Manufacturers In The Courts: June 2011

A Publication of the National Association of Manufacturers
June 2011

With a flurry of decisions, the Supreme Court ended its latest round of cases at the end of June, providing some welcome relief in the areas of commercial speech and the regulation of greenhouse gases. But substantial additional problems remain, including EPA's regulation of greenhouse gases, international disputes and tax issues. These and other developments are reviewed below.

Decided Cases


Commercial Speech

Commercial speech rights are vindicated. The Supreme Court ruled 6 to 3 on June 23 that a Vermont law banning the use of prescription drug information for pharmaceutical marketing, but not for other purposes, is a restriction on speech that is based on the content of the message or the identity of the speaker, and is therefor subject to more rigorous judicial scrutiny than restrictions that are not. The creation and dissemination of information are speech covered by the First Amendment. The majority also ruled that the law infringes commercial speech rights of pharmaceutical companies because it was not narrowly drawn to advance the state's interest in protecting physicians' confidentiality. The NAM had filed an amicus brief arguing that speech restrictions that are motivated by legislative hostility to the content of the speech should be scrutinized more carefully by the courts than content-neutral restraints. The Court agreed, finding that the state may not burden protected speech in order to tilt public debate in a preferred direction. Sorrell v. IMS Health Inc. (S. Ct.).

Discovery Issues

Government access to civil discovery documents for criminal investigation will not be reviewed. The Ninth Circuit recently ruled that a grand jury subpoena in a criminal investigation trumps a protective order that prevents disclosure of confidential information gathered in a civil suit. The NAM filed a brief in April urging the Supreme Court to review the decision, but in June, it declined. We are concerned that this ruling ignores potential international consequences, and could harm American business that may be subject to retaliation in legal proceedings abroad. White and Case, LLP v. United States (S. Ct.).

Environmental Law

Supreme Court partially rejects greenhouse gas nuisance cases. In this major case by states and environmental groups against electric utility companies, the Supreme Court ruled June 20 that EPA action to regulate greenhouse gases (GHGs) displaces any federal common-law right to seek abatement of GHG emissions. There is no need for the courts to develop federal common law when Congress addresses a question of national concern, such as the regulation of air and water. It does not matter whether EPA actually exercises its authority to regulate GHGs; as long as the field of GHG regulation has been delegated to EPA, federal common law is displaced. The NAM had urged the Court to overturn the lower court's extreme ruling, and the Court agreed, up to a point. While it rejected the federal common-law claims, it left open the possibility that such a suit could be brought under state nuisance law. It sent the case back for the lower court to consider whether the Clean Air Act preempts state-law suits as well. American Electric Power Co. v. Connecticut (S. Ct.).

Government Regulation

Court ducks issue involving right to EPA hearing prior to revoking pesticide tolerances. The NAM and other groups filed a brief urging the Supreme Court to review a case where the EPA unilaterally revoked a pesticide tolerance under the Federal Food, Drug and Cosmetic Act (FFDCA). The action effectively banned the pesticide, violating the right of pesticide manufacturers to an adjudicatory hearing. Whether such a right will be enforced has ramifications for pharmaceuticals, medical devices, food and beverages and certain consumer products as well. The Supreme Court declined to hear this appeal, leaving the lower court's decision in place. National Corn Growers Ass'n. v. EPA (S. Ct.).

Taxation

Fight to eliminate export taxes stalls. In March, the NAM urged the Supreme Court to review a decision that undermines the Constitution's protection against export taxes. The decision allows taxes based on a product's weight to avoid the export tax ban, even though the tax is imposed on goods in export transit. On June 13, the Court declined to review the ruling, which will encourage administrative agencies and Congress to impose more excise taxes on exports, threatening the recovery and small and medium-sized businesses. Consolidation Coal Co. v. United States (S. Ct.).

Third Circuit reviews swap-and-assign transaction. The NAM filed an amicus brief last year urging the U.S. Court of Appeals for the Third Circuit to reverse a trial court's decision in a tax case that substitutes the judge's own policy judgment for the words in a statute. The case involved a somewhat complex swap-and-assign transaction for the repatriation of funds earned abroad into the United States, and whether the transaction is taxable as a lump-sum payment or over a period of years. Congress attempts to balance a variety of conflicting goals in establishing tax policy, and it is not the role of trial judges to discern an overarching policy that might help them override the language enacted into law. Unfortunately, on June 20, 2011, the 3rd Circuit affirmed the trial court's judgment, and found that the IRS can treat similarly situated taxpayers differently. Merck and Co. v. United States (3d Cir.).

 
Pending Cases

Employee Benefits

Does the sale of a manufacturing plant create ERISA liability for the purchaser? Navigating the requirements of the Employee Retirement Income Security Act (ERISA) continues to cause problems for manufacturers. When one company bought a power plant from another, it hired its then-active employees. When the plant closed, the employees sued and won termination benefits. The case is now on appeal, and on June 3 the NAM and others filed an amicus brief arguing the judge's unwarranted extension of ERISA's complex rules will encourage protracted litigation over similar business transactions and will inhibit employer flexibility in restructuring. Shaver v. Siemens Corp. (3d Cir.)

Environmental

NAM questions EPA interference with existing Clean Water Act permits. On June 3, the NAM and 11 other business groups filed an amicus brief urging a federal judge to rule that EPA does not have the authority to modify previously issued permits under Section 404 of the Clean Water Act. Our brief highlights the dramatic change that EPA's action represents, citing a new study showing that the threat that EPA may modify existing permits distorts the cost-benefit ratio of new investment projects. The study also details effects on bank financing and interest rates, bond ratings, rationed credit, land prices and other harms throughout the economy. Mingo Logan Coal Co. v. EPA (D.D.C)

Third and fourth phases of NAM litigation against EPA's greenhouse gas regulations advance . Also on June 3, the NAM and 66 other parties filed a combined brief in this ongoing litigation, detailing all the key arguments why EPA's motor vehicle rule should not trigger the regulation of stationary sources of greenhouse gas emissions. The brief questions the promulgation procedures, effectiveness and enormous costs of stationary source regulations, as well as the absurd consequences that result from EPA's discretionary decision. Briefing in the case will conclude on October 31. NAM v. EPA (D.C. Cir.) Then, on June 20, the NAM and several other industry associations filed the fourth major legal brief challenging the EPA's regulations. This brief specifically challenges the "tailoring rule", which outlines how GHG emissions will be addressed under the EPA's two main permitting programs for stationary sources. The NAM argues, in part, that the EPA's tailoring rule essentially rewrote parts of the Clean Air Act by changing clear, congressionally established numerical thresholds for pollutants that are subject to regulation. The brief reiterates that the Clean Air Act was never meant to regulate GHGs. As a result, the rules should be vacated and remanded. NAM v. EPA (D.C. Cir.).

The Endangered Species Act, polar bears and greenhouse gas regulation. Last year, the NAM filed a brief in support of the Department of the Interior's position not to regulate greenhouse gases emitted outside of the range of polar bears. Environmental groups had challenged the discretionary authority of the Department not to require special permits for companies that emit greenhouse gases. After a court hearing in April, a judge sought additional briefing, and the filed a response in June supporting the Fish & Wildlife Service's view that the rule complies with all relevant statutes, but if not, the appropriate remedy is to send the case back to the agency for further action without throwing out the current version. Otherwise, thousands of otherwise lawful activities outside the polar bear's current range would be called into question and possibly generate lawsuits, unnecessary administrative actions and delays, and potential liability. On June 30, the district judge affirmed the legality of FWS's listing of the polar bear as a "threatened species" under the ESA. Other issues in the case are still pending. Center for Biological Diversity v. Salazar (D.D.C.).

NAM challenges EPA's boiler MACT rule. On June 16, the NAM filed a petition for review of the EPA's Non-Hazardous Secondary Materials (NHSM) rule under the suite of Boiler MACT rules. The NHSM rule will classify as solid waste certain "secondary" materials that are currently used as a source of energy, such as coal ash or biomass residues from lumber. Solid waste must be burned in boilers regulated under more onerous rules than apply to fuels. The NAM is concerned with several aspects of the rule, including its effect on the use of non-hazardous materials, its presumption that all non-hazardous secondary materials are solid waste, and other provisions. A complete list of legal issues in the case will be filed in July. American Forest & Paper Ass'n v. EPA (D.C. Cir.).

International Litigation in U.S. Courts

NAM supports injunction against Ecuadorian court ruling. This case is part of the long-running story about the efforts by Ecuadorian natives and their American lawyers and consultants to win billions of dollars for pollution from oil drilling operations in Ecuador many years ago. The issue is whether an American court may prevent alleged fraud by barring enforcement in other countries of an $18 billion judgment from an Ecuador court. The NAM filed an amicus brief on June 30, 2011, arguing that the preliminary injunction issued by the trial judge is entirely consistent with principles of international comity and should be affirmed. We argued that the United States has the authority to halt a campaign of apparent fraud and alleged corruption orchestrated by U.S. citizens. Chevron Corp. v. Naranjo (2d Cir.)

NAM opposes foreign litigation in domestic courts. In January, the NAM filed an amicus brief urging the Ninth Circuit to reconsider a decision by three of its judges that gives Amazon Watch, an advocacy group, great power to bring foreign environmental suits in California courts. This suit, brought originally by 25 Peruvian plaintiffs against a company for environmental damage in Peru, should be dismissed in California because the forum is not appropriate. The evidence and witnesses are in Peru, and U.S. manufacturers suffer when foreign lawsuits take advantage of plaintiff-friendly features of U.S. courts, such as extensive discovery, jury trials and contingency fees. On June 1, 2011, the 3-judge panel reversed itself in part, concluding that Peru is an adequate forum. The court continued to defer to Amazon Watch's choice of a U.S. forum, but sent the case back to the trial court to determine if that group has standing. The petition for en banc hearing is still pending. Carijano v. Occidental Petroleum Corp. (9th Cir.).

Taxation

State taxation of out-of-state companies creates more litigation. The NAM and the Council on State Taxation have urged the Supreme Court to review a Washington Supreme Court ruling that is the latest in a long string of cases upholding the ability of a state to impose taxes based on the "economic presence" of a company. Typically, the law has required that a company must have some physical presence in the state before that state has tax jurisdiction, but this case involves an attempt to impose a business and occupation tax using an expanded standard of jurisdiction. We urged the Court to review the case because laws like these are often ambiguous, vary widely from state to state, and are highly burdensome for taxpayers doing business in multiple jurisdictions. Lamtec Corp. v. Department of Revenue (S. Ct.).


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

National Association of Manufacturers
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Washington, DC 20004-1790


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