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Los Lobos Laboratories is a California pharmaceutical company which helped to develop and test – and eventually to manufacture and sell – diethylstilbestrol (DES), a synthetic form of estrogen designed to prevent miscarriages. Thousands of persons across the country have been adversely affected by exposure to the drug, including those afflicted with adenocarcinoma, a rare form of vaginal cancer, in young women who had been exposed to DES in the womb. Los Lobos has its headquarters and principal place of business in California. Although Los Lobos conducts no business of any kind in New York, it knew that its product would be sold to physicians in New York by distributors licensed to sell pharmaceuticals there.3
Los Lobos is one of a dozen companies sued in a class action lawsuit in federal court in New York by plaintiffs domiciled in 25 states. Helen Mirren is the named plaintiff in the lawsuit and along with some other number of plaintiffs lives in New York. Eleven companies have settled the case with plaintiffs’ attorneys. Los Lobos is the sole remaining defendant.4
New York makes DES manufacturers severally liable according to each manufacturer’s share of the national market at the time of plaintiff’s exposure. California law provides a defense to any manufacturer that can prove its product did not injure a plaintiff – for example, by establishing that its product was not distributed where plaintiff’s mother purchased DES or was produced in a color or shape different from that which plaintiff’s mother recalls taking.5
Los Lobos claims that New York cannot apply New York law to impose market share liability on it when it did not sell the product in New York. Plaintiffs contend, in response, that defendant knew its product would be sold on a national market, that it took advantage of national distribution of the drug and national advertising of it, and that plaintiffs will be denied the right to pursue market share liability claims if they cannot reach manufacturers in other states.6
The choice-of-law issues in a class action like this are complicated. Moreover, the class action might be denied because the chosen law would differ depending on such factors as the plaintiffs' domiciles; the places where plaintiffs bought the products, ingested the drugs, and discovered their injuries; the states in which defendants do business, make, market, and sell their products. To simplify the case for our discussion, the only issue to consider is the applicability of California or New York law to plaintiffs who were domiciled in New York either at the time of exposure or discovery of their illness.7
A second question in the case involves insurance. Los Lobos has sued its insurer, Pretenders Insurance Co., a Wisconsin company, for a declaratory judgment that Pretenders will be bound to reimburse Los Lobos under its insurance policy if Los Lobos is found liable in the class action. Pretenders argues that, in the course of negotiating the insurance contract, Los Lobos repeatedly lied to Pretenders about its knowledge of the dangerousness of DES, that it knew that DES was dangerous and that it might be subjected to tort liability in the future based on its sales of DES, but that it orally represented to Pretenders that it had no such knowledge.8
The insurance contract recites that “neither party is relying on oral representations of any kind made by the other party” and that the contract is to be “construed in accordance with California law.”9
California law provides that oral statements are not admissible to vary the terms of a written insurance contract when the contract states that neither party is relying on oral representations made by the other party. If California law applies, Pretenders will have a duty to reimburse Los Lobos for its actual liability. Both Wisconsin and New York law, in contrast, allows oral statements to be admitted to show fraud despite such a contract clause. (Note: For the purposes of this problem, assume the case of Danann Realty Corp. v. Harris, contained below in these materials, has been overruled, with the NY courts adopting the reasoning in the dissenting opinion). If New York or Wisconsin law applies, Pretenders Insurance Co. can introduce evidence to show that Los Lobos orally misrepresented to Pretenders its knowledge of the dangerousness of DES at the time the insurance contract was signed.10
1. Is defendant Los Lobos subject to New York tort law imposing liability on it in proportion to its market share or is it immune from such liability under California law?11
2. If Los Lobos is subject to market share liability under New York law, can it get reimbursement for that liability under California law or does Pretenders insurance company have the right under Wisconsin or New York law to present evidence that Los Lobos lied to it in negotiating the insurance contract and is therefore not entitled to be reimbursed?12
π = Helen Mirren13
∆/3π = Los Lobos14
3∆ = Pretenders15
June 02, 2014
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