On June 29, 2018, the New Jersey Appellate Division created sweeping changes to the method by which defendants may prove cross-claims at trial; the new requirements will impose upon defendants the duty to call live witnesses at trial and limit the opportunity to utilize prior testimony from corporate representatives. The ruling has already created a firestorm within the defense bar and prompted joint action in an effort to have the case reviewed by the New Jersey Supreme Court.

In Rowe v. Bell, et al., Docket No. A-4530-14T2, the Appellate Division granted plaintiffs’ appeal for a new trial on the issue of apportionment.

FACTUAL & PROCEDURAL SUMMARY

In 2015, plaintiff Ronald Rowe sued various entities for causing his mesothelioma from mixed exposure of friction products, burners, and other boiler and furnace components. Initially, the Complained named 27 defendants. At the eve of trial, 8 of the remaining 9 defendants settled: (1) Borg Warner More Tech (“Borg Warner”); (2) Burnham, LLC (“Burnham”); (3) Dana Companies, LLC (“Dana”); (4) ECR International, Inc. (“ECR”); (5) Honeywell International, Inc. (“Honeywell”); (6) Peerless Industries, Inc. (“Peerless”); (7) Trane US, Inc. (“Trane”); and Weil-McLain Company, Inc. (“Weil-McLain”) (collectively, “settling defendants.” Only Universal Engineering Co., Inc. (“Universal”) participated at trial and maintained cross-claims for contribution against the settling defendants.

At trial, Universal sought to present evidence to the jury establishing liability on the part of the settling defendants. To do so, Universal first sought to have the settling defendants ruled unavailable for purposes of admission of certain answers to interrogatories and the deposition transcripts of corporate witnesses. Universal sent notices in lieu of subpoena to the settling defendants, demanding the appearances of their corporate representatives to provide testimony. The notices stated that “the enclosed Notice in Lieu of Subpoena shall remain in effect in the event your client settles or is dismissed from the case.” None of the settling defendants produced same.

Plaintiff’s counsel objected to the admission of Borg Warner’s answers to interrogatories and testimony of their corporate representatives from a different matter because they were not unavailable nor was plaintiff present at the deposition. Plaintiff raised essentially the same objection to the other settling defendants. However, the Court accepted Universal’s representation that corporate representatives are not produced in every case and that same were outside of the jurisdiction and unavailable. Universal read sections of testimony from the depositions of corporate representatives of every settling defendant, but Honeywell and Trane, after the Court deemed same as based in New Jersey and thus, available to testify.

Additionally, the Court allowed Universal to read the settling defendants’ certified answers to interrogatories from this and other matters. Plaintiff contended that same were only admissible against active parties. Universal proceeded to do so, introducing into evidence various facts establishing that the settling defendants manufactured asbestos-containing products.

At the close of Universal’s case, plaintiff moved to dismiss Universal’s claims against the settling defendants, contending that allocation was not established. The Court rejected the application.

The jury awarded plaintiff $1,500,000.00 in compensatory damages and found that the settling defendants’ products were a substantial factor in causing his mesothelioma. Significantly, the jury allocated 20% of the damages to Universal and the balance was spread among the settling defendants. The judge denied plaintiff’s motion for judgment notwithstanding the verdict.

Thereafter, plaintiff¹ appealed on several grounds, in relevant part that: (1) the settling defendants’ interrogatory answers and testimony of corporate representatives was inadmissible under R. 4:16-1(B) or N.J.R.E. 803 (B)(1)(B) because they were not parties at trial (2) nor were they adverse to Universal, as required under R. 4:16-1(B) or N.J.R.E. 802(B)(1)(B), and (3) Universal failed to establish their unavailability pursuant to N.J.R.E. 804(A).

APPELLATE DIVISION’S RULINGS

The Appellate Division ruled that the settling defendants’ interrogatory answers and corporate representative testimony was inadmissible under Rule 4:16(b) or Rule 803(b)(1), partially overturning the trial court’s decision. Specifically, the Appellate Division held that the settling defendants’ status as parties was not relevant to their inquiry, but rather the fact that the information was not “offered” against the statement maker, regardless of their status as a party at the time of trial. The Court reasoned that settling defendants’ claims were resolved and thus, had nothing to gain or lose by the trial’s outcome. In contrast, plaintiff stood to lose a significant portion of damages, if the jury accepted the settling defendants’ evidence from Universal as minimizing. Thus, Universal was really offering this evidence against plaintiff. Additionally, Universal’s cross-claims against the settling defendants became extinguished after they settled with plaintiff.

Universal argued that statements by the settling defendants “concerning their sale of asbestos-containing products and their failure to warn with regard to those products” fall under N.J.R.E. 803(25), which allows for the admission of a hearsay statement that, at the time of its making, “so far tended to subject declarant to civil … liability … that a reasonable person in declarant’s position would not have made the statement unless the person believed it to be true.”  The declarant need not be a party for a statement against interest to be admissible.  The Appellate Division rejected this argument, stating it was a broad reading of the Rule which would allow for the admission of virtually any “negative” statement of fact.

The Appellate Division further held that Universal failed to establish that the six non-New Jersey settling defendants were unavailable under N.J.R.E 804(a). Specifically, the trial court failed to require that Universal demonstrate due diligence in ascertaining the unavailability of the settling defendants. The Appellate reiterated that the “party offering the deposition must first demonstrate that there are no ‘reasonable means to procure the declarant’s attendance at trial.” Witter by Witter v. Leo, 269 N.J. Super. 380, 391 (App. Div. 1994). It ruled that under this standard, the trial court erred in ruling that (1) the unavailability of the corporate entity, rather than the individual representative witness, was the relevant inquiry, and (2) Universal established the unavailability of any corporate representative by merely asserting the settling defendant declined to testify voluntarily and was not based in New Jersey.

Additionally, the Appellate Division ruled that the trial court’s decision disregarded the principle set forth in Williams v. Hodes, 363 N.J. Super. 600, 605 (App. Div. 2003), that the “duty to appear and testify unless specifically released by the noticing attorney or the judge” is not abrogated when party subject to same settles out the case. Here, Universal’s notices in lieu of a subpoena contained language reflecting this principle, but did not advise the settling defendants of the duty in follow up communications. Rather, Universal simply inquired whether the settling defendants planned to voluntarily appear at trial and then confirmed that they did not. According to the Appellate Division this inquiry was insufficient.

The Appellate Division rejected Universal’s argument that its reversal of the trial court’s ruling would bring New Jersey’s asbestos litigation to a standstill. The Court reasoned that Universal failed to offer a rationale for exempting this type of litigation from routine applications of the evidence rules.

The Appellate Division also addressed plaintiff’s contention that the trial court by advising the jury that other defendants had settled prior to trial. In rejecting same, the Appellate Division held that the trial judge’s instructions complied with well-established precedent that jurors have to be told the facts of a settlement in order to avoid juror speculation. See Theobold v. Angelos, 40 N.J. 295, 304 (1963). Moreover, the Appellate Division held that there was no prejudice in the instruction that the corporations besides Universal “were originally named as defendants” and that “[b]efore the trial began some of the defendants settled their differences” with plaintiff.

Finally, the Appellate Division rejected plaintiff’s argument that the motion for judgment notwithstanding the verdict should have been granted. Specifically, plaintiff argued that decedent’s exposure to Universal asbestos was so great that the jury must have improperly ignored the evidence in finding same only 20% liable. The Appellate Division ruled that in light of the parties’ experts’ conflicting testimony regarding decedent’s exposure to Universal cement.

POTENTIAL IMPACT OF THE ROWE DECISION ON NEW JERSEY ASBESTOS LITIGATION

Several potential consequences may flow from the Appellate Division’s decision in Rowe.  The most impactful being that settled co-defendants may now expect to be required to produce corporate representatives to testify at trial. Generally, trial defendants are incentivized to produce evidence against settled defendants in order to reduce their liability share. Like Universal did here, this is often done through the presentation of settled defendants’ answers to interrogatories or transcripts of prior deposition testimony. However, the Appellate Division ruled that pursuant to N.J.R.E. 803(25), this kind of hearsay evidence can only be presented against the statement maker. Additionally, the statement maker for purposes of the inquiry is not the individual representative, but the settling defendant as a corporation. Further, presenting same in order to reduce liability and not against an adverse party is essentially evidence against the plaintiff. This, according to the Court, is inadmissible.

This ruling, will force trial defendants to subpoena settlements defendants’ corporate representatives in order to properly admit evidence of alternative sources of exposure and to limit liability share. Without doing so, trial defendants will not be able to introduce evidence of same. This will invariably lead to longer, more costly trials. Additionally, settled defendants will be exposed having to produce their corporate representatives at trial. Doing so risks creating a trial record of unfavorable testimony for settled parties, despite no longer being in the case. Moreover, litigation costs will increase for carriers.

Additionally, the Court’s decision articulated a very stringent standard for deeming an out-of-state declarant as unavailable in order to admit hearsay testimony. Pursuant to N.J.R.E. 804(a) and affirmed by the Rowe Court, a declarant is only “unavailable” as a witness, where that declarant:

(1) is exempted by ruling of the court on the ground of privilege from testifying concerning the subject matter of the statement; or

(2) persists in refusing to testify concerning the subject matter of the statement despite an order of the court to do so; or

(3) testifies to a lack of memory of the subject matter of the statement; or

(4) is absent from the hearing because of physical or mental illness or infirmity, or other cause, and the proponent of the statement is unable by process or other reasonable means to procure with declarant’s attendance at trial, and, with respect to statements proffered under Rules 804(b)(4) and (7), the proponent is unable, without undue hardship or expense, to obtain declarant’s deposition for use in lieu of testimony at trial

The Court rejected Universal’s argument that the history, breadth, various jurisdictions, and unavailability of corporate representatives, makes asbestos litigation unique on the issue of unavailability. Indeed, the Appellate Division found no distinction between asbestos litigation and traditional civil litigation. Functionally, this means that out-of-state settled co-defendants will no longer be able to informally assert unavailability when served with a notice in lieu of a subpoena. Rather, parties seeking to admit hearsay into evidence will have to demonstrate that one of the above grounds apply. Similarly, parties may have to demonstrate that they actively sought the cooperation of settling defendants, including further advising co-defendants of their duty to testify at trial. As a result, it will be highly unlikely for settling parties to avoid having their representatives testify at trial.

Further, although not addressed specifically, there may also be potential impact on other kinds of informal dismissals. For example, in light of recent changes in Supreme Court and New Jersey law, out-of-state corporations are increasingly filing motions to dismiss for lack of jurisdiction. To avoid a bad ruling, plaintiffs are offering voluntary dismissals before courts entertain the applications. Thus, the corporations are out of the case before any jurisdictional ruling is issued. However, it is unclear whether they still have a duty to produce corporate representatives to testify at trial. Moreover, it is unclear whether a notice in lieu of a subpoena will be sufficient for requiring an appearance a trial. Perhaps, corporations will have to reconsider the languages of voluntary dismissals where jurisdictional defenses are viable.

The New Jersey Supreme Court may eventually review this matter. Thus, the holding in Rowe is still fluid and subject to change and the defense bar has already had several meetings to determine the best method of preparing and submitting amicusbriefs.

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1 Plaintiff died during the pendency of the appeal. His wife, Donna Rowe, substituted him as executrix and plaintiff. For purposes of this memorandum, they are collectively referred to as “plaintiff.” Mr. Rowe will be individually referred to as decedent.