Choice of Law and Punitive Damages
in New Jersey Mass Tort Litigation
by Kenneth J. Wilbur and Susan M. Sharko
There is now an emerging consensus that where the alleged wrongful conduct
giving rise to a punitive damages claim occurred in New Jersey, the claim is
governed by New Jersey law, regardless of the place of injury or residence of the
plaintiff. This is important because if the claim concerns an approved Food and
Drug Administration (FDA) prescription product, the interaction of statutory
reforms and preemption principles precludes the award of punitive damages in
products liability actions governed by New Jersey law.
Choice of Law Governing Punitive Damages
trial formulation and the process of obtaining FDA approval,
Because the state is perceived as a pro-plaintiff jurisdiction,
are controlled by corporate employees located in New Jersey.
and the concentration of corporate headquarters here gener-
As the state where the alleged conduct giving rise to punitive
ally precludes removal to federal court, New Jersey is a popu-
damages occurred, New Jersey has the stronger interest in
lar venue for mass tort plaintiffs. Tens of thousands of plain-
applying its punitive damage law to that conduct.
tiffs populate the mass tort courts in New Jersey; a small
As the restatement explains, “if [the purpose of the law] is
percentage of them are actually New Jersey residents. This
to punish the tortfeasor and thus to deter others from follow-
influx of claims by non-forum plaintiffs provides fertile
ing his example, there is better reason to say that the state
ground for choice of law disputes.
where the conduct occurred is the state of dominant interest
To resolve them, New Jersey follows the “most significant
and that its local law should control than if the tort rule is
relationship” approach defined in the Restatement (Second)
designed primarily to compensate the victim for his injuries.”4
of Conflicts of Laws.1 Under this approach, governing law is
There is an ever-lengthening line of cases from across the
determined on an issue-by-issue basis, based on the impor-
country recognizing that, under the restatement choice of law
tance of a state’s contacts related to that particular issue.2 The
rules, the state in which the defendant’s misconduct alleged-
restatement recognizes it is possible, even likely, that where
ly occurred has the most significant relationship with the
the plaintiff and defendant are from different states, “situa-
issue of liability for punitive damages, even if liability for
tions may arise where one state has the dominant interest
compensatory damages is governed by the place of injury or
with respect to the issue of compensatory damages and
of the plaintiff’s domicile.
another state has the dominant interest with respect to the
issue of exemplary damages.”3
Kelly v. Ford Motor Co.,5 for example, involved a wrongful
death action arising from the death of a Pennsylvania resi-
While the place of injury has a clear interest in ensuring
dent in that state, allegedly caused by defects in a vehicle
that its injured residents are compensated, punitive damages
purchased in Pennsylvania but designed, developed and built
regulate conduct. Where New Jersey is the defendants’ princi-
in Michigan. Despite the prevalence of contacts with Penn-
pal place of business and the punitive damage claim arises out
sylvania and application of Pennsylvania compensatory
of corporate decision-making, New Jersey has the dominant
damages law, the court in Kelly, following Restatement Sec-
interest in having its law apply. Commonly, corporate actions
tion 145, comment c, held that Michigan law governed the
such as decisions concerning product design and promotion-
punitive damage claims, as it had the dominant interest in
al plans, and in the prescription medicine context, clinical
and most significant relationship with the conduct at issue in
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the punitive damages claim.6
all consumer fraud act claims regardless
tration and the reasonable expectations
Similarly, in Minebea Co. v. Papst,7 the
of the residence of the purchasers, since
of the parties.14
court applied German law barring puni-
awards under that statute were punitive
These decisions all come to the con-
tive damages to a tort claim in which
in nature. This was because New Jersey,
clusion that where the conduct alleged
liability was governed by New York law,
as the state of the defendants’ principal
to give rise to a punitive damage claim
finding that “[w]hen the primary pur-
place of business, and where the con-
occurred in New Jersey, that state has a
pose of a rule of law is to deter or pun-
duct warranting a punitive award was
far more significant relationship to the
ish conduct, the jurisdictions with the
alleged to have occurred, had the most
issue of punitive damages than the state
most significant interests are those in
significant interest in applying its law to
where the product was sold as part of its
which the conduct occurred and in
the conduct in question.
general course through the stream of
which the principal place of business
In particular, the court noted that
interstate commerce. In these circum-
and place of incorporation of the defen-
New Jersey had an interest in enforcing
stances, application of New Jersey law to
dant are located.”
when such an award was warranted, as
govern punitive damages, even if the
well as limits on the extent of the
laws of another state govern the issue of
awards.11
compensatory damages, advances all of
Numerous decisions have followed
the restatement to apply New Jersey
punitive damage law when the law of
Following this analysis, two recent
the factors relevant to the choice of law
another state governed compensatory
Law Division decisions have held that
analysis defined in the restatement. It
damages. In In re Educational Testing
New Jersey law governed the issue of
takes into account the needs of the
Service Praxis Principles of Learning and
punitive damages despite compensatory
interstate system, the basic policies of
for
damages being controlled by the law of
the particular fields of law, and the rela-
example, the court applied Ohio and
another state. In both Dery v. Ortho-
tive interests of other states in the deter-
Pennsylvania law to determine liability
McNeil Pharmaceuticals, Inc.
for compensatory damages in a federal
v. Novartis Pharms. Corp.,
plaintiffs
In addition, given the uniform
multi-district litigation (MDL) proceed-
injured in states other than New Jersey
national scope of management deci-
ing alleging negligence in Educational
sought compensatory and punitive
sions related to the labeling and distri-
Testing Service’s (ETS’s) scoring of a
damages arising from alleged miscon-
bution of products subject to mass tort
standardized test for teachers in those
duct by a pharmaceutical company
suits, having the law of the state in
states. Citing Restatement Section 145,
headquartered in New Jersey. In each
which those decisions were made gov-
comment c, however, the court found
case, the people responsible for making
ern any punishment of that conduct
New Jersey law governed the claim for
decisions with respect to the develop-
protects justified expectations and
punitive damages, as “New Jersey, ETS’s
ment, clinical testing, FDA new drug
advances the interests of certainty, pre-
principal place of business, is the state
application, labeling, and marketing of
dictability and uniformity of result. A
in which the allegedly wrongful con-
the pharmaceuticals in question were
clear rule applying the law of the state
duct took place.”
located at the defendants’ headquarters
where such management decisions were
in New Jersey.
made also facilitates ease in the determi-
Teaching: Grades 7-12 Litigation,
8
9
The district of New Jersey applied this
12
13
and Meng
same reasoning in In re Mercedes-Benz
While the parties agreed the law of
Tele Aid Contract Litigation,10 a MDL
the place of injury would govern com-
mination of those particular issues.15
nation and application of the law to be
applied.16
involving claims filed in six states
pensatory damages, they disagreed
against Mercedes for selling an analog
whether New Jersey law governed puni-
wireless vehicle assistance system it
tive damages. In both decisions, the
allegedly knew would be rendered use-
court found that since punitive damages
Application of New Jersey law to a
The Availability of Punitive Damages
in Pharmaceutical Cases
less by wireless providers’ imminent
are intended to punish and deter wrong-
claim for punitive damages arising from
switch to digital-only service. Mercedes-
ful conduct, New Jersey, as the place
corporate conduct in New Jersey is
Benz-U.S.A.’s principal place of business
where the conduct sought to be regulat-
important in cases involving products of
is New Jersey, and the decisions on how
ed allegedly occurred, had the greater
any type. New Jersey has passed two
and when to market the system were
interest in applying its law to that con-
important pieces of legislation to give
made at its New Jersey headquarters.
duct, and that application of the puni-
effect to its interest in striking a proper
The court, following the reasoning of
tive damage law of New Jersey accorded
balance between regulating conduct of
Restatement Section 146, comment (e),
with the relative interests of the affected
New Jersey business entities and protect-
found that New Jersey law would govern
states, the interests of judicial adminis-
ing those entities from excessive liability.
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NEW JERSEY LAWYER | August 2011
55
One such provision, New Jersey’s
Punitive
Damages
Act,
limits
the
it also reaches the correct result, the
state court to determine if the FDA had
authors believe.
been defrauded, it viewed those prob-
amount of punitive damages available
In Buckman, the Court, noting that
lems as limited to concerns that defen-
to the greater of five times compensa-
“[p]olicing fraud against federal agen-
dants, anticipating potential allegations
tory damages, or $350,000.17 Many
cies is hardly a field which the states
of fraud by omission, would deluge the
states’ laws do not contain such limita-
have traditionally occupied,” found that
FDA with information it neither needed
tions, creating the potential for unfair
claims based on fraud on the FDA were
nor wanted. Since any claim in which
and oppressive results.
impliedly preempted. It reasoned that
evidence of fraud on the FDA might be
such claims would “inevitably conflict
admissible presented the same ‘deluge’
ticular importance when the product is
with the FDA’s responsibility to police
concern, the Desiano court discounted it
a pharmaceutical. Under the New Jersey
fraud consistently with the Administra-
as a justification for preemption.27
Products Liability Act (PLA), FDA
tion’s judgment and objectives.”21 Fol-
The common law claim/statutory
approval of prescription medicine pro-
lowing this reasoning, the court in
affirmative defense distinction at the
hibits an award of punitive damages in
McDarby, while recognizing there were
heart of Desiano, however, is based on
product liability actions:
some differences between the punitive
the false premise that the subject of pre-
Another statutory provision is of par-
damages claim permitted by the PLA
emption was a common law personal
Punitive damages shall not be award-
and the claim preempted in Buckman,22
injury claim. In fact, preemption of the
ed if a drug or device or food or food
found “the single focus upon fraud on
common law claim was not at issue, as
additive which caused the claimant’s
the FDA in each to be sufficiently simi-
it had been extinguished by statute. The
lar to warrant the application of Buck-
subject of preemption was instead a
man to this case.”23
statutory provision that turned on the
harm
was
subject
to
premarket
approval or licensure by the federal
Food and Drug Administration under
In finding the prescription drug
same finding of fraud on the FDA found
the “Federal Food, Drug, and Cosmet-
punitive damage claim permitted by the
preempted in Buckman. Furthermore,
ic Act,” ... 21 U.S.C. § 301 et seq. or the
PLA to be preempted, the Appellate
Desiano engaged in an unduly narrow
“Public Health Service Act,” 58 Stat.
Division in McDarby was unpersuaded
reading of Buckman when it limited its
682, 42 U.S.C. § 201 et seq. and was
by the Second Circuit’s decision con-
discussion of the practical concerns
approved or licensed; or is generally
struing a similar statute in Desiano v.
posed by such claims to the threat of the
recognized as safe and effective pur-
Warner Lambert & Co.
FDA being deluged with unwanted doc-
24
suant to conditions established by the
The authors believe the Appellate
umentation. In fact, the Court in Buck-
federal Food and Drug Administration
Division was correct to reject Desiano for
man was clear that the deluge concern,
and applicable regulations, including
two reasons.
while serious in its own right, was just
packaging and labeling regulations.
First, Desiano concerned a Michigan
one conflict that would result if 50 dif-
However, where the product manufac-
statute that bans all products liability
ferent states were permitted to pass on
whether the FDA had been defrauded.
turer knowingly withheld or misrepre-
actions involving FDA-approved phar-
sented information required to be sub-
maceuticals, but contains an exception
The Court’s greater concern in Buck-
mitted under the agency’s regulations,
to that ban where the plaintiff proves
man was that Congress had committed
which information was material and
the defendant intentionally withheld
enforcement of the federal Food Drug
relevant to the harm in question, puni-
25
material information from the FDA.
and Cosmetic Act’s (FDCA’s) numerous
tive damages may be awarded.18
Reading Buckman to preempt only non-
disclosure requirements exclusively to
common law claims in which proof of
the sound discretion of the FDA, and
Although the statute permits puni-
fraud on the FDA is an express element
provided the FDA with a wide range of
tive damages in instances where a man-
of the claim, the Desiano court found
enforcement options to permit the
ufacturer knowingly withheld or mis-
Buckman inapplicable because it viewed
agency to modulate its response to
represented information material to the
fraud on the FDA not as an element of
potential fraud in light of numerous
FDA’s approval of the medication, in
the plaintiff’s claim, but as an exception
other priorities and concerns of the
2008 the Appellate Division, in McDarby
to a statutory affirmative defense.
agency. The Court stressed that “[t]his
26
v. Merck & Co., Inc.,19 held this exception
While the Desiano court acknowl-
was preempted under Buckman Co. v.
edged that Buckman preemption was
statutory and regulatory framework
Plaintiffs’ Legal Committee.20 McDarby
also premised on practical problems
under which the FDA pursues difficult
not only is binding on state trial courts,
posed by permitting private parties in
(and often competing) objectives.”28 The
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NEW JERSEY LAWYER | August 2011
flexibility is a critical component of the
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Court was particularly concerned that
Congress’
of
sey law. This clarity and certainty
determination by individual states
enforcement power to the FDA to per-
should serve to make these exercises in
regarding what should have been dis-
mit the agency to exercise discretion “to
complex litigation a little less complex
closed with respect to a medication’s
achieve a somewhat delicate balance of
and more focused on litigation of the
intended uses, for example, might inter-
statutory objectives. The balance sought
claims of injured plaintiffs.
fere with Congress’ direction to the FDA
by the Agency can be skewed by allow-
not to interfere with the long-accepted
ing fraud-on-the-FDA claims under state
Endnotes
and essential practice of off-label use of
tort law.”
1.
exclusive
delegation
32
The result reached in McDarby, the
FDA-approved products.29
P.V. v. Camp Jaycee, 197 N.J. 132,
136, 143 (2008).
A second reason why the authors
authors believe, also reflects a correct
believe the Appellate Division in McDar-
resolution of the policies at issue. Puni-
Conflicts of Laws § 145(2) (1971)
by was correct to distinguish Desiano is
tive damages have an inherent potential
(“these contacts are to be evaluated
the different nature of the New Jersey
to lead to unpredictable or excessive
according to their relative impor-
statute. Unlike the Michigan statute, the
awards, and result in multiple punish-
tance with respect to the particular
FDA fraud provision of New Jersey’s
ments for the same conduct, giving rise
issue”).
statute focuses exclusively on punitive
to due process concerns. As a practical
damages.
matter, the authors feel, punitive dam-
The McDarby court focused on the
ages tend to further complicate already
punitive nature of the preempted New
complex mass tort litigation, and risk
2.
3.
Id. at 143; Restatement (Second) of
Restatement (Second) of Conflicts
of Laws § 171 cmt. d, reporter’s note
(1971).
4.
Id. at § 146 cmt. e. See also id. at
Jersey award in distinguishing Desiano,
diverting resources from deserving
§145 cmt. c (“If the primary purpose
noting that a plaintiff seeking punitive
plaintiffs by attracting marginal plain-
of the tort rule involved is to deter
damages under the PLA:
tiffs who, but for the potential lure of
or punish misconduct… the state
punitive damages fomented by Internet
where the conduct took place may
acts in a fashion akin to a private
advertising, would not be parties to liti-
be the state of dominant interest
attorney general, since any damages
gation. Against these significant detri-
and thus that of the most signifi-
awarded on his punitive damage claim
ments, the sole social utility of punitive
do not compensate him for his injury,
damage awards is to provide a means of
but instead vindicate societal interests.
punishing knowing misconduct. Where
[Citations omitted]. And in this con-
an active, the authors believe, expert
cant relationship.”).
5.
933 F. Supp. 465, 469 (E.D. Pa.
1996).
6.
See also Cruz v. Ford Motor Co., 435 F.
text, the statutory focus, like that in
agency with the resources of the federal
Supp. 2d 701 (W.D. Tenn. 2006)
Buckman, is narrowly drawn upon a
government and a full array of regulato-
(Michigan, defendant’s principal
defendant’s act of knowingly with-
ry powers provided by Congress is avail-
place of business and where the
holding from or misrepresenting to
able to centralize and rationalize this
alleged misconduct occurred, found
the FDA information material to the
punishment function, the sole argu-
to have stronger interest in its law
harm alleged. This limited claim for
ment in favor of permitting punitive
governing punitive damages than
punitive
damage claims ceases to exist.
damages,
focused
upon
state of injury or domicile of plaintiff).
deterring a manufacturer’s knowingly
inadequate response to FDA informa-
Conclusion
7.
377 F. Supp. 2d 34, 40 (D.D.C.
tional requirements, thus differs from
At least in New Jersey, recent devel-
2005). See also In re Commercial
the common law compensatory claims
opments have reduced some of the
Money Center, Inc., Equipment Lease
at issue in Desiano.30
uncertainties related to mass tort puni-
Litigation, 603 F. Supp. 2d 1095
tive damages. With respect to cases in
(N.D. Ohio 2009) (California law
As “the federal statutory scheme
which the alleged wrongful conduct on
governed punitive damages because
amply empowers the FDA to punish and
which the punitive damage claim is
bulk of defendants’ alleged wrong-
deter fraud against the agency,”31 the
premised occurred in New Jersey, the
ful conduct warranting punitive
FDA does not need state law-appointed
punitive damage claims are governed by
damages occurred there, even if sub-
private attorneys general to determine if
New Jersey law. Where these punitive
stantive law of states in which
it has been defrauded, or to decide what
damage claims are based on alleged
injury occurred governed compen-
should be done about it. Not only is this
defects in FDA-approved pharmaceuti-
satory liability).
intrusion unnecessary, it conflicts with
cal products, they are barred by New Jer-
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8.
517 F. Supp. 2d 832 (E.D. La. 2007).
NEW JERSEY LAWYER | August 2011
57
9.
Id. at 852.
24. 467 F.3d 85 (2d Cir. 2006), aff’d by
10. 257 F.R.D. 46 (D.N.J. 2009); see also
an equally divided Court sub nom.,
267 F.R.D. 113 (D.N.J. 2010) (deny-
Warner-Lambert v. Kent, 128 S. Ct.
ing motion for reconsideration).
1168 (2008).
11. Id. at 68.
25. Mich. Comp. Laws § 600.2946(5)(a).
12. No. L-5743-07 (Law. Div. Dec. 8,
26. Desiano, 467 F.3d at 94-96.
2010).
27. Id. at 97.
13. Nos. L-7670-07MT, L-6027-08MT,
2009 WL 4623715 (Law Div. Nov.
23, 2009).
28. Buckman, 531 U.S. at 349.
29. Id. at 350-51. Given these flaws in
Desiano’s reasoning, most other
14. Dery, No. L-5743-07, slip op. at 14-
courts that have considered the
15 (Law. Div. Dec. 8, 2010); Meng,
issue have held that the Michigan
2009 WL 4623715 at 5. Accord
statute is preempted, including the
Deutsch v. Novartis Pharms Corp., 723
circuit in which Michigan is locat-
F. Supp. 2d 521 (E.D.N.Y. 2010)
ed, Garcia v. Wyeth-Ayerst Laborato-
(applying New York law to compen-
ries, 385 F.3d 961, 965-966 (6th Cir.
satory damage claim by New York
2004), and state courts within
plaintiff and New Jersey law to
Michigan itself. Duronio v. Merck &
punitive damage claim against
Co., No. 267003, 2006 Mich. App.
pharmaceutical company headquar-
LEXIS 1841 at *14-17 (Mich. App.
tered in New Jersey).
June 13, 2006). Courts construing
15. Restatement (Second) of Conflicts
statutes similar to Michigan’s have
of Laws § 6(2)(a)-(c), (e) (1971).
also rejected Desiano. See, e.g., Lofton
16. Id. at § 6(2)(d), (f)-(g).
v. McNeil Consumer & Specialty
17. N.J.S.A. 2A:15-5.14b.
Pharms., 682 F. Supp. 2d 662, 675
18. Id. at 2A:58C-5c.
(N.D. Tex. 2010). See also Embedded
19. 401 N.J. Super. 10, 94 (App. Div.
Fraud on the FDA, Drug and Device
2008), certif. denied as improvidently
Law, http://druganddevicelaw.blogs
granted, 200 N.J. 267 (2009).
pot.com/2009/09/embedded-fraud-
20. 531 U.S. 341 (2001).
on-fda.html, (Sept. 3, 2009) (dis-
21. Id. at 347, 350.
cussing rejection of Desiano).
22. The Court’s later decision in Wyeth
30. McDarby, 401 N.J. Super. at 93.
v. Levine, 129 S. Ct. 1187 (2009),
31. Buckman, 531 U.S. at 348.
does not impact the continuing
32. Id.
force of Buckman or the Appellate
Division’s decision in McDarby.
Kenneth J. Wilbur is a partner of
Wyeth found that a compensatory
DrinkerBiddle, and a member of the firm’s
damage failure to warn claim did
appellate practice team. Susan
not interfere with the FDA’s regula-
Sharko is a partner of DrinkerBiddle, spe-
tory scheme. Wyeth, 129 S. Ct. at
cializing in the trial and management of
1200-01.
products liability and mass tort litigation.
In
contrast,
Buckman
M.
found that permitting parties other
The authors would like to thank Mark I.
than the FDA to litigate whether the
Friesz, an associate at the firm, for his
agency had been defrauded would
assistance in the preparation of this article.
interfere with the federal regulatory
scheme. 531 U.S. at 350. Wyeth itself
acknowledges the continuing vitality of Buckman. Wyeth, 129 S. Ct. at
1195, n.3.
23. McDarby, 401 N.J. Super. at 93.
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