to acquire patents on some of the most basic technological innovations, and thus stifle the ability of others in the industry to innovate and improve upon the technology.

Now, Congress itself is in danger of stifling technological innovation. Derek Khanna, in an article for Slate Magazine, has discussed a proposed change to Section 230 of the Communications Decency Act. This change, signed on to by 47 state attorneys general, would amend Section 230 to grant state criminal statutes immunity from the federal mandates of the section. Ostensibly, this proposed alteration would allow states to hold host websites liable if user-generated content propagated illicit activity, like ads for sex trafficking on Craigslist.

The problem is that this amendment would allow state attorneys general the broad power to prosecute the host website owners for user-generated content. This would in turn make website owners wary of allowing users to post on their sites, and therefore effectively remove potentially important dialogue and feedback from being placed on the site. Moreover, the national scope of many Internet companies compounds the fear of being potentially prosecuted under 50 different penal codes.

Khanna offers a telling example of the benefits of Section 230 in its current form:

Let's say Section 230 was never implemented, and Reddit's future founders arranged a meeting with their members of Congress to propose changing the law to facilitate their market model for a message board on the Internet. Assuming they didn't ask the member of Congress who referred to the Internet as "a series of tubes," it is likely that the politicians would respond, "This is such a small market, and a silly idea, so why would we bother changing the law for you?" And yet, today Reddit is a billion-dollar company and according, to one study, 6 percent of adults on the Internet are Reddit users (including me).

Section 230 is simple and intuitive to entrepreneurs, and it doesn't require a lawyer to implement. It's essentially a permission slip telling the Internet: "Go innovate." And entrepreneurs, such as Alexis Ohanian, co-founder of Reddit, responded by launching a diverse array of websites with user-generated content. Facebook--which currently has 1.2 billion users, or one-eighth of the world's population--would have been impossible without Section 230. Ben Huh, CEO of the Section 230-enabled Cheezburger Network, told me: "Section 230 is one of the hidden pillars of the free speech of the Internet."

If Section 230 is opened up to state criminal sanctions, the entire innovation-enhancing purpose behind the section's enactment will be destroyed. While the regulation of user-generated illicit activity is an important end, the means presented by the state attorneys general are not narrowly-tailored enough to prevent the creation of a considerable disincentive for Internet companies to grow and expand, as well as a disincentive to allow public forums in which users can offer suggestions as to how the company can improve its products and services.

Congress needs to maintain a free public sphere in which companies can feel comfortable in allowing user-generated content on their websites. Anything else would constitute a stifling of those animal spirits of innovation which have allowed the Internet to be placed at the vanguard of societal progress.

Ramseyer on product liability in Japan
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J. Mark Ramseyer, Liability for Defective Products: Comparative Hypotheses and Evidence from Japan, 61 Am. J. Comparative L. 617 (2013):

Americans file 80,000 product liability suits a year; Japanese file perhaps 100-300; and most countries more closely resemble Japan than the United States. Based on reports and articles from forty-five countries, Mathias Reimann has advanced several thoughtful and subtle hypotheses about this contrast. In this article, I apply Reimann's hypotheses to Japan and explore what they might tell us about law in the two countries. As Reimann suggested, the reason for the Japanese-American contrast does not lie in legal doctrine: on the substantive law of products liability, the United States and Japan are quite close. Instead, the reasons for the contrast seem to turn on aspects of American procedure that encourage meritless demands. Litigation rates are not lower in Japan because the law prevents victims from recovering their damages; Japanese law does not deter valid claims. Instead, the rates are higher in the United States because American law helps claimants collect amounts to which they are not legally entitled.

A US Chamber Institute for Legal Reform study by NERA finds (no surprise) that the US legal system is the most costly in the world, even when one accounts for the difference in social-insurance programs between American and Europe. Of interesting note: UK legal expenses are up 47% in the last three years, though still substantially cheaper than the US. More: Fisher @ Forbes; Sunday Times ($); related: Zywicki @ Volokh on auto safety.

I'd like to see the full report, because even the figure of an extra 1% of GDP going to excess legal expenses relative to Europe is likely an understatement. A 2011 edition of a similar report by NERA didn't include the expense of securities litigation, where much of the money goes to attorneys (and a disproportionate share of the proceeds goes to institutional investors at the expense of small shareholders). (Update: here it is, and, indeed, the 0.82 to 1.03% estimate is very definitely an underestimate.)

While the trial bar argues the expense of the liability system as a deterrent to make medicine and consumer products safer, I'm not aware of any evidence that Europe is less safe than the US. For example, though Germany has both an Autobahn without speed limits and a much higher percentage of mini cars like the "Smart," in 2005, their auto fatality rate was 7.8 deaths per billion km travelled versus 9.1 in the United States the same year. New Zealand has no medical-malpractice cause of action at all, and there is no evidence that patients there are being butchered as a result. And fear of liability and overcautious pharmaceutical regulation is likely costing lives at the margin.

Johnson & Johnson (through a wholly-owned subsidiary) manufactures Benecol Regular and Benecol Light Spreads. J&J has had to defend against multiple suits, including one by a Thomas Young, who filed a consumer fraud class action against alleging that Benecol's labeling was false and misleading In particular, the complaint focused on Benecol's claims, on its packaging, that Benecol was: (1) "Proven to Reduce Cholesterol"; and contained (2) "NO TRANS FAT."

In fact, Benecol does contain a tiny amount of partially hydrogenated oil (aka trans fat): an amount that FDA called "insignificant." As for the "Proven to Reduce Cholesterol" claim, Young asserted that it must be false too, because Benecol is allegedly rendered so unhealthy by virtue of containing "dangerous, non-nutritious, unhealthy partially hydrogenated oil" that the cholesterol claim is misleading. So Young sued, invoking New York and New Jersey consumer laws.

In April 2012, the federal district court granted Johnson & Johnson's motion to dismiss the complaint, ruling inter alia that Young's claims were expressly preempted by the Federal Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C. § 301 et seq., which (since the adoption of the Nutrition Labeling and Education Act (NLEA) in 1990) expressly preempts any state law "requirement" regarding food labeling "that is not identical to the requirement[s]" imposed by federal law. FDA regulations "require that trans fat levels less than 0.5 grams per serving 'shall be expressed as zero.'" Thus, even if the trans fat claims were misleading under New York and New Jersey statutes, these laws could not be enforced. Young disagreed and appealed to the Third Circuit, arguing that his state consumer protection claims were not preempted because they were "not inconsistent" with FDA regulations. The alert reader has doubtless noted, however, that the statutory test is not whether state requirements are "consistent" with FDA requirements;, but whether they are "identical." Thus did the Third Circuit today affirm that NLEA pre-empts state consumer laws as regards food product labeling.

Another victory for common labeling standards for goods marketed nationally, and for amicus Washington Legal Foundation, which filed a persuasive brief for the winning side!

Bowman v. Sunoco, a very interesting decision on tort liability waivers, was rendered by a divided Pennsylvania Supreme Court on April 25.

Here's the factual backdrop. P signs on as a security guard for Acme, a firm that sends guards to protect the operations of clients. P's contract with Acme specifies that P is an employee of Acme, not of the client firms where P may work on any individual day. In case of injury, P will be able to benefit from the Workers' Compensation policy paid for (pursuant to its legal obligation) by Acme.

Now, additional recovery by injured workers has been the bane of many a liability insurer. Perhaps 25% of all products liability suits are filed by workers injured on the job. The latter collect their workers' compensation benefits, cannot sue their employers (that is the statutory quid pro quo for workers' comp), but then turn around and sue the manufacturer of the tool that injured them, on the grounds that said tool was imperfect ("defective") in some way.

In the instant case, the additional suit would not be against a product manufacturer, but against the client, for some alleged negligence. Obviously clients might be disgruntled to be sued in such instances. So Acme added a clause to its employment contract, according to which P waived

"any and all rights I may have to:

-make a claim, or
-commence a lawsuit, or
-recover damages or losses

from or against any customer (and the employees of any customer) of [Acme] to which I may be assigned, arising from or related to injuries which are covered under the Workers' Compensation statutes."

P was injured while guarding a Sunoco refinery, and sued Sunoco for negligence after collecting his workers' compensation benefits from Acme. Sunoco invoked P's contract with Acme, and obtained summary judgment at trial and in the intermediate appellate court. P appealed, and challenged the waiver clause on several grounds, most importantly on the grounds that it was prohibited by Pennsylvania public policy. For § 204(a) of the Pennsylvania Workers' Compensation Act reads in pertinent part as follows:

(a) No agreement, composition, or release of damages made before the
date of any injury shall be valid or shall bar a claim for damages resulting
therefrom; and any such agreement is declared to be against the public
policy of this Commonwealth.

But a majority of the Pennsylvania Supreme Court disagreed with P's statement that the plain meaning of § 204(a) invalidated the waiver. The court pointed out that the article read in its entirety applied clearly only to waivers of the employer's liability, not to waivers of liability to third parties. The court added that waivers of liability for future negligence are in principle possible in Pennsylvania (unlike many other states). The court cited to friendly case-law in two other jurisdictions:

"As the Appeals Court of Massachusetts found in Horner v. Boston Edison Company, 695 N.E.2d 1093 (Mass. App. Ct. 1998), the disclaimer here "extinguishes only the employee's right to recover additional amounts as a result of a work-related injury for which the employee has already received workers' compensation benefits." Id., at 1095. Similarly, the Supreme Court of Arkansas found, with facts nearly identical to the present case, a similar disclaimer did not violate public policy because it did not indicate the employer was "attempting to escape liability entirely, but [was] instead, attempting to shield its clients from separate tort liability for those injuries that are covered by workers' compensation ...." Edgin v. Entergy Operations, Inc., 961 S.W.2d 724, 727 (Ark. 1998)."

The tantalizing question is whether a Pennsylvania employer could similarly contract with its employees to waive liability claims against too manufacturers for workplace injuries. It's hard to see why the same rationale would not obtain. Tool manufacturers would presumably give employers a better deal on tool sales in consideration for such a waiver, were it enforceable.....

The McDonald's coffee case is an outlier of the tort system. In the twentieth century, the vast majority of court cases to consider restaurant liability for selling hot coffee that injured consumers threw the cases out of court. In 1994, however, a sympathetic elderly plaintiff, Stella Liebeck, spilled coffee on herself, sat in the hot puddle for ninety seconds instead of wiping herself off, and severely burned her crotch. She sued on a few theories: (1) any coffee sold above 140 degrees is capable of causing third-degree burns and is therefore unreasonably dangerous; (2) McDonald's failed to adequately warn of the danger because the warning on Liebeck's cup of coffee wasn't large enough; (3) because McDonald's knew of a few hundred previous injuries (out of billions of cups of coffee sold), they were malicious in continuing to sell coffee at a temperature consumers wanted, and merited punitive damages. The judge failed to apply the law correctly. The jury—as juries are wont to do when they see photos of third-degree burn injuries for the first time in their life, and incorrectly told by a judge that they are legally entitled to give money to the person who suffered those horrific injuries—awarded millions of dollars of punitive damages.* As Walter Olson recently noted, the case makes the American legal system a laughingstock worldwide.

When confronted with such ridiculous lawsuits as Roy Pearson's $54 million pants suit, the litigation lobby sensibly distances itself from the plaintiff—though Pearson wasn't doing anything that more competent trial lawyers did to make hundreds of millions of dollars in Arkansas over the last eight years. But somehow, instead of saying that Americans shouldn't judge the tort system on one unusual result, the litigation lobby has campaigned to argue that this absurdity is an aspirational result that all the other courts should have similarly reached. A intellectually dishonest movie was even made on the subject. And appallingly, if one is to judge by Reddit threads and most tort-law classes, the litigation lobby has succeeded in spreading enough urban legends about the case to make some people think that the result isn't absurd.

In the case of Bogle v. McDonald's, the England and Wales High Court correctly rejected the entire idea of liability for hot coffee; so did Judge Easterbrook in McMahon v. Bunn-O-Matic. I've never seen a defender of the Liebeck verdict even attempt to explain why these decisions are wrong (as they must be if Liebeck is correct); you'll never see Susan Saladoff or ATLA even admit that these cases exist.

In a recent post, I pointed out the absurdity of the theory of McDonald's liability. Another every-day object, men's pants with zippers, is responsible for thousands of emergency-room visits for zipper-related penis injuries: 17,616 men went to the emergency room between 2002 and 2010 for zipper-related penis injuries, likely over 2000 a year if we account for undercounting. Manufacturers know this or, at least, should know this because of the press coverage of the fact. By Saladoff's defense of the McDonald's coffee case, every one of these thousands of men is entitled to a jury trial over whether pants manufacturers should be subjected to punitive damages for causing injury. The proposition is obviously absurd, but so is the McDonald's coffee case.

A month later, a trial lawyer finds the post and tweets "So, Ted Frank (TORT REFORMER!) is mad he can't sue for penis zipper injuries??" Well, that's clearly not my argument. Anyone who is claiming that I was arguing that I should be able to sue pants manufacturers for penis zipper injuries is either illiterate or mendacious and can be safely ignored. (Though, as JAB joked, "If even JDs are illiterate, what good are warning labels supposed to do?")

Indeed, the fact that the illiterate-or-dishonest trial lawyer thought that the idea of zipper-lawsuits was absurd proves my point: of course you can't sue for zipper injuries, but there is no difference between the theory of coffee liability and the theory of zipper liability.

For some reason, David Sugarman decided to take up a defense of both the illiterate tweet and the McDonald's coffee case. We'll start by noting that even this trial lawyer thinks that zipper lawsuits are absurd.

But Sugarman fails to honestly address my argument. He attempts to distinguish the zipper case from the coffee case without thinking very hard about what he's writing:

And now Mr. Frank wants to talk about zipper injuries to the schlong. So let's talk. Here is how it works. If the manufacturer sells a dangerous product and the danger could be eliminated by design, then the manufacturer is responsible. After all, it is up to manufacturers who profit from selling products to take steps to avoid needlessly injuring consumers. I assume even the Manhattan Institute agrees with that basic principle, but maybe I am wrong.

But this ipse dixit assertion of why zipper lawsuits are impermissible fails to make the case. Of course the danger of zipper injuries "could be eliminated by design": just make pants with a button fly or a drawstring, or an extra layer of fabric between the fly and the crotch. Indeed, the case for pants product liability is much stronger than the case for coffee liability, and not just because there are many more zipper injuries than coffee injuries, though the population of American coffee drinkers (54% drink coffee every day) is greater than the population of Americans who are males who wear pants with zippers (less than 50%). Stella Liebeck's coffee cup had a warning; I've never seen a pair of pants with a warning. And as Judge Easterbrook points out in McMahon, hot coffee has to be hot by definition; if it's not hot enough to cause third-degree burns, it's not hot enough to optimize flavor.** But pants do not require zippers to close. Liebeck argued that the coffee was "unreasonably dangerous" because it was capable of causing injury; but the same argument can be made for pants.

One can argue that both pants manufacturers and coffee vendors should be liable for injuries caused when people injure themselves; that's bad public policy that most people will instinctively reject, but it's at least intellectually honest. One can argue, as I do, that neither should be liable. One could even conceivably argue that pants manufacturers should be liable for failure to warn but coffee vendors with warnings on their cups shouldn't. But it's disingenuous to argue that Liebeck is correct but that sufferers of zipper-related penis injuries are not entitled to jury trials. (Sugarman's "Seventh Amendment" argument is bogus; nothing in the Seventh Amendment prevents judges from throwing out claims that have no legal basis, and he doesn't seem to think that the Seventh Amendment precludes a judge from throwing out a lawsuit over zippers.)

Finally, note that Sugarman was told of McMahon v. Bunn-O-Matic but made no attempt to explain why it's wrong or even inform his readers that it exists. This is a very telling omission.

Ten years after I started discussing it, I'm still waiting for a trial lawyer to give an honest defense of the Liebeck case. It hasn't happened yet.

(Update: in the comments, Sugarman now concedes that his theory of product liability requires the conclusion that zipper injuries merit jury trials. He still hasn't corrected his post asserting that I was ignorant of product liability for making the comparison between the coffee case and the zipper hypothetical. I look forward to Sugarman seeking justice for the 2000+ men injured by zippers every year. He still sidesteps addressing McMahon's and Bogle's ridicule of the Liebeck theory.)

*Even the judge who incorrectly failed to throw the case out thought that the jury had been carried away by emotion, and reduced the total jury award to $640,000. It is a remarkable fiction of the jury system that a jury so carried away by emotion to merit remittitur is entitled to a presumption of adjudicative reasonableness when the same jury determined liability, but we'll leave that issue for another day.

**Thus, every vendor of hot coffee serves coffee in the 170 to 190-degree range, tens of degrees hotter than what Liebeck claimed was "unreasonably dangerous." And, indeed, every major vendor of hot coffee—McDonald's, Burger King, Starbucks, Dunkin Donuts, etc.—has been sued for third-degree burns caused by their coffee in the last twenty years. If you have a high-quality coffeemaker, you have coffee that hot, too; if you boil water for tea, that 212-degree water you pour is even hotter than McDonald's hot coffee.

In the early hours of December 4, 1997, 15-year-old Joshua Daniel had the clever idea of throwing baseball-sized chunks of concrete at vehicles on Interstate 5 from the top of a canal levee. He hit three cars before he tossed a 2.5-pound chunk at a big rig driven by William Collins, going through the windshield, hitting Collins in the forehead, and leaving him in a coma. Daniel pled guilty and was sentenced to 12 years.

Collins sued a deep pocket. Guess who?

Yes, the manufacturer of the truck. A jury found for Navistar, but by a 2-1 vote, the California Court of Appeal reversed because the jury instructions permitted the jury to find Daniel an intervening cause.

Leave aside that the criminal is the culpable party here. Leave aside that the rate of serious injury or death from falling or thrown objects crashing through windshields is less than 1 per 20 billion miles, such that this never should have gone to trial in the first place. Is it even physically possible to construct a transparent windshield that will invariably survive a collision with a 2.5-pound block of concrete at highway speeds?

Zippers and McDonald's hot coffee

Defenders of the appalling McDonald's coffee case such as Susan Saladoff like to point to the fact that McDonald's previously had 700 complaints about the temperature of its coffee, and had paid settlements when it was at fault for injuries for hot coffee, such as when an employee spilled coffee on a customer. Thus, she says, a jury was entitled to inflict punitive damages on the company, because they had notice that their product could cause injury.

With that background, it's interesting to see this Atlantic Wire report: 17,616 men went to the emergency room between 2002 and 2010 for zipper-related penis injuries, nearly 2000 a year. By the Susan Saladoff standard, there should be a gigantic MDL involving every zipper manufacturer facing thousands of claims for punitive damages because pants don't come with warnings to be careful with a zipper. (Recall that even Stella Liebeck's cup of coffee had a warning.) After all, zipper manufacturers surely have notice that zippers "could cause injury," yet continue to subject consumers to a product that could cause injury. According to Saladoff, that alone entitles someone to a jury trial.

Of course, even leaving aside that 700 injuries over all of McDonald's restaurants works out to one in 23 million cups of coffee, "could cause injury" is not the legal standard for liability. The question is one of whether a product is "unreasonably dangerous." Coffee is supposed to be hot. Zippers, even though they cause more injuries than buttons, have some risk associated with them. In neither instance should a court let a product-liability claim ever get to a jury when a user's carelessness with a product imposes injury upon the user.

The vast majority of courts facing hot-coffee claims throw these things out early. I'm not aware of any lawyer with the chutzpah to bring a zipper product liability suit, though the legal theory is the same as that with McDonald's coffee. Yet we see all this propaganda from the trial bar and increasingly from the legal academy that the hot coffee suit was legitimate, and tort reformers are evil for suggesting otherwise. Don't be confused: it's an argument for substantial expansion of the tort system, and at great social cost.

The Toyota settlement, widely reported (here's the WSJ take) is remarkable in many ways.

To recap: there was unintended acceleration in some Toyota vehicles. In every single case that could be verified, by private and government sources, the unintended acceleration had one of two causes: 1) the driver stepped on the accelerator pedal when he wished to brake; or 2) the driver had had the car washed, the driver's side mat had been removed by the car wash attendants and not rebuttoned in place, and it had scrunched up and was inadvertantly pressed against the gas pedal while the car was being driven.

Plaintiffs' lawyers tried to take down Toyota as they had Audi in years past, but this time government studies exonerating the manufacturer did not wait until the company was bled dry. Nonetheless, plaintiffs persisted. The Toyota cars were defective in design, they claimed, as they did not have a brake override (a mechanism that overrides the accelerator and applies only the brake when the driver presses on both pedals simultaneously). Of course a brake override prevents heel-and-toe driving, which requires some simultaneous braking/accelerating, and Toyota was prized among manufacturers for having resisted this dumbing down of its cars. Too bad, the cars will now be retrofitted with a brake override, and future models will be so equipped.

The class action that was settled mostly involved people who had never had an incident of unintended acceleration, but who were suing because the resale value of their vehicles was allegedly diminished by the (false) belief in the market that Toyotas could accelerate all by themselves. That ground of suit is nowhere legally accredited, and is baseless on several grounds: Toyota does not guarantee nor is there any legal right to any given resale value; the mistaken market belief about Toyotas, if it existed, was caused by misleading press reports and not by Toyota; etc.

Nonetheless, Toyota has decided that its future buyers are in large part too uninformed to understand these "complex" issues, and that public relations requires that the litigation end. The firm has made the problem going away with this mammoth payout, which includes a whopping $200,000,000.00 to the law firm that launched the suit. The payout of course makes future shakedown suits much more likely.

And that is what a $1.1B class action settlement has in common with Gilad Shalit's rescue -- both were done with the best of intentions, and both virtually guarantee that those who flout the law will recidivate in the future.


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