Dechert Re:Torts - Key Developments in Product Liability and Mass Torts

Issue 4 - April 2023

Dechert Re:Torts is a monthly newsletter covering news and developments related to product liability and mass torts litigation.

In this issue:

Truest Parties in Interest: Non-Disclosed Third-Party Litigation Funder Stops Settlement
Florida’s Prospective Tort Reform
Federal Court Sanctions A Company Over Deleted Chats
EU Set to Overhaul Its Product Liability Laws
FDA Issues Final Guidance for Cyber Device Submissions

Hot Topics

Truest Parties in Interest: Non-Disclosed Third-Party Litigation Funder Stops Settlement

In the first issue of Re:Torts, we noted that courts should require the disclosure of any third-party litigation financing interest to opposing parties. The recent price-fixing litigation filed by the food distributor Sysco Corporation under the caption In re Broiler Chicken Antitrust Litigation demonstrates not only how critical disclosure of these interests is to opposing parties, but also the impact third-party litigation financers can have on the ability of the financed party to resolve the litigation.

In connection with these lawsuits, Sysco entered into a $140 million financing arrangement with Burford Capital, the largest litigation financer in the United States. Subsequently, Sysco and the defendants successfully negotiated proposed settlements. Burford, however, disagreed with the proposed terms and initiated arbitration proceedings in an effort to enjoin Sysco from entering into the settlements. The arbitration panel agreed with Burford, awarded the injunction, and required Burford’s sign-off for settlement. Thus, the arbitration panel introduced the interests of Burford—a non-party—directly into the resolution efforts of the litigants themselves as a result of the financial arrangement between Burford and Sysco.

The dispute did not end there. On March 8, Sysco sued Burford in federal court to allow the settlements to go forward. Among other allegations, Sysco claimed that Burford had gone behind its back to Sysco’s attorneys to seek their agreement that the settlement was “unreasonably low. ” And Burford submitted a letter to the editor in response to a Wall Street Journal article calling into question Burford’s conduct in the dispute and issuing a similar press release.

And yet despite its stance that Sysco should not be permitted to settle the antitrust litigation, Burford is simultaneously resisting Sysco’s attempt to consolidate its lawsuit against Burford with the broader antitrust litigation, claiming that there are no “common issues of fact or law” between the two.

Takeaway: Recognizing the role that third-party litigation funders play in the underlying litigation, a growing constituency that includes plaintiffs and defendants is advocating for disclosure of third-party litigation funders. Such disclosures are particularly warranted where third-party litigation funders have the ability to affect and—in the case of Sysco and Burford—halt resolution efforts.

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Florida’s Prospective Tort Reform

On March 24, 2023, Florida enacted new legislation (H.B. 837) aimed at long-term tort reform in several key areas. While proponents of the legislation say it will weed out frivolous cases and curtail excessive damages and attorneys’ fees, opponents counter that the reform makes it more difficult for plaintiffs to obtain justice. H.B. 837 has already had an impact: given the newly shortened statute of limitations period, lawyers scrambled to file lawsuits before enactment of the bill. Between March 17 and 22, 90,593 civil cases were filed—accounting for 77% of the total civil cases filed in Florida this calendar year.

Key provisions in the legislation are highlighted below:

NEGLIGENCE

Shortens the statute of limitations from four to two years for claims accruing after March 24, 2023.
Creates a modified comparative fault regime, barring plaintiffs from recovery where they are more than 50% at fault for their injuries.

MEDICAL EXPENSES

Provides that damages for medical expenses may not exceed amounts actually paid, or necessary to satisfy current and future charges.
Requires automatic disclosure of certain items including medically coded bills and plaintiff’s insurance.
Allows disclosure of an attorney’s referral of a plaintiff to a medical provider, including details about the relationship between the law firm and the provider.

PREMISES LIABILITY

Allows for apportionment of liability between negligent and intentional tortfeasors for criminal acts committed on the property in negligent security cases.
Creates a rebuttable presumption against liability for landowners of multifamily residential properties if certain security measures, including locks, security cameras, and lighting are in place.

ATTORNEYS’ FEES

When attorneys’ fees are available, creates a strong presumption that a lodestar fee (reasonable hours times reasonable rate) is sufficient evidence.
Clarifies that Florida’s Offer of Judgment statute applies to civil actions involving insurance contracts. The Offer of Judgment statute provides that if a judgment is 75% or less of the amount of defendant’s prior settlement offer, defendant shall be entitled to all reasonable costs, investigative fees and attorney’s fees from the date of the offer.
Limits the availability of insureds to recover attorneys’ fees from their insurer in an action for coverage.

INSURANCE

Codifies that negligence is insufficient to constitute bad faith denial of insurance coverage.
Creates a safe harbor of 90 days within which an insurer can tender coverage to avoid bad faith liability.
Requires an insured to act in good faith in furnishing information to an insurer and attempting to settle.
Precludes third-party liability where the full policy limits are tendered, or an interpleader action is brought, in cases of multiple insureds.

Takeaway: With Florida’s H.B. 837 in effect, parties should consider the additional defenses and procedural mechanisms at their disposal.

Learn about Dechert's Product Liability and Mass Torts services.

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Federal Court Sanctions A Company Over Deleted Chats

On March 28, 2023, the U.S. district court overseeing the multidistrict litigation in In re: Google Play Store Antitrust Litigation (N.D. Cal., Case no. 21-md-02981-JD) sanctioned the company over its failure to preserve internal communications exchanged on its Google Chat (“Chat”) instant message system, finding intent by the company “to subvert the discovery process.” The court concluded that the company’s preservation practices for its Chat data fall short of what the Federal Rules require.

Under the default setting, the company retained Chat data for conversations between individual employees for 24 hours. The court did not address this general retention policy, only “how Google responded after the lawsuits were filed.” Though the company had the systemwide technical ability to preserve Chat history for employees who were subject to a document preservation order, it left it up to individual employees to manually change the default setting, and the company did not monitor compliance. The court described this as a “don’t ask, don’t tell” policy for Chat preservation, which was in “sharp contrast” to the company’s automatic and mandatory preservation of other forms of electronically stored information, like email, for all employees subject to a litigation hold. The court noted employees’ routine use of Chat messages to discuss substantive business topics, and the cited examples were notable for their more casual, conversational nature.

The court also criticized the company for not being forthcoming about these discovery issues and, instead, “falsely assur[ing]” the court and plaintiffs that the company had taken appropriate steps to preserve relevant data. While the court awarded fees and costs related to the Rule 37 motion, it did not foreclose additional, non-monetary sanctions at a later stage of proceedings. It stated that it would re-examine “the state of play of the evidence at the end of fact discovery,” to ensure that any further “remedy fit the wrong.”

Takeaway: Litigants have a duty to take reasonable steps to preserve relevant electronically stored information. Companies should make sure their litigation hold policies conform to that duty and effectively preserve electronically stored information in various forms, which might include auditing or monitoring compliance.

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Regulatory Review

EU Set to Overhaul Its Product Liability Laws

The European Commission (“EC”) recently issued a proposal to significantly amend its Product Liability Directive (“PLD”)—the EU-wide strict liability regime for defective products. Since its introduction in 1985, the PLD has been claimants’ preferred avenue to bring product liability claims within the EU, and it has served as the launching pad for major EU product liability litigation. In 2018, however, after having been left largely unamended for decades, the European Commission evaluated the PLD and found that it had “several shortcomings.” According to the Commission, it was (1) unclear how to apply the PLD’s definitions and concepts to emerging technologies, and (2) difficult for claimants to bring and to prove their claims.

The EC’s proposed revisions—which may be adopted as soon as late 2023—attempt to address the Commission’s concerns. Some proposed revisions are unsurprising given the broader EU trend of expanding litigation avenues for plaintiffs, such as the expansion of the definition of “product” to accommodate modern technology (software, for example) and the lowering of the monetary threshold for claims. Other revisions are more significant. For example, “defect” will include certain cybersecurity and connectivity risks—including the lack of software updates. The scope of recoverable damages will be expanded to include data loss or corruption and the as-yet undefined “medically recognized harm to psychological health.” Defendants will be required to disclose certain “technical information” upon a claimant establishing a “plausible” case—without any reciprocal requirement for plaintiffs. And for “complex” cases, the burden of proof will be lowered, allowing courts to presume the existence of a defect upon certain threshold showings. The Directive does not give a specific definition of what is or is not considered “complex,” but gives examples such as “those involving pharmaceuticals, smart products or AI-enabled products.”

The PLD amendments may have far-reaching consequences, particularly when taken together with new EU representative action laws that introduce mechanisms for group litigation across member states.

Takeaway: The EU has proposed significant changes to its product liability laws that will expand the scope of potential claims and damages and make claims easier to prove. The amendments may be adopted as soon as late 2023 and will apply to products placed on the market after that date.

Learn about Dechert's Product Liability and Mass Torts services.

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FDA Issues Final Guidance for Cyber Device Submissions

On December 29, 2022, the Consolidated Appropriations Act, 2023 (the “Act”) was signed into law. Section 3305 of the Act amended the Federal Food, Drug, and Cosmetic Act (the “FDCA”) by adding Section 524B, “Ensuring Cybersecurity of Devices.” These amendments, which give FDA new authority to ensure that medical devices meet certain minimum cybersecurity standards, became effective on March 29, 2023.

The requirements of Section 524B apply to manufacturers of “cyber devices.” A cyber device “means a device that: (1) includes software validated, installed, or authorized by the sponsor as a device or in a device; (2) has the ability to connect to the internet; and (3) contains any such technological characteristics validated, installed, or authorized by the sponsor that could be vulnerable to cybersecurity threats.” Section 524B(c).

On March 30, 2023, FDA issued a final guidance document entitled, “Cybersecurity in Medical Devices: Refuse to Accept Policy for Cyber Devices Under Section 524B of the FD&C Act.” The guidance announced that for premarket submissions submitted for cyber devices before October 1, 2023, FDA generally intends not to issue “refuse to accept” (“RTA”) decisions based solely on a sponsor’s failure to provide the information required by Section 524B. Instead, until October 1 and as part of the application review process, FDA intends to work collaboratively with sponsors of cyber device submissions as part of the application review process.

However, beginning October 1, 2023, FDA expects that cyber device submissions will contain the information required by Section 524B, and FDA may RTA premarket submissions that do not meet the requirements. Application sponsors must submit a plan to “monitor, identify, and address” cybersecurity vulnerabilities and exploits. Section 524B(b)(1). Further, sponsors must create and have in place processes and procedures that provide reasonable assurance that the device and related systems are secure, and they must make available post-market updates to address vulnerabilities. Section 524B(b)(2). Sponsors must also provide a “software bill of materials,” which lists the various software components of their devices. Section 524B(b)(3). Lastly, sponsors must comply with any other requirements the Secretary of the Department of Health and Human Services might impose to ensure cybersecurity. Section 524B(b)(4).

Prior guidance from 2022, Cybersecurity in Medical Devices: Quality System Considerations and Content of Premarket Submissions, shall remain applicable. However, per Section 524B, FDA must update it within the next two years to reflect the new cybersecurity requirements.

Takeaway: Beginning October 1, 2023, FDA applications for cyber devices will be required to include additional information relating to cybersecurity or they could face a RTA decision. Sponsors should consider consulting with counsel regarding compliance with FDA’s new cybersecurity requirements.

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