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From Products Liability Law Daily, March 10, 2015

Law firm sanctioned for bad faith, misconduct in thalidomide litigation

By John W. Scanlan, J.D.

A law firm acted in bad faith and engaged in intentional misconduct when litigating three products liability actions brought against the manufacturers and distributors of thalidomide, the U.S. District Court for the Eastern District of Pennsylvania held in adopting the recommendation of a Special Master to impose sanctions on the firm. The court found that the firm had initiated time-barred cases with the apparent intent to avoid providing an honest answer as to when its clients knew or reasonably should have known that thalidomide could have caused their birth defects (Johnson v. Smithkline Beecham Corp., March 9, 2015, Diamond, P.).

Background. Beginning in 2011, 52 plaintiffs filed suit in Pennsylvania state court against manufacturers and distributors of thalidomide, claiming that thalidomide use by their mothers in the 1950s and 1960s had caused them to sustain severe birth defects. All 52 plaintiffs were represented by the law firm of Hagens Berman Sobol Shapiro LLP and local counsel. The defendants removed the cases to federal court, and the cases were consolidated in the Eastern District of Pennsylvania. The claims were subject to a one- or two-year limitations period; Hagens Berman pleaded that fraudulent concealment by the defendants of the dangers of thalidomide had tolled the running of the statute of limitations, and some plaintiffs also had pleaded equitable tolling, asserting that they could not have reasonably discovered until recently that thalidomide had caused their injuries. At that time, the court declined as premature motions by the defendants to dismiss the claims as time-barred. However, when the defendants made repeated attempts to discover when each plaintiff knew or should have known that thalidomide had caused his or her birth defects, the plaintiffs provided no responses, misleading collective responses, or “absurd” responses, the court noted. The defendants again moved to dismiss all the claims with prejudice, but the court instead appointed a Special Discovery Master.

The Special Discovery Master then learned that several of the plaintiffs had previously brought suit for the same alleged tort, and one plaintiff was still receiving monthly settlement payments from one of the defendants from an earlier suit. Defendants SmithKline Beecham Corp., GlaxoSmithKline Holdings, LLC (the GSK defendants), and Grünenthal GmbH asked Hagens Berman in March 2014 to review carefully the claims it was litigating, and that the defendants would bear their own costs for cases the plaintiffs agreed to dismiss prior to April 11, 2014. Instead of dismissing any cases, Hagens Berman then engaged in what the court called “massive discovery,” the result of which was to produce evidence—which had already been in the possession of Hagens Berman—that belied the claims of almost all plaintiffs and contradicted critical allegations in their complaints, including three plaintiffs who were discussed by the court individually.

Jack Merica had alleged that the defendants’ fraudulent concealment prevented him from learning until 2012 that thalidomide caused his birth defects, but discovery showed that he had been told by his mother in the 1960s, and later, that thalidomide had caused them. Lawrence Boiardi’s birth mother had not taken thalidomide during her pregnancy, according to her medical records, and although Hagens Berman claimed that she could not be located, the defendants located her and she informed them that she had never taken any medication during her pregnancy. Roel Garza conceded at his deposition that he knew of nothing to support his allegation that his mother had taken thalidomide while pregnant with him, and that he had suspected during his youth that his birth defects were caused by medication she took during pregnancy but had never investigated his suspicions. Hagens Berman did not oppose the defendants’ motions to dismiss with prejudice the claims of these three plaintiffs.

GSK and Grünenthal moved for sanctions against Hagens Berman, but not against local counsel or any plaintiffs, for its bad faith prosecution of cases after April 11, 2014. This matter was also referred to the Special Master who took motions and held a hearing. Before he issued his report and recommendation, the GSK defendants agreed to withdraw their sanctions motions in exchange for the plaintiffs’ dismissing with prejudice all thalidomide actions (but one) pending against them. The court noted that this agreement benefitted Hagens Berman, but not their clients, and referred to the Special Master the question of whether the 28 plaintiffs involved had knowingly, voluntarily, and intelligently agreed to dismissal of their claims.

The Special Master’s Report. Although Hagens Berman eventually agreed to the dismissal of the Merica, Boiardi, and Garza cases, the Special Master found that the firm had acted in bad faith when it refused to dismiss them months earlier and had resisted sanctions on frivolous grounds. The firm had refused to acknowledge obvious flaws in the cases and forced the defendants to go through the expense of deposing the plaintiffs, preparing motions, and prosecuting the sanctions motion. He also recommended sanctions as follows: Grünenthal, which had brought and prosecuted each motion, could recover sanctions for post-April 11, 2014 fees and costs incurred in prosecuting the Merica, Boiardi, and Garza cases and sanctions motions, along with 3/49ths of the post-April 11, 2014 litigation expenses involving those three plaintiffs and others; GSK’s sanctions should be held in abeyance in light of the agreement with Hagens Berman; and defendant Sanofi-Aventis, which had not joined in the motion for sanctions, should be denied sanctions. Hagens Berman objected to the report and recommendations.

Due process. The court rejected as “absurd” Hagens Berman’s assertions that it was denied due process because the Special Master had based his sanctions recommendation on arguments and facts the defendants had not raised in their motion for sanctions. Discussing each of the objections individually, the court opined that the firm could not have been serious in making some of them. Even had the Special Master based his recommendations on new facts or grounds—and the court stated that he had not—any error was cured by the court’s consideration of Hagens Berman’s “voluminous” objections to the report.

Other factual and legal errors. Hagens Berman’s objection to the Special Master’s statement that the “actual facts unearthed in discovery were stunningly different” from the allegations pleaded in Merica’s complaint was frivolous; Merica pleaded that the defendant’s fraudulent concealment kept him from suing until 2012, but the court found that he failed to bring suit solely because of his lack of diligence, which supported the Special Master’s statement. Although Hagens Berman argued that it had prosecuted his case in good faith based on the contention that his claims were not barred under Pennsylvania’s discovery rule until the defendants invoked Virginia law at summary judgment, the court had ruled in granting summary judgment that the claims were barred under the law in both states. The court further observed that Hagens Berman made contradictory allegations. In the Boiardi and Garza cases, while the firm argued that the claims were pursued in good faith because the belatedly-proffered Dr. Trent Stephens would opine that no expert believed until recently that thalidomide caused the type of birth defects involved, the court previously had found his opinion inadmissible as it was based on studies that were available in the 1960s.

Calculation of sanctions. The level of sanctions recommended by the Special Master represented a fair calculation of the excess expenses incurred by the defendants as a result of the law firm’s unreasonable and vexatious conduct. Hagens Berman argued that the 3/49ths of the litigation expenses incurred by Grünenthal after April 11, 2014, were not excess costs because even if the Merica, Garza, and Boiardi matters had been dismissed as of that date, Grünenthal would still have conducted discovery and responded to the plaintiffs’ discovery requests for all remaining plaintiffs. However, the court found that Grünenthal’s defense costs had “undoubtedly” increased as a result of defending itself from these three additional plaintiffs, and precision is not required in determining the additional costs. The 3/49ths formula was tailored to address the harm of the firm’s continued prosecution of the three baseless claims, especially in light of the fact that Hagens Berman had insisted on providing discovery collectively on behalf of all thalidomide plaintiffs.

The case is No. 11-5782 and all related cases.

Attorneys: Ari Y. Brown (Hagens Berman Sobol Shapiro LLC) for Glenda Johnson. Michael T. Scott (Reed Smith LLP) for SmithKline Beecham Corp. and GlaxoSmithKline Holdings, LLC. Amor A. Esteban (Shook Hardy & Bacon LLP) and Cindy K. Bennes (Phillips Lytle LLP) for GlaxoSmithKline, LLC. Anna K. Thompson (Arnold & Porter LLP), Kenneth A. Murphy (Drinker Biddle & Reath LLP), and Daniel A. Spira (Sidley Austin LLP) for Sanofi-Aventis, U.S., LLC, and Grünenthal GmbH.

Companies: SmithKline Beecham Corp.; GlaxoSmithKline Holdings, LLC; GlaxoSmithKline, LLC; Sanofi-Aventis, U.S., LLC; Grünenthal GmbH.

MainStory: TopStory LawFirmNews PennsylvaniaNews

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