Municipal Cost Recovery Rule May Be Potent Defense in New Wave of Tort Cases Brought by States, Cities, and Counties. In the wake of the Class Action Fairness Act of 2005 and the resulting federal court scrutiny of class action claims, attorneys seeking to aggregate claims have explored a number of options. One such option that has become increasingly common is for plaintiffs’ attorneys to partner with state attorney generals, cities, and other municipal subdivisions to bring lawsuits against companies for public harms allegedly incurred by these governmental entities. These suits have been filed in a variety of circumstances, including claims based on price fixing, tying arrangements, and deceptive marketing of everything from prescription medicines, credit cards, and televisions to vacation rentals. See, e.g., Hood ex rel. Mississippi v. JP Morgan Chase & Co., 737 F.3d 78, 82 (5th Cir. 2013) (alleging credit card companies mislead state residents); Louisiana v. Pfizer, Inc., 2014 WL 3541057, at *2 (M.D. La. July 17, 2014) (alleging drug manufacturer sold ineffective prescription medicine to state residents); Mississippi ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736, 740 (2014) (alleging price fixing by manufacturers of LCD panels); West Virginia ex rel. McGraw v. Comcast Corp., 705 F. Supp. 2d 441, 444 (E.D. Pa. 2010) (alleging unlawful tying by cable company).
The trend is exemplified most dramatically by a recent wave of claims against pharmaceutical companies that manufacture opioid medications, which now include suits brought by more than 400 cities and counties across the U.S., and which seek to recover the cost of providing medical, police, and other municipal services in response to drug abuse in those communities.
Defendants facing these types of suits have a number of defenses available to them, including standing, federal preemption, remoteness, and proximate cause. Additionally, these claims may, in many states, be barred by a common law doctrine known as the municipal cost recovery rule, which holds that municipal costs incurred in the rendering of public services are not a cognizable form of tort injury. As claims by municipalities become more prevalent, the municipal cost recovery rule could become an increasingly important and effective defense.
The Municipal Cost Recovery Rule Prevents Municipalities from Recovering the Costs of Providing Public Services. The municipal cost recovery rule prevents municipalities from recovering the costs of providing public services, such as fire department, police, and medical services. The rule is founded on public policy considerations, including the expectation of citizens that the costs of municipal services will be spread among the taxpayers. It is often traced to the Ninth Circuit’s decision, authored by now Supreme Court Justice Anthony Kennedy, in City of Flagstaff v. Atchison, Topeka & Santa Fe Ry. Co., 719 F.2d 322, 323 (9th Cir. 1983) (Arizona law), though similar principles had been applied in other states prior to that decision.
In City of Flagstaff, the city brought suit against a railroad company after railroad cars carrying gasoline derailed near the city limits, causing a fire. The city sought to recover the cost of responding to the accident, including the cost of overtime for fire department and emergency medical personnel. In affirming dismissal, the Ninth Circuit held that “the cost of public services for protection from fire or safety hazards is to be borne by the public as a whole, not assessed against the tortfeasor whose negligence creates the need for the service.” Id. at 323. The court emphasized that cities and states were free to abrogate the rule by statute. But to allow cities to recover municipal costs in tort in the absence of a statute would upend “the expectations of businesses and individuals, as well as their insurers.” Id. at...
