Date: Sat, 4 Aug 2007 14:32

From: David Cheifetz

Subject: Judges, Buses and A Butterfly in Tokyo

Dear Colleagues:

In a hypothetical world, if something fundamental were changed - so F only sometimes equals MV; other times it equalled XV; and one used XV when, for some relevant reason, one couldn't determine the value of MV - then a scientist trying to determine "if it was safe" to stand in front of a large, on-rushing bus, might have to do two calculations in order to be certain. That scientist, were he standing in front of the bus, might decide that it would be better to move, just in case there wasn't time to do both, just in case it wasn't safe under the applicable test.

In this world, fortunately for judges, systems of law aren't like science. Law can, apparently, have its own self-contained universes working on rules that are completely unaffected by changes elsewhere in the system; even some that, at least to the obviously naive, viewer would seem at least somewhat connected. In any event, as we know, law isn't science and law isn't bound by the laws of science, so judges apparently don't have to ask themselves if something fundamental changed (even if it has) as they stand in front of the bus.

In Heward v. Eli Lilly & Company, 2007 CanLII 2651 (ON S.C.) argued in Nov 2006, reasons released February 6, 2006, an Ont. judge certified a class action against Eli Lilly relating to the manufacture and sale of an anti-psychotic drug, Zyprexa which has proven to be very popular and useful for the purpose for which it is prescribed: treating schizophrenia, related psychotic disorders and bipolar disorders. The substance of the complaint about the drug, we are told, relates to its side-effects. The classes' allegations are that Eli Lilly knew that "the use of the drug gives rise to a significantly increased risk of diabetes and a variety of related complaints including hyperglycemia, pancreatitis, other blood sugar disorders, weight gain and, in elderly patients, strokes - and that the defendants have consistently failed to disclose to, or warn, Canadian patients and their physicians of these risks". (para 6, my emphasis.) Not surprisingly, one of the major claims in the action is disgorgement based on "waiver of tort".

Eli Lilly sought leave to appeal: 2007 CanLII 26607. Eli Lilly was granted leave. The argument was on June 13 and the decision released July 10, 2007. I will deal with only one aspect of the decision.

The basis of the decision to grant leave was the leave judge's concern over the connection between the alleged wrong and the alleged gain; that is, the causal connection. Recall that I gave the date of argument and decision on the certification motion. Keep that it mind. The leave judge summarized the certification judge's decision on the causal connection between Eli Lilly's alleged misconduct and the disgorgement claim this way.

[28] Cullity J. was correct in stating there must be a causal connection on a class-wide basis between the gain subject to disgorgement or constructive trust and the wrongful conduct. It is Cullity J.’s conclusion that such a connection was disclosed that leads me to doubt the correctness of this aspect of his decision. Continuing at para. 101 of his reasons, Cullity J. explained how the necessary causal connection arose:

Similarly, in this case, a necessary causal link between the wrong and the amount claimed by way of “restitution” or disgorgement would be established if the plaintiffs can prove their claim that the defendants were negligent in placing Zyprexa on the market, or in continuing to market it after November, 2001, without sufficient warning of its side-effects. In the event of a finding to this effect, the defendants would not have derived any proceeds but for their breach of duty and, in this sense, the proceeds would have resulted from the wrong.

[29] Cullity J. makes a significant assumption in this statement. To say with any confidence that Eli Lilly would not have derived proceeds from the sale of Zyprexa (the “gain”) but for its failure to sufficiently warn of its side-effects (the “wrongful conduct”), the pleadings or evidence must, at the very least, support one of the following inferences: (1) the class members would not have agreed to take Zyprexa if properly warned of the risks associated with the drug, or (2) Zyprexa would not have been approved for sale if Health Canada was properly warned of the risks associated with the drug. Absent these inferences, it seems the only way to determine the amount for which the defendants could be ordered to account in waiver of tort is to investigate whether each member of the class would not have taken Zyprexa if properly warned. This is the antithesis of a common issue.

In essence, the leave judge said that the certification judge had assumed that causation had to be proven on a but-for basis, but if this were correct that manner of proving an essential requirement for success in the action made it necessary to consider individual cases. This was at odds with the common element requirements for class actions , therefore, could make the class action procedure inappropriate. (It seem to me that even the inferences first suggested would require evidence in respect of the individual plaintiff.) The leave judge's concerns on the causation issue translated into him deciding that the test for leave had been met and to him granting leave on issues dependant on proof (and the manner of the proof) of causation.

[44] For the reasons outlined above, the motion is allowed in part. Leave to appeal to the Divisional Court is granted on the following issues:

1. Did the certification motion judge err in concluding that proof of the amount of the alleged wrongful gain subject to an accounting and disgorgement and/or a constructive trust is a common issue?

2. Did the certification motion judge err in concluding that a class proceeding is the preferable procedure to resolve the plaintiffs’ claim in waiver of tort?

The certification judge had, indeed, used the but-for test and only the but-for test.

[47] On the basis of the facts pleaded in this case, it would be open to a trial judge to find (a) that the defendants breached a duty of care by deliberately concealing, or withholding, information about harmful side-effects of Zyprexa for the purpose of gaining the approval of Health Canada, (b) that they intended to, and did, profit thereby and (c) that, but for the breach of duty, such profits would not have been obtained. ...

[101] The finding that a cause of action based on waiver of tort has been disclosed in the pleading is not in itself sufficient to qualify it as a common issue. In particular, the court must be satisfied that it is possible to determine on a class-wide basis whether a sufficient causal connection existed between the wrongful conduct and the amount for which the defendants could be ordered to account. In Serhan, the "but for" test of causation would have been satisfied if a finding was made that the products involved were, as pleaded and supported evidentially, dangerously defective to the knowledge of the defendants. Similarly, in this case, a necessary causal link between the wrong and the amount claimed by way of "restitution" or disgorgement would be established if the plaintiffs can prove their claim that the defendants were negligent in placing Zyprexa on the market, or in continuing to market it after November, 2001, without a sufficient warning of its side-effects. ...

One might wonder why the certification judge didn't consider whether the Athey "material contribution" test might also apply. Perhaps, reasonably so, the certification judge thought that nothing about the facts would make the use of but for "unworkable" under whatever meaning "unworkable" had at the time.

I'll finally get to the point, including the point of my 2 paragraph introduction. You'll recall I gave you the dates of certification motion and leave to appeal motion. The latter was argued and heard after the release of (everybody sigh) - he's about to mention that case, again - Resurfice Corp v Hanke 2007 SCC 7. There isn't a mention of Resurfice in the leave reasons. There isn't any indication of that anybody - lawyers or judges - considered whether anything the SCC had said in Resurfice about how causation is to be proven - at least in tort - was relevant.

I think we shouldn't assume that somebody was cute enough to say it wasn't relevant because the issue, in Heward, wasn't tort but just waiver of tort, unjust enrichment etc.

I suppose I should indicate, here, that the Ontario Court of Appeal has now said, twice, that Resurfice didn't change ANYTHING about the law of causation, it only clarified the area. So, I suppose it's possible that that's why Resurfice isn't mentioned in the leave to appeal reasons. I doubt it, though, and I'm going to assume it's not the case.

Let's recapitulate, then, what the SCC said in Resurfice was now Canadian law on causation. We have a but-for test and a material-contribution test. But-for is the test that's to be used except where, for reasons outside the plaintiff's control, it's impossible to prove causation on a but-for basis. In cases where that sort of impossibility exists, and the plaintiff has an injury, the plaintiff can establish causation by showing that the "defendant breached a duty of care owed to the plaintiff, thereby exposing the plaintiff to an unreasonable risk of injury, and the plaintiff must have suffered that form of injury." In other words, material contribution applies - Canadian courts are no to find causation has been established - where (1) the plaintiff has an injury; (2) the defendant has breached a duty owed to the plaintiff; (3) for some reason outside of the plaintiff's control the plaintiff can't establish causation on a but-for basis; (4) and the defendant's negligence increased the risk of the plaintiff sustaining the very injury the plaintiff complains of; (5) even if the evidence doesn't allow the conclusion that the defendant's conduct probably caused the injury complained of. This is found in para 23-25 of Resurfice.

[23] The “but for” test recognizes that compensation for negligent conduct should only be made “where a substantial connection between the injury and defendant’s conduct” is present. It ensures that a defendant will not be held liable for the plaintiff’s injuries where they “may very well be due to factors unconnected to the defendant and not the fault of anyone”: Snell v. Farrell, at p. 327, per Sopinka J.

[24] However, in special circumstances, the law has recognized exceptions to the basic “but for” test, and applied a “material contribution” test. Broadly speaking, the cases in which the “material contribution” test is properly applied involve two requirements.

[25] First, it must be impossible for the plaintiff to prove that the defendant’s negligence caused the plaintiff’s injury using the “but for” test. The impossibility must be due to factors that are outside of the plaintiff’s control; for example, current limits of scientific knowledge. Second, it must be clear that the defendant breached a duty of care owed to the plaintiff, thereby exposing the plaintiff to an unreasonable risk of injury, and the plaintiff must have suffered that form of injury. In other words, the plaintiff’s injury must fall within the ambit of the risk created by the defendant’s breach. In those exceptional cases where these two requirements are satisfied, liability may be imposed, even though the “but for” test is not satisfied, because it would offend basic notions of fairness and justice to deny liability by applying a “but for” approach.

I think it's worth asking whether the leave judge erred in failing to consider whether the applicable test was now Resurfice contribution to risk material-contribution. Is it impossible for the plaintiffs as a class, or individually, for reasons outside of their control, to establish that but-for the wrongful conduct of Eli Lilly, the drug wouldn't have been released to the public? They don't know what Health Canada would or wouldn't have done. This is the decision causation issue. (Vaughan Black has a very good paper - Decision Causation: Pandora's Tool-Box - in the recently published collection of the papers from the 2006 Emerging Issues in Tort Symposium at Western). Doesn't the Eli Lilly description of the problem at least smell like (ahem) proving the consequences of "negligent donor screening"? If we assume all of the not-nice allegations made against Eli Lilly are accurate, and that conduct breached a duty of care to one or more members of the class, that conduct likely did increase their risk of some harm, even if it was only a lighter pocket-book.

It's no doubt coincidental to the Resurfice issue but, according to the certification decisions, 3 of the 6 named plaintiffs allege they took the drug and developed diabetes afterwards. The other 3 are the spouses of the first three and claim base on the injuries sustained by their spouses. (see para 7-8 of the certification reasons.)

I end with this question: if material contribution as now defined by Resurfice is the test, is there any logical basis upon which the plaintiff COULD EVER FAIL to establish establish causation on a Resurfice material-contribution basis, individually or collectively, in the mass tort type of case exemplified by Heward. (You'll notice I haven't said upon which a judge could find that plaintiff had failed to establish ...)

If, as I think at the moment, the answer is no, then leave to appeal shouldn't have been granted.

Comments?

David Cheifetz

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