Saturday, June 8, 2013

Third Circuit Holds GlaxoSmithKline Companies Delaware Citizens for Diversity Purposes

In an absurdly lengthy opinion, which I must admit to only skimming, the Third Circuit has held that a ten-by-ten foot subleased office makes Delaware the principal place of business of a GlaxoSmithKline holding company, and thus upheld diversity jurisdiction over a personal injury action involving thalilomide.  (Yes, thalilomide, the anti-nausea-in-pregnancy drug from the late 50's and early 60's that caused birth defects.)  Plaintiffs claim to have discovered new evidence showing that defendants were aware of the drug's defects while marketing it.  Johnson v. SmithKline Beecham Corp., No. 12-2561 (3d Cir. June 7, 2013.)

The plaintiffs are Pennsylvania citizens and they claimed that four defendants were also Pennsylvania citizens. So when defendants removed the action from Pennsylvania state court, plaintiffs moved to remand. That motion was denied and the issue certified for interlocutory appeal. Apparently the issue of these companies' citizenship for diversity purposes has come up in several other cases and the district court rulings have conflicted.

As a naive law student, I concluded that any corporate structure that I could not understand was up to no good, and I have found no reason to change my mind about this well into middle age.  Three of the four defendants that plaintiffs claimed were Pennsylvania citizens are entities affiliated with GlaxoSmithKline plc, the British entity that is the "global head" of the GlaxoSmithKline group of companies.  Defendant SmithKline Beecham Corp. was once a Pennsylvania corporation, but it converted in 2009 to a Delaware LLC.  As far as I understood, the purpose of the conversion was to avoid "unnecessary tax liability."  (Wish I could convert myself to a Delaware LLC!)  SmithKline Beecham then dissolved.  The court thus held that SmithKline Beecham was not a Pennsylvania citizen because it had converted itself into a new entity, defendant GSK LLC.

GSK LLC operates the US division of GlaxoSmithKline plc.  Its headquarters is still in Philadelphia, "where it occupies 650,000 square feet of office space and employs 1,800 people" – the same as when it was still SmithKline Beecham.  SmithKline Beecham's board of directors became GSK LLC's "board of managers."  Does that mean GSK LLC's principal place of business is still Pennsylvania? 

No.  As an LLC, GSK LLC's citizenship for diversity purposes is derivative of its owner's (or "member's") citizenship.  Its sole member is GSK Holdings, a Delaware corporation with its principal place of business in (according to the Third Circuit) Delaware.  GSK Holdings subleases a ten-by-ten foot office in Delaware.  It has one employee who works about 20 hours per year.  Its three directors hold quarterly 15-30 minute meetings in Delaware (at least one of the directors is usually physically present at the meetings) to discuss GSK Holdings' investments.   

As for the fourth defendant at issue, Avantor, it evidently moved its principal place of business to Pennsylvania five days after the removal, so the court held that it was still a New Jersey citizen at the time of removal.  


June 8, 2013 in Federal Courts, Recent Decisions, Subject Matter Jurisdiction | Permalink | Comments (0)

Thursday, June 6, 2013

Oklahoma Supreme Court Holds Entire "Tort Reform" Bill Void

In a stunning development, the Oklahoma Supreme Court has invalidated a sweeping tort reform bill passed in 2009.  The particular provision at issue in Douglas v. Cox Retirement Properties, Inc., 2013 OK 37, a wrongful death action against a nursing home, was the requirement of an expert's "affidavit of merit" to be filed with or shortly after the filing of the complaint in a professional negligence claim.  When the plaintiff failed to file the affidavit of merit, the trial court granted defendant's motion to dismiss.  The Oklahoma Supreme Court reversed.

The expert affidavit of merit requirement was just one portion of Oklahoma H.B. 1603, the so-called Comprehensive Lawsuit Reform Act of 2009. The bill has 90 separate sections encompassing such disparate topics as transfer of cases, limitations on noneconomic damages, suing fast food providers, and a host of other provisions.  The court held that H.B. 1603 violated Article 5, Section 57 of the Oklahoma Constitution ("Every act of the Legislature shall embrace but one subject, which shall be clearly expressed in its title"), commonly known as the single-subject rule.  "The purposes of the single-subject rule are to ensure the legialtors or voters of Oklahoma are adequately notified of the potential effect of the legislation and to prevent logrolling."

A separate opinion, Wall v. Marouk, 2013 OK 36 (June 4, 2013), also invalidated the affidavit of merit requirement in a medical malpractice action.  The court held that the requirement violated two other Oklahoma constitutional provisions, one prohibiting "special laws" (Okla. Const. art. 5, §46), and the other guaranteeing right of access to the courts (Okla. Const. art. 2, §6).


June 6, 2013 in Recent Decisions, State Courts | Permalink | Comments (0)

Sunday, June 2, 2013

Klausner, Heglund, and Goforth on Empirical Studies of Securities Class Actions

Michael Klausner, Jason Hegland, and Matthew Goforth, all of Stanford Law School, have published on SSRN the first of two updates to earlier empirical studies of securities class actions, entitled "When are Securities Class Actions Dismissed, When Do They Settle, and for How Much? — An Update."


In this article, we briefly present some basic statistics on the timing of dismissals and settlements in securities class actions. In contrast to the popular image of securities class actions, we find that over half of all cases are either dismissed or settle well before discovery begins. 38% of cases are either dismissed with prejudice on the first motion to dismiss or are dropped before a second complaint is filed. Another 15% of cases settle either before the first motion to dismiss was ruled on or after an initial dismissal without prejudice. The article provides additional descriptive statistics on how securities class actions are resolved and the timing of their resolution.


June 2, 2013 in Class Actions, Recent Scholarship | Permalink | Comments (0)

Twelve Asbestos Plaintiffs' Claims Dismissed Under Rule 41(b) for Noncompliance with Administrative Order

The Third Circuit has upheld the dismissal of twelve plaintiffs' claims in the Asbestos MDL for failure to comply with an administrative order requiring them to include specific histories of their exposure to asbestos.  The first paragraph of the opinion is:

This appeal comes to us from Multidistict Litigtion case number 875 ("MDL 875"), otherwise known as the "Asbestos MDL," involving asbestos cases from around the country, pending before Judge Robreno in the United States District Court for the Eastern District of Pennsylvania.  The District Court, overseeing several thousand asbestos cases, dismissed the claims of twelve Plaintiffs pursuant to Rule 41(b) of the Federal Rules of Civil Procedure based on non-compliance with the District Court's Administrative Order No. 12 ("AO 12").  Specifically, Judge Robreno determinated that the Plaintiffs' submissions were fatally flawed in that they failed to include specific histories of Plaintiffs' exposure to asbestos.  Plaintiffs contend on appeal, as they did in the District Court, that AO 12 did not impose this requirement, and urge, alternatively, that even if it did, under a proper balancing of the factors we outlined in Poulis v. State Farm Fire and Casulaty Company, 747 F.2d 863 (3d Cir. 1984), dismissal with prejudice was not warranted.  For the reasons discussed below, we will affirm the District Court's dismissal of the twelve cases at issue.

In re: Asbestos Products Liability Litigation, No. 12-2061 (3d Cir. May 31, 2013).


June 2, 2013 in MDLs, Recent Decisions | Permalink | Comments (0)

Meier on Probability, Confidence, and Twombly's Plausibility Standards

Luke Meier of Baylor University Law School has posted on SSRN a new article in his probability/confidence series, entitled "Probability, Confidence, and Twombly's Plausibility Standard."


This Article offers a fresh perspective on the pleading standard of plausibility. The consensus regarding plausibility is that it requires a judge to determine the probability of the plaintiff’s allegations. This perspective has led to much of the criticism of the plausibility standard. In reality, plausibility requires a judge to perform an analytically distinct inquiry, which I term a confidence analysis. Recognizing this fact does not immunize plausibility from all of the criticism it has received. It does, however, clarify the analysis required under the standard, which should alleviate many of the concerns associated with plausibility.


June 2, 2013 in Recent Scholarship, Twombly/Iqbal | Permalink | Comments (0)