Felker v. McGhan Medical Corp.

Citations: 36 F. Supp. 2d 863; 1998 U.S. Dist. LEXIS 19811Docket: No. Civ. 97-1497 PAM/JGL

Court: District Court, D. Minnesota; November 12, 1998; Federal District Court

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Defendant Minnesota Mining and Manufacturing Company (3M) filed a Motion for Summary Judgment against thirteen Plaintiffs in a case concerning silicone breast implants. The litigation involves implants manufactured by 3M and McGhan Medical Corporation, which 3M sold to McGhan after acquiring McGhan I in 1977. Plaintiffs allege that 3M was aware of various defects and risks associated with silicone implants prior to the sale, including capsular contracture, gel bleed, silent rupture, silicone migration, and inflammation. 

In 1984, 3M divested its breast implant line, selling it to a new entity, McGhan Medical Corporation (McGhan III), for $5.5 million, with $2.75 million financed through a promissory note. Post-sale, 3M continued to provide certain services to McGhan III and retained the lease on the manufacturing property. A press release from 3M indicated the sale was due to misalignment with the company’s growth strategy, while internal communications noted impending FDA reclassification and ongoing lawsuits affecting profitability. 

The debt from the sale was restructured in 1985 and again in 1988 following a default by McGhan III. 3M received partial payments and later assisted McGhan III with a loan to settle a products liability lawsuit. The Court granted 3M's motion for summary judgment against the Arizona plaintiffs.

Plaintiffs who purchased breast implants from McGhan post-1984 divestiture have filed their claims in the Master Complaint of the In re: Silicone Breast Implant Products Liability Litigation (MDL-926) in the U.S. District Court for Alabama. The First Amended Master Complaint includes claims of strict liability, negligence, various warranty breaches, violations of the Food, Drug and Cosmetics Act, misrepresentation, fraud, false advertising, emotional distress, and several statutory violations including the Lanham Act and Magnuson-Moss Act, among others. 3M argues for summary judgment, asserting it owed no duty to plaintiffs since the implants were made by McGhan, while plaintiffs counter that 3M is liable for fraudulently divesting its breast implant division to escape liability. 

The standard for summary judgment requires no genuine issue of material fact, with the moving party entitled to judgment as a matter of law, as outlined in Fed. R. Civ. P. 56(c). The court assesses materiality based on the substantive law governing the claims, determining that a material fact dispute is 'genuine' if it could allow a reasonable jury to favor the non-moving party. 

In matters of choice of law, when a case is transferred under 28 U.S.C. 1404(a), the transferee court must apply the law of the transferor court, specifically New York’s choice of law rules, which dictate that the state with the greatest interest in the issue governs. The determination focuses on the parties’ domiciles and the locus of the tort.

Arizona law governs the present motion according to 3M, as all Plaintiffs are from Arizona, underwent surgery in the state, and suffered their injuries there. Plaintiffs counter that 3M’s choice of law argument is irrelevant to their claims, which center on 3M's alleged fraudulent divestiture of its breast implant division, asserting that 3M failed to disclose that the divestiture was intended to avoid liability. Despite this argument, the injuries occurred in Arizona, making Arizona law applicable to products liability claims based on defective implants. However, Plaintiffs' fraud claims, related to actions taken during the divestiture, occurred in Minnesota, thus applying Minnesota law.

3M argues that for products liability claims, it must be shown that 3M manufactured or sold the breast implants. The Plaintiffs listed received implants after 3M sold its breast implant business to McGhan III in 1984, leading 3M to seek summary judgment on these claims. Plaintiffs must establish 3M's involvement in the manufacturing or selling of the implants to proceed with their claims. The evidence indicates that McGhan III, not 3M, was responsible for these implants, a point not contested by the Plaintiffs. Therefore, 3M cannot be strictly liable under Arizona law, and Plaintiffs’ strict liability claims against 3M must be dismissed.

For negligence claims under Arizona law, a plaintiff must demonstrate that the defendant owed a duty, breached that duty, and that the breach caused the injury. The current motion focuses on whether 3M owed any duty to the Plaintiffs.

Arizona courts establish that a party owes no duty of care to individuals with whom they have no relationship, as illustrated in Callender v. MCO Properties. In this case, although McGhan III manufactured and sold implants to the Plaintiffs, they seek to hold 3M liable for alleged negligence related to these implants. However, since 3M had no direct relationship with the Plaintiffs, it did not owe them a duty of care, leading to the dismissal of Plaintiffs’ negligence claims against 3M.

Plaintiffs argue that 3M should be liable for negligent design of the implants, referencing Arizona law that holds manufacturers liable for defectively designed products if they could have made them safer. Under this framework, it is challenging to assign liability to 3M for design negligence, as McGhan III was the manufacturer responsible for the design choice at the time of production, and 3M was no longer involved in the business.

While Plaintiffs contend that the implants were identical to those designed by 3M before the sale of the breast implant division, there is no evidence suggesting that 3M continued to design implants for McGhan III or specifically for the Plaintiffs. The Plaintiffs’ reliance on Jack Frost, Inc. v. Engineered Bldg. Components Co. is noted, where the designer was partially responsible due to knowledge of the intended use and specific communications with the manufacturer. However, 3M's circumstances differ significantly; it was not in the business of providing designs for breast implants nor did it sell designs to other companies.

Furthermore, once 3M sold its breast implant division to McGhan III, it lost control over the design and potential liability, a principle supported by Fricke v. Owens-Corning Fiberglas Corp., which ruled that a predecessor could not be held liable for warnings after selling its business. Although Fricke pertains to product warnings rather than design, the same reasoning applies here. The court finds no basis for extending 3M's liability for the implants' design.

3M cannot be held liable for the negligent design of the breast implants as McGhan III, which purchased 3M's breast implant business in 1984, was responsible for designing, manufacturing, and selling the implants. The plaintiffs failed to provide legal support for their 'predecessor liability' argument. Consequently, their negligence claims against 3M are dismissed, leading to the dismissal of their res ipsa loquitur claim, as 3M did not have exclusive control over the implants at the time they were received by the plaintiffs.

Regarding the failure to warn claims, Arizona law requires that a manufacturer or supplier has a duty to warn. Since 3M neither manufactured nor supplied the plaintiffs' implants, these claims are also dismissed. The plaintiffs' implied warranty claims under Arizona’s Uniform Commercial Code (UCC) fail because 3M was not involved in the manufacturing or distribution chain of the implants. Similarly, the express warranty claims are dismissed as 3M did not sell the implants and made no affirmations regarding them. The claim for implied warranty of fitness for a particular purpose is likewise dismissed for the same reason. Lastly, claims for breach of the UCC and negligence per se under the UCC are dismissed due to the court's conclusion that 3M does not qualify as a 'seller' under UCC definitions, and thus did not violate any warranty provisions.

Negligence per se requires plaintiffs to demonstrate a breach of safety statute and a direct causal link to their injuries. 3M is not liable under the Food, Drug, and Cosmetic Act because it neither manufactured nor sold the breast implants, thus lacking the ability to prevent statutory violations. Consequently, allegations of negligence per se against 3M are dismissed. Under New York General Business Law Section 392-b, which penalizes false product descriptions, 3M's lack of involvement in the manufacturing or selling of the implants leads to the dismissal of claims under this statute as well.

Plaintiffs’ state law false advertising claim under the Arizona Consumer Protection Act fails because it requires a direct link between damages and unlawful acts, which cannot be established in this case, leading to dismissal. The conspiracy claims are also dismissed, as Arizona law does not recognize civil conspiracy as an independent claim, and 3M did not engage in any unlawful actions or have knowledge of any tortious intent from other defendants.

Market share liability is not recognized by Arizona courts, resulting in the dismissal of that claim against 3M. Finally, claims for intentional and negligent infliction of emotional distress are dismissed as 3M's lack of direct interaction with the plaintiffs precludes the required showing of extreme conduct or emotional injury.

3M's conduct towards the Plaintiffs is deemed not extreme or outrageous, resulting in the dismissal of the intentional infliction of emotional distress claim. Under Arizona law, a claim for negligent infliction of emotional distress requires the plaintiff to witness an injury to a closely related person, suffer mental anguish manifesting as physical injury, and be within the zone of danger posed by the defendant's actions. Since 3M did not sell or manufacture the implants, it did not engage in negligent actions or create an unreasonable risk of harm, leading to the dismissal of the negligent infliction claim.

The Plaintiffs' claim for fear of future product failure is also dismissed as Arizona courts do not recognize such a claim. Even if it were valid, 3M's lack of involvement in the sale or manufacture of the implants would exempt it from liability. 

Regarding the Lanham Act, individual consumers lack standing to assert violations, as evidenced by multiple case precedents. The Plaintiffs, not being commercial entities, have no standing to pursue claims under the Lanham Act against 3M, resulting in dismissal.

According to the Magnuson-Moss Act, which applies to "consumer products," surgically implanted medical devices are not classified as such, as they are not generally available to the public. The Court agrees with prior rulings that breast implants do not qualify as consumer products, leading to the dismissal of the Magnuson-Moss claims.

Lastly, the Plaintiffs’ products liability claims against 3M based on a joint venture theory are dismissed due to a lack of supporting facts. The Plaintiffs acknowledge that 3M sold its breast implant business to McGhan in 1984, and both companies operated independently. The claim that 3M controlled McGhan III as a sham corporation to evade liability is unsupported by evidence, resulting in the dismissal of these claims.

Plaintiffs have presented claims against 3M for alter ego and aiding/abetting liability. Under Arizona law, alter ego liability arises when there is significant unity of interest and ownership between a corporation and its owners, leading to the disregard of their separate identities. The court determined that 3M and McGhan III operated independently, lacking shared officers or control, and since McGhan III has been a wholly-owned subsidiary of INAMED since 1985, 3M cannot be held liable under an alter ego theory if INAMED is not liable. 

For aiding and abetting, Arizona law requires proof of an independent primary wrongdoing, actual knowledge of the wrongdoing by the alleged aider and abettor, and substantial assistance in the wrongdoing. Plaintiffs accused McGhan III of concealing risks of breast implants and misrepresenting them to the FDA. However, the court found no basis for holding 3M liable as an aider/abettor, noting that the allegations related to actions taken by 3M prior to the sale of the breast implant division in 1984 are irrelevant to claims of aiding and abetting post-sale. Although 3M provided transitional support to McGhan III, these actions did not constitute substantial assistance related to the alleged wrongful acts. 

Additionally, the court dismissed the Plaintiffs’ claim regarding violations of consumer protection statutes, as no specific statute was cited against 3M. The claim regarding a common plan to conceal breast implant hazards was not addressed in the Plaintiffs' brief. As a result, all claims against 3M, including alter ego and aiding/abetting liability, were dismissed.

The Court determined that the allegations related to Plaintiffs' claim against 3M for fraudulent concealment were unfounded, as 3M did not conceal the hazards associated with silicone breast implants. Consequently, the claim against 3M was dismissed. Additionally, the Court addressed a claim regarding the invalidity of indemnification agreements, concluding that Plaintiffs suggested the agreement between 3M and McGhan III was invalid due to 3M's negligence. However, a party cannot be indemnified for its own negligence unless explicitly stated in the agreement. Citing case law, the Court noted that while the term "negligence" is not necessary, the intent to indemnify against negligence must be clearly expressed. The indemnity agreement in question indicated that McGhan III assumed liability for claims after the divestiture, while 3M retained responsibility for claims before it. Thus, the indemnity clause was deemed clear and valid, leading to the dismissal of Plaintiffs' claims regarding its invalidity.

Regarding the fraud claims, Plaintiffs alleged that 3M's divestiture of its breast implant business to McGhan III was fraudulent, asserting that McGhan III was merely a shell corporation intended to evade liability for defective implants. The Plaintiffs outlined three fraud claims: fraudulent misrepresentation, fraudulent concealment, and fraudulent transfer, all governed by Minnesota law. For fraudulent misrepresentation under Minnesota law, five elements must be established, including false representation, knowledge of its falsity, intent to induce reliance, actual reliance, and resulting damages. The Plaintiffs referenced a press release from 3M stating the divestiture was aligned with future growth targets and that the new owners would maintain quality and service, suggesting reliance on this statement as part of their fraud claims.

On August 10, 1994, W.J. Lynch, 3M’s national sales manager, issued a letter to 3M/McGhan customers about the sale of the silicone product line, stating it would enhance specialized sales coverage and service. Plaintiffs argue these statements were false, claiming 3M's true motive for the divestiture was to avoid liability. They reference *Kociemba v. G.D. Searle Co.*, where the court held that statements made by a defendant’s representatives regarding a medical device's safety were actionable because the representatives had special knowledge and the statements were directed to specific individuals. The court found that concealing material facts could also support a claim for intentional misrepresentation.

However, the current case is deemed distinguishable from *Kociemba*. The court notes that 3M's statements were general and publicly directed, not tailored to the plaintiffs or their physicians, thus lacking the intent for reliance by the plaintiffs. The court characterizes 3M’s press release as "puffing" rather than a factual representation, suggesting it was primarily aimed at investors. Consequently, the court concludes that the press release and the letter assuring customers of better service do not support a fraudulent misrepresentation claim by the plaintiffs, as they differ significantly from the specific representations made in *Kociemba*.

The letter from 3M, while more direct than a press release, did not address the safety of its breast implants but reassured customers that service would remain unaffected. Plaintiffs attempted to link "better service" with the safety of the implants, but the court concluded that the letter did not constitute a reasonable basis for a misrepresentation claim regarding the implants' safety. Consequently, the court dismissed the Plaintiffs' fraudulent misrepresentation claims against 3M.

In terms of fraudulent concealment, Plaintiffs accused 3M of hiding material facts about the silicone breast implants' risks and defects. However, the court noted that Plaintiffs did not effectively assert a legal basis for this claim. Under Minnesota law, fraudulent concealment requires a suppression of facts that one party is legally obliged to disclose, which was not established in this case. The court highlighted that there was no fiduciary duty between 3M and the Plaintiffs or their physicians, particularly since 3M ceased manufacturing breast implants in 1984 and could not have known the Plaintiffs intended to purchase them. Therefore, Plaintiffs' fraudulent concealment claims were also dismissed. 

Additionally, the document referenced the Minnesota Uniform Fraudulent Transfer Act (UFTA), although details on this aspect were not elaborated in the excerpt.

Debtors are prohibited from transferring property or incurring obligations intended to hinder, delay, or defraud creditors under Minnesota law (Minn.Stat. 513.41-513.51). The Uniform Fraudulent Transfer Act (UFTA) is to be interpreted liberally. In the case at hand, the plaintiffs did not claim that 3M's divestiture of its implant business rendered it insolvent. The court found no sufficient "badges of fraud" indicative of an intention to defraud creditors, as defined in Section 513.44(b) of the UFTA. 

The plaintiffs identified several purported "badges of fraud," including the transfer being to an insider, the intent to avoid future liability, concealment of the transfer's true reasons, and the insolvency of McGhan III shortly after incurring debt. However, the court analyzed these claims: 

1. **Transfer to an Insider**: The UFTA allows courts to consider whether a transfer was made to an insider. The plaintiffs argued that Don McGhan, who was involved in the breast implant line, was an insider due to his connection to McGhan III, the purchasing entity. However, the court found that neither McGhan nor McGhan III qualified as insiders under the UFTA, as 3M was significantly larger and more powerful than McGhan III, which lacked any control over 3M.

2. **Avoiding Future Liability**: The court also considered whether 3M had been sued or threatened with suit prior to the transfer. Plaintiffs referenced a 1984 memorandum from 3M's general counsel indicating potential future liability and recommending an expeditious sale of the implant business. This memorandum acknowledged past lawsuits and anticipated future legal challenges but did not directly imply that the transfer was made to avoid liability.

Overall, the court did not find the necessary elements to support a claim of fraudulent transfer based on the presented facts and interpretations of the UFTA.

3M sold its breast implant division to avoid potential new claims but maintained liability for implants it manufactured and sold prior to the sale. The court found no reliable evidence that 3M's divestiture aimed to eliminate liability entirely, thus leaving claimants without recourse. Plaintiffs argued that 3M concealed the reasons for the sale, asserting that failure to inform the FDA and medical community of liability concerns constituted a “badge of fraud.” However, the court determined that the relevant statute (Minn. Stat. 513.44(b)(3)) only addresses whether the transaction itself was disclosed or concealed, and not the motives behind it. Since the sale was publicly disclosed, this claim was rejected. Additionally, plaintiffs contended that the sale left McGhan III insolvent; however, the court clarified that it was 3M's insolvency that mattered, and no evidence suggested 3M was insolvent at the time of the sale. Consequently, the court dismissed the plaintiffs' claims of fraudulent transfer against 3M, noting it was illogical to assume 3M could become insolvent after selling a division for $5.5 million. As a result, the court granted summary judgment in favor of 3M, dismissing all related claims from the plaintiffs, including those regarding collateral estoppel, punitive damages limitations, and punitive damages.

Plaintiffs’ claims against Defendant 3M, specifically those from Kathy Ann Dale and others, are dismissed. 3M opted for summary judgment concerning Arizona Plaintiffs to streamline the choice of law issue, retaining the right to seek summary judgment for other Plaintiffs who purchased McGhan implant devices. The Court acknowledges this leads to applying laws from different states within the same case, but concludes that using Minnesota law for fraud claims provides some consistency across the Plaintiffs' cases. Several Plaintiffs have spouses involved in loss of consortium claims. The Court notes that the Plaintiffs' Complaint lacks a specific negligent design claim, but they argue their general "negligence" claim encompasses it. The Court will consider this, although no evidence has been provided showing Arizona has adopted the Jack Frost rationale. Additionally, the excerpt references the definition of "insider" under Minnesota law, indicating various parties related to a debtor corporation.