Nightingale Home Healthcare v. Anodyne Therapy

• Decision Date: 21 December 2009
• Docket Number: No. 09-2523.,09-2523.
• Citation: 589 F.3d 881
• Parties: NIGHTINGALE HOME HEALTHCARE, INC., Plaintiff-Appellant, v. ANODYNE THERAPY, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

589 F.3d 881

NIGHTINGALE HOME HEALTHCARE, INC., Plaintiff-Appellant, v. ANODYNE THERAPY, LLC, Defendant-Appellee.

No. 09-2523.

United States Court of Appeals, Seventh Circuit.

Argued November 6, 2009.

Decided December 21, 2009.

Jennifer S. Milligan (argued), Carmel, IN, for Plaintiff-Appellant.

Robert E. Johnson, Attorney (argued), Gray Robinson P.A., Tampa, FL, Michael A. Wukmer, Attorney, Ice Miller, Indianapolis, IN, for Defendant-Appellee.

Before POSNER, KANNE, and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

The plaintiff appeals from an adverse judgment in what began as a diversity suit, but is most securely within federal jurisdiction if recharacterized as a federal-question suit in which the plaintiff's state-law claims are within the federal courts' supplemental jurisdiction. 28 U.S.C. § 1367. The reason for this convoluted approach to jurisdiction is that there is serious doubt (as we'll see) whether the plaintiff ever had a good-faith basis for claiming damages in excess of $75,000, the jurisdictional minimum for a diversity case. The suit was filed in an Indiana state court in 2006, and the following year, after the defendant had removed the case to the federal district court on the ground that the case was within the diversity jurisdiction, the plaintiff filed an amended complaint adding a claim under the Lanham Act. The judge dismissed that claim on summary judgment, and the plaintiff does not challenge that ruling on appeal.

Even if the suit was improperly removed, and should have been dismissed for failure to satisfy the jurisdictional minimum, the plaintiff could have refiled the suit in the district court; its Lanham Act claim furnished a secure basis for federal jurisdiction. (There is no contention that the statute of limitations would have barred the refiled suit.) But probably the judge would have relinquished jurisdiction over the state-law claims (of which the only one pressed in the appeal is a claim of fraud under Indiana law) to the Indiana state courts; that is the usual sequel to the dismissal before trial of the claim on which federal jurisdiction is based. 28 U.S.C. § 1367(c)(3); Carlsbad Technology, Inc. v. HIF Bio, Inc., ___ U.S. ___, ___, 129 S.Ct. 1862, 1865, 173 L.Ed.2d 843 (2009); Leister v. Dovetail, Inc., 546 F.3d 875, 882 (7th Cir.2008); Musson Theatrical, Inc. v. Federal Express Corp., 89 F.3d 1244, 1254-57 (6th Cir.1996). The judge did not do this, probably because no one had questioned that the case was within the diversity jurisdiction. Instead she retained jurisdiction and granted summary judgment in favor of the defendant.

A district court is not required to relinquish jurisdiction over supplemental state-law claims just because it has dismissed the federal claim before trial. The decision whether to relinquish or retain is committed to the district judge's discretion. 28 U.S.C. § 1367(c)(3); City of Chicago v. International College of Surgeons, 522 U.S. 156, 173, 118 S.Ct. 523, 139 L.Ed.2d 525 (1997). For examples of cases in which jurisdiction was properly retained despite the dismissal of the federal claim before trial, see Khan v. State Oil Co., 93 F.3d 1358, 1366 (7th Cir.1996), vacated on other grounds, 522 U.S. 3, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997); Timm v. Mead Corp., 32 F.3d 273, 276-77 (7th Cir.1994); Motorola Credit Corp. v. Uzan, 388 F.3d 39, 55-57 (2d Cir.2004); cf. Hansen v. Board of Trustees, 551 F.3d 599, 608-09 (7th Cir.2008). But if as in this case the district court retains jurisdiction because it mistakenly believes that the claims, rather than being supplemental, are within the diversity jurisdiction, the retention cannot be defended as an exercise of discretion. It is an abuse of discretion not to exercise discretion. Miami Nation of Indians of Indiana, Inc. v. U.S. Dept. of Interior, 255 F.3d 342, 350 (7th Cir.2001); Lemons v. Skidmore, 985 F.2d 354, 358 (7th Cir.1993); Miller v. Hambrick, 905 F.2d 259, 262 (9th Cir.1990); Vinci v. Consolidated Rail Corp., 927 F.2d 287, 288 (6th Cir.1991) (per curiam). But since the state-law claims in this case have been litigated, and neither side is arguing for relinquishment, judicial economy counsels us to retain jurisdiction of the claims and decide the merits of the appeal, as in Khan v. State Oil Co., supra, 93 F.3d at 1366, and Brazinski v. Amoco Petroleum Additives Co., 6 F.3d 1176, 1182 (7th Cir. 1993), even if the case is not within the diversity jurisdiction.

Anodyne, the defendant, sells an infrared lamp designed to relieve pain and improve circulation. It sold several of the lamps to the plaintiff, Nightingale, a provider of home healthcare services, at $6,000 per device. Nightingale complains that Anodyne's sales representative told it the device had been approved by the Food and Drug Administration for the treatment of peripheral neuropathy, a condition involving numbness and tingling in the extremities, caused by diabetes and other diseases. Anodyne denies that its sales representative had made such a representation—he had, according to Anodyne, represented that the device was FDA-approved and that it was intended for the treatment of peripheral neuropathy, but not that the FDA had approved it for that purpose. The district judge did not attempt to resolve the dispute over the representation, but instead based dismissal of the fraud claim on a disclaimer of warranties in Anodyne's contract with Nightingale and on Nightingale's failure to present any evidence of damages from the alleged fraud.

Anodyne had obtained the FDA's approval for the marketing of the device on the representation that it was intended for the treatment of minor muscle and joint pain and the improvement of "superficial circulation" (the circulation of blood near the surface of the body), but had marketed the device as a treatment for peripheral neuropathy. Had it said that the device provides relief for symptoms of peripheral neuropathy, it would have avoided trouble with the FDA. But when in a routine inspection of Anodyne's premises the FDA learned more about the product's labeling and marketing, it sent the company a letter warning it not to market the device as a treatment for peripheral neuropathy as distinct from a treatment for the symptoms of that disease. The difference between marketing a drug or medical device as a treatment for a disease and as a treatment for symptoms is subtle but significant: a drug that reduces fatigue caused by any number of conditions, including leukemia, is not a treatment for leukemia.

But the FDA's ruling did not preclude a physician or other healthcare provider, such as Nightingale, from prescribing the device to patients as a treatment for peripheral neuropathy. For 21 U.S.C. § 396 says that "nothing in this chapter shall be construed to limit or interfere with the authority of a health care practitioner to prescribe or administer any legally marketed device to a patient for any condition or disease within a legitimate health care practitioner-patient relationship." See Buckman Co. v. Plaintiffs' Legal Committee, 531 U.S. 341, 350, 121 S.Ct. 1012, 148 L.Ed.2d 854 (2001); Bober v. Glaxo Wellcome PLC, 246 F.3d 934, 942 (7th Cir. 2001); In re Gilead Sciences Securities Litigation, 536 F.3d 1049, 1051 and n. 2 (9th Cir.2008); Sigma-Tau Pharmaceuticals, Inc. v. Schwetz, 288 F.3d 141, 147-48 (4th Cir.2002). The decision to prescribe such "off-label usage," as it is called, is regarded as a professional judgment for the healthcare provider to make. Nightingale told its patients that the Anodyne device was a treatment for peripheral neuropathy, but as far as appears did not tell them that it had been approved by the FDA as a treatment for that condition.

Yet when Nightingale learned of the warning letter it stopped using the Anodyne devices that it had bought—though not immediately; several months elapsed before Nightingale, having bought similar devices from a company called MedX Health Corporation, told Anodyne that it was returning the Anodyne devices and wanted its money back. Anodyne refused. Nightingale seeks damages consisting of the purchase price of the Anodyne devices that it tried to return, the expenses that it incurred in retraining its staff to use the MedX devices, and the cost of an advertising campaign in which it had referred to Anodyne's product.

Anodyne's primary defense is the warranty for its devices, a one-year warranty covering defects in material and workmanship which states that it "is in lieu of [all] other warranties." But it also states that "you [the buyer] may have other rights, which vary from state to state. To the extent allowable by applicable law, in no event shall [Anodyne] be liable for any incidental, consequential, special, indirect, punitive or exemplary damages or lost profits from any breach of warranty." Anodyne claims that these disclaimers disclaim liability for fraud. But they don't. They disclaim liability for breach of warranty but reserve other legal rights, which include the right to...