U.S. Third Circuit Addresses Preemption in the Context of a Product that is Made Up of Some, But Not All, Class III Components; Allows Personal Jurisdiction Discovery to Go Forward on Alter Ego Theory

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This case presents an issue of first impression among the Courts of Appeals: How courts should apply the express preemption provision under the Federal Food Drug & Cosmetic Act to State Law tort claims challenging the design and manufacture of a medical device comprised of multiple components, some of which are from ‘Class III’ medical devices subject to Federal requirements, and some of which are from medical devices that carry a different class designation and are not subject to those requirements.  The U.S. Court of Appeals for the Third Circuit found that negligence, strict liability, and breach of implied warranty claims are expressly preempted. However, the Court found that the plaintiffs had adequately pleaded claims for off-label promotion, which are not preempted.  With respect to jurisdiction over the parent corporation, the Court affirmed rejection of “stream of commerce” as a grounds for exerting personal jurisdiction.  However, the Court found that an alter ego theory had been sufficiently alleged, which should proceed to discovery.

“The Shukers urge on appeal that the ‘device’ at issue is the entire hybrid system itself. Any other determination, they argue, would produce unfairness and incongruity by according preemption even when a component is used off-label in a manner that was never studied or approved by the FDA, merely because that component part was pre-approved for use with another system. Appellees, seconded by the FDA, counter that analysis at the component level is the only way to harmonize various provisions of the statute. We agree with Appellees for three reasons. First, analysis at the component level finds support in the text of the statute and regulations. The Act defines ‘device’ to mean not simply a finished instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, but also ‘any component, part, or accessory’ of that article. Second, the Act’s provision for off-label use supports a component-level analysis. While the premarket approval process requires strict manufacturer compliance with respect to a device’s labeling and advertising, the statutory scheme contemplates that physicians will prescribe or administer components outside of a system with which the FDA approved their use. As noted, off-label uses of devices (and components) are an accepted and necessary corollary of the FDA’s mission to regulate in this area without directly interfering with the practice of medicine.  Third, the FDA also takes the position that because the definition of ‘device’ encompasses premarket-approved systems, and each of the components, parts, and accessories of these devices, the relevant device for preemption purposes must be evaluated at the component level.”

Nevertheless, the Court found that a claim for off-label promotion was not preempted, and could go forward: “The complaint alleges that the R3 metal liner received premarket approval as part of the Birmingham Hip Resurfacing System and was approved ‘only for use with that system,’ leading to the reasonable inference that the R3 metal liner was a ‘restricted device’ under the Medical Device Amendments, and that federal law therefore imposed a duty on Smith & Nephew to refrain from publishing false or misleading advertising with respect to the R3 metal liner, even if such advertising was for the purpose of marketing a separate device.  As to breach, the complaint asserts that, even though the FDA did not approve the R3 metal liner for use with any hip system other than the Birmingham Hip Resurfacing System, Smith & Nephew actively marketed the R3 metal liner as optional for the separate R3 Acetabular System. The complaint also cites to Smith & Nephew’s February 2009 press release, which explicitly announces ‘the introduction of a metal liner option for the R3 Acetabular System.’ These factual allegations give rise to the reasonable inference that Smith & Nephew’s marketing was ‘misleading’ regarding the FDA-approved uses of the R3 metal liner, and that Smith & Nephew breached its duty under federal law not to advertise its medical device in that misleading manner.  As to causation, the Shukers’ Third Amended Complaint alleges that Mr. Shuker’s surgeon either read or was aware of the information in Smith & Nephew’s press release, that the surgeon proceeded to find the R3 metal liner appropriate for Mr. Shuker, given his body habitus and his activity level, and that Mr. Shuker endured pain caused by metal sensitivity due to the degeneration of the metal on metal articulation in his hip replacement system.  Together these factual allegations lead to the reasonable inference that Smith & Nephew’s marketing materials caused Mr. Shuker’s surgeon to recommend the R3 metal liner and to install it within Mr. Shuker’s hip replacement system, a course of action which in turn caused Mr. Shuker’s subsequent injuries.”

With respect to personal jurisdiction over Smith & Nephew’s parent company, PLC, the Court found “no merit in the Shukers’ stream-of-commerce theory” in an attempt to establish specific jurisdiction.

Nevertheless, the Court found that “the Shukers are entitled to limited jurisdictional discovery to explore their alter ego theory of general personal jurisdiction, i.e., jurisdiction arising from a defendant’s continuous and systematic contacts with the forum, whether or not those contacts are related to the plaintiffs’ cause of action. Unlike the Shukers’ stream-of-commerce theory, the alter ego theory finds support in our case law, which instructs that, if a subsidiary is merely the agent of a parent corporation, or if the parent corporation otherwise ‘controls’ the subsidiary, then personal jurisdiction exists over the parent whenever personal jurisdiction (whether general or specific) exists over the subsidiary.”

In this particular case, the plaintiffs’ allegations “paint a plausible picture of control by PLC over Smith & Nephew: the two companies’ decisionmaking is integrated, PLC has authority over Smith & Nephew’s strategic business decisions, PLC pays for the development of Smith & Nephew’s products, and executives from both companies work together to make decisions regarding Smith & Nephew’s hip systems, as shown in a 2012 Smith & Nephew press release that directed investor and media inquiries not to Smith & Nephew employees, but to PLC executives. Given that no party disputes that personal jurisdiction exists over Smith & Nephew as PLC’s subsidiary in Pennsylvania, the Shukers’ allegations, taken as true and in isolation, would suffice to show that PLC controlled Smith & Nephew, that Smith & Nephew was PLC’s agent, and that personal jurisdiction must exist over both Smith & Nephew and PLC in Pennsylvania.”

Shuker v. Smith & Nephew, No.16-3785, 2018 WL 1096185 (3rd Cir. March 1, 2018).

 

 

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