Key Decision with Biotech Implications – The Saga Continues

March 9, 2012 | Roger McEowen and Erika Eckley

 

The most basic principle of law involving negligent torts is that a party is liable for negligent conduct (i.e., breaches a duty owed to another party) that causes foreseeable injury to someone else’s person or property.  So, four elements must be satisfied before tort liability is imposed – duty, breach, causation and damages.  In other words, the plaintiff must owe a duty to the other party to conform their behavior to a certain standard (i.e., not act negligently), there must be a breach of that duty (usually determined by the reasonable person standard), and the breach of that duty must cause (the third element) damages (the fourth element).  All of the requirements must be satisfied.  If just one requirement is not met, the liability chain is broken.  But, what if the damages involve purely economic interests of another party?  Many courts have shown great reluctance in imposing liability in such situations.  It was purely economic injury that was involved in this case – a case with implications for the biotech industry.

Louisiana is home to more than 1,500 crawfish farmers.  Many of these farmers also farm rice in the same ponds or in close proximity to crawfish ponds.  Crop rotation patterns do vary, but water that has been used in a rice field (known as tailwater) is sometimes used to irrigate crawfish ponds.  After planting rice, tailwater is often discharged into surrounding ditches and canals, which downstream crawfish farmers retrieve and introduce into their ponds.  That is the typical rice/crawfish farming pattern.  However, beginning in 1999, a rice weevil pesticide (ICON) manufactured by Aventis (Aventis was acquired by Bayer CropScience in 2001) was introduced into the Louisiana market.  ICON is applied to rice seeds by seed distributors.  Its active ingredient is fipronil, and it has the side-effect of sterilizing crawfish.  Consequently, a significant portion of the crawfish crop was wiped-out, and the affected farmers sued the manufacturer and sellers of ICON for losses to their pond-grown crawfish crop.  Bayer settled the claims of many of the farmers for $45 million in 2004, and pulled ICON from the market.  These farmers also had supply contracts with crawfish buyers/processors, and three of them sued Bayer for their economic damages sustained because the farmers couldn’t fulfill their obligations under the supply contracts.  The jury awarded them $1.75 million in 2007 after the court ruled that they were within the scope of Bayer’s duty to avoid damaging the crawfish crop because of the “ease of association between farmers and the middlemen further up the supply chain.”  That court success spawned the filing of a class-action lawsuit against Bayer in December of 2008.  Now, however, the Louisiana Court of Appeals has tossed the jury award, finding that Bayer’s duty does not extend beyond the farmers who actually “own” the crawfish. 

The appellate court relied on a 1984 Louisiana Supreme Court decision where the court ruled that it was unlikely that the duty to not negligently injure property extended to contract buyers that suffer only economic loss.  That’s the general rule in these types of cases – there is no recovery for economic loss in the absence of some physical injury.  Many courts believe that to hold otherwise would create a potential for open-ended liability.  The issue really concerns the issue of foreseeability of the harm, and many courts dealing with purely economic losses require the harm to not only be foreseeable, but actually foreseen.  That raises an interesting question, particularly as applied to the use of biotech products in agriculture.  For example, how foreseeable is it (and can it be foreseen) that GMO germplasm could cross-pollinate conventional crops and cause economic damages to a conventional crop farmer and a buyer of such crops under an identity-preserved contract that is selling into a specific market that doesn’t accept GMO germplasm in grain?  For now, it looks like the courts are reluctant to extend liability beyond the actual users of the product.  In other words, liability will have a hard time extending up the supply chain.  But, there may also be alternate theories of recovery that are based in something other than tort law.

There was a strong dissent filed in the case, so the matter probably isn’t over.  Stay tuned.  Phillips, et al. v. G & H Seed, Co, et al., No. 08-934, 2009 La. Ct. App. LEXIS 559 (La. Ct. App. Apr. 8, 2009).

Update (by Erika Eckley):

Following the decision in April 2009, the defendant brought a summary judgment motion to dismiss the claims of the remaining plaintiffs. The trial court did not believe the April 2009 appellate decision was correct on the question of law, but believed it had no authority other than to grant the motion for summary judgment. The district court dismissed the plaintiffs’ claims based on the April 2009 appellate court decision finding the plaintiffs were unable to prove a per se proprietary interest in the crawfish crop.

The district court’s grant of summary judgment was appealed.  The Louisiana Court of Appeals in November 2011 held that the requirement of “a per se proprietary interest rule is not the law of Louisiana in a products liability case.” The court instead stated that the law requires a “case-specific duty-risk analysis” be undertaken in each case to examine the defendant’s duties. The court remanded the matter to the district court for trial on the merits.

After this decision, the defendants sought en banc consideration of the November 2011 ruling. After en banc consideration, a majority of the judges adopt the November 2011 opinion as controlling.

The November 2011 opinion held that Louisiana has replaced the “bright-line litmus test mandating proprietary interest” in damaged property with a “multi-factor, policy-driven, duty-risk analysis when determining scope and extent of a defendant’s duties” under the state’s products liability statute for foreseeable economic damages. The Louisiana Supreme Court in its decision, PPG Industries, Inc. v. Bean Dredging, 447 So.2d 1058 (La. 1984), relied on by the Court of Appeals in rendering its opinion, showed the court does not intend to “close the door to recovery” for economic loss arising out of damages to a third person’s property. Instead when there is a special interest in or relationship with the property, the damages to the property were a foreseeable result of the defendant’s conduct.

Because the matter was on appeal from the granting of a summary judgment motion, the court remanded the matter to the district court for a full analysis of the case-specific duty and risk involved in this matter.

Two dissents were filed in this matter. The first dissent pointed out that the U.S. Supreme Court decision, Robin’s Dry Dock & Repair Co. v. Flint, 275 U.S. 303 (1927), has not been overruled and should be followed as the binding law of the case. In Robin’s Dry Dock, the Court held that claims that are only for economic loss are not recoverable in tort.  The remaining dissent affirmed the judge’s belief in the correctness of the court’s decision April 2009 decision.

The far-reaching implications of this decision are not yet known. With a fact-specific analysis required in each situation to determine whether the relationship between the defendant and another person is sufficient to make the damages to the property foreseeable from the defendant’s negligent conduct, there does not seem to be a lot of clarity to parties to know how far liability may extend.  Phillips v. G&H Seed Co., No. 10-1405, 2012 WL 716193 (La. Ct. App. Mar. 7, 2012) (en banc).