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From Products Liability Law Daily, April 06, 2018

$13M punitive damage award in TCE exposure case overturned; $7.6M compensatory award upheld

By Pamela C. Maloney, J.D.

Misapplication of the law governing judicial estoppel necessitated a new trial on punitive damages in an action brought against a ball and roller bearings manufacturer that had released trichloroethylene (TCE) into the environment near a woman’s childhood home and the company that had acquired the manufacturer because the jury’s general verdict failed to distinguished between the two companies’ share of a $13 million punitive damages award, the U.S. Court of Appeals for the Eighth Circuit ruled. However, the appellate court upheld the $7.6 million in compensatory damages assessed against the ball bearing manufacturer, finding that there was sufficient evidence to sustain the woman’s claims that TCE contamination caused her to develop autoimmune hepatitis (AIH) and that the manufacturer had failed to warn her family of the risks associated with TCE contamination (Kirk v. Schaeffler Group Group USA, Inc., April 5, 2018, Loken, J.).

FAG Bearings Corp. had released thousands of gallons of TCE, a volatile organic compound, at its manufacturing facility in Joplin, Missouri, causing contamination in residential wells in nearby villages, including the one in which the woman was born and raised. The woman was diagnosed with AIH, a liver disease that occurs when a person’s immune system products antibodies that attack liver proteins, creating inflammation that could lead to fibrosis and cirrhosis. The woman filed negligence claims against Schaeffler Group USA, Inc., and FAG Bearings LLC—the corporate identity assumed by FAG Bearings Corp. after its acquisition by Schaeffler Group in 2005. After a lengthy trial, the jury returned a verdict against Schaeffler Group and FAG Bearings, awarding the woman $7.6 million in compensatory damages and $13 million in punitive damages. The district court denied Schaeffler Group’s motion for judgment as a matter of law and a new trial [see Products Liability Law Daily’s July 14, 2016 analysis].

On appeal, Schaeffler Group argued that the district court (1) erred in concluding that judicial estoppel barred it from denying liability for FAG Bearings’ pre-acquisition torts, (2) abused its discretion in admitting the opinions of the woman’s experts regarding whether TCE exposure had caused her AIH and in admitting evidence of regulatory standards governing safe levels of TCE in drinking water; and (3) erred in denying Schaeffler Group’s request for judgment as a matter of law on causation issues and on the failure to warn claim.

Judicial estoppel. The district court had determined that Schaeffler Group was judicially estopped from denying successor liability for FAG Bearings Corp.’s pre-acquisition torts because in two other judicial proceedings, Schaeffler had taken the position that its purchase of FAG Bearings amounted to a merger of the two companies and that Schaeffler was responsible for the actions of FAG Bearings. On review, the appellate court determined that the district court had erroneously applied federal law to the issue of judicial estoppel and, instead of remanding the case for reconsideration of the issue under state law per normal procedure, as argued by Judge Shepherd in his dissent, the court went on to apply Missouri law in examining the context in which Schaeffler Group had represented itself in the referenced litigation. The appellate court began by concluding that the Supreme Court of Missouri would consider the factors established by the U.S. Supreme Court for determining whether the doctrine of judicial estoppel applied to the case at hand. In applying the first of those factors—whether a party’s positions were clearly inconsistent—the appellate court concluded that there was no inconsistency in Schaeffler’s claim to recover benefits available to FAG Bearings under a federal antidumping duties order, especially since its status as a successor to FAG Bearings for purposes of distribution of these benefits was never resolved because FAG Bearings was not entitled to recover those benefits. Similarly, in the other court proceeding, which the two companies were drawn into when it was discovered that bearings in a jet engine that malfunctioned might have been manufactured by a German subsidiary, the case against Schaeffler and FAG Bearings was dismissed voluntarily and, therefore, Schaeffler again did not obtain any benefits from its position in that proceeding. Any statement by Schaeffler that FAG Bearings Corp. no longer existed as a separate and distinct entity or that Shaeffler had legal standing to assert claims of FAG Bearings did not mislead either court as to its legal status. Furthermore, any disadvantage to the plaintiff in allowing Schaeffler Group to assert its position in this case would result from Missouri law limiting a parent corporation’s liability from the torts of its predecessor, not from positions taken by Schaeffler Group in other litigation.

Successor liability. Having ruled that the doctrine of judicial estoppel did not apply to prevent Schaeffler Group from denying liability as a successor corporation, the appellate court explained that the woman was required to prove that Schaeffler Group was liable as a successor corporation for pre-acquisition torts committed by FAG Bearings. However, the record was devoid of any evidence that would establish an exception to the Missouri rule that a parent corporation was not liable for torts committed by its subsidiary, nor could the woman prove that the Schaeffler’s acquisition of FAG Bearings amounted to a consolidation or merger that would establish a "de facto" merger pursuant to which Schaeffler Group would have assumed the liabilities of FAG Bearings.

Thus, the district court erred in failing to dismiss Schaeffler Group from the litigation because it misapplied the doctrine of judicial estoppel and because the woman failed to prove successor liability, the appellate court ruled.

Punitive damages. Although the woman’s failure to prove Schaeffler Group’s liability as a successor to FAG Bearings did not affect the compensatory damages award because the jury found FAG Bearings solely liable for the compensatory damages, a new trial was necessary on the issue of punitive damages for several reasons. First, the jury returned a general verdict that failed to distinguish how much Schaeffler Group owed from how much was owed by FAG Bearings. In light of the fact that the jury was asked to base the punitive award in part on Schaeffler Group’s conduct, the general award could not be upheld against FAG Bearings alone, the court explained. Second, during closing argument, the woman’s counsel emphasized the defendants’ joint liability to pay an adequate punitive damages award and referred the jury to testimony that Schaeffler Group had enough resources to handle a punitive award.

Causation. Noting that proof of causation in toxic tort cases required expert testimony to establish that the plaintiff’s disease was consistent with exposure to the harmful substance and that the defendant was responsible for the harmful substance that caused the plaintiff’s disease, the Eighth Circuit upheld the district court’s ruling that the woman’s experts presented sufficient general causation testimony to show that throughout her early childhood, the woman had been exposed to levels or quantities of TCE that were significant enough to cause her AIH. The Eighth Circuit also determined that the trial court did not abuse its discretion in admitting the experts’ specific causation opinions over the defendants’ objections that these opinions were speculative because the experts had failed to rule out all possible alternative causes for the woman’s AIH. The experts were not required to rule out all possible causes when performing a differential etiology analysis and any failure to rule out other possible causes went to the weight to be given to the testimony, not to its admissibility.

Admission of government standards. The appellate court also rejected Schaeffler’s argument that the district court erred in admitting, under the public records exception to the hearsay rule, eight government reports setting forth state and federal standards for the maximum contaminant levels for safe drinking water and in instructing the jury that exceeding those number did not, standing alone, establish causation. The regulatory standards were probative evidence, providing a comparison between the levels of TCE found in the area of the woman’s childhood home and the maximum public-health exposure levels set by a government agency. Whether exceeding the concentrations established by those standards was direct evidence of general and specific causation was a separate question, which the district court recognized in fashioning appropriate jury instructions.

Failure to warn. Schaeffler also argued that in failing to prove that an adequate warning would have altered her family’s behavior, the woman failed to establish causation in support of the failure-to-warn claim. The woman’s claim that an adequate warning would have prevented her injury was based on her mother’s testimony that the family would not have moved to the community in 1987 had they been adequately warned about TCE contamination, along with evidence that FAG Bearings knew of on-site TCE contamination before the government agencies discovered it in 1991, but failed to warn the surrounding communities of the potential risks. This evidence was sufficient to offset evidence that the woman’s parents had received several warnings about the health risks of TCE in the drinking water after the contamination was discovered and that government testing showed the family’s well was not contaminated. Thus, the trial court did not error in submitting the failure-to-warn claim to the jury.

Attorneys: Kenneth Blair McClain (Humphrey, Farrington & McClain, P.C.) for Jodelle L. Kirk. Wade P.K. Carr (Dentons US, LLP) for Schaeffler Group USA, LLC, FAG Holding, LLC and FAG Bearings, LLC.

Companies: Schaeffler Group USA, LLC; FAG Holding, LLC; FAG Bearings, LLC

The case is No. 16-3417.

MainStory: TopStory SCLIssuesNews DefensesLiabilityNews WarningsNews CausationNews DamagesNews ChemicalNews ArkansasNews IowaNews MinnesotaNews MissouriNews NebraskaNews NorthDakotaNews SouthDakotaNews

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