'Nerve center' test may hobble pharma's legal strategy

Will drugmakers' legal tactics be limited by a recent Supreme Court ruling? They will, if a court decision involving GlaxoSmithKline (NYSE: GSK) is any indication. GSK had tried to remove a state-court liability suit to federal court, but U.S. District Judge Curtis Joyner cried foul, saying the High Court's "nerve center" test, established in its Hertz Corp. v. Friend decision, forces the suit to stay in Pennsylvania.

Until now, companies had the freedom to move suits to states where they were incorporated--often Delaware--or where they maintained significant operations. But the Supreme Court decided lawsuits should be tried in the state where a company's "nerve center" is located, namely its top officers and its locus of control.

In his ruling, Joyner says that while GSK is "officially organized" in Delaware, Pennsylvania is its principal place of business, with Philadelphia its nerve center. GSK lists Philadelphia as its headquarters in recent SEC documents, Joyner notes, and nearly all of its American business activities are directed from that city.

As The Legal Intelligencer points out, Joyner's decision could have broad implications for GSK, which is defending lawsuits over drugs such as Avandia for diabetes and Lamictal, an anti-seizure med. If other federal judges follow Joyner, the company could find itself dealing with all those suits in Philadelphia. Indeed, the pharma industry as a whole could find itself locked into their "nerve center" courts.

- read the Legal Intelligencer piece