By Michael Hoenig - New York Law
Journal - July 8, 2013
my June 17 column1 I reported on the U.S. Supreme
Court's June 10 decision in
Oxford Health Plans v. Sutter,2 upholding an
arbitrator's decision to allow class arbitration, but only
because the parties there agreed that the arbitrator should
decide whether their contract authorized class arbitration. The
defendant's decision to challenge "arbitrability" of the issue
in court came too late. Thus, even though the underlying
agreement was "silent" on whether the parties had intended to
permit class arbitration, the arbitrator's construction "holds,
however good, bad or ugly."
contracts that are "silent" regarding class arbitration have a
measure of frailty in this regard—indeed, the court in Oxford
said in footnote 2: "this Court has not yet decided whether the
availability of class arbitration is a question of arbitrability"—my
column advised those firms electing to arbitrate disputes to
incorporate "class action waivers" in their contractual
arbitration clauses. Such waivers were upheld by the U.S.
Supreme Court in the
Concepcion decision in 2011,3 a ruling this
column has analyzed extensively.4
post-Concepcion trend to uphold class waivers, some
courts spurn the ruling. A recent example is the Massachusetts
Supreme Judicial Court's lengthy decision issued on June 12
holding a class action waiver provision in an arbitration clause
unenforceable in a claim based on that state's consumer fraud
statute. The case, called Feeney v. Dell,5
involved plaintiffs who complained of being charged sales tax on
their purchase of optional service contracts on computers they
bought. They declared the arbitration class waiver provision in
their contracts to be "unconscionable" and, thus, unenforceable.
protracted litigation, the Massachusetts court ruled that, where
a court determines that class proceedings are the only way for a
consumer plaintiff to bring a claim against a defendant, as may
be the case when claims are complex, the damages small, and the
arbitration agreement "does not feature the safeguards found in
the Concepcion agreement, a court may still invalidate a
class waiver." In such circumstances, the class waiver may be
declared invalid "not because the clause violates a public
policy favoring class actions…but because it violates the public
policy against agreements that immunize business defendants from
private civil liability for consumer injuries."6
saying goes, however, sometimes timing is everything. On June
20, just eight days after the Massachusetts Feeney
ruling, the U.S. Supreme Court issued its blockbuster decision
American Express v. Italian Colors Restaurant,7
holding that the Federal Arbitration Act (FAA) does not permit
courts to invalidate a contractual waiver of class arbitration
on the ground that the plaintiff's cost of individually
arbitrating a federal statutory claim exceeds the potential
recovery. The Amex decision, as it is popularly called,
involved federal antitrust class action claims by merchants
alleging Amex violated the Sherman and the Clayton Acts by
forcing merchants to accept its credit cards at rates some 30
percent higher than fees for competing credit cards. Amex fought
the court class action proceedings by moving to compel
individual arbitration in accordance with the class waiver
Amex's motion, the plaintiffs submitted an economist's
declaration that estimated the costs of an expert's analysis
needed to prove the individual antitrust claims would be at
least several hundred thousand dollars, and "might exceed $1
million." Compared to the individual plaintiff's maximum
antitrust recovery of some $12,850 (or $38,549 when trebled),
such costs were deemed "prohibitive." The district court,
nonetheless, granted the defense motion to compel individual
arbitration, but the Second Circuit reversed holding that the
class waiver was unenforceable since Concepcion involved
FAA preemption of a state statute. In Amex, however, the
federal statutes were not intended to be preempted. A petition
for rehearing en banc was denied with five judges dissenting.
Court's 5-4 decision in Amex is emphatic confirmation of
Concepcion's strength. The court held that the FAA does
not permit courts to invalidate a contractual class action
waiver on the ground that a plaintiff's cost of individually
arbitrating a federal statutory claim exceeds the potential
recovery. The expense of litigation is not a determinative
factor: "[T]he antitrust laws do not guarantee an affordable
procedural path to the vindication of every claim."8
Here the plaintiffs further argued that "effective vindication"
of their statutory rights was prevented and, therefore, this
should be a "public policy" exception to upholding the class
rejected this approach. There is no blockage of "effective
vindication" of statutory rights since the class action waiver
"merely limits arbitration to the two contracting parties."9
The fact that "it is not worth the expense involved in proving a
statutory remedy does not constitute the elimination of the
right to pursue that remedy."
Antonin Scalia, writing for the five-justice majority, confirmed
the vitality of Concepcion pithily: "Truth to tell, our
decision in AT&T Mobility all but resolves this case.
There we invalidated a law conditioning enforcement of
arbitration on the availability of class procedure because that
law 'interfere[d] with fundamental attributes of arbitration.'"
Class arbitration "sacrifices the principal advantage of
arbitration—its informality—and makes the process slower, more
costly, and more likely to generate procedural morass than final
judgment." And, in its footnote 5, the court reminds us that
"the FAA's command to enforce arbitration agreements trumps any
interest in ensuring the prosecution of low-value claims."
accepted by the circuit court would require—before a plaintiff
can be held to contractually agreed bilateral arbitration—that a
federal court determine (and the parties litigate) the legal
requirements for success on the merits "claim-by-claim and
theory-by-theory, the evidence necessary to meet those
requirements, the cost of developing that evidence, and the
damages that would be recovered in the event of success." Such a
"preliminary litigation hurdle" would undoubtedly destroy the
prospect of speedy resolution that arbitration in general and
bilateral arbitration in particular was meant to secure. "The
FAA does not sanction such a judicially created superstructure."
Given the "one-two punch" of Concepcion and, now, Amex,
the Massachusetts decision in Feeney issued only eight
days before Amex seems severely weakened, if not doomed.
On June 26,
the U.S. Court of Appeals for the Second Circuit decided
ONY v. Cornerstone Therapeutics,10 answering
the question "when a statement in a scientific article reporting
research results can give rise to claims of false advertising
under the Lanham Act, deceptive practices under New York General
Business Law §349, and the common-law torts of injurious
falsehood and interference with prospective economic advantage."
Writings can have explosive impact today because of the
Internet. Particularly where commercial or business-oriented
speech is involved, certain anti-injury norms of reasonable
behavior are expected. So, for example, knowingly false,
deceptive or fraudulent statements that cause loss can be
actionable. The First Amendment is not a free pass to commit
torts despite a public policy generally favoring freedom of
case, however, presented issues not so clear-cut. The offending
writing was a scientific article alleged by plaintiff to contain
falsehoods and distortions. The facts, in a nutshell, were as
follows: Plaintiff ONY produces "surfactants," biological
substances that line the surface of human lungs, that are
critical to lung function and that are crucial to prematurely
born infants who often produce inadequate surfactant levels.
Infants with the deficiency are at a higher risk for lung
collapse and Respiratory Distress Syndrome (RDS). ONY produces
its surfactant product, called "Infasurf," from bovine lung
surfactant. Defendant Chiesi, an Italian pharmaceutical firm, is
a competitor producing a product called "Curosurf" made from
porcine lung mince. Both products are FDA-approved. Defendant
Cornerstone is Chiesi's distributor and marketer in the United
vigorously contest the relative effectiveness of their products
"in the marketplace, in the scientific literature, and in the
instant lawsuit." The parties agree, however, that two variables
are particularly relevant to the comparison: mortality rate and
length of stay. Mortality rate refers to the percentage of
infants treated with a particular surfactant who do not survive.
Length of stay refers to the amount of time an infant remains in
the hospital for treatment. These variables can be
interdependent. Thus, in some cases length of stay is shortened
by death, which is reflected in the mortality rate. Some of the
same causes of increased mortality rate (low birth weight,
shorter gestational period) also cause shorter lengths of stay.
Conversely, infants with shorter hospitalization might have had
less serious conditions from the beginning, independent of
treatment variables. Thus, a particularly effective surfactant
may both reduce mortality and shorten length of stay.11
defendant Chiesi, seeking to promote and sell Curosurf, hired a
firm to create a database and conduct a study; and hired some
doctors (the physician defendants) to present findings from the
database at a number of medical conferences. The latter
published some of the same findings in an article in the
leading, peer-reviewed Journal of Perinatology in 2011. ONY
claimed that the article contained five distinct incorrect
statements of fact regarding the relative effectiveness of the
competing surfactant products. Thus, for example, the article
said that ONY's Infasurf "was associated with a 49.6% greater
likelihood of death than" Curosurf. Further, the Curosurf
treatment for RDS was associated with a "significantly reduced
likelihood of death when compared with" Infasurf, and so on. The
article concluded that the study found "lower mortality" among
Curosurf-treated infants compared with Infasurf and another
product, "even after adjusting for patient characteristics" such
as gestational age and birth weight, and after accounting for
also criticized the "unusual" circumstances surrounding the peer
review and publication in the prestigious journal. Thus, two of
the defendant physicians hired by Chiesi were, respectively, an
associate editor and a member of the journal's editorial board.
Plaintiff alleged that one of the two peer reviewers actually
objected to the article. The editor-in-chief then broke the tie.
The article was published in "open access" format, allowing it
to be viewed electronically by the general public without paying
a fee or ordering a subscription. Chiesi and its U.S.
distributor Cornerstone paid the fees associated with such
publication. After the article was published, the two firms
issued a press release touting the study's conclusions and
distributed promotional materials citing the article's findings.
primary objection to the article's methodology was that the
authors omitted any length-of-stay data, despite presentation of
that data at the earlier medical conferences. This was
intentional, claimed ONY. Had it been included, it would be
obvious to readers that the differences in results were
attributable to "differences in the groups of patients treated,
not of any differences in the effect of the particular lung
surfactant administered." Plaintiff also objected to the
authors' failure to cite articles with "different primary
conclusions, although such contradictory authority was known to
them" and to the use of retrospective data they subjected to
filed a motion to dismiss which the district court granted. The
Second Circuit affirmed. While the Lanham Act generally
prohibits false advertising, courts have been "especially
careful" when it comes to applying causes of action to academic
works because academic freedom is "a special concern of the
First Amendment." Generally, statements of "pure opinion"—that
is, statements incapable of being proven false—are protected.
"But the line between fact and opinion is not always a clear
one." To illustrate, the court cited to a U.S. Supreme Court
Milkovich12 where the court showed that a
statement of fact could be phrased as a statement of opinion.
Thus, stating that "in my opinion John Jones is a liar" is no
different from merely asserting that John Jones is a liar.13
case, plaintiff claimed that the article made statements about
scientific findings that were intentionally deceptive and
misleading, thereby constituting false advertising. Such
statements can be defamatory or false if known to be false when
made. ONY argued that they were not mere statements of opinion
as the district court had concluded. The circuit court observed
that "scientific academic discourse" poses problems for the
fact-opinion paradigm of First Amendment jurisprudence. Science
does indeed engage in empirically verifiable facts. At the same
time, however, conclusions of empirical research are tentative
and subject to revision. Such conclusions are presented in
publications directed to the scientific community. Others in the
field can respond by replicating the experiments, conducting
their own experiments or analyzing or refuting the soundness or
validity of the published work product. Indeed, there may be
controversy and rigorous debate by qualified experts. Courts are
"ill-equipped to undertake to referee such controversies." Here
the contents of the article were considered to be non-actionable
the battle between scientific inferences and conclusions to be
drawn from verifiable data that withstands falsifiability
challenges belongs to science and science journals.
Nevertheless, that battle inevitably creeps into the courtroom
(for example, in drug, toxic tort and products liability
litigation) when expert witnesses spar over scientific data,
findings, and conclusions presented in articles they only read
but never researched or wrote. I commented on that phenomenon as
well as recognized weaknesses in peer review procedures in a
number of my articles dealing with a trend toward "trial by
literature."14 The facts in ONY regarding the
publication of the article and arguable criticism of its
scientific conclusions again remind us to be alert when experts
rely heavily on science articles written by others.
is a member of Herzfeld & Rubin.
"U.S. Supreme Court Issues Incomplete Clarification on Class
Arbitration," New York Law Journal, June 17, 2013, p. 3.
12-135, 2013 U.S. LEXIS 4358 (U.S. Sup. Ct. June 10, 2013).
Mobility v. Concepcion, 131 S. Ct. 1740 (2011).
Regarding Arbitration and Class Action Waivers," NYLJ, Feb.
11, 2013, p. 3; "Arbitration
Clauses Displace Consumer and Class Lawsuits," NYLJ, April
9, 2012, p. 3.
Mass. LEXIS 462 (Sup. Jud. Ct. June 12, 2013).
v. Dell, 2013 Mass. LEXIS 462, at *62-*63.
12-133, 2013 U.S. LEXIS 4700 (U.S. Sup. Ct. June 20, 2013).
Id., LEXIS at *8-*9.
Id., LEXIS at *13. The class waiver is distinguishable from
provisions such as "a provision in the arbitration agreement
forbidding the assertion of certain statutory rights."
Similarly, were "filing and administrative fees attached to
arbitration…so high as to make access to the forum
impracticable," that perhaps could create an "effective
vindication" exception. Id.
U.S. App. LEXIS 13067 (2d Cir. June 26, 2013). A front page
story on the ONY decision is found in the NYLJ, July 1,
Id., LEXIS at *4-*5.
Milkovich v. Lorain Journal, 497 U.S. 1, 19-20 (1990).
LEXIS at *13.
14. Hoenig, "Testifying
Experts and Scientific Articles: Reliability Concerns,"
NYLJ, Sept. 16, 2011, p. 3; "Gatekeeping of Experts and
Unreliable Literature," NYLJ, Sept. 12, 2005, p. 3; "Questions
About Experts and 'Reliable' Hearsay," NYLJ, July 8, 2002, p. 3.
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