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Points of Light

There are five ways to douse the flames in Judicial Hellholes and help out-of-balance jurisdictions develop more evenhanded civil courts:

1. Constructive media attention and public education can help encourage reform;

2. Trial court judges can engage in self-correction;

3. Appellate courts can overturn bad trial court decisions and limit future judicial malfeasance;

4. Legislatures and other state officials can adopt reforms; and

5. Voters can reject liability-expanding judges or enact ballot referenda to address particular problems.

In its “Points of Light” section, the Judicial Hellholes report comments on actions taken by judges, lawmakers and others to stem abuses of the civil justice system not detailed elsewhere in the report. This year’s report highlights helpful media investigations in Louisiana; positive court decisions in Delaware, Nevada, Ohio, Texas, Kentucky, Florida and Texas; and positive civil justice reform enactments in 15 states.

IN THE COURTS

ARIZONA SUPREME COURT ADOPTS LEARNED INTERMEDIARY DOCTRINE

The learned intermediary doctrine recognizes that a pharmaceutical company’s duty to warn about the risks of a drug is fulfilled when it shares appropriate information with physicians. That way doctors can consider patients’ particular circumstances and, upon informing patients about the benefits and risks of treatment options, make the best prescription choices. Nearly every state has adopted this doctrine, and now the Grand Canyon State is among them.

The Arizona Supreme Court’s January 2016 ruling in Watts v. Medicis Pharmaceutical Corporation places the state firmly in the mainstream. While lower courts in Arizona were already applying the learned intermediary doctrine, the state’s high court had not addressed it.

But the high court also ruled that patients may bring claims challenging prescription drug marketing under the language of the state’s Consumer Fraud Act, reversing dismissal of a CFA claim. Other courts have held that, since the federal Food and Drug Administration approves prescription drugs and their labels, advertising and marketing issues can and should be addressed through the agency, not the courts.

ARKANSAS SUPREME COURT UPHOLDS SEATBELT-USE ADMISSIBILITY LAW

Thanks to the Arkansas Supreme Court, jurors will now have a fuller understanding of how injuries occurred in car accident cases. In April 2016 the court struck down as unconstitutional a state statute that prohibited juries from considering evidence that a plaintiff was not wearing a seatbelt at the time of a crash.

The court found in Mendoza v. WIS International that by prohibiting a trial court from admitting seatbelt evidence, the legislature had adopted a rule of evidence in violation of Arkansas’s separation of powers doctrine.

The principle applied in this ruling swings both ways, however. In reaching its ruling in Mendoza, the high court relied on a 2009 decision that struck down a law eliminating phantom damages. In that instance the court found that barring admission of inflated medical bills that do not reflect the amount a plaintiff or her insurer actually paid for medical care was also an impermissible legislative adoption of a rule of evidence. The court’s rigid interpretation of its separation of powers doctrine has made it difficult to enact reforms that implicate court pleadings, practice or procedure.

In this instance, however, the ruling will result in juries having critical information needed to reach fairer decisions.

COLORADO SUPREME COURT ADOPTS ‘PLAUSIBILITY’ STANDARD

In June 2016 the Colorado Supreme Court adopted a standard that requires complaints to state a “plausible” claim.

The court’s ruling in Warne v. Hall brings Colorado state courts in line with the federal judiciary, which has followed the plausibility standard since a pair of U.S. Supreme Court decisions, Twombly (2007) and Iqbal (2009).

The plausibility standard requires a complaint to rely on more than speculation and unsupported assertions to survive a motion to dismiss. It replaced a prior standard that was far more deferential to the plaintiffs, allowing a court to dismiss claims only when it was beyond doubt that the plaintiff could prove no set of facts entitling him to relief.

Although not bound to do so, the state high court followed the U.S. Supreme Court’s lead due to the benefits of uniformity and consistency between federal and state law. The Centennial State’s justices found that maintaining consistency avoids the potential for different outcomes in similar cases and discourages forum shopping. They also recognized the significant costs of modern litigation, which makes it all the more important to “weed out groundless complaints” at an early stage. The plausibility standard, the court found, expedites the litigation process and avoids unnecessary expenses, especially with respect to discovery. Hear, hear!

D.C. ADOPTS, NORTH CAROLINA CONFIRMS STRONGER EXPERT TESTIMONY STANDARD

The District of Columbia has admirably joined the growing number of state courts that have adopted the federal standard for expert testimony known as Daubert, and North Carolina has confirmed that it too follows the higher standard. Daubert requires judges to play a gatekeeping role in evaluating the reliability of science that underlies such testimony.

The October 2016 decision by the D.C. Court of Appeals, the District’s highest local court, abandoned the 93-year-old Frye, and instead adopted Daubert. The more exacting Daubert standard focuses judges on the reliability of the principles and methods used by the expert. The court, sitting en banc, concluded in Motorola Inc. v. Murray that Daubert “is a decided advantage that will lead to better decision-making by juries and trial judges alike.”

The court reached its decision in the context of 13 lawsuits claiming that radiation emitted from cell phones causes brain tumors. The trial court judge found the plaintiffs’ expert testimony on causation would be admissible under the old Frye standard, but most of the testimony would likely be excluded under the Daubert test.

The D.C. Court of Appeals decision comes on the heels of a ruling by the North Carolina Supreme Court recognizing that courts in the Tar Heel State now also follow Daubert. For years, the state’s high court had declined to adopt the federal standard for admission of expert testimony, but the General Assembly’s adoption of statutory language mirroring federal rules in 2011 made the change.

This ruling in North Carolina v. McGrady, paired with the D.C. Court of Appeals adoption of Daubert, continues a healthy trend among state courts that recognize judges’ important gatekeeping role in ensuring that purported “expert” testimony is scientifically sound before it is presented to a jury.

Federal courts have applied Daubert since a U.S. Supreme Court decision by that name in 1993. Forty state court systems have since followed that lead. Now, D.C. and North Carolina’s highest courts have separated their states from the withering band of holdout jurisdictions such as Missouri, where, as discussed at the top of this report, junk science is allowed to trick juries into rendering gigantic if groundless verdicts that discourage economic investment there.

FLORIDA’S 1st DISTRICT COURT OF APPEALS SAYS AG CAN DISMISS ‘QUI TAM’ SUITS

Over the years, so-called “qui tam” lawsuits in which private plaintiffs who view themselves as whistleblowers bring actions on behalf of the federal or state government claiming that a contractor committed fraud have proliferated (see False Claims Act “Closer Look,”). A recent Florida appellate court ruling reaffirmed the state attorney general’s authority to put a quick end to groundless qui tam claims.

These whistleblower claims are attractive to plaintiffs’ lawyers because, if the claim leads to a settlement or judgment, the plaintiff is entitled to a share of the government’s recovery – a bounty – that can be significant. When such cases are filed, the government can choose to intervene (i.e., join and effectively take the lead) or sit back and let the private plaintiffs and their attorneys pursue the litigation without government involvement.

In February 2016 Florida’s First District Court of Appeals ruled that the state attorney general has authority to unilaterally dismiss qui tam actions, regardless of whether the state formally intervened in the litigation. Looking to the plain language of the Florida False Claims Act as well as court decisions interpreting the similar federal FCA, the court ruled that, as the real party-in-interest, the attorney general has the power to dismiss a qui tam case she deems groundless.

The ruling should serve as a reminder to state attorneys general across the country that, when they find a whistleblower action lacks merit, they cannot only decline to intervene, but they can save both wrongly accused defendants and taxpayers time and money by dismissing the action.

NEW HAMPSHIRE SUPERIOR COURT, MERRIMACK COUNTY SAYS
STATE LACKS AUTHORITY TO HIRE CONTINGENCY-FEE LAWYERS

The practice of state attorneys general hiring contingency-fee lawyers to bring law enforcement actions on behalf of the state is an increasingly troubling practice, especially when the contingency-fee lawyers double as generous contributors to those AGs’ political campaigns. These arrangements are rife with conflicts of interest and due-process concerns, to say nothing of the obvious questions they raise about pay-to-play corruption. So it is encouraging that a New Hampshire trial court judge in 2016 stood like a rock in telling the Granite State’s AG he did not have the authority to delegate power to private lawyers.

Judge Nicolosi

Judge Nicolosi

In March, 2016, Merrimack County Superior Court Judge Diane M. Nicolosi invalidated a retainer agreement between New Hampshire Attorney General Joseph Foster and Cohen Milstein Sellers & Toll which, as Pulitzer Prize-winning New York Times series reported in 2014, routinely pitches ideas for lawsuits to state attorneys general across the country. AG Foster hired the Washington, D.C.-based firm to bring lawsuits against five pharmaceutical companies, targeting their marketing of prescription painkiller medications. The firm planned to keep 27% of the state’s possible recovery, plus expenses.

After the pharmaceutical companies filed a motion for a protective order and an injunction, Judge Nicolosi found that the Attorney General was required to obtain approval from the legislature before hiring outside counsel on a contingency-fee basis. State law, the judge found, restricts the AG from hiring outside of its legislatively-approved appropriation and requires any money recovered for the state as a result of consumer protection lawsuits to be deposited in a state fund, not paid out to private lawyers.

The New Hampshire Supreme Court in April granted review of the case, State of New Hampshire v. Actavis Pharma, Inc., and is expected to hear oral arguments in 2017.

OKLAHOMA, INDIANA & DELAWARE SUPREME COURTS REJECT PHANTOM DAMAGES

As anyone who has seen a doctor knows, there is often a significant difference in the charge for a medical service that initially appears on a bill and the amount that a patient, or his or her insurer, actually pays. Some courts, however, blindfold juries as to the amount actually accepted as payment for medical bills, misleading them by asking them to determine damages based on inflated rates that no one pays. Three state supreme courts took steps this year to reduce these “phantom damages.”

The Oklahoma Supreme Court, which has a record of nullifying tort reforms, made a welcome change this year when it upheld a 2011 statute that generally limits evidence of medical expenses admissible at trial to the “actual amount paid . . . not the amounts billed.”

The case, Lee v. Bueno, arose after a typical fender-bender. The plaintiff claimed about $10,000 in medical expenses resulting from a car accident, but his insurer ultimately paid healthcare providers about a quarter of that amount, $2,845.11. Even before trial, the plaintiff asked the trial court to find the 2011 statute unconstitutional. The trial court rejected the challenge and certified the issue for immediate appeal.

To its credit, the Oklahoma Supreme Court recognized that “[i]t is not the place of this Court, or any court, to concern itself with a statute’s propriety, desirability, wisdom, or its practicality” and it is bound to find a statute constitutional unless shown otherwise “beyond a reasonable doubt.” In its September 2016 ruling the court found the statute “neither arbitrary not unreasonable.” It rejected the plaintiff’s suggestion that any statutory provision that might limit a jury’s award of damages somehow violates the Oklahoma Constitution, among a plethora of other constitutional challenges.

The following month, the Indiana Supreme Court reduced the potential for phantom damages in its courts. In Patchett v. Lee, a person injured in a car accident introduced $87,706.36 in medical bills, but fought to exclude the amount actually accepted by her healthcare providers through her government-sponsored health insurance, $12,051.48—an 86% difference.

The court ruled that the amount accepted as full payment by a healthcare provider is admissible in court as evidence of the reasonable value of the medical services. The court emphasized that Indiana tort law “seeks to make injured parties whole,” not more than whole. It recognized that the amount accepted as payment may indicate the reasonable value of medical care, which is the touchstone for what a plaintiff can recoup. The ruling applies regardless of whether the bill was paid by a private insurer or government program.

The Indiana Supreme Court did not completely eliminate phantom damages by taking the Oklahoma approach, which allows a plaintiff to introduce only the amount actually paid for medical care, and which is also followed in states such as California, North Carolina, and Texas. Rather, the Indiana ruling allows the jury to consider both the billed charges and the accepted amounts in determining damages. This “middle ground,” as the court viewed it, will reduce the potential for inflated damage awards.

The Delaware Supreme Court completed the trifecta in November with its ruling in Smith v. Mahoney. It was another car accident case in which the plaintiff introduced at trial a $22,911 doctor’s bill plus a $2,000 charge for an MRI rather than the $5,197.71 her physician later accepted as payment from Medicaid. The jury awarded the larger amount, in addition to other damages. But the trial judge reduced the award for medical expenses to the amount Medicaid actually paid.

The Delaware Supreme Court affirmed the trial court. It recognized that allowing the plaintiff “to recover amounts that are paid by no one” does not make an injured party whole. The court ruled that plaintiffs cannot collect more than the amount actually paid in cases in which Medicare or Medicaid paid an injured party’s expenses. These reduced rates, the court found, “directly benefit federal and state taxpayers, not the plaintiff.”

The court’s ruling does not extend to cases in which medical expenses are paid by private insurers, continuing to allow phantom damages in many cases. The court concluded its ruling, however, by extending an invitation to the legislature to debate whether, as a matter of public policy, Delaware should end the practice of awarding tort plaintiffs money they would never have received.

OREGON SUPREME COURT UPHOLDS DAMAGE LIMIT

In May 2016 the Oregon Supreme Court upheld the constitutionality of a law limiting damages to $3 million in personal injury lawsuits against the state and its employees. The ruling, which overruled precedent, suggests that the legislature may also constrain damages in other areas.

The difficult case was brought by the parents of a child who, when six-months old, developed a cancerous mass on his liver. During surgery, his doctors accidentally transected blood vessels, resulting in the need for a liver transplant and additional surgeries. A Portland jury awarded more than $12 million in damages. The state-funded hospital asked the court to lower the final judgment to $3 million, the limit prescribed in the Oregon Tort Claims Act that had been adjusted significantly upward by the legislature in 2009. This law is intended to balance the need to compensate the injured with the public’s need to access affordable, if high-risk, medical services, as well as other services funded by taxpayers.

The trial court reduced the hospital’s share of the award to $3 million but left a surgeon liable for the remaining $9 million. The Oregon Supreme Court reversed, finding that the limit applied equally to the state hospital as well as the doctors working on behalf of the state while performing the surgery.

The high court’s decision in Horton v. Oregon Health & Science University overruled prior decisions striking down damage limits as inconsistent with the history of the right to a remedy and the right to a jury trial. Most significantly, the court explicitly overruled its own 1999 decision in Lakin v. Senco Products, Inc., in which it had invalidated Oregon’s $500,000 noneconomic damages cap in personal injury cases. But it now recognizes that “legal limits on a jury’s assessment of civil damages have been and remain an accepted feature of our law.” The court also observed that 17 of 22 jurisdictions that have considered whether a limit on damages violates the right to jury trial have concluded that it does not.

Groups representing Oregon doctors view the decision as “start[ing] a new chapter in Oregon about the limits of tort liability.”

IN THE LEGISLATURES

Five states enacted legislation aimed at improving the civil justice system in 2016. An alphabetized list below does not include West Virginia, this year’s legislative accomplishments of which are detailed in this report’s Watch List section.

Mississippi passed two reforms: One limits the amount a defendant can be required to pay to secure the right to appeal to 50 percent of an appellant’s net worth not to exceed $35 million (H.B. 1529); and the other reasonably limits the duty of care owed by a land possessor to a trespasser (H.B. 767).

New Mexico reformed medical liability by prohibiting state courts from accepting lawsuits for medical treatment rendered out-of-state if the patient has consented to choice of law and jurisdiction (H.B. 270).

Tennessee lawmakers made asbestos bankruptcy trust claims transparent, required minimal medical criteria for asbestos plaintiffs, heightened causation standards while eliminating the duty to warn about asbestos products made by third parties, punitive damages and consolidation without consent of all parties in asbestos litigation (S.B. 2062).

Utah also enacted transparency requirements with respect to asbestos bankruptcy trust claims which, among other things, provides the parties with all trust claims materials after commencement of an asbestos lawsuit (H.B. 403).

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