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From Products Liability Law Daily, June 11, 2013

Pennsylvania Federal Court Retains Jurisdiction over Thalidomide Personal Injury Action

By Pamela C. Maloney, J.D.

Federal jurisdiction was retained in an action against the companies that developed, designed, manufactured, and distributed thalidomide despite arguments that complete diversity of citizenship was lacking because four of the named defendants were Pennsylvania citizens, the U.S. Court of Appeals for the Third Circuit determined (Johnson v. Smithkline Beecham Corp., June 7, 2013, Jordan, K.).

Background. The Plaintiffs, Glenda Johnson, a Louisiana citizen, and Steven Lucier, a Pennsylvania citizen, filed a personal injury action in a Pennsylvania state trial court claiming that use of the drug thalidomide by their mothers during pregnancy caused them to develop birth defects. According to the complaint, newly-accessible evidence revealed that the drug companies that developed, designed, manufactured, and distributed the drug were aware of the drug’s risks even while marketing it to pregnant women in the 1960s, and that for the last 60 years, those companies had engaged in an elaborate cover-up to avoid liability. The drug companies removed the action to federal court and the individuals sought remand, arguing that four of the companies—SmithKline Beecham Corporation; GlaxoSmithKline, LLC (GSK LLC); GlaxoSmithKline Holdings LLC (GSK Holdings); and Avantor Performance Materials—were Pennsylvania citizens, as was Lucier, and, therefore, complete diversity of citizenship necessary for subject matter jurisdiction was lacking. According to the Third Circuit, the Pennsylvania federal district courts have issued contrary determinations on the jurisdictional question of whether two of the companies—GlaxoSmithKline, LLC; GlaxoSmithKline Holdings LLC (collectively, the GSK Defendants)—are Pennsylvania citizens. Because of the conflict between the Pennsylvania district courts, the Third Circuit had jurisdiction to conduct an interlocutory review of this issue. Citing the U.S. Supreme Court’s 2010 decision in Hertz Corp v. Friend, the Third Circuit upheld the district court’s decision that none of these companies were Pennsylvania citizens at the time of the removal order.

“Nerve-center” test. The Hertz decision endorsed the so-called “nerve-center” test, under which the actual center of direction, control, and coordination of a corporation establishes the citizenship of that corporation. However, Hertz did not establish a method for determining the citizenship of unincorporated entities like the GSK Defendants. Federal district courts consistently have held that the citizenship of a limited liability company was to be determined by the citizenship of each of its members. The sole member of GSK LLL is GSK Holdings, which was incorporated in Delaware and clearly was a Delaware Corporation. As a result, in order for GSK Holdings—and by extension GSK LLC—to also be Pennsylvania citizens, GSK holding’s “nerve center” had to be located in Philadelphia, Pennsylvania?

The Plaintiffs advanced two explanations for why they believed that GSK Holdings’ nerve center was in Pennsylvania. First, GSK Holdings had the authority to manage GSK LLC but delegated that power to GSK LLC’s Philadelphia-based managers. Second, even if the court did not consider GSK LLC’s management, Holdings’ own holding company activities were directed from Philadelphia and thus, that was its principal place of business. The Third Circuit rejected both arguments. According to the court, the Plaintiffs’ novel “delegation theory” makes GSK LLC’s management the focus in assessing GSK Holdings’ nerve center. However, the record did not support Plaintiffs’ description of GSK Holdings’ relationship to GSK LLC. GSK Holdings’ activities never included directing and controlling GSK LLC; it functioned solely as the owner of GSK LLC. Furthermore, to determine the citizenship of a limited liability company using Plaintiffs’ approach, the court would have to look to its member, but then, if that member is a holding company, as was the case with GSK Holdings, the court must immediately look back to the limited liability company which would invert case precedent on this issue. It would also ignore the well-established rule that a parent corporation maintains separate citizenship from a subsidiary unless it exerts an overwhelming level of control over the subsidiary.

Turning to Plaintiffs’ argument that looking solely at the activities of GSK Holdings, it must be recognized as a citizen of Pennsylvania, the Third Circuit found that the company’s principal place of business was in Delaware and that even though its “footprint” was modest, GSK Holdings’ actual center of direction, control, and coordination was in Delaware. Its board meetings were held at the office in Delaware, its board controlled its investment activities through consensus-based resolutions at its meetings in Delaware, and those decisions were not simple ratification of decisions made elsewhere. These facts were sufficient to satisfy Hertz’s “nerve center” test.

Turning to the Plaintiffs’ “fall-back” argument that SmithKline Beecham and Avantor Performance Materials were Pennsylvania citizens, thus defeating diversity jurisdiction, the court noted that SmithKline did not dissolve but domesticated itself under the laws of another jurisdiction and another company (GSK LLC) stepped into SmithKline’s shoes. Thus, SmithKline had no actual interest in the outcome of the litigation. With regard to Avantor, although the company had moved its corporate headquarters to Pennsylvania, affidavits from Avantor’s general counsel, an internal company memorandum and a newspaper report all indicated that the company moved to its new headquarters after the case was removed. Thus, at the time the complaint was filed and the case was removed, Avantor was a New Jersey corporation.

The case number is: 12-2561/2562/2563/2565.

Attorneys: Steve W. Berman (Hagens Berman Sobol Shapiro LLP), Mary A. Geppert (Spector, Roseman, Kodroff & Willis, P.C.), and Kay G. Reeves for Glenda Johnson; Lisa S. Blatt (Arnold & Porter LLP) and Michael T. Scott (Reed Smith) for SmithKline Beecham Corp.; Anand Agneshwar (Arnold & Porter LLP) and Kenneth A. Murphy (Drinker, Biddle & Reath) for Sanofi-Aventis, U.S., L.L.C.; and Albert G. Bixler (Eckert, Seamans, Cherin & Mellott, LLC) and Sara J. Gourley (Sidley Austin) for Grunenthal U.S.A.

Companies: SmithKline Beecham Corporation; GlaxoSmithKline, LLC; GlaxoSmithKline Holdings LLC; Sanofi-Aventis, U.S., L.L.C.; Avantor Performance Materials; Grunenthal U.S.A.; Grunenthal GmbH.

MainStory: TopStory JurisdictionNews DrugsNews DelawareNews NewJerseyNews PennsylvaniaNews

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