Drug Manufacturer Is Immunized from Liability

• Pages: 24-25
• Date: 01 January 2024
• Author: Jonathan W. Lounsberry
• Subject Matter: Civil Law

Court Curtails

Expansion

of Equitable

Intervention Doctrine

By C. Thea Pitze n, Litigation News

Associate Editor

A federal appellate court has declined

to expand the equitable intervention

doctrine, a safety valve that has been

applied to avoid unconscionable hard-

ship that would otherwise result from

strict enforcement of contract terms.

ABA Litigation Section leaders rec-

ognize that equitable intervention is

infrequently invoked to excuse non-

compliance with contract terms but

note litigators should be aware that

most states recognize some form of the

doctrine.

In Pizza Inn, Inc. v. Clairday, a fran-

chisee paid $1,250,000 for the right to

recruit and manage certain franchises

in exchange for half of the royalty pay-

ments. After his initial contract term

expired, the franchisee had the option

to renew for two more f‌ive-year terms

by giving written notice of his intent to

renew at least six months before the

current term’s expiration.

The franchisee’s second notice of

renewal was two months late. The fran-

chisor decided not to renew and sued

for declaratory judgment. The franchi-

see counterclaimed, asserting breach

of contract. A jury found in favor of the

franchisee and awarded $250,000 in

lost-prof‌its damages.

The parties stipulated that the court,

rather than the jury, would decide

whether the renewal notice was su-

ciently timely. The U.S. District Court for

the Northern District of Texas applied

the equitable intervention doctrine

under Texas law to excuse the untimely

notice, upheld the jury’s verdict, and

awarded attorney fees in addition to

damages.

The U.S. Court of Appeals for the

Fifth Circuit reversed, f‌inding that the

district court erred in applying the doc-

trine because strict compliance with

the contract terms would not cause

“unconscionable hardship.” Specif‌ically,

the court rejected the franchisee’s char-

acterization of three claimed losses as

unconscionable hardship: a partial for-

feiture of the purchase price; a forfei-

ture of future prof‌its; and the shuttering

of a Pizza Inn franchise store.

Given the nature of an option con-

tract, the franchisee did not forfeit any

portion of his initial investment, the

appellate court explained, as the fran-

chisee had paid consideration “for a

legal power within a specif‌ied period

of life.”

Nor did losing the opportunity to

turn a prof‌it represent “extreme” or

“oppressive” circumstances sucient

to “shock the conscience,” the Fifth

Circuit held. Finally, the appeals court

observed that there was no evidence

that the franchisor’s decision not to

renew the contract caused the fran-

chise location to close.

Ultimately, the Fifth Circuit con-

cluded it was not clear that the equita-

ble intervention doctrine “ha[d] []ever

been applied beyond the context of a

lease agreement.” However, it declined

to decide whether the doctrine could

apply to other types of option contracts.

Litigation Section leaders believe

that the appellate court properly

interpreted the equitable interven-

tion doctrine’s scope. “The doctrine

has very tight parameters,” explains

Jason P. Kairalla, Miami, FL, cochair

of the Section’s Appellate Practice

Committee. “The notion of ‘unconscio-

nable hardship’ suggests some signif‌i-

cant imbalance in the parties’ status

or bargaining position where the less

advantaged party is suering the poor

outcome,” Kairalla continues. “This

is generally the case in the landlord-

tenant context where, as compared to

the landlord, the tenant is often less

sophisticated in business and may end

up homeless if the renewal provision is

strictly enforced.”

Real estate cases, “particularly those

involving an option to extend or to pur-

chase, present factual circumstances

in which there is some investment that

constitutes a real loss,” explains Paula

M. Bagger, Boston, MA, cochair of

the Section’s Commercial & Business

Litigation Committee. Those cases

involve a tangible loss “beyond the

future income stream of perhaps con-

tinuing to do whatever you want to do,

which is really all that the franchisee in

Clairday lost,” she adds.

Although not frequently applied,

“the concept of equitable intervention

appears in the law of many states,”

Bagger says. Dierent states take dif-

ferent approaches to applying—and

labeling—this principle, however. “It is

not called a ‘doctrine’ everywhere and

not even called ‘equitable intervention’

everywhere,” she notes.

Drug Manufacturer

Is Immunized from

Liability

By Jonathan W. Lounsberry,

Litigation News Contributing Editor

The learned intermediary doctrine

applied to protect a drug manufac-

turer from liability for a woman’s “cata-

strophic stroke” where the physician

was aware of the risk of blood clots

from the medication and prescribed it

anyway, according to a federal appel-

late court. ABA Litigation Section lead-

ers disagree as to whether the doctrine

is benef‌icial.

In Hubbard v. Bayer Healthcare

Pharmaceuticals Inc., a woman suered

a major stroke while taking an oral con-

traceptive. A known risk of that drug is

an increase in the likelihood of blood

clots, which cause strokes. The woman

took the drug as prescribed by her

physician for almost a year before her

stroke and had taken a similar drug for

ten years before that.

At the time the woman was pre-

scribed the drug, the label warned of a

risk of venous thromboembolism (VTE)

and referenced studies on associated

VTE risk. The manufacturer later revised

its “warning label to include, among

other information, the possibility of

up to a three-fold relative increase in

blood clot risk.” After the stroke, the

woman and her husband sued the com-

pany under various products liability

theories, alleging that the manufacturer

had failed to disclose known risks asso-

ciated with the drug.

The woman’s prescribing physician

testif‌ied at deposition that he knew of

the heightened risk of VTE from the

drug before he wrote her last prescrip-

tion. The doctor also testif‌ied that he

would have prescribed the drug even

if he had known of the updated risks,

which the plaintis claimed were not

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