Manufacturers In The Courts: Annual Report 2010

E-mail briefing from the
National Association of Manufacturers
Annual Report 2010

This newsletter normally summarizes the current month's news from the NAM's appellate litigation program significant cases involving manufacturers that are on appeal to the Supreme Court of the United States, the federal appeals courts, and various state supreme courts.

Today's issue takes a step back to examine a bigger picture. We look at what the dominant problems are for manufacturers in the courts today, and what we are working on in 2011.

Finality is Good, One Way or Another

Over the years, manufacturers have managed to win quite a few notable victories in the courts that have allowed them to understand what the law requires and to structure their businesses accordingly. We expect those victories to have some finality, but that finality can be short-lived such as when Congress, or a state legislature, steps in and changes the law again. We then have to readjust our plans and procedures, hoping that the new changes provide some additional assurance of finality.

Decisions involving constitutional principles tend to be more conclusive, since Congress and the Administration cannot alone change a constitutional interpretation from the Supreme Court. Thus, twenty years of litigation involving constitutional limits on punitive damages have established a foundation upon which parties litigate, with some rationality and a degree of predictability. Similar long-term litigation has helped to delineate how much power an Executive Branch agency has or whether federal laws or regulations preempt state product liability suits.

Less long-lasting are outcomes involving statutory interpretations, which typically consume the bulk of appellate litigation involving manufacturers, and 2010 was no different. Actual results are mixed, but here are a few of our most significant victories, along with some problematic losses.

FAVORABLE DECISIONS

U.S. Supreme Court

Benefit plan administration. The Supreme Court overturned an appeals court decision that interfered with administrative decisions by those who run company pension plans. The case involves how a company's plan administrator should account for lump-sum retirement payments made to employees who retired but later returned to work for the company. The NAM had filed an amicus brief arguing and the Supreme Court agreed - that courts should defer to the reasonable decisions by plan administrators trying to interpret benefit plan language under the Employee Retirement Income Security Act (ERISA). Conkright v. Frommert (S. Ct.).

U.S. Courts of Appeals

Exploratory oil and gas drilling. On May 13, 2010 the Ninth Circuit upheld Minerals Management Service plans for issuing a permit for exploratory drilling in the Beaufort Sea, turning aside a legal challenge from environmental groups. The NAM had urged this result, as Congress intended expedited exploration. On May 27, 2010 President Obama announced a suspension of exploratory drilling permits off the coast of Alaska. Exploratory drilling is an important step in moving toward greater energy self-sufficiency, job creation, improved national security, and a favorable balance of payments in world trade. Alaska Eskimo Whaling Comm'n v. Salazar (9th Cir.).

Global warming lawsuits. Two appeals courts rejected lawsuits seeking damages or emissions curbs from manufacturers and electric utilities that emit carbon dioxide and other greenhouse gases. The Fifth Circuit threw out a suit alleging that various companies increased global warming and contributed to the severity of damages resulting from Hurricane Katrina. The NAM had argued that litigation over the legal liability for climate change from greenhouse gas emissions is a political question that should be addressed only through the policymaking branches of government. Comer v. Murphy Oil U.S.A. (5th Cir.). In another case, the Fourth Circuit issued a strong decision that Congress is responsible for setting national standards, and that one state may not apply its law to activities occurring in another state. The ruling overturned a trial judge that had imposed controls far beyond state and federal controls, under a theory that emissions in those states caused a "public nuisance" in North Carolina. North Carolina v. Tennessee Valley Auth. (4th Cir.).

Immigration verification requirements. Several lawsuits have challenged various conflicting state immigration status verification requirements imposed on employers. The Tenth Circuit agreed with the NAM's position on an Oklahoma law that required every business that has a contract or subcontract with a public employer to use the federal Status Verification System to verify the employment authorization status of all new employees. Laws like this squarely conflict with the intent of Congress to create a nationally uniform and comprehensive federal system for regulating the employment of alien workers. The court upheld a preliminary injunction against portions of the law. Chamber of Commerce v. Edmondson (10th Cir.).

Lawsuit abuse. The Fourth Circuit reinstated a lawsuit against a law firm and a radiologist for conspiring with a union organizer and ex-railroad employees to fake asbestos screenings in order to win cash settlements from the company. The NAM supports efforts to counter fraudulent lawsuits, and our brief provided a history of rampant, coordinated asbestos fraud. CSX Transportation, Inc. v. Gilkison (4th Cir.).

Medical monitoring claims. The U.S. Court of Appeals for the Third Circuit is the latest court to reject demands that manufacturers pay for long-term medical monitoring expenses relating to exposure to hazardous materials or manufactured products (in this case, an implanted stent). The court agreed with NAM arguments not to extend medical monitoring requirements beyond situations where there is exposure to a toxic or hazardous substance with a significantly increased risk of contracting a serious latent disease. The NAM argued that changes in the law should be made by the legislature, not the courts. M.G. v. A.I. DuPont Hospital for Children (3d Cir.).

Right to be heard. For years, manufacturers directly affected by environmental suits challenging federal projects were prohibited from intervening in the litigation in support of the relevant federal agency. Now the Ninth Circuit has joined most of the federal appellate courts in rejecting the "federal defendant rule." The NAM urged this result, which allows a court to consider the strength of the interest of a manufacturer in the litigation when deciding whether to allow it to intervene in the case. Wilderness Society v. U.S. Forest Service (9th Cir.).

Taxation of transactions of related companies. The Ninth Circuit reversed itself after NAM arguments that Congress, the courts and the IRS for more than 75 years consistently have mandated the use of an "arm's length" standard for transactions governed by Section 482 of the Code, relating to the manipulation of profits between related entities. It is very important that one internationally accepted objective measure be used to evaluate related-party transactions to prevent double taxation. Xilinx, Inc. v. Commissioner (9th Cir.).

State Courts

Duty to warn about hazards of third-party products. Two California decisions in 2010 rejected attempts to hold manufacturers responsible to warn customers about risks that might arise from products made by other manufacturers that are used in conjunction with their products. Hall v. Warren Pumps, LLC (Cal. Ct. App.); William Powell Co. v. Walton (Cal. Ct. App.). A third is pending. O'Neil v. Crane Co. (Cal.).

Litigation tourism. Plaintiffs shopping for favorable courts are a significant problem for manufacturers, because courts have different biases and states have different rules and laws. Fortunately, the California Supreme Court rejected one attempt to bring an Oklahoma case into California, thus ensuring that Oklahoma's 10-year statute of repose would govern the suit. The claims were based on an injury that allegedly occurred 50 years before. McCann v. Foster Wheeler LLC (Cal.).

UNFAVORABLE DECISIONS

U.S. Supreme Court

Retaliation Remedies. In January, 2011, the Supreme Court allowed a retaliation suit to proceed against a company that allegedly fired the fiancé of an employee who had complained about sex discrimination at the company. At issue was whether Title VII of the Civil Rights Act allows suits by individuals who are not themselves complaining about discrimination or participating in an investigation. The NAM's amicus brief in the case warned that employers will have great difficulty determining whether they will be held liable for discrimination when making decisions that affect the friends or family of other employees involved in discrimination complaints, and the Court's ruling adopts a standard that will require case-by-case adjudication. Thompson v. North American Stainless, LP . (S. Ct.).

San Francisco's health care mandate. The NAM urged the U.S. Supreme Court to review a decision that allows San Francisco to require private employers to make minimum health care expenditures on behalf of their employees. We argued that the city's employer mandates are preempted by the Employee Retirement Income Security Act (ERISA). The Court declined to hear this appeal on June 28, 2010, leaving the law in place. Golden Gate Rest. Ass'n v. San Francisco .

U.S. Courts of Appeals

EEOC enforcement powers. A trial judge restricted the Equal Employment Opportunity Commission (EEOC) from implementing a wide-ranging information-gathering investigation that was not limited to the specific individual charge it was investigating. Despite NAM arguments, the Third Circuit overturned this ruling and gave the EEOC the power to investigate "any information that is relevant to the charge," a much broader standard. EEOC v. Kronos (3d Cir.).

EPA enforcement powers. When the EPA determines that an environmental cleanup is required at a contaminated site, it has three options, one of which is to issue a Unilateral Administrative Order (UAO) compelling a potentially responsible party to undertake a specified action. The NAM supported a challenge to the fairness of the process for reviewing such orders, but the court ruled companies have the option of refusing to comply with a UAO and get a hearing in an EPA enforcement suit in court. General Electric Co. v. Jackson (D.C. Cir.) .

OSHA enforcement powers. The NAM and other groups sued OSHA to prevent it from implementing per-employee penalties for single violations of a regulation. Unfortunately, the U.S. Court of Appeals for the D.C. Circuit upheld 34 OSHA workplace standards that permit the agency to obtain multiple penalties against an employer for providing incorrect personal protective equipment (PPE), no PPE, or incorrect training to employees. The court found that OSHA "stands in the shoes of the legislature" and can both define what constitutes a violation and define the unit of prosecution, or how many times a company can be fined for a single decision that affects many employees. The decision will result in substantially greater fines and settlement leverage against companies that are alleged to have violated OSHA rules. National Ass'n of Home Builders v. OSHA (D.C. Cir.).

State Courts

Civil death penalty. Minor errors by a manufacturer during the initial discovery phase of a lawsuit can result in a judge completely eliminating all of the company's legal defenses. The NAM asked Nevada Supreme Court to reconsider this sanction, nicknamed the "civil death penalty," since it kills all defenses. Unfortunately, the Court refused to rehear the case, ruling that Nevada law does not entitle defendants to an evidentiary hearing before the sanction is imposed, and the state does not follow the federal model that provides for progressive sanctions for discovery errors. The ruling could make Nevada more of a magnet jurisdiction for product liability litigation. Bahena v. Goodyear Tire & Rubber Co. (Nev.).

Constitutionality of tort reform. A Texas statute limits the total asbestos liability of companies that purchase troubled assets from other companies. Despite NAM arguments to the contrary, the Texas Supreme Court ruled that the statute unconstitutionally limited liability retroactively when applied to pending lawsuits. Robinson v. Crown Cork & Seal Co. (Tex.).

States using contingency fee lawyers. The California Supreme Court approved the practice of various cities and counties hiring trial lawyers on a contingent-fee basis to sue private industry. Over NAM objections, the court ruled that local governments may use such lawyers as long as the lawyers act under the control and supervision of neutral, conflict-free government attorneys. The NAM had argued that the private interests of contingent-fee counsel conflict with the public interest, and the potential to earn huge profits "creates a powerful incentive for private attorneys wielding the power of government to make decisions based on their own pecuniary interests, rather than the interest of justice." It will be quite difficult for defendants to challenge such arrangements in the future, and other states are also using the same technique with increasing frequency. County of Santa Clara v. Superior Court (Cal.) . The NAM supported an appeal of this case to the U.S. Supreme Court, which declined to review it. In a similar case in Pennsylvania, the court did not address the substantive issue, instead ruling that defendant did not have standing to challenge the authority of the state's legal representation. Pennsylvania v. Janssen Pharmaceutica, Inc. (Pa.).

UNRESOLVED ISSUES

Class action certification requirements. The decision to certify a case as a class action is a critical step that substantially affects the power of plaintiffs to make extensive settlement demands of manufacturers. The NAM often urges courts to enforce tight standards for certifying classes, including a requirement that the claims of class representatives be typical of those of the rest of the class. The California Supreme Court declined to hear one appeal, Weinstat v. Dentsply International, Inc. (Cal.), and another case involving how many issues are certified for class treatment is now before the U.S. Supreme Court. Pella Corp. v. Saltzman (S. Ct.).

Punitive damages. Occasionally excessive punitive damages continue to be awarded, but the Supreme Court has agreed to review fewer of them recently. One such case was an Oklahoma state court decision that imposed a $53 million punitive damage award on top of an award of $750,000 in a breach of contract dispute. The punitive damages portion is far greater than the Court has found acceptable in other rulings that compare the ratio of the punitive damages to the actual damages in the case. We will continue to watch for cases in which actual damages are artificially inflated to enlarge punitive damages. Shell Oil Co. v. Hebble (S. Ct.).

State tort reform cases. Despite an NAM brief urging the Mississippi Supreme Court to uphold a recent law capping noneconomic damages at $1 million, the court ducked the issue and decided the case on a causation issue. The constitutional issue remains for another day. Double Quick, Inc. v. Lymas (Miss.). In a Louisiana case, the NAM urged dismissal of a product liability design defect suit on the grounds that a tort reform statute requires proof that a better alternative product design was available at the time of sale. The court declined to review the issue. Davis v. American Home Products Corp. (La.).

Union contract problems. The Supreme Court agreed to hear an NAM-supported appeal in a case involving union contracts and remedies for breach. On the merits, the Court ruled that a court, not an arbitrator, should decide if a valid contract exists, and it found no remedy in a specific part of the Labor Management Relations Act against an international union that allegedly interfered in the no-strike promise of a local union. Granite Rock Co. v. International Brotherhood of Teamsters (S. Ct.).

Working time. The Court declined to hear an NAM-supported appeal of a ruling that requires a company to pay for time that employees spend changing clothes, even though that time was specifically excluded from working time by a collective-bargaining agreement. Kraft Foods Global, Inc. v. Spoerle (S. Ct.).

PENDING CASES

Listed below are key issues in which the NAM is currently participating in various courts. Your monthly subscription to Manufacturers in the Courts , and the NAM's weekly Capital Briefing , provide more recent updates on major developments, and our litigation website is updated almost daily as events occur. Please consult these resources for further details.

SUPREME COURT

Business privacy. A provision in the Freedom of Information Act (FOIA) prevents the disclosure of information compiled for law enforcement purposes that could be an invasion of "personal privacy." The NAM filed an amicus brief arguing that corporations enjoy privacy interests and that government investigative powers should not be used to serve private ends unrelated to proper investigative purposes. FCC v. AT&T, Inc. (S. Ct.). In another case, the NAM supported a protective order when a manufacturer gives valuable commercially sensitive information to a plaintiff's lawyer. Cooper Tire Co. v. Neal (Ark.).

Corporate speech rights. The NAM continues to fight against government limits on public debates of matters of public concern. Even parties with an economic motive should be able to speak freely. Philip Morris USA Inc. v. United States (S. Ct.).

Immigration laws. The NAM is involved in a case challenging that part of the Legal Arizona Workers Act which mandates use of the federal E-Verify program. Federal preemption is need to preserve a uniform, comprehensive federal system. Chamber of Commerce v. Whiting (S. Ct.).

FLSA anti-retaliation provision. The Supreme Court will soon decide whether employees who are terminated or otherwise disciplined can sue their employer for retaliation by reason of oral complaints the employees made on the job. The NAM says that the Act requires written complaints. Kasten v. Saint-Gobain Performance Plastics Corp. (S. Ct.).

Retroactive law. After one company successfully sued Michigan for imposing an unlawful state sales tax, the state changed the law retroactively. Another company also tried to sue, but the court rejected the claim, citing the new law. The NAM urged the U.S. Supreme Court to hear the appeal of this ruling, arguing that a 6- to 10-year period of a new statute's retroactivity is constitutionally excessive. Ford Motor Credit Co. v. Michigan Dept. of Treasury (S. Ct.).

Securities litigation. The NAM supported Supreme Court review of a ruling that gives plaintiffs the benefit of the efficient market theory to avoid proof of reliance in a fraud case, but that does not give defendants the same benefit when corrective disclosures are made. Apollo Group, Inc. v. Policemen's Annuity and Benefit Fund (S. Ct.).

OTHER COURTS

Card-check union organizing. The NAM filed an amicus brief on behalf of 42 manufacturing organizations with the National Labor Relations Board supporting the right of employees to have 45 days after their employer recognizes a union based on card-check authorizations to file a petition to decertify the union or to support an election petition from another union. Lamons Gasket (NLRB).

EEOC enforcement tactics. The NAM opposed an EEOC administrative subpoena that attempted to broaden a single case to a charge of class-wide discrimination. EEOC v. Schwan's Home Service (8th Cir.).

EPA enforcement powers. EPA's decision to disapprove revisions to a Texas Clean Air Act implementation plan that relates to the state's Flexible Permits Program is being challenged. The NAM opposes this attempt to take over environmental regulation in Texas. NAM v. EPA (5th Cir.).

Exploratory oil and gas drilling. The NAM opposes court delays affecting exploratory drilling for oil and gas in the Chukchi and Beaufort Seas. Native Village of Hope Point v. Salazar (9th Cir.) and In re Shell Gulf of Mexico, Inc. (Env'l Appeals Bd.).

Foreign lawsuits should not be in state courts. We urged a federal appeals court to dismiss a human rights case involving allegations arising solely in Indonesia by non-resident aliens. Doe v. ExxonMobil Corp. (D.C. Cir.).

Greenhouse gas litigation. The NAM leads a coalition of more than 20 associations challenging each of the four major decisions that EPA has made that combine to impose new regulations on greenhouse gases emitted by stationary sources. We have brought 9 different suits and intervened in several others challenging: (1) EPA's procedure for finding that greenhouse gases endanger human health and welfare, (2) EPA's ruling that regulation of motor vehicles triggers regulation of stationary sources, (3) old EPA rules now being used to implement controls on GHGs, and (4) EPA's attempt to avoid absurd results by staggering its enforcement timetable (the tailoring rule). Our coalition filed an extensive motion for a partial stay of the regulations, but the court found that our damages have not yet become irreparable. The litigation will continue throughout 2011 and we expect to have oral arguments in the fall and a decision on the merits within several months thereafter. NAM v. EPA and other cases (D.C. Cir.).

We are also supporting the Department of the Interior's position not to use the Endangered Species Act to regulate GHGs outside the range of polar bears. Center for Biological Diversity v. Salazar (D.D.C.).

Finally, a major ruling is expected from the Supreme Court this year on whether GHG public nuisance litigation should be halted because it raises political questions that are unsuitable for resolution in the courts. The case is a classic example of attempted regulation by litigation. American Electric Power Co. v. Connecticut (S. Ct.). A similar case is also pending in the Ninth Circuit. Native Village of Kivalina v. ExxonMobil Corp. (9th Cir.).

International arbitration. Where bilateral investment treaties exist, foreign states should honor their commitments and resolve disputes through arbitration rather than litigation. Republic of Ecuador v. Chevron Corp. (2d Cir.).

Medical Monitoring. The NAM has argued that a one-in-a-million risk is too speculative to justify imposing medical monitoring requirements following exposure to a hazardous substance from a local train derailment. Hirsch v. CSX Transp., Inc. (6th Cir.).

Ozone regulation. The NAM challenged EPA's regulation of ozone emissions in 2008, and the case has been on hold while a new regulation is being considered. See Mississippi v. EPA (D.C. Cir.). In another case, we are supporting EPA guidance giving the states flexibility in imposing fees when regulating ozone. NRDC v. EPA (D.C. Cir.).

Procedural issues. The NAM urged the Texas Supreme Court to rein in discovery abuse that has been pending in one case for more than a decade. In re Allied Chemical Corp. (Tex.). In North Dakota, we argued that stale cases should be subject to the traditional rule that the filing deadline is governed by the law of the state where the plaintiff's claims arose. Vicknair v. Phelps Dodge Inds. (N.D.).

Sales representatives. California law prescribes various formalities for contracts with sales representatives, and the NAM urged review of a broad decision interpreting the statute to include a treble damages remedy. Baker v. American Horticulture Supply, Inc. (Cal.).


Quentin Riegel
Vice President, Litigation & Deputy General Counsel
(202) 637-3058 "¢ qriegel@nam.org

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