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Supreme Court Hears Securities Class Action Case

Playing the stock market is a better gamble if you can sue when you lose. That’s what some sophisticated investors have been doing with some success as a result of the 1988 Supreme Court decision in Basic v. Levinson.  Although there’s no statute that says you can sue when your stock bet loses money, you can always look around after the fact and try to find evidence that the company didn’t publicize something that might have had an effect on the price.  If you can show fraud by the company, you can sue under an implied right-of-action under the securities laws.

Showing that you were defrauded requires that you prove that you relied on some statement that the company made when deciding whether to buy or sell your stock.  Lucky for you, that requirement was eliminated when the Supreme Court ruled that a court may presume that you relied on information generally available to stock market participants. Under the “efficient capital markets” theory accepted by the Court, it is assumed that stock prices accurately reflect their true price in open and well developed markets with many trades.

If you relied on the efficient market in buying stock, a court will assume the price accurately reflects material information about the stock, and if there was price distortion from erroneous or misleading information, you can sue for your losses.

The Court assumed that investors invest on the assumption that the trading price of the stock accurately reflects the true value of the stock. The problem with that is that many sophisticated investors buy stock because they think it will outperform the valuation that the market assigns. Many investors buy or sell a security precisely because they believe the market price is wrong – buying when they assess the market has undervalued the stock and selling when the stock is overvalued in their estimation.

That’s the argument the NAM made to the Supreme Court in an amicus brief in Halliburton v. Erica P. John Fund, a case being argued March 5. The Court is reconsidering its presumption-of-reliance ruling, and we hope it will require that reliance be proven. You can’t have it both ways, relying on your own view of the market price, but also relying on the efficient market theory to sue if you guessed wrong.  That’s an unfair and expensive outcome that adds yet another cost to doing business, reducing competitiveness and hampering job creation.

Quentin Riegel is Vice President and Deputy General Counsel for the National Association of Manufacturers. 

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NAM Joins Litigation Against California Cap-and-Trade Revenues

In November, the California Chamber of Commerce filed a lawsuit challenging the legality of the revenues generated by the California Air Resources Board (CARB) for the state’s cap-and-trade greenhouse gas program. Today, we took action to join the suit. The NAM filed papers to intervene in the litigation, focusing not on the legality of the cap-and-trade program itself or the merits of climate change science, but on the extraordinary revenues generated by the auction and reserve sale provisions adopted by CARB.

The effectiveness of the cap-and-trade program comes from the state’s ability to ratchet down greenhouse gas emissions from year to year.  CARB may not go beyond this authority to generate a huge income stream for the state. The first quarterly auction of greenhouse gas allowances in November raised nearly $289 million for California, substantially more than the $62 million required to implement the law. Moreover, that revenue is projected to increase to as much as $3 billion this year and $70 billion over the life of the program.

That income goes far beyond simply paying for the costs of administering the program, and thus exceeds the legal authority of CARB. Alternatively, even if the fees are authorized, they constitute a massive new tax that must be approved (but were not) by a 2/3 majority of the California legislature under the state constitution.

CARB’s income scheme will significantly raise energy costs in the state and further harm its competitiveness, providing limited or no environmental benefit.

A hearing in Superior Court in Sacramento County is scheduled for May 31.

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Court Dismisses Key Climate Change Case

Not only is the Environmental Protection Agency regulating greenhouse gas emissions, but some inventive trial lawyers and environmental groups have been demanding for quite a few years that individual American manufacturers pay damages for the effects of global warming. The suits generally involve claims of damages from rising sea levels, but also involve the effects of Hurricane Katrina.

The latest decision from the federal courts came out today. In what promises to be a decisive outcome in this type of case, the U.S. Court of Appeals for the Ninth Circuit concluded that claims by residents of Kivalina, Alaska, about global warming displacing their town with sea water are themselves displaced by federal law. Relying on the Supreme Court’s decision from last year in the American Electric Power (AEP) case, it said that there can be no lawsuits claiming the greenhouse gas emissions are a public nuisance under federal common law. The NAM supported this outcome in an amicus brief two years ago.

This is a resounding and important victory not only for manufacturers, but for a regulatory system grounded on statutes and regulations rather than on lawsuits and court decrees.  

While the court dismissed the lawsuit, there remain unresolved questions from the AEP case, such as whether state common law, rather than federal common law, might allow this kind of piecemeal litigation in the future.  We hope that the trial bar will recognize the legal and regulatory morass that would be created by further litigation in U.S. courts on this topic. We’re not holding our breath.

Quentin Riegel is vice president, litigation and deputy general counsel, National Association of Manufacturers.

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NAM Joins in Filing Reply Brief on the EPA Ozone Limits Case

Today the National Association of Manufacturers is part of a group that filed a reply brief with the U.S. Court of Appeals for the D.C. Circuit in the Mississippi V. EPA case on the 2008 ozone limits. This brief was filed in response to the briefs filed by the EPA and other environmental groups who have intervened in the case.

This case dates back to the EPA’s reconsidered ozone standard from 2008 which lowered the National Ambient Air Quality Standards to .075 ppm. The brief filed today reiterates the NAM’s position that the EPA did not have sufficient evidence in the record to justify its conclusion that the public health risk from ozone was any different in 2008 than it was in 1997 when the last ozone standard was set.

Also the brief argues that the EPA failed to justify why the 1997 standard was no longer “requisite,” as required by the statute, to protect public health with an adequate margin of safety. The agency also failed to rely on air quality criteria that accurately reflect the latest scientific knowledge, and set secondary standards based on the defective primary standard.

The EPA’s ozone standard threatens the competitiveness of manufacturers and businesses of all sizes throughout the country. In September of last year President Obama decided to delay another reconsideration to lower the standard even further. This would have been detrimental to our economy and would have driven job growth to a halt.

The ozone reconsideration is just another example EPA regulations causing uncertainty for manufacturers. We need certainty from Washington, not more of the same costly regulations that are hurting manufacturers’ ability to create jobs and grow.

Quentin Riegel is vice president of litigation and deputy general counsel, National Association of Manufacturers.

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Federal Appeals Court Rejects EPA’s Overreach Again

In 1994, Texas adopted its “Flexible Permit Program” to comply with Clean Air Act requirements for minor new sources of emissions. It submitted its plan for approval to the EPA, which is required by law to act within 18 months. Years passed without EPA action, and industry sued for an answer.  Finally, sixteen years later, EPA disapproved the Texas plan, throwing into doubt the legality of activities covered, at this point, by about 140 permits.  Every facility with a flexible permit could face fines or other enforcement action regardless of the emissions they produce.

The NAM and a variety of industry parties, as well as the State of Texas, sued.  Today, a federal appeals court agreed to throw out EPA’s disapproval of the Texas plan, finding no statutory basis for its criticisms of the plan. Instead, the court recognized what EPA did not – that the Clean Air Act sets goals and basic requirements, and gives the states broad authority to determine the methods and particular control strategies they will use to achieve them.

Basically, the court told EPA not to micromanage state implementation of the Clean Air Act.  That law makes environmental regulation a shared responsibility, and it is not appropriate for EPA to require states to adopt its own language or procedures as long as the state plans enforce the law’s requirements.

It is quite unusual for courts to overturn EPA decisions, since agencies enjoy a substantial degree of deference under the law, both on factual determinations and on how to legally interpret ambiguous statutes.  But in this case, the court found that EPA made no factual findings or cogent theory that the Texas plan would interfere with proper Clean Air Act enforcement. 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. (continue reading…)

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Judge Grants NAM’s Motion to Dismiss Public Trust Case

If two environmental groups had their way, greenhouse gas emissions would be regulated by every state in the country, as well as by the Environmental Protection Agency (EPA) and the Departments of the Interior, Agriculture, Commerce, Energy and Defense. The groups have brought legal actions in virtually every state and against the federal government to compel government officials to impose 6 percent annual reductions in greenhouse gas emissions under a theory that each government has a duty to protect the air as a commonly shared public trust resource.

This would be a disaster for manufacturers, who would have to understand and comply with conflicting air emission requirements throughout the country.

Fortunately, a federal judge yesterday threw out their complaint against the federal agencies.  In a straightforward opinion, Judge Robert L. Wilkins of the federal district court in the District of Columbia ruled that federal courts have limited jurisdiction, and can’t hear a claim that is fundamentally a state law claim. 

He also said that, even if there were a valid claim to regulate air emissions under federal common law, that claim has been displaced by the Clean Air Act. Only the EPA has the power to set those limits, subject to judicial review.

The NAM has taken the lead in fighting a barrage of lawsuits that attempt to regulate by litigation. We intervened in this case last year, and filed and argued the motion to dismiss that has now won the judge’s approval. We also filed opposition briefs in the 2007 Massachusetts v. EPA case, in which the Supreme Court first recognized EPA authority over greenhouse gases.

Last year, we also filed in the American Electric Power case, in which the Court rejected claims to abate carbon-dioxide emissions under federal common law. Cases raising state common law claims are still pending, and we will continue to fight these battles.

This latest decision offers some optimism that private lawsuits to force changes in public policy are not gaining favor in the courts.

A summary of the case, Alec L. v. Jackson (D.D.C.), and our briefs, can be found here.

Quentin Riegel is vice president of litigation and deputy general counsel, National Association of Manufacturers.

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From the Arguments in NAM v. Taylor, the Lobbying Lawsuit

Quentin Riegel, NAM’s Vice President, Litigation, and Deputy General Counsel was at today’s oral arguments in NAM v. Taylor, the association’s lawsuit challenging the “affiliated organizations” provision of Honest Leadership and Open Government Act of 2007. His report follows:

Tom Kirby of Wiley Rein argued on behalf of the NAM today in the U.S. Court of Appeals for the D.C. Circuit in our challenge to Section 207 of the Honest Leadership and Open Government Act of 2007, which requires the NAM and other organizations with lobbyists to disclose the names of certain members who actively participate in its internal lobbying discussions and related activities.

The panel consisted of Judges Karen LeCraft Henderson, Doug Ginsburg and Merrick Garland. Each side was given 15 minutes. Kirby spent much of his time describing how the statute is unconstitutionally vague and imposes “a virtually impossible burden” on the NAM with the possibility of criminal sanctions for violations. Criminal statutes must be clear so that potential defendants know how to comply. He explained the difficulty of knowing how a government prosecutor will evaluate intent to violate the statute since there is no objective bright-line rule defining “active participation” in lobbying activities. It is impossible to know whether the intent of a member company is to engage in efforts in support of lobbying contacts when that company’s employees participate in NAM meetings, teleconferences or other activities. The vagueness of the statute is particularly problematic for an organization like the NAM that holds over 100 meetings a month and that has nearly 11,000 companies as members. The statute produces strong pressure to over-report, and the NAM cannot tell its members what kinds of activities will or will not qualify as active participation.

Judge Garland asked about the exception for listing the entire membership on an Internet site, but Kirby explained the confidential nature of the NAM’s membership, and the problems of complying with the alternative, which requires quarterly disclosure of different lists of members depending on the level of participation and whether dues or similar amounts are paid during the quarter. He said that the statute produces a “patchwork and virtually random” disclosures that do not satisfy any compelling governmental interest. There is no more central interest in the First Amendment that the statute infringes upon: the efforts of people to engage in petitioning the government for redress of grievances. (continue reading…)

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