United States: EDNY Rejects Successor Liability in Hip Implant Case

Last Updated: December 13 2017
Article by Stephen J. McConnell

Happy birthday, Christopher Plummer. The great Canadian actor turns 88 today, and seems as vibrant as ever.  What a marvelous career Plummer has had.  He is a preeminent Shakespearean actor.  We saw him play Iago to James Earl Jones's Othello on Broadway 35 years ago.  Of course, most people remember Plummer as Captain Von Trapp in The Sound of Music (1965), a film for which Plummer reserves enormous contempt, referring to it (if at all) as "The Sound of Mucus." Much more recently, we enjoyed Plummer's flinty interpretation of Ebenezer Scrooge in The Man Who Invented Christmas.  And there has been abundant publicity over Plummer's replacement of Kevin Spacey in All The Money In The World.  It seems a thankless task to succeed someone in such scandalous circumstances.  But we'll thank Plummer, if only because he supplied a (strained) segue into today's post, which is about successor liability.

More specifically, we have a pro-defense decision on successor liability with respect to a bankrupt medical device manufacturer. The court holds that there is no liability for design and manufacturing claims under either NY or PA law – including PA's peculiar product line liability theory. The court concludes as a matter of law that product line liability applies only to manufacturers, not to distributors. But there is a fly in the ointment: the court's conclusion on the failure to warn claim is rather muddled – to the point where that cause of action is not concluded at all.

In Deluca v. Portland Orthopaedics Ltd., et al., 2017 U.S. Dist. LEXIS 198962 (E.D.N.Y. Dec. 2, 2017), a husband and wife sued for injuries relating to a failed hip implant. The husband and wife lived in New York. That is where the 2009 implant operation took place. That is also where the injury – the 2012 failure of the implant – took place. The implant was manufactured by Portland, an Australian company that had entered into receivership shortly before the plaintiff's implant operation and that had sold off its assets before the implant failed three years later. The plaintiffs sued Portland, as well as the Singapore successor company and its manufacturing and distributing affiliates, which were incorporated in Pennsylvania (not something we'd ever recommend doing). The complaint included claims for strict liability (failure to warn, manufacturing defect, and design defect), negligence, and breach of warranty – the usual. Portland never appeared on the case and was dismissed. One presumes it would be judgment-proof. The remaining defendants moved for summary judgment, and their arguments centered around successor liability – or, to be precise, absence of successor liability. The court sensibly held that New York law governs because that is where the injury occurred, but the court also treats us to an analysis under Pennsylvania law, where it arrives at the same destination, albeit via a slightly more complicated route.

The successor corporation purchased certain assets of Portland. There was no purchase of stock or any formal merger. Under those circumstances, the successor typically does not acquire prior tort liabilities. That is the law in both New York and Pennsylvania. There are some exceptions to this general rule, but none applies here.

New York recognizes four possible exceptions, none of which saved the plaintiffs' design or manufacturing defect claims:

First, the successor did not expressly or impliedly assume prior liabilities. In fact, those liabilities were expressly excluded.

Second, the de facto merger exception does not apply. There was no continuity of ownership, management, or physical locations. In addition, the seller continued to exist, even if only in gossamer form.

Third, the "mere continuation" exception does not apply. Again, the seller lingered, and there was no hint of overlapping owners or managers.

Fourth, there is no evidence that the asset sale was a fraudulent effort to evade liability.

Pennsylvania adds another factor – whether the transfer was made without adequate consideration and without provisions for creditors of the selling corporation. That factor also does not apply here. More significantly, or problematically, some Pennsylvania courts have announced a "product line" exception, an extreme pro-plaintiff doctrine left over from the 1980s. The Deluca court is not persuaded that this exception has been endorsed by the Pennsylvania Supreme Court. And remember that the Deluca court has chosen New York law to govern this case. Nevertheless, just in case some appellate court might get dodgy, the Deluca court goes through the motions of measuring the evidence in the case against the product line exception and concludes that it does not help the plaintiffs here. The factors animating the product line exception are pretty fuzzy: (1) whether the purchase of the product line caused the "virtual destruction of the plaintiff's remedies against the original manufacturer," (2) does the successor have the ability to assume the original manufacturer's "risk-spreading role," and (3) the fairness of requiring the successor to assume responsibility insofar as the successor was enjoying the original manufacturer's good will.

The Deluca court easily dispensed with these factors by pointing to some important facts:

  1. Portland's insolvency preceded the asset sale, and was certainly not caused by it.
  2. The asset sale was not prompted by any scheme to evade product liability claims. At the time of the sale, the problem of implant failures was not on the radar screen.
  3. The purchase agreement explicitly excluded goodwill as well as related liabilities.

Further, the Deluca court held that the product line exception could not be used against the defendants who were never involved in manufacturing. Thus, even if someone wanted to shape the gooey product line factors so as to preserve claims against a successor, the distributor defendants would still be off the hook.

The plaintiffs requested additional discovery on the successor liability question. The Deluca court refused that request on both procedural and substantive grounds. The procedural problem for the plaintiffs was that they failed to submit a Rule 56(d) affidavit documenting what discovery would be sought and why it wasn't obtained earlier. The substantive ground was futility. Even from the face of the plaintiff's' arguments, it was clear to the court that the request was a mere fishing expedition, with no justification for the delay and no expectation that anything reeled in would make a difference.

So far so good for the defense. But the court also kept the failure to warn claim alive, at least for now. New York law recognizes that successor corporations sometimes have an independent duty to warn. That duty arises not from succession of the prior manufacturer's duties, but from the successors' relationship with customers. Here, the plaintiffs alleged that a sales representative working for one of the defendants was in a position to provide additional warnings to the treating doctor. We do not know what those warnings would be, and are not sure how they would fit into the chronology of the case. The defendants pointed to the Instructions for Use as containing ample warnings. The Deluca court responded that it is unclear whether the physician received the IFU or whether the warnings were in fact adequate.

To our eyes, those questions should not be enough to stave off summary judgment. How could the doctor not have access to the IFU? Is there any suggestion that the defendants did something to make the IFU unavailable? Seems unlikely. How is the adequacy of the warning not an issue of law? And is there any open issue of warning causation? That is, did the plaintiffs proffer any evidence that a different warning – whatever that might be – would have changed the doctor's mind in such a way as to avoid the alleged injury? On these points, the court's reasoning is full of holes.  We suspect that the plaintiffs will ultimately be unable to fill those holes with evidence.  Then the defendants will be in a position to borrow a title from the Bard: all's well that ends well.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions