Avoiding Dysfunctional Litigation

Causes of action alleging violations of state consumer fraud statutes are among the newest weapons in the arsenal of product liability plaintiffs. Instead of solely pleading traditional common law or statutory product liability claims, plaintiffs ' particularly those in drug or medical device cases ' often also allege consumer fraud or unfair trade practices. For plaintiffs, the strategic advantages are the ability to: 1) circumvent the causation requirements of traditional strict liability cases; 2) obtain punitive damages; and 3) recover attorneys' fees and costs from defendants. This litigation tactic, however, is manifestly unfair to product manufacturers and frustrates the policy rationale underlying traditional product liability causes of action.

This article examines: 1) the historical underpinnings of product liability causes of action; 2) the purpose of state consumer fraud statutes and their growing popularity in product liability actions; and 3) one court's analysis regarding the inability of these two claims to be reconciled in a product liability action. The article concludes that permitting consumer fraud claims to continue to be asserted in product defect cases is misguided and thwarts the public interest.

The History and Purpose of Strict Liability Products Actions

The American Law Institute first formally recognized product liability actions in the Restatement (Second) of Torts, ' 402A. Section 402A was published in 1964 when product liability law was still in its infancy. The significance of ' 402A is that it created a strict liability tort with respect to defective products and eliminated the requirement of privity. As a matter of common law, many states still follow ' 402A's initial codification of strict liability.

In 1998, the Restatement (Third) of Torts: Products Liability significantly expanded upon ' 402A, but still kept strict liability in tact while providing additional context. Specifically, the Restatement (Third) defines a product manufacturer's liability for a product defect as follows: “One engaged in the business of selling or otherwise distributing products who sells or distributes a defective product is subject to liability for harm to persons or property caused by the defect.” Restatement (Third) of Torts: Prod. Liab. ' 1(d) (1998). This statement of liability “draws on both warranty law and tort law.” Id. at cmt. A. The resulting cause of action for strict liability is “a term of art that reflects the judgment that products liability is a discrete area of tort law based on both negligence and warranty.” Id.

Some states, such as New Jersey, have formally codified the common law with respect to product liability, resulting in a single, statutory cause of action. For example, the New Jersey state legislature enacted the Products Liability Act (“PLA”) in 1987 as “remedial” legislation to establish “clear rules” concerning product liability claims. N.J.S.A. 2A:58C-1(a). Although the PLA was “not intended to codify all issues regarding product liability,” it does provide controlling statutory law regarding all matters that it addresses. Id. It is well-established that the statute provides the exclusive remedy for a plaintiff bringing a product liability action, except where a theory of breach of express warranty also is applicable. Tirrell v. Navistar Int'l, Inc., 248 N.J. Super. 390, 398 (App. Div.), certif. denied, 126 N.J. 390 (1991). The surviving cause of action is one of strict liability. Universal Underwriters Ins. Group v. Public Serv. Elec. & Gas Co., 103 F. Supp. 2d 744, 747 (D.N.J. 2000) (common law actions for negligence and breach of implied warranty are subsumed by PLA and strict liability claim is the surviving cause of action).

Other states, where product liability claims still are governed exclusively by common law, nonetheless have adopted the Restatement of Torts strict liability standard, more or less providing for a single cause of action for strict liability. See, e.g., Greeman v. Yuba Power Prods., Inc., 59 Cal. 2d 57 (1963) (adopting strict liability standard in product liability cases as a matter of California common law); Samuel Friedland Family Enter. v. Amoroso, 630 So. 2d 1067, 1068 (Fla. 1994); (stating same under Florida common law) Amatulli v. Delhi Constr. Corp., 571 N.E.2d 645 (N.Y. 1991) (stating same under New York common law). Again, although not codified, the purpose underlying common law claims seems to be nearly identical to that of statutes: generally, a single, unified remedy for a plaintiff bringing a product liability action (except in cases of breach of express warranty).

The clear advantage to plaintiffs asserting product liability claims is the strict liability standard, which does not require proof of privity. The benefit to defendants is that neither codified nor common law product liability causes of action, however, provide for: 1) damages absent proof of injury; 2) punitive damages as a matter of course; or 3) an assumption of plaintiffs' attorneys' fees and costs by the defendant manufacturer. However, it is these three elements that plaintiffs try to incorporate into product liability actions vis-'-vis state consumer fraud laws.

State Consumer Fraud Statutes

As mentioned above, in addition to asserting claims relating to product defect pursuant to strict liability product liability law, many plaintiffs also now assert a companion claim for state consumer fraud. Currently, all 50 states have some form of law to protect consumers. Generally speaking, these statutes prohibit “unfair or deceptive” trade practices. Many of these laws are based on the Federal Trade Commission Act, 15 U.S.C.
' 45(a)(1) (“FTCA”), which proscribes “unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce” and places enforcement responsibilities on the Commissioner of the Federal Trade Commission. Unlike the FTCA, however, nearly every state statute creates a private cause of action for consumer fraud.

For example, in New Jersey, a private right of action is created as follows and permits the recovery of treble damages, as well as attorneys' fees and costs:

Any person who suffers any ascertainable loss of moneys or property, real or personal, as a result of the use or employment by another person of any method, act, or practice declared unlawful under this act or the act hereby amended and supplemented may bring an action or assert a counterclaim therefor in any court of competent jurisdiction. In any action under this section the court shall, in addition to any other appropriate legal or equitable relief, award threefold the damages sustained by any person in interest. In all actions under this section, including those brought by the Attorney General, the court shall also award reasonable attorneys' fees, filing fees and reasonable costs of suit. (See N.J.S.A. 56:8-19.)

The prospect of recovering punitive damages and attorneys' fees and costs is what draws plaintiffs to include this additional cause of action in product defect cases. Such claims are typically made in failure-to-warn product liability actions (often against drug and device manufacturers) and typically contend that the manufacturer's use of unconscionable commercial practices in terms of failing to convey risks associated with the products. See, e.g., McDarby v. Merck & Co., 401 N.J. Super. 10 (App. Div. 2008).

Rejection of Statutory Consumer Fraud Claims in Product Liability Actions

In a recent opinion, McDarby v. Merck & Co., 401 N.J. Super. 10, 62'63 (App. Div. 2008), the New Jersey Appellate Division held that plaintiffs could not “maintain” separate causes of action under the state product liability act and the state consumer fraud act. Id. at 98. In fact, the McDarby court found that the consumer fraud claims were subsumed by the product liability claims. Id. at 99.

By way of factual background, the McDarby case, as well as the companion Cona case (the opinion at 401 N.J. Super. 10 addressed the appeals in both cases) was part of the New Jersey Mass Tort Vioxx Litigation. Id. at 20. Plaintiffs McDarby and Cona alleged that they suffered physical injury as a result of taking Merck's non-steroidal anti-inflammatory drug, Vioxx. Id. at 56-57. Both plaintiffs asserted claims under New Jersey Products Liability Act (“PLA”) and the Consumer Fraud Act (“CFA”). Id. at 60-61.

At trial, the jury awarded compensatory damages to plaintiff McDarby under the PLA and additional damages and attorneys fees' and costs under the CFA. Id. at 95. Finding that plaintiff Cona did not prove a claim for physical injury under the PLA, the jury awarded him damages and attorneys' fees and costs pursuant to the CFA. Id.

On appeal, Merck argued, inter alia, that the PLA subsumed plaintiffs' CFA claims. The appellate division agreed and found that “by enacting the PLA, the New Jersey Legislature manifested its intent to replace all pre-existing claims by 'one unified, statutorily defined theory of recover for harm caused by a product.'” Id. at 96 (citations omitted). Accordingly, the appellate division determined that plaintiffs could not maintain separate causes of action under the PLA and CFA. The court correctly stated that “to permit such an expanded form of relief would be to destroy the balance established between the interests of the manufacturers, the public and individuals established by the Legislature in enacting the PLA by introducing an otherwise unavailable treble damages remedy for harms resulting from a failure to warn.” Id. at 98; see also Sinclair v. Merck & Co., Inc., 195 N.J. 51 (2008) (holding that plaintiffs cannot recover for medical monitoring under the PLA in the absence of a “manifest injury” and echoing the Appellate Division in McDarby, the court also held that plaintiffs cannot recover for medical monitoring claims under the CFA).

As McDarby illustrates, consumer fraud claims do not fit within the purview of a product defect action, and in fact, have the potential to confuse a jury and provide incongruous results. While the jury found no proof of product defect with respect to plaintiff Cona, it still awarded him damages under the CFA. In essence, even though plaintiff Cona was unable to prove a failure-to-warn, he was nonetheless rewarded by being able to recoup his attorneys' fees and costs for his product defect claim under the CFA. This windfall to plaintiffs cannot be what the New Jersey legislature ' or any state legislative body for that matter ' intended when designing a consumer protection law. It also flies in the face of the policy rationale (in New Jersey specifically and more generally in other states) behind streamlining product liability claims into a strict liability cause of action. Under the McDarby trial scenario, regardless of whether a product defect is shown, it is the manufacturer defendant that unfairly suffers and may be required to pay more than a million dollars in fees and costs (as in the verdict given to plaintiff Cona) without any
finding that the product as issue was defective.

Conclusion

Attempts by plaintiffs in product liability actions to bootstrap consumer fraud claims to obvious claims of product defect must be rejected wholesale by the American judicial system. Regardless of whether states have adopted product liability legislation or continue to follow general common law strict liability, actions for product defects typically do not provide for varying types of damages as a matter of course. Additionally, while the legislative intent of creating a single cause of action under New Jersey PLA is easy to discern, common law and statutory theories of recovery for defective products do not traditionally provide for the recovery of attorneys fees and costs by the successful litigant and do not provide for punitive damages absent heightened scrutiny.

The effect of permitting these two causes of action to proceed in the same case is essentially to permit a plaintiff to bring a suit “for free” without ever having to have a recognizable theory of causation. If it does not work out, the plaintiff can simply recover attorneys' fees and costs. Thus, there is no litigation risk to plaintiff, yet an additional burden placed on manufacturers. Accordingly, as the McDarby court found, state consumer fraud actions should be subsumed by product liability actions and should not be permitted as an economic safety net to plaintiffs with weak or non-existent product liability claims.

Michelle Bufano, a member of this newsletter's Board of Editors, is a director at the Newark, NJ, office of Gibbons, PC. She devotes her practice to mass tort and product liability litigation, with a special focus in the areas of pharmaceuticals and medical devices.

Causes of action alleging violations of state consumer fraud statutes are among the newest weapons in the arsenal of product liability plaintiffs. Instead of solely pleading traditional common law or statutory product liability claims, plaintiffs ' particularly those in drug or medical device cases ' often also allege consumer fraud or unfair trade practices. For plaintiffs, the strategic advantages are the ability to: 1) circumvent the causation requirements of traditional strict liability cases; 2) obtain punitive damages; and 3) recover attorneys' fees and costs from defendants. This litigation tactic, however, is manifestly unfair to product manufacturers and frustrates the policy rationale underlying traditional product liability causes of action.

This article examines: 1) the historical underpinnings of product liability causes of action; 2) the purpose of state consumer fraud statutes and their growing popularity in product liability actions; and 3) one court's analysis regarding the inability of these two claims to be reconciled in a product liability action. The article concludes that permitting consumer fraud claims to continue to be asserted in product defect cases is misguided and thwarts the public interest.

The History and Purpose of Strict Liability Products Actions

The American Law Institute first formally recognized product liability actions in the Restatement (Second) of Torts, ' 402A. Section 402A was published in 1964 when product liability law was still in its infancy. The significance of ' 402A is that it created a strict liability tort with respect to defective products and eliminated the requirement of privity. As a matter of common law, many states still follow ' 402A's initial codification of strict liability.

In 1998, the Restatement (Third) of Torts: Products Liability significantly expanded upon ' 402A, but still kept strict liability in tact while providing additional context. Specifically, the Restatement (Third) defines a product manufacturer's liability for a product defect as follows: “One engaged in the business of selling or otherwise distributing products who sells or distributes a defective product is subject to liability for harm to persons or property caused by the defect.” Restatement (Third) of Torts: Prod. Liab. ' 1(d) (1998). This statement of liability “draws on both warranty law and tort law.” Id. at cmt. A. The resulting cause of action for strict liability is “a term of art that reflects the judgment that products liability is a discrete area of tort law based on both negligence and warranty.” Id.

Some states, such as New Jersey, have formally codified the common law with respect to product liability, resulting in a single, statutory cause of action. For example, the New Jersey state legislature enacted the Products Liability Act (“PLA”) in 1987 as “remedial” legislation to establish “clear rules” concerning product liability claims. N.J.S.A. 2A:58C-1(a). Although the PLA was “not intended to codify all issues regarding product liability,” it does provide controlling statutory law regarding all matters that it addresses. Id. It is well-established that the statute provides the exclusive remedy for a plaintiff bringing a product liability action, except where a theory of breach of express warranty also is applicable. Tirrell v. Navistar Int'l, Inc. , 248 N.J. Super. 390, 398 (App. Div.), certif. denied, 126 N.J. 390 (1991). The surviving cause of action is one of strict liability. Universal Underwriters Ins. Group v. Public Serv. Elec. & Gas Co. , 103 F. Supp. 2d 744, 747 (D.N.J. 2000) (common law actions for negligence and breach of implied warranty are subsumed by PLA and strict liability claim is the surviving cause of action).

Other states, where product liability claims still are governed exclusively by common law, nonetheless have adopted the Restatement of Torts strict liability standard, more or less providing for a single cause of action for strict liability. See, e.g., Greeman v. Yuba Power Prods., Inc. , 59 Cal. 2d 57 (1963) (adopting strict liability standard in product liability cases as a matter of California common law); Samuel Friedland Family Enter. v. Amoroso , 630 So. 2d 1067, 1068 (Fla. 1994); (stating same under Florida common law) Amatulli v. Delhi Constr. Corp. , 571 N.E.2d 645 (N.Y. 1991) (stating same under New York common law). Again, although not codified, the purpose underlying common law claims seems to be nearly identical to that of statutes: generally, a single, unified remedy for a plaintiff bringing a product liability action (except in cases of breach of express warranty).

The clear advantage to plaintiffs asserting product liability claims is the strict liability standard, which does not require proof of privity. The benefit to defendants is that neither codified nor common law product liability causes of action, however, provide for: 1) damages absent proof of injury; 2) punitive damages as a matter of course; or 3) an assumption of plaintiffs' attorneys' fees and costs by the defendant manufacturer. However, it is these three elements that plaintiffs try to incorporate into product liability actions vis-'-vis state consumer fraud laws.

State Consumer Fraud Statutes

As mentioned above, in addition to asserting claims relating to product defect pursuant to strict liability product liability law, many plaintiffs also now assert a companion claim for state consumer fraud. Currently, all 50 states have some form of law to protect consumers. Generally speaking, these statutes prohibit “unfair or deceptive” trade practices. Many of these laws are based on the Federal Trade Commission Act, 15 U.S.C.
' 45(a)(1) (“FTCA”), which proscribes “unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce” and places enforcement responsibilities on the Commissioner of the Federal Trade Commission. Unlike the FTCA, however, nearly every state statute creates a private cause of action for consumer fraud.

For example, in New Jersey, a private right of action is created as follows and permits the recovery of treble damages, as well as attorneys' fees and costs:

Any person who suffers any ascertainable loss of moneys or property, real or personal, as a result of the use or employment by another person of any method, act, or practice declared unlawful under this act or the act hereby amended and supplemented may bring an action or assert a counterclaim therefor in any court of competent jurisdiction. In any action under this section the court shall, in addition to any other appropriate legal or equitable relief, award threefold the damages sustained by any person in interest. In all actions under this section, including those brought by the Attorney General, the court shall also award reasonable attorneys' fees, filing fees and reasonable costs of suit. (See N.J.S.A. 56:8-19.)

The prospect of recovering punitive damages and attorneys' fees and costs is what draws plaintiffs to include this additional cause of action in product defect cases. Such claims are typically made in failure-to-warn product liability actions (often against drug and device manufacturers) and typically contend that the manufacturer's use of unconscionable commercial practices in terms of failing to convey risks associated with the products. S ee, e.g., McDarby v. Merck & Co. , 401 N.J. Super. 10 (App. Div. 2008).

Rejection of Statutory Consumer Fraud Claims in Product Liability Actions

In a recent opinion, McDarby v. Merck & Co. , 401 N.J. Super. 10, 62'63 (App. Div. 2008), the New Jersey Appellate Division held that plaintiffs could not “maintain” separate causes of action under the state product liability act and the state consumer fraud act. Id. at 98. In fact, the McDarby court found that the consumer fraud claims were subsumed by the product liability claims. Id. at 99.

By way of factual background, the McDarby case, as well as the companion Cona case (the opinion at 401 N.J. Super. 10 addressed the appeals in both cases) was part of the New Jersey Mass Tort Vioxx Litigation. Id. at 20. Plaintiffs McDarby and Cona alleged that they suffered physical injury as a result of taking Merck's non-steroidal anti-inflammatory drug, Vioxx. Id. at 56-57. Both plaintiffs asserted claims under New Jersey Products Liability Act (“PLA”) and the Consumer Fraud Act (“CFA”). Id. at 60-61.

At trial, the jury awarded compensatory damages to plaintiff McDarby under the PLA and additional damages and attorneys fees' and costs under the CFA. Id. at 95. Finding that plaintiff Cona did not prove a claim for physical injury under the PLA, the jury awarded him damages and attorneys' fees and costs pursuant to the CFA. Id.

On appeal, Merck argued, inter alia, that the PLA subsumed plaintiffs' CFA claims. The appellate division agreed and found that “by enacting the PLA, the New Jersey Legislature manifested its intent to replace all pre-existing claims by 'one unified, statutorily defined theory of recover for harm caused by a product.'” Id. at 96 (citations omitted). Accordingly, the appellate division determined that plaintiffs could not maintain separate causes of action under the PLA and CFA. The court correctly stated that “to permit such an expanded form of relief would be to destroy the balance established between the interests of the manufacturers, the public and individuals established by the Legislature in enacting the PLA by introducing an otherwise unavailable treble damages remedy for harms resulting from a failure to warn.” Id . at 98; see also Sinclair v. Merck & Co., Inc. , 195 N.J. 51 (2008) (holding that plaintiffs cannot recover for medical monitoring under the PLA in the absence of a “manifest injury” and echoing the Appellate Division in McDarby , the court also held that plaintiffs cannot recover for medical monitoring claims under the CFA).

As McDarby illustrates, consumer fraud claims do not fit within the purview of a product defect action, and in fact, have the potential to confuse a jury and provide incongruous results. While the jury found no proof of product defect with respect to plaintiff Cona, it still awarded him damages under the CFA. In essence, even though plaintiff Cona was unable to prove a failure-to-warn, he was nonetheless rewarded by being able to recoup his attorneys' fees and costs for his product defect claim under the CFA. This windfall to plaintiffs cannot be what the New Jersey legislature ' or any state legislative body for that matter ' intended when designing a consumer protection law. It also flies in the face of the policy rationale (in New Jersey specifically and more generally in other states) behind streamlining product liability claims into a strict liability cause of action. Under the McDarby trial scenario, regardless of whether a product defect is shown, it is the manufacturer defendant that unfairly suffers and may be required to pay more than a million dollars in fees and costs (as in the verdict given to plaintiff Cona) without any
finding that the product as issue was defective.

Conclusion

Attempts by plaintiffs in product liability actions to bootstrap consumer fraud claims to obvious claims of product defect must be rejected wholesale by the American judicial system. Regardless of whether states have adopted product liability legislation or continue to follow general common law strict liability, actions for product defects typically do not provide for varying types of damages as a matter of course. Additionally, while the legislative intent of creating a single cause of action under New Jersey PLA is easy to discern, common law and statutory theories of recovery for defective products do not traditionally provide for the recovery of attorneys fees and costs by the successful litigant and do not provide for punitive damages absent heightened scrutiny.

The effect of permitting these two causes of action to proceed in the same case is essentially to permit a plaintiff to bring a suit “for free” without ever having to have a recognizable theory of causation. If it does not work out, the plaintiff can simply recover attorneys' fees and costs. Thus, there is no litigation risk to plaintiff, yet an additional burden placed on manufacturers. Accordingly, as the McDarby court found, state consumer fraud actions should be subsumed by product liability actions and should not be permitted as an economic safety net to plaintiffs with weak or non-existent product liability claims.

Michelle Bufano, a member of this newsletter's Board of Editors, is a director at the Newark, NJ, office of Gibbons, PC. She devotes her practice to mass tort and product liability litigation, with a special focus in the areas of pharmaceuticals and medical devices.