Bernstein Shur Business and Commercial Litigation Newsletter #76
August 2017 | Issue 76
Our August recap highlights the commencement of lawsuits by various states against Purdue Pharma, the dismissal of a class action against Subway, and other news that will have an impact on business and litigation.
South Carolina has become the latest state to file suit against Purdue Pharma, alleging that the company engaged in unfair and deceptive marketing of its painkiller, OxyContin.
In the lawsuit, the State of South Carolina has alleged that Purdue Pharma told doctors that: i) patients receiving opioid prescriptions for pain generally would not become addicted and ii) opioids relieved pain on long-term basis and could be taken in higher and higher doses, while also failing to disclose the material risks of such practices. The lawsuit against Purdue Pharma seeks injunctive relief and monetary damages. Purdue Pharma presently is defending similar actions commenced by the states of New Hampshire, Missouri, Oklahoma, Ohio and Mississippi. In addition, various counties and cities in the states of New York, California, Illinois, Oregon, Ohio, and Tennessee have asserted similar claims. The State of Maine, through a coalition of other states, currently is investigating the role of Purdue Pharma in relation to the present opioid epidemic. Data for 2015, the most current year available, shows that opioids were involved in no less than 33,000 deaths in the United States.
The Seventh Circuit Court of Appeals has rejected a court-approved class action settlement involving Subway, the fast food franchisor.
In the underlying case, class plaintiffs brought suit against Subway based on allegations that its “foot-long” sandwiches fell well short of twelve inches. At the trial court level, the U.S. District Court for the Eastern District of Wisconsin approved a settlement that required Subway to implement quality control measures, with contempt as a remedy, while also awarding $520,000 in attorney fees to class counsel. On appeal, the Seventh Circuit rejected the trial court’s approach, stating that “[c]ontempt as a remedy to enforce a worthless settlement is itself worthless.” Circuit Judge Diane Sykes, who authored the Seventh Circuit’s opinion, noted that no Subway customers suffered any material injury because the quantity of food was uniform despite minor variations in bread size. Accordingly, the appeals court concluded that the trial court erred when it first certified the class action against Subway and then later approved a settlement that provided “zero benefits for the class,” stating that the action “should be dismissed out of hand.”
The New York Times has obtained dismissal of a defamation lawsuit filed by Sarah Palin, the former politician from Alaska.
In the case, Palin asserted a defamation claim against the New York Times based on its publication of an editorial that suggested a link between shootings of congressional staff in Virginia and Arizona and the publication of a map circulated by Palin’s political action committee that contained “crosshair” graphics placed over congressional districts. Among other things, the editorial addressed the theme of violence in political discourse and its effect on the public at large. Following publication of the editorial, the New York Times published a correction stating that no link was ever established between the alleged political incitement and the shooting of congressional staff.
This week, U.S. District Judge Jed Rakoff dismissed Palin’s defamation claim, holding that her complaint did not plausibly allege “actual malice,” a heightened standard that applies to public figures. Under this standard, defamation plaintiffs who are public figures must plausibly allege and then prove that the speaker made the defamatory statements with knowledge that the statements were false or with reckless disregard as to their falsity. The reckless disregard standard can be met through a showing of the speaker’s intent to avoid the truth or that the speaker entertained serious doubts as to the truth of the publication. The court concluded that Palin’s complaint was defective because it failed to sufficiently allege particularized facts to support the required element of actual malice. Highlighting that the newspaper promptly corrected the editorial and noting other pleading deficiencies by the plaintiff, the court held that mere negligence alone cannot serve as the basis for a claim of defamation asserted by a public figure.
A former engineer from Volkswagen AG has been sentenced to 40 months in prison for his involvement in the German carmaker’s diesel scandal.
The engineer, James Liang, previously pleaded guilty to charges against him alleging that he misled federal regulators by participating in Volkswagen’s manipulation of diesel emissions systems. Prosecutors argued that Liang was a key member of the team that created emissions systems that were designed to evade pollution controls. U.S. District Judge Sean Cox also assessed a fine of $200,000 against Liang, noting that the sentence and monetary penalty were aimed at deterrence of similar evasive schemes. Liang is still employed by Volkswagen, which already has entered into a plea deal with the U.S. government. Under the agreement, the automobile manufacturer entered a guilty plea on several charges and agreed to more than $20 billion toward the resolution of outstanding claims and penalties.