New Jersey: Civil Justice Reforms Hasten Recovery

Tuesday, November 2, 2010 - 01:00

Editor: Tell us about your practice.

Fanning: I've been with McCarter & English for 16 years now. I joined the firm straight out of law school and have been a member of the products liability group since then. I am now chair of the group.

There are a lot of folks in our offices up and down the Northeast corridor, from Boston down to Wilmington, who defend products liability cases. We have over 50 lawyers who practice primarily in the area of product liability defense. We represent major manufacturers and sellers of many different products, from pharmaceuticals and medical devices to industrial machinery and equipment to traditional consumer products. Those clients also entrust us with the defense of their class action and other complex litigation.

Editor: Does the litigation climate in New Jersey deter new businesses from coming to the state and cause New Jersey businesses to consider leaving?

Fanning: Yes, unfortunately, it does. New Jersey's economy, as you know, is powered in large part by the concentration of life science businesses here in the state. I've been lucky enough to represent the HealthCare Institute of New Jersey, which is a trade organization for the research-based pharmaceutical and medical technology industry in New Jersey. In their 2009 annual report, HINJ estimated that its 35 member companies added over $28 billion to New Jersey's economy. We should be proud of our state's prominence in this area, but we also have reasons to be concerned.

The growth of this life science sector in New Jersey has lagged in the last 10 to 20 years. In 1990, 20 percent of the nation's pharmaceutical jobs and 40 percent of the worldwide pharmaceutical companies were located here in New Jersey, which led to the state's nickname as the "nation's medicine chest." Over the last 20 years, changes in the economy and the industry, as well as the litigation climate here in New Jersey, have threatened New Jersey's status as the pharmaceutical capital of the nation. Meanwhile, other states, including California and Massachusetts, have taken steps to strengthen their images as robust research environments for the pharmaceutical and medical device sector and have benefited from the decline here in New Jersey.

This coincided with New Jersey's emergence as one of the nation's centers for mass tort litigation, attracting out-of-state plaintiffs who seek to file lawsuits against New Jersey's pharmaceutical and medical device companies. In fact, a recent study by the New Jersey Lawsuit Reform Alliance found that 93 percent of the pharmaceutical mass tort cases pending in New Jersey's state court system are brought by out-of-state plaintiffs.

In 2007, NJLRA released a survey that revealed that New Jersey employers believe that the increased number of lawsuits against them makes it more difficult to do business in the Garden State. In the survey, 89 percent of the employers believed that lawsuits were driving up the cost for them to do business here; 25 percent of them had considered moving out of New Jersey because of the threat of lawsuits, and 75 percent of those employers surveyed believed that passing tort reforms would help New Jersey keep businesses in the state.

Other organizations have also looked at the lawsuit climate here in New Jersey. In 2010, the U.S. Chamber of Commerce Institute for Legal Reform ranked New Jersey's legal climate as the 32nd worst in the United States, and, as you probably know, the American Tort Reform Association has for the third straight year recognized one particular county here in New Jersey as a "judicial hellhole." The American Tort Reform Association also confirmed the observation that New Jersey state courts have become a magnet for out-of-state litigants.

New Jersey has all the attributes and resources needed to speed economic recovery by attracting new businesses and retaining our present business base. But one major element that's lacking is effective civil justice reform.

Editor: Is comprehensive tort reform needed in the state? What other features of such legislation are important?

Fanning: Yes. Reform is needed. The influx of out-of-state plaintiffs into New Jersey clogs our courts and frustrates the access of New Jersey residents to our court system. It also places a tremendous burden on our taxpayers. We would benefit from strengthening our requirements for admissibility of expert testimony and from more rigorous enforcement of forum non conveniens rules. That would help deter the influx of out-of-state plaintiffs who flock to New Jersey for its perceived plaintiff-friendly legal environment.

Editor: Describe the problems that defendants encounter with expert witnesses because the state has not adopted the Daubert rules.

Fanning: New Jersey needs to follow federal court precedent, namely Daubert , with respect to the admissibility of expert testimony. We've had concrete examples where in the same multi-jurisdictional litigation, proposed expert witnesses who have been barred from testifying by courts in Daubert jurisdictions because they use unreliable methodology and rely on junk science have nonetheless been permitted to offer those same "expert" opinions in New Jersey state courts. In permitting that testimony, New Jersey trial judges have explicitly cited Kemp's lower threshold for the admissibility of expert testimony. In my view, strengthening the requirements for admissibility of expert testimony is the single most-needed tort reform in New Jersey. This would go a long way in changing New Jersey's reputation as a litigation magnet for out-of-state plaintiffs.

Editor: Describe the problems created by the New Jersey Consumer Fraud Act. How should it be amended?

Fanning: The New Jersey Consumer Fraud Act and the cases that interpret it create many traps for the unwary business person and, on the flip side, potential windfalls for plaintiffs and their attorneys in cases of minor missteps in the advertisement and sale of products and services. I recommend that we eliminate mandatory treble damages and attorneys' fees for technical violations of state administrative code provisions. The Legislature should also amend the CFA to require a showing of actual reliance by consumers on the alleged misrepresentations that they are challenging. Otherwise, there is the opportunity for a windfall to consumers who have actually not been misled or otherwise harmed and potential jackpots for plaintiffs' attorneys who file lawsuits to "punish" statements that were, at worst, innocent mistakes. Finally, the Legislature should also exempt from the CFA businesses whose statements and advertisements are already heavily regulated by government agencies, such as the Federal Trade Commission.

Editor: What has been your experience with New Jersey's requirement that defendants post an appeal bond?

Fanning: Fortunately, I have not had to deal with this issue directly on behalf of my clients, but it's clear that New Jersey does need an appeal bond cap.

The New Jersey Lawsuit Reform Alliance is out front on this issue. NJLRA has correctly pointed out that everybody deserves a right to appeal a trial court decision that they believe is unfair. However, unlike plaintiffs, in order to proceed with an appeal, defendants must post the entire amount awarded as a bond, and judges can also require that additional bond monies be posted to secure attorneys' fees and costs. This can pose a real problem, particularly for many small to midsize businesses, and even for larger businesses, especially when they don't have access to a lot of capital.

The result is that the cost of proceeding with litigation, even with a strong appeal that warrants further review, can be unattainable for some defendants. It creates increased pressure to settle even if it's likely that a large award may be overturned or significantly reduced on appeal. I agree with the recommendation that we impose an appeal bond cap like the one that's currently granted to tobacco companies: a cap of $50 million or the total value of the monetary judgment, whichever is less, which would help minimize this unfair disparity.

Editor: We have been talking about some of the negative developments in New Jersey. Has it adopted any of the reforms suggested by Lawyers For Civil Justice?

Fanning: Yes. Thankfully, some reforms championed by Lawyers for Civil Justice have been adopted in New Jersey. For example, New Jersey was one of the first states to adopt the 2006 Federal Rule 26 e-discovery amendments, with some minor exceptions. To its credit, LCJ continues to work hard to ensure that procedural rules in other states are consistent with the new federal rules, which are designed to impose some fair and reasonable guidelines for discovery of electronically stored information.

Please email the interviewee at efanning@mccarter.com with questions about this interview.