Manufacturers in the Courts: 013013

The Manufacturers in the Courts is a monthly publication that highlights significant cases affecting manufacturers. The NAM's Manufacturing Law Center becomes involved in many of these cases to provide the judicial branch with an important perspective it might not otherwise hear. The NAM provides a voice for all manufacturers working to remain competitive amid the complexities of today's legal system.


E-mail briefing from the
National Association of Manufacturers
Annual Report 2012

With Congress largely in gridlock, the National Association of Manufacturers (NAM) increasingly turns to the courts to restrain the expansionist tendencies of government agencies and opportunistic trial lawyers. When the Executive Branch is not expressly empowered to regulate, it sometimes assume powers, and only backs off when the courts require it. The courts, and the NAM's litigation program, therefore become the last line of defense against overregulation.

In 2012, our record was an astonishing 17-9. In every major area of law that we tackled, our litigation efforts paid off. Environmental issues garnered the most attention, and we took the winning side on public trust and public nuisance claims, flexible permitting, pre-enforcement compliance orders, and attempts to revoke existing permits. Our most notable challenge continues to be the Environmental Protection Agency's (EPA's) regulations for stationary sources of greenhouse gas emissions, and we will appeal an adverse decision on this subject from the D.C. Circuit to the Supreme Court.

January of 2013 brought a major breakthrough against case after case of pro-union decisions from the National Labor Relations Board (NLRB). While we have been fighting each decision on its merits, the D.C. Circuit's unanimous 3-judge ruling declaring the current board's composition unconstitutional under the Recess Appointments Clause promises to undo many of the regulatory excesses of that agency over the past year.

On the product liability front, we helped secure favorable rulings against attempts to impose liability on manufacturers for exposure to hazardous materials in trace quantities, or for products manufactured or altered by some other company.

Remaining on the docket for decision by the courts are two major Supreme Court decisions on the scope of our country's Alien Tort Statute and the rules for hearing class action cases in federal court, as well as the NAM's challenge to the Securities and Exchange Commission's conflict minerals rule.

The NAM is strengthening its efforts this year to challenge excessive government regulatory zeal and burdensome litigation from the trial bar. Outlined below are the details on our successes, and challenges ahead.

EPA May Not Exceed Its Authority, and Private Suits Don't Fare Any Better

The Clean Air Act places responsibility on state environmental agencies to develop enforcement plans and submit them to EPA for approval. Texas did so when it adopted its Flexible Permit program in 1994, but years later EPA disapproved it, leading a federal appeals court to intervene. It found that EPA's action had no basis in the Clean Air Act and that it should not be used to micromanage state implementation of the Act. The agency's preference for its own way of enforcing the requirements was not enough to justify interfering with a system that Congress established to provide for shared responsibility.

We have had to defend manufacturers against private lawsuits that try to regulate even more strictly than EPA does. Typical of these suits is one by native residents in an Alaskan village who sued various energy companies, alleging that greenhouse gas emissions are a public nuisance that causes climate change and forces village relocation. The NAM argued that the case was an unprecedented attempt by environmental lawyers to recast public nuisance as a "super tort," and the Ninth Circuit dismissed it. EPA regulation must displace private suits, or there would be endless claims of liability after every harsh weather event.

In addition, the Comer case is still causing problems. We thought the case -- claiming that the ferocity of Hurricane Katrina was due in part to emissions of greenhouse gases from U.S. energy and manufacturing companies -- was resolved several years ago with dismissal. However, the plaintiffs filed a second suit, now on appeal to the Fifth Circuit. We filed an amicus brief arguing against any common law cause of action for harms from any weather event allegedly caused by climate change. The courts are not the place to make policy judgments about emissions policies for individual defendants, becoming a kind of super EPA.

The NAM intervened in a similar suit that tried to force EPA and five other federal departments to further regulate greenhouse gases under a public trust theory. A federal judge dismissed this suit, but efforts to raise this issue in state courts and agencies are continuing.

While attempts to force EPA to regulate in general are problematic, suits challenging specific permits are particularly burdensome. Companies operating with an EPA permit are often targeted by environmental groups, or even by the EPA itself, after the permit process has concluded, further delaying important projects. EPA has also tried to impose permit requirements on projects that are arguably outside of its jurisdiction, without affording an opportunity for a hearing. The NAM became involved in some of these cases, with positive results:

  • One suit tried to hamper efforts to drill exploratory wells in the waters of the Chukchi and Bering Seas north of Alaska. The Ninth Circuit found that the drilling plan contained proper documentation of procedures and technology.
  • EPA attempted to modify a dredge-disposal permit previously issued by the Army Corps of Engineers, and the court ruled, "This is a stunning power for [EPA] to arrogate to itself when there is absolutely no mention of it in the statute." Our brief highlighted the dramatic change that the EPA's action would have made, distorting the cost-benefit ratio of new investment projects, affecting bank financing and interest rates, bond ratings, rationed credit, and land prices throughout the economy. This ruling is currently on appeal, and we filed another brief highlighting our concerns.
  • Until last March, an EPA order to remediate alleged violations of the Clean Water Act provided no right to review the order in court. One either had to comply with the order, or violate it and defend subsequent judicial proceedings. Fortunately, the Supreme Court unanimously ruled in the Sackett case that EPA environmental compliance orders are "final agency action" that can be reviewed in court. Our amicus brief sought this result, to give manufacturers a new weapon to prevent the EPA from abusing its power.
  • The Supreme Court soon will be deciding Decker v. Northwest Environmental Defense Center , a case in which an environmental group wants to force the EPA to require permits on forest logging roads. Our amicus brief opposes the use of enforcement proceedings to define new regulatory requirements.

EPA Is Still Ratcheting Down Emissions, But Must Face Court Scrutiny

Despite these victories, we have faced a more difficult challenge in opposing other EPA regulations. It is quite unusual for courts to overturn EPA decisions, since regulatory agencies enjoy a substantial degree of deference under the law, both on factual determinations and on how to legally interpret ambiguous statutes. Nevertheless, we have mounted a strong challenge to EPA's first regulations of greenhouse gases from stationary sources. The U.S. Court of Appeals for the D.C. Circuit dismissed all the major challenges, in part based on its reading of the language of the Clean Air Act and in part on its view that the business community lacked standing to challenge the "tailoring" and "timing" rules. Two judges wrote strong dissenting opinions that supported our arguments, and we will ask the Supreme Court to review the issue. The NAM has led a coalition of more than 20 industry trade associations challenging the regulations, which will eventually force new permitting requirements on some 200,000 manufacturing facilities.

Other cases challenge the latest EPA efforts, and the NAM continues to highlight our perspective on the legal requirements that EPA must follow. Notable pending activities include:

  • An effort by environmental groups to pressure EPA into lowering existing ozone standards even further. We filed several briefs arguing that EPA did not have sufficient evidence to lower the 1997 limits.
  • EPA's latest limits on air emissions from electric utilities and various industrial steam-generating units. These limits may be impossible to achieve, in part because the agency's new "pollutant-by-pollutant" approach sets a floor based on whatever source is deemed the "best" for each individual pollutant, but fails to recognize that a source emits a variety of pollutants, and companies will not be able to meet the floor for every pollutant.
  • A challenge to EPA's partial takeover of a state's permitting power under the Prevention of Significant Deterioration (PSD) program, regulating the construction or modification of large stationary sources that emit greenhouse gases. Our brief argued that EPA cannot override the Texas State Implementation Plan any time it finds fault; it should not expand its powers by using legislation designed for technical corrections only.
  • An unusual effort asking the Fifth Circuit to publish, thereby allowing official citation of, one of that court's decisions establishing an important precedent: that Congress did not provide for citizen suits challenging alleged noncompliance with Clean Water Act Section 404 permits, but rather vested that power in the U.S. Army Corps of Engineers. Publication may help avoid future litigation of this issue.
  • An NAM brief challenging EPA's decision to take over various state enforcement activities with respect to greenhouse gas regulation. The agency acted rapidly at the end of 2010 to short-circuit the normal three-year period that states have to submit State Implementation Plans. The agency sought to coerce states to consent to greenhouse gas regulation through the threat of a construction moratorium.
  • Support finality and certainty when manufacturers negotiate consent decrees with EPA. The value of consent decrees in EPA enforcement proceedings is in providing finality and certainty, but a federal judge broadly interpreted a consent decree to impose $72 million in penalties on a company not named in the consent decree for many products never imported into this country. Our amicus brief urged the D.C. Circuit to reaffirm that judges should strictly construe such settlement agreements.

Success on the Labor Front

The National Labor Relations Board continues its campaign to expand union power. Our challenge to its poster rule -- requiring more than 6 million employers to hang a notice informing employees of their rights to unionize, strike and bargain collectively -- scored a partial victory before a federal judge, and that ruling is now under review by an appeals court. We are optimistic that our arguments will prevail -- the legislative history of the National Labor Relations Act clearly shows that Congress did not intend to give the NLRB this type of authority.

The D.C. Circuit ruled this month that the recess appointments of several of the Board members were unconstitutional, throwing into question all of the Board's rulings for the past year. Included among those in jeopardy are several in which we have been active:

  • Ambush elections. Our lawsuit challenged the NLRB's ambush election rule, which effectively shortened the amount of time in which union certification elections take place and could allow votes to occur in as little as 20 days. A federal judge ruled that the Board's online voting procedure did not provide a quorum to adopt the final rule.
  • Micro-unions . The NAM asked two federal appeals courts to overturn a new NLRB policy that makes it easy for a small group of employees to form a collective bargaining unit in the workplace. The NLRB's ruling puts an extremely difficult burden of proof on manufacturers to show that a larger unit is more appropriate, violates federal law and ignores the responsibility of the Board to include workers with similar interests in single units. Huntington Ingalls Inc. v. NLRB (4th Cir.), Nestle Dreyer's Ice Cream Co. v. NLRB (4th Cir.) and Kindred Nursing Centers East, LLC v. NLRB (6th Cir.). We have asked the NLRB to revisit the issue as well. Neiman Marcus Group, Inc. (NLRB).
  • Arbitration rights . We also filed an amicus brief supporting the rights of employers to require employees to agree to arbitrate disputes without bringing class-action suits to resolve their claims. The NLRB claims that such arbitration agreements inhibit the right to engage in concerted activity, but we argued that the Board was improperly expanding its authority beyond its mission and outside of its statutory authority. D.R. Horton, Inc. v. NLRB (D.C. Cir.).

We also tackled a variety of labor issues not under NLRB jurisdiction. In one, we scored a victory when a federal appeals court confirmed the validity of a collective-bargaining agreement that excluded clothes-changing activities from paid time. Under such an agreement, and the Portal-to-Portal Act, employers cannot be forced to pay for wages they had not bargained for relating to clothes-changing activities and travel time to the workplace. In another case, the California Supreme Court agreed that employers need only provide meal periods, not ensure they are actually taken. Thousands of class action suits have been filed under the state law.

Finally, issues of union continuity and employee benefits arise when companies are sold. We won a significant victory when the Third Circuit ruled that a manufacturer did not have an obligation to provide permanent job separation benefits to employees who lost their jobs several years after their company was acquired by that company. We urged the court to recognize that the law encourages flexibility in employee benefit plans, and to uphold the express terms of a plan that did not include the benefits claimed. The court's ruling will help restrain this kind of high-stakes litigation.

Trial Bar Continues to Press the Limits of Product Liability Law

Asbestos litigation continues to be a major spawning pool for expansive theories of liability. Courts have issued favorable decisions on several issues:

  • In cases involving exposure to hazardous substances, we have fought attempts by plaintiffs to hold manufacturers liable under the "any exposure" theory of causation. The Ninth Circuit ruled that this theory of trivial exposures does not satisfy normal standards for expert testimony and is irreconcilable with the fundamental toxicology principle relating to dosage. The Pennsylvania Supreme Court also underscored the need for judges to conduct a hearing on the validity of an expert's testimony and accepted scientific methodology.
  • The NAM filed two amicus briefs in North Carolina challenging a ruling that removed a standard product alteration defense in a product liability case. The state's Supreme Court affirmed that the defense is available to a manufacturer regardless of whether the person making the alteration is a party to the lawsuit. California also issued a ruling that a manufacturer cannot be held liable for injuries caused by asbestos that was added to the product by another party.
  • Federal preemption of litigation under state law is an important protection for manufacturers in many industries. Last year the Supreme Court issued a favorable ruling when it found that asbestos claims under state law are pre-empted by the federal Locomotive Inspection Act. We will continue to press for federal pre-emption where appropriate to limit often conflicting legal requirements that arise under state law or tort litigation.
  • Court procedures can also provide an unfair advantage to plaintiffs in complex litigation. The NAM commented on complex litigation procedures in Philadelphia, and the court suspended prejudicial practices of consolidating dissimilar claims and of using "reverse bifurcation," whereby juries determine damages before determining whether a defendant was liable for them.

Unfortunately, other decisions continue to be a problem for manufacturers:

  • The Washington Supreme Court ruled that manufacturers have a duty to warn customers about hazards when their products are used with another manufacturer's product.
  • The Illinois Supreme Court gave plaintiffs a way to prove liability for secondhand exposure to hazardous substances if they can show that a manufacturer would have been able to foresee the plaintiff's injuries if it had known of the dangers of such exposure.

The Government Can't Tell Us What to Say

A federal appeals court agreed with NAM arguments and overturned a San Francisco ordinance that required retailers of cell phones to put up posters in their stores to advise consumers about the supposed risks of cell phones. A government requirement that compels certain speech from private-sector companies is strictly reviewed by the courts, and no such mandate can survive unless there is a compelling interest and the regulation is narrowly focused. No merchants should have to convey a controversial message with which they disagree and which is not factual. This argument has been used successfully in a cigarette labeling case, and is an issue in our conflict minerals litigation.

Research and Development Tax Credits

A federal tax court judge threw a monkey wrench into determining what costs may be included as "qualified research expenses" eligible for the research and development (R&D) tax credit when companies undertake manufacturing process improvements. That decision was affirmed by the Second Circuit, and the case is on appeal to the Supreme Court. The NAM filed an amicus brief underscoring why supply costs are legitimate research expenses since they are critical to process improvements.

What's Ahead for 2013?

Our past success shows that a litigation program is an important element in keeping government agencies and aggressive trial lawyers within bounds. Key issues in which we are already participating include:

  • The Alien Tort Statute . The NAM has asked the Supreme Court to find another reason to reject alien tort suits. These suits are filed by foreign plaintiffs under the 1789 Alien Tort Statute -- which was intended to provide a federal court forum against piracy and offenses against ambassadors - against American and foreign companies in U.S. courts for alleged human rights abuses abroad. The Supreme Court will decide whether U.S. courts should entertain suits at all if they involve conduct only occurring in a foreign country. These are fundamental questions that go to the heart of liability for American manufacturers under this statute. Kiobel v. Royal Dutch Petroleum Co. (S. Ct.).
  • Conflict Minerals. Our lawsuit challenging the Conflict Minerals rule issued by the Securities and Exchange Commission (SEC) will be set for argument soon. The case affects many companies who must file annual reports with the SEC and conduct extensive inquiries in their supply chains, as well as those in the supply chain who must provide information to those companies to comply with the regulation. While we recognize the need to implement solutions to bring an end to the violence in the Congo and surrounding countries, the SEC's rule is not an effective approach and perhaps even counterproductive. We seek constructive changes to make a workable rule that helps to achieve Congress's overall objectives. NAM v. SEC (D.C. Cir.).
  • Arbitration. Millions of arbitration agreements are at risk from a federal appeals court decision. We urged the Supreme Court to review it, and it agreed to do so. It will soon decide whether an arbitration clause is proper even if it prohibits class action arbitration. Manufacturers should be able to have small claims arbitrated individually rather than be lumped into class proceedings. American Express Co. v. Italian Colors Rest. (S. Ct.).
  • Class Action Certification . Courts must look more closely at the common facts and claims of litigants before certifying class actions. That has been our message in a variety of cases, and one is awaiting a decision as to whether the Supreme Court will hear it. Class action certifications can be case-determinative, and trial judges should make every effort to ensure that all the plaintiffs actually have common claims. The Supreme Court will issue rulings in three other class action cases this session. Whirlpool Corp. v. Glazer (S. Ct.).
  • Class Action Removal. The NAM made a unique argument to the Supreme Court that the Class Action Fairness Act (CAFA) allows cases filed in state court to be removed to federal court even when they do not meet the threshold requirements for cases that are first filed in federal court. Courts have surprisingly overlooked the express language of CAFA on removal authority, and our solution would make it much easier for defendant manufacturers to move class actions from state to federal court, often a more favorable jurisdiction for the resolution of such cases. Standard Fire Ins. Co. v. Knowles (S. Ct.).
  • Patent Licensing. The NAM has filed an amicus brief in a case where a German company that manufactured semiconductor memory devices signed numerous cross-license agreements for thousands of patents before filing for bankruptcy. We urged the court not to allow a foreign bankruptcy proceeding to upset the settled expectations of those companies that depend on existing licenses, to protect their massive investments in research, development and manufacturing. Jaffe v. Samsung Electronics Co. (4th Cir.).
  • Trucking Hours-of-Service Rules. The NAM filed a brief in a federal appeals court over new regulations governing the hours of service for commercial truck drivers. The brief supported the Federal Motor Carrier Safety Administration's (FMCSA) decision to retain an 11-hour driving time limit, but opposed changes to the 34-hour restart provision. Even small changes in the rules will impose substantial costs on complex and interwoven manufacturing distribution systems. American Trucking Associations, Inc. v. FMCSA (D.C. Cir.).

To learn more about any of the cases described above, search either for cases decided in 2012 or active cases in the NAM's Law Center Search Engine . Your comments and perspectives are welcome.

Quentin Riegel
Vice President, Litigation & Deputy General Counsel
(202) 637-3058 •

National Association of Manufacturers
733 10th Street, NW
Washington, DC 20001

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