Manufacturers In the Courts Annual Report 2010

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

 

Congress and the Courts  A Fencing Match with Uneven Teams  

When Congress acts, the courts soon respond.  Every major piece of legislation affecting manufacturers generates an inevitable and expensive judicial process in which plaintiffs or governments asserting new-found rights test their limits, and manufacturers defend by seeking, often in vain, rationality and predictability.  Even when manufacturers win a favorable, clear ruling in the courts, Congress often steps in again to take it away or grant other claims to be fought over once again.  This legal thrust and parry is not a fair match, as companies cling to traditional legal defenses that are inevitably nicked, lowered or completely eliminated by new laws or aberrant judicial rulings.  When we are able to secure one victory, another opponent is soon standing ready to fight again.

Our best argument in defense is economic.  Every new legal remedy has a cost.  While many factors have contributed to our current national dilemma, much can be attributed to laws and regulations that make it harder and harder for manufacturers to meet foreign competition on level ground.  Every new expense, whether it be to comply with new regulations, to fund government programs, or to defend lawsuits and pay unwarranted claims, is a loss to the high-quality, job-generating capacity of manufacturing.  Every unreasonable claim reduces the ability to create manufacturing jobs.

The NAM 's efforts in the courts are designed to minimize this damage.  We seek out cases that will establish broad precedents to short-circuit unreasonable litigation, to bolster traditional defenses, to prevent and expose perverse incentives that encourage fraud and expansive legal theories, and to educate courts about the benefits of a vibrant manufacturing base to our way of life.

Outlined below are a few of our victories and some of our defeats.

 

The Factory Floor  


Manufacturers work hard to maintain safe and productive workplaces, and we occasionally must file litigation when the Occupational Safety & Health Administration (OSHA) goes too far on regulations.  In 2009, we participated in a case to oppose any further lowering of the permissible exposure limit (PEL) for hexavalent chromium. A public interest group had sued the agency seeking a lower threshold, but the Third Circuit upheld the standard. This was a significant victory for manufacturers because the rule was based on technological and economic feasibility that recognized the real-world impact of lowering the PEL standard too far.  The standard also applied uniformly across industries. NAM v. OSHA .

We have challenged OSHA's current attempt to impose excessive multiple penalties against an employer for providing incorrect personal protective equipment (PPE), no PPE , or incorrect training to employees. OSHA wants the new power to assess a penalty based on the number of employees affected, as opposed to citations based on a single decision or failure by the employer.  The rule applies even when the violation is minor, not willful, and causes no harm or injury to employees. The NAM opposes the rule because Congress did not give OSHA the power to address penalty issues in its standards.  We are currently awaiting a decision from the D.C. Circuit in the case.   National Association of Home Builders v. OSHA .

When employees complain about discrimination, employers have to take action.  But the fact of complaining should not restrain an employer from taking disciplinary action against an employee for other reasons.  The Sixth Circuit agreed with this NAM argument in a suit in which an employee was seeking to expand the breadth of protection offered by the anti-retaliation provisions of Title VII of the Civil Rights Act.  Thompson v. North American Stainless, LP.  

Labor unions present their own special problems.  The NAM supported a major case now awaiting decision in the Supreme Court in which an employer's agreement with a local union was nullified by the national union.  The Court will decide whether federal labor law allows this kind of interference.  Granite Rock Co. v. International Brotherhood of Teamsters .

Labor issues are front-and-center in three other cases awaiting decision.  The NAM has supported companies challenging state and federal government power relating to mandatory meal periods , verification of immigrant status , and investigation of employee testing firms .  

 

 
The Environment  

Manufacturing processes have long been regulated to minimize environmental damage. Environmental Protection Agency (EPA) regulations on cooling water weighed the costs and benefits of national performance standards, and the Supreme Court last year agreed with NAM and EPA arguments that such cost-benefit analysis is appropriate.  Entergy Corp. v. Riverkeeper, Inc.

The Supreme Court also agreed with our arguments that a company is not responsible for pollution from the mishandling of chemical products after they are delivered to the buyers.  Liability should be apportioned according to a company's degree of involvement.  Burlington N. and Santa Fe R.R. Co. v. United States .

Another court agreed to withdraw a controversial opinion and write a new one after the NAM argued that companies seeking oil-drilling permits should not have to perform environmental studies so extensive that they would themselves require permits.  Alaska Wilderness League v. Kempthorne (9th Cir.).

The EPA is subject to challenge by business and environmental groups.  In the particulate matter case, the D.C. Circuit found that EPA must justify any limits that it sets, but it upheld the rule for coarse particulate matter.  American Farm Bureau Federation v. EPA .  In another case, the NAM asked the EPA to correct information on the record relating to the proposed National Ambient Air Quality Standard (NAAQS) for ozone, but the agency has deferred this request pending issuance of a revised rule.  National Association of Manufacturers v. EPA .

A series of challenges in court to various environmental policies have been placed on hold pending review by the EPA and other agencies.  Specifically, the D.C. Circuit in Mississippi v. EPA suspended briefing and ordered EPA to keep it informed about revisions to the ozone NAAQS rule.  In Sierra Club v. EPA , the D.C. Circuit ordered that the case be held in abeyance pending reconsideration of the EPA's Johnson memo, which said that certain preconstruction permits do not need to consider best available control technology for greenhouse gases.  The NAM is considering a variety of legal challenges to other environmental decisions coming from the EPA.   

Private lawsuits against various businesses that generate greenhouse gases are pushing the bounds of public nuisance law.  The NAM is very active in opposing this expansion, and we supported the Tennessee Valley Authority's appeal of an adverse decision involving emissions into the air from power plants.  Cases like this brought under state public nuisance laws are an increasing problem for manufacturers, since the laws are ambiguous and there are very few defenses against them. Our brief argues that the state claims are preempted by the comprehensive interstate air pollution control scheme of the Clean Air Act.  North Carolina v. Tennessee Valley Auth. (4th Cir.).  A California case against the nation's six largest automakers raised the same issue with respect to tailpipe emissions.  We urged that the case be rejected, and Attorney General Jerry Brown moved to voluntarily dismiss it, citing movement at the federal level on greenhouse gases.  California v. GM (9th Cir.).

In a similar vein, we supported review of a decision that allows a private lawsuit against various companies that are alleged to have made damages from Hurricane Katrina worse because they contributed to global warming.  This public nuisance claim is a political question that should be addressed through the policymaking branches of government, and if allowed, would dramatically expand tort law beyond anything ever recognized before.  Comer v. Murphy Oil U.S.A. (5th Cir.).

With respect to products that have reached the end of their useful lives, the NAM supports reasonable disposal and recycling efforts, but have stepped in to support a lawsuit brought by consumer electronics manufacturers that oppose New York City's new oppressive and mandatory collection program.  We warn that the proliferation of state and local statutes such as this would impose a severe burden on interstate commerce.  Consumer Electronics Association v. City of New York (S.D.N.Y.).

Making Products Safer  

Innovations and scientific advances not only make products better, but also provide better evidence relating to the impact of those products on the individuals who use them.  The NAM consistently urges the courts to use the most credible scientific evidence when assessing liability for product hazards, and to avoid placing liability on parties who are not actually responsible for causing harm.  We have supported companies that have secured victories in many of the following cases:

Juries must be allowed to hear evidence that parties other than the defendant manufacturer may have caused the plaintiff's injuries.  Until this decision, Illinois law had been unique in excluding such evidence, and the decision will prevent lawyers from unfairly singling out one defendant for liability.  Weil-McLain v. Nolan (Ill.).

The Delaware Supreme Court and a federal appellate court ruled that traditional duty principles do not make an employer liable when an employee exposes a family member to asbestos allegedly brought home from work.  Riedel v. ICI Americas, Inc. ; Martin v. Cincinnati Gas & Elec. Co. (6th Cir.). 

Courts usually agree that manufacturers do not owe a duty to warn customers about the risks of other products that are added to their products after sale.  At least one court in California did last year ( Taylor v. A.W. Chesterton Co. (Cal. Ct. App.)), and the California Supreme Court has agreed to rule on the issue this year.  O'Neil v. Crane Co. and Warren Pumps, LLC .  Another case was settled before the high court could rule.  Pokorney v. Foster Wheeler Energy Corp. (N.Y. Ct. App.).  This is a recurring issue in the context of asbestos liability, and could spread to other industries if not halted now.

Maryland has upheld statutory limits on non-economic damages like pain and suffering in lawsuits brought under that state's Consumer Protection Act.  This case is part of a growing trend of cases in which plaintiffs try to convert product liability and negligence claims into consumer protection actions, so that they can avoid the higher standards of negligence and product liability law and recover statutory damages and attorneys' fees not otherwise available.  Green v. N.B.S., Inc.

Injuries must be real.  Last spring, the NAM called on the U.S. Supreme Court to overturn a Tennessee ruling that made it easier to sue manufacturers for fear of being injured from exposure to hazardous materials.  The Court agreed, ruling that the jury should have been given an instruction to find liability only if the plaintiff's fear of getting cancer was genuine and serious. CSX Transportation, Inc. v. Hensley.  

Whether a product design is defective must be judged on objective standards.  A trial court decision in Nevada threatens to substantially expand claims against manufacturers because its standard was based on the product user's own subjective expectations.  We are opposing this ruling.  LeMans Corp. v. Provenza.  

Unfortunately, the Massachusetts Supreme Court in October opened the door for a new "right" to sue manufacturers. Smokers may be able to sue cigarette companies over payment for medical monitoring without showing that they have an obvious physical injury. Donovan v. Philip Morris USA, Inc. .

Litigation fraud is under closer scrutiny now.  The Ninth Circuit recently agreed to affirm a lower court ruling that required various hazardous materials be selected and handled properly during testing.  The company had been charged with violating safe work practice standards under the Clean Air Act.  United States v. San Diego Gas & Elec. Co.  

Fair Competition at Home and Abroad  

American manufacturers must be able to compete on equal terms in every state and with foreign competitors.   Some courts are considering imposing higher standards in certain jurisdictions, and we're fighting to keep competition fair. 

For example, U.S. courts are increasingly called upon to hold American companies liable for violations of the "Law of Nations" under our unique Alien Tort Statute.  In one case, we helped convince the 11th Circuit to dismiss a case involving "aiding and abetting" liability for the actions of paramilitary personnel in Colombia.  Sinaltrainal v. Coca-Cola Co. .  In another, we asked the Second Circuit not to interfere in the trade and foreign policy decisions of the U.S. Government relating to South Africa.  Balintulo v. Daimler AG .  These suits threaten any company that does business with countries like China, Colombia, Indonesia, Nigeria or Iraq.

States are increasingly turning to their tax codes to deliver revenue from out-of-state companies.  Traditional constitutional law requires that a company have a physical presence, such as warehouses or salespeople, in a state before taxes may be imposed.  But Massachusetts says that all you need are customers in the state, and the Supreme Court has so far declined to intervene.   Capital One Bank N.A. v. Commissioner of Revenue .  Delaware imposes a discriminatory gross receipts tax on all money received from wholesale goods delivered in the state, regardless of whether the bulk of the actual sales activity occurred outside the state.  Again the Supreme Court has declined to intervene.  Ford Motor Co. v. Delaware Director of Revenue .  Alabama imposes a discriminatory extraterritorial add-back tax on royalty payments, and the Supreme Court has declined to review it as well.  VFJ Ventures v. Surtees

States also enact dealer protection statutes that reduce flexibility and raise costs for manufacturers.  We file briefs supporting the principle that manufacturers must be able to manage their product lines and trademarks.  The Seventh Circuit has recognized the strength of trademark rights in FMS, Inc. v. Volvo Construction Eqpt., Inc. , but the Arkansas Supreme Court has not.  Larry Hobbs Farm Eqpt., Inc. v. CNH America, LLC .

The heart of competition law arises from federal antitrust statutes.  Last year, we helped secure a favorable ruling for companies that operate at both the wholesale and retail level.  The Supreme Court in Pacific Bell Tel. Co. v. linkLine Communications, Inc.   ruled that a company operating at both levels need not price its products or services in a way that preserves the profit margins of companies that buy from it and sell at retail in competition with it, as long as the seller is not engaging in predatory pricing at the retail level.

We also urged the New Mexico Supreme Court not to criminalize companies that match each other's price increases, when there is no evidence they are conspiring together. Romero v. Philip Morris Inc.  

Court Procedures and Black Letter Law  

Black letter law is clear it has no shades of gray. The essential elements of a legal claim are definite.  Deadlines are certain.  The procedures for prosecuting a case are written in the rules.  Jury instructions are clear and correct.

Even with clear rules, trial lawyers try to change them through the courts.  One of the most difficult challenges for manufacturers arises when lawsuits are certified as class actions.  We are quite active in urging judges to strictly apply existing class action certification rules.  Michigan did so in Henry v. Dow Chemical Co. , but the Ninth Circuit has allowed plaintiffs to get around the consolidation requirements of the Class Action Fairness Act by splitting a single case into many pieces.  Dow Chemical Co. v. Tanoh (S. Ct.). ( cert. denied)

Fraud law provides another example.  A fraud claim must allege and prove that the party allegedly defrauded heard or saw the fraudulent statement and relied to his detriment on it.  There can be no fraud without reliance.  This issue went all the way to the Alabama Supreme Court in a pharmaceutical pricing case involving Medicare payments by the state.  Alabama sued 73 pharmaceutical manufacturers for allegedly misrepresenting the cost of their drugs, claiming that it relied on those price representations and over-reimbursed pharmacists and physicians.   A jury awarded millions in compensatory damages and punitive damages.  On appeal, the Alabama Supreme Court threw out the award, in part because the state was aware of what the price levels meant.  AstraZeneca LP v. Alabama .  

This case is part of a recent trend by states to partner with private contingency fee lawyers to sue manufacturers. The trend began with suits against tobacco manufacturers, and has spread to firearms, lead pigment, energy companies and drug makers.  It is fueled by economic pressures in the states and political contributions from trial lawyers.  We are supporting pending challenges to contingency fee agreements in California (lead paint) and Pennsylvania (pharmaceuticals).  County of Santa Clara v. Superior Court ; Pennsylvania v. Janssen Pharmaceutica, Inc. .

Even when state legislatures clarify what the limits of the law are, those limits are challenged by the trial bar.  A cap on punitive damages was challenged in Arkansas , and we supported the law.  Beverly Enterprises Inc. v. Keaton (Ark. Ct. App.).  A Mississippi cap on noneconomic damages (pain and suffering) was challenged, and we argued that limits are important and produce positive results. Double Quick, Inc. v. Lymas . A statutory change in Arkansas replacing "deep pocket" joint liability with "fair share" liability was challenged, and we argued that the reformed approach insures that blame for the harm will be placed on the company where it belongs.   Johnson v. Rockwell Automation, Inc. .  And a Florida law that requires evidence of actual harm before filing suit was challenged, and we supported the law's constitutionality.  American Optical Corp. v. Spiewak .

Can We Talk?  

MaManufacturers must be able to accurately describe their products and respond to complaints made by their critics.  Yet First Amendment rights are limited because manufacturers are established as corporations.  The Supreme Court's recent decision in Citizen's United opens the door to public debate about the most fundamental concerns - candidates for public office.  But speech about the life blood of manufacturing - their own products - is more constrained.  Consequently, we have become involved where needed to underscore the ability of companies to speak freely about their products.  Company statements in press releases, newspaper articles and television appearances fall squarely within the definition of protected speech, and should not be punished as "racketeering" under the Racketeer Influenced and Corrupt Practices Act (RICO).  The court rejected our argument in United States v. Philip Morris USA Inc. (D.C. Cir.).

Liability for Employee Benefits  

Manufacturers that voluntarily offer employee benefits are subject to a variety of liabilities if they don't follow all the government rules.  Retirement plan administrators have been subjected to 15 class actions from one law firm challenging their investment choices and disclosures.  We oppose this kind of unnecessary, complex and costly litigation, and the Seventh Circuit agreed.  Hecker v. Deere & Co.

Similarly, a pension plan administrator was sued for paying benefits to an employee's first wife after the employee failed to change the records on file at work to reflect his second marriage.  We opposed allowing a claim against the administrator, and the Supreme Court agreed.  Kennedy v. DuPont Plan Administrator .

The latest problem for manufacturers is mandated health care.  Local governments are now starting to mandate minimum payments for health care, and we supported a challenge to such a requirement in San Francisco based on preemption by federal law.  The federal government will be stating its position to the Supreme Court in this case shortly.  Golden Gate Restaurant Assoc. v. San Francisco .

Liability to Shareholders  

Shareholders are the most important constituents of a corporation.  Without them, companies could not exist.  So companies try hard to make accurate statements to them and others about the business.  When stock values decline, shareholders sometimes sue, claiming fraud by the company.  We asked the Supreme Court to review one of these suits to resolve what burden of proof the plaintiffs must bear in showing causation of loss. Gilead Sciences, Inc. v. St. Clare . Unfortunately, the petition was denied.

Contract Disputes  

Normally, a manufacturers' organization like the NAM would not have a dog in the fight between two parties in a contract dispute.  But when parties agree to arbitrate, that agreement should be binding.  We asked the Supreme Court to review a decision that undermines an arbitration provision designed to preclude class actions, but it declined.  American Express Co. v. Italian Colors Rest.  

Similarly, manufacturers must be able to rely on existing contractual rights and obligations when they are involved in mergers.  We filed a brief in a federal appeals court supporting the sanctity of existing contracts during mergers.  Kerr-McGee Corp. v. M.D. Mark, Inc. (10th Cir.).

Creating Jobs and Advancing the Economy  

Even efforts to improve our electric grid are grist for lawsuits.  The Department of the Interior is defending a lawsuit brought by 15 environmental groups to stop the designation of energy corridors in the western United States , specifically the West-wide Energy Corridors.  In December, the NAM and five other groups filed a motion to intervene on the side of the Department.  Wilderness Society v. Department of the Interior (N.D.Cal.).

 

When all branches of government work together to ensure fairness, clarity and efficiency in regulation and the administration of justice, we will be better able to address the other serious challenges of the world.  The NAM 's Manufacturing Litigation Center takes on a seemingly endless string of court cases to keep litigation as fair and efficient as it can be.   From the day they are conceived by their shareholders to the day they are ended by competition or litigation, manufacturers must live within an increasingly complex and often conflicting set of legal requirements at the local, state, national and international levels.  By raising our voice in the courts, we highlight these problems, offer solutions, and provide a critical perspective to those judges who hold much of our future in their hands.

 

Please visit our rejuvenated Manufacturing Law Center to see further details on these and other cases affecting manufacturers. If you know of cases where NAM involvement could help provide the courts with the important perspective of manufacturers, please let us know. We may be able to help.


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

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