Manufacturers like the law to be clear. The rules about organizational structure, taxation, employee rights and benefits, importing and exporting, permits and financing, to name a few, are critical to investing in, building and operating a business that will provide steady jobs for workers and a reasonable return for investors.
Have you ever had to buy two items packaged together when you only wanted one? Does your perfume or cologne spray too much at a time? Are you paying extra to put air in your tires when you only need a few seconds at the pump? Can you sue someone for this waste?
Innovative lawyers have come up with many creative ways to squeeze money from successful businesses, particularly with product liability class-action suits for very small individual claims which, when aggregated, can provide a large pool of nuisance settlement money to share with the class. One such case is now before a federal appeals court, raising the question whether prescription eye drop medications are administered with an eye dropper whose tip is too big. The theory is that the eye droppers dispense more medication than is really needed, depleting the bottle sooner and making the customer buy more medication.
That’s a little like saying you’re selling me a bigger adhesive bandage than I need because not all cuts are the size of the bandages in the box. It doesn’t hurt me to use a bigger bandage, but why should I pay more for the extra material that I don’t need?
The trial court dismissed this case, saying the alleged injury was too speculative. Undaunted, the plaintiffs appealed, and the Manufacturers’ Center for Legal Action stepped in to support the court’s ruling. We argued that federal law prohibits changing the packaging without approval from the Food and Drug Administration (FDA), and even if the court could require smaller eye droppers, the company could price its medication by the number of doses without changing the total price to the consumer.
The case is Cottrell v. Alcon Laboratories, Inc. (3d Cir.). We argued that the plaintiffs received what they were promised: effective, FDA-approved prescription medications, and different packaging would not have guaranteed they would have paid less. But the biggest problem with this case is not that the claim is so speculative, but that product sellers have to hire a team of lawyers to defend it, including expensive appeals that can drag on for years. At risk is virtually any business practice that can be portrayed as inefficient, and the costs of fighting these claims are ultimately borne by customers, employees and investors. The waste alleged in this suit pales in comparison to the waste arising from the prosecution of lawsuits like this in the courts.
A lawsuit by Kimberly-Clark Corporation against Minnesota’s taxing authorities is now before the eight Justices of the Supreme Court, who will decide whether to hear the appeal next week. The outcome could have a significant impact on states that join the Multistate Tax Compact, which created a uniform system of taxation of companies doing business in multiple states.
Minnesota signed onto this agreement in 1983, and businesses relied on the Compact’s consistency and predictability. However, the state later repealed one of the Compact’s principles—the key provision giving taxpayers the option of apportioning their multistate income using a three-factor, equal-weighted formula. This formula determines how much of a business’s nationwide income should be attributed to a particular state. If a state can simply disregard the formula and use a different one, some companies will owe more in income taxes than they ever anticipated.
Other states across the country are taking similar action, and state courts in Oregon, Texas, Michigan and California so far have upheld their action. Without uniformity in state enforcement, the original intent of the multistate compact will be undermined, making certain states less attractive for business and hurting job prospects.
The Manufacturers’ Center for Legal Action filed an amicus brief in support of review, opposing Minnesota’s attempt to change the rules in the middle of the game. We argued that long-term tax predictability is of immense business importance, that the Multistate Tax Compact offers such predictability and uniformity and that Minnesota should honor the agreement it joined. We hope the Supreme Court will accept this case for review and prevent states from taking a dysfunctional, uncoordinated approach to taxation.
Last year, the Manufacturers’ Center for Legal Action filed our lawsuit against the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers over their expansive interpretation of their jurisdiction to require permits for the use of a wide variety of land across the country. More than 150 other business organizations, states and other groups have also challenged the “Waters of the United States” (WOTUS) rule in various courts, and many of these challenges, including ours, have been consolidated in one federal appellate court—the Sixth Circuit. Some of this background, and the justification for our litigation, is summarized in this post from February.
Two key events have happened recently. First, the National Association of Manufacturers (NAM) asked the Supreme Court in September to review a splintered decision from the Sixth Circuit that allows that court to continue to hear arguments in the case, despite a widely held view among lawyers that the Clean Water Act requires the case to be heard by a trial court, not an appeals court, in the first instance. The administration will be filing its response next Monday. If the court agrees to review this issue, considerable time and effort could be saved in trying to resolve the underlying merits of the challenges to the WOTUS rule.
Second, today, business and municipal groups filed a detailed 93-page brief describing point by point the numerous concerns of all the petitioners about the rule. The brief contains textbook examples of arguments that are all too frequently made about government regulations: the rule was promulgated in violation of basic principles of notice-and-comment rulemaking, the agencies failed to comply with the Regulatory Flexibility Act, the rule is inconsistent with the statutory language of the statute (the Clean Water Act), the rule is unconstitutionally vague, and it violates the Commerce Clause and federalism principles. There are also more unusual arguments arising from EPA’s “covert propaganda” efforts in support of the rule.
Courts give agencies considerable deference when interpreting their statutory authority, but the Supreme Court has weighed in several times to try to provide some constitutional limits on the EPA’s jurisdiction, and a significant part of our brief is dedicated to it. The brief argues that the agencies relied too heavily on Justice Kennedy’s concurring opinion in the Rapanos case, which cannot be reconciled with the other justices’ views in the way attempted by the EPA. The EPA’s approach brings into its jurisdiction countless features that lack the volume of flow and proximity needed to ensure that effects on navigable waters are more than insubstantial or speculative.
The scope of the agencies’ jurisdiction is one of the most fundamental issues affecting the regulation of land use in the United States. Today’s brief brings us one step closer to resolving the allocation of regulatory power among federal, state and local governments.
The Supreme Court’s new term began this month with only eight Justices, with prospects slim for adding a ninth in time to participate in any of the cases being argued over the next seven months. It is thus harder to get a majority of five to agree on a result and therefore more likely that rulings already made by the lower courts will stand.
Nevertheless, oral arguments will proceed, and manufacturers are concerned about 10 upcoming decisions that will affect their competitiveness and ability to create jobs.
High on our priority list is Microsoft v. Baker, a class action involving the Xbox 360 console. The Supreme Court will decide whether an appeals court was correct in allowing an immediate appeal of a decision that refused to allow a group of plaintiffs to file a class action when they had already voluntarily dismissed their claims. It’s a tortured procedural issue but will determine whether class-action plaintiffs can appeal decisions that deny class certification—that is, decisions that require each plaintiff to sue individually for the damages they allege. The Manufacturers’ Center for Legal Action filed briefs in this case.
Another important case challenges whether the general counsel of the National Labor Relations Board properly authorized thousands of complaints against companies for labor law violations. The outcome could affect decisions made by senior government officials at six other government agencies as well. See our previous blog post here for details.
Other significant cases on the docket include the following:
- Samsung Electronics Co. v. Apple Inc.: Apple claimed that Samsung infringed upon the patented design of Apple’s iPhone. The legal issue involves calculating damages for infringement—whether “total profit” from the infringement is calculated from sales of all the phones, or rather whether it should be some fraction of that based on the extent to which the design was used on the infringing phones.
- Star Athletica, LLC v. Varsity Brands, Inc.: The Supreme Court will explain the appropriate test to determine when the design of a useful article is protected by copyright law. Designs may be copyrighted, but “useful articles” may not.
- SCA Hygiene Prod. v. First Quality Baby Prod.: Patent owners may lose their rights if they don’t sue fast enough for infringement. The Supreme Court will clarify the doctrine of “laches” under the patent laws.
- Venezuela v. Helmerich & Payne Int’l.: A company sued Venezuela for expropriating 11 oil drilling rigs and related property, and the question is whether that government can be sued under provisions of the Foreign Sovereign Immunities Act.
- Life Technologies Corp. v. Promega Corp.: At issue is whether supplying a single component of a patented multicomponent invention violates a law prohibiting companies from supplying “all or a substantial portion of the components of a patented invention” and from inducing the combination of components overseas in a way that would infringe a patent. The Supreme Court will decide how broadly this statute should be interpreted to punish manufacturers of parts that are incorporated into others that infringe patents.
- Visa, Inc. v. Osborn: Industry trade associations must be careful to avoid agreements in restraint of trade under the antitrust laws, and this case involves whether members of an association are deemed to have entered into an agreement merely because they agree to adhere to an association’s governance rules. The issue arose from an agreement among credit card companies and banks over fees when using automated teller machines. It could result in even stricter limits on association activities.
- Expressions Hair Design v. Schneiderman: The government regularly compels manufacturers to say things about their products or services that are controversial, without sufficient legal justification. This case involves a law that allows different pricing for cash and credit-card transactions but prohibits retailers from calling a credit-card differential a “surcharge.” The Supreme Court will decide whether this law violates the First Amendment because it restricts what merchants can tell their customers.
- Goodyear Tire & Rubber Co. v. Haeger: If a manufacturer hires trial counsel to defend a product liability case, and that counsel fails to turn over relevant documents during discovery, what sanction may a court impose on the company? In this case, the Supreme Court will decide whether the damages must be limited to the harm directly caused by the misconduct, or can be much higher, without affording the parties the protections of criminal due process.
In addition to some of these cases, the Manufacturers’ Center for Legal Action has been active in others awaiting a decision whether the Supreme Court will hear the appeals. We will provide an update on those cases in another blog post shortly.
An unusual statutory restraint on the appointment process for the general counsel of the National Labor Relations Board (NLRB) is at the heart of a significant case about to be heard by the Supreme Court of the United States. The provision is part of the Federal Vacancies Reform Act of 1998. The court will decide whether Lafe Solomon, a long-serving NLRB official and former acting general counsel of the board for several years, could actually serve as acting general counsel in the face of statutory language prohibiting such service if he was nominated to be general counsel but had not served long enough as first assistant general counsel.
It’s a technical provision with a “notwithstanding” clause that has caused all the confusion. That clause only refers to one subsection of the law, but the rest of the statutory language refers to the entire section. A federal appeals court ruled that Solomon was prohibited from serving as acting general counsel after his nomination and that the unfair labor practice complaint that was issued on his authority was invalid.
The NLRB issues more than 1,200 complaints each year, so thousands of decisions were made by the general counsel or those to whom he delegated decision-making authority from January 5, 2011, to November 4, 2013. This challenge could allow many of those cases to be revisited.
But the case will have an impact on many other federal agencies, arguably going back to 1998. In April, the administration warned the Supreme Court that “Decisions of many former acting officers, including senior officers in the HHS Centers for Medicare and Medicaid Services, DOJ, DOT, Department of Defense, the Export-Import Bank and General Services Administration could be open to question under the court of appeals’ reasoning. Moreover, the decision below casts a cloud over the service of about half a dozen current acting high-level officers, including in the DOT, HHS, EPA and OPM.”
The Manufacturers’ Center for Legal Action is on the front lines challenging a variety of NLRB actions that skew policy and law against manufacturers in the United States. We look forward to oral arguments at the court on November 7 and a decision thereafter.
The entire bench of the federal appeals court in the District of Columbia is hearing nearly four hours of arguments tomorrow in 39 lawsuits challenging the Obama administration’s Clean Power Plan regulation. The challengers represent a broad swath of industries, including mining, transportation, electric utilities, manufacturers and consumers of energy, as well as 27 states.
The Manufacturers’ Center for Legal Action, joined by a manufacturing coalition of more than a dozen other national trade groups, is involved in this case because we are very concerned that the Environmental Protection Agency (EPA) has imposed a set of regulations on electric utility companies that is not authorized by, and contradicts specific provisions of, the Clean Air Act. The rule’s goal is to restructure the power sector by imposing emissions limits that are unachievable without switching fuel inputs. This could undermine the reliability of the electric grid and cause higher energy rates for consumers, including manufacturers in the United States. A ruling in favor of the rule would set the EPA up to impose greenhouse gas regulations on many other sectors of manufacturing.
This case has all the earmarks of a major case that will wind up in the Supreme Court, probably in the fall of 2017. Normally only three judges would hear this first round of arguments, but the appellate court decided to go straight to the full panel of 10 (not counting Chief Judge Garland, who is not participating). This unusual step signals that the judges consider this case extraordinary, and the court has set aside its largest courtroom and two overflow rooms for the large anticipated attendance from litigants and the public.
This regulation is of existential importance for certain sectors and will put substantial upward pressure on energy costs for many manufacturers and other consumers. But beyond raising legal issues of statutory construction, administrative procedure and constitutional compliance, the Clean Power Plan is a prototype for the kind of regulation that tests the limits of the executive branch. Whoever wins the upcoming election, the next administration will have to live within the contours of decisions like the one in this case. The power to regulate comes from the Constitution and the laws enacted in compliance with it, and the courts stand as the final judge on how far that authority goes.
Government agencies have a tremendous advantage when it comes to defending new regulations in court. Judges start with a legal presumption that not only gives the benefit of the doubt to the agency, but sets a very high bar for reversing rules that most people might not have issued. As long as an agency’s rules are authorized by statute and not clearly erroneous or otherwise an abuse of discretion, courts will accept them.
That’s what the D.C. Circuit did today when it largely upheld the Environmental Protection Agency’s (EPA) rules on boilers and incinerators. All of the challenges to the rules by the Manufacturers’ Center for Legal Action and other business organizations were rejected by the appellate court. The court upheld one EPA requirement that could not be met by any small, remote incinerator or heavy oil-fired boiler in use today. It similarly rejected industry complaints about new energy assessment and recordkeeping requirements, as well as concerns about compliance with the rules when equipment malfunctions despite full compliance with regulations and due diligence by operators.
What is unusual is that the court agreed with several arguments made by environmental groups. It ordered the EPA to issue a regulation for cyclonic burn barrels and to decide whether certain other incinerators must be regulated under the Clean Air Act. The court also ordered the agency to provide further explanations about the decisions it made not to regulate emissions of a certain hazardous pollutant (non-dioxin/furan organic pollutant), about why certain exemptions should be allowed and about why it declined to regulate certain non-mercury emissions.
The bottom line is the court upheld all of the EPA’s regulations and ordered the agency to cover even more than it did, or at least give a full explanation of why it won’t.
How much exposure to a hazardous substance gives you the right to sue the manufacturer? Now that scientific analysis of genes and atoms is so widespread, are manufacturers obligated to warn of infinitesimal risks? If not, where do you draw the line? How much exposure is enough to require a company to take action to warn everyone who might be exposed?
State courts around the country are now answering these questions. Earlier this month, the Georgia Supreme Court ruled that proving that a substance caused an injury requires reliable expert testimony, and not an expert who simply concludes that any exposure to asbestos at work–regardless of the extent of the exposure–was a cause of the worker’s mesothelioma. The expert’s testimony must be based on sufficient facts or data, using reliable scientific principles and methods. The Manufacturers’ Center for Legal Action argued for this result in an amicus brief filed with the court.
Courts in at least eight other states have recently ruled likewise, concluding that the theory that any exposure to a hazard causes an injury is not a scientifically proven proposition that is accepted in epidemiology, pulmonology or other medical fields. Nevertheless, it is still possible for plaintiffs with sufficient evidence of “frequency, regularity and proximity” of exposure to make a case.
Scientific discovery is therefore the keystone for future litigation. Manufacturers will need to keep up with the latest scientific findings relating to their products. Courts will need to assess whether a product is hazardous enough to actually cause harm, taking into account the latest information about dosage and response. It is critical that courts be gatekeepers who allow only valid scientific principles and sufficient evidence of exposure. Less demanding standards would essentially result in absolute liability for any company that makes hazardous materials if those products cross the path of the client of an aggressive trial lawyer. The Georgia court’s decision upholding strict evidentiary standards will help manufacturers focus on what they do best: improving products and creating jobs.
The U.S. Supreme Court issued its final opinions of the term this week, and various hot-button social issues caught much of the media’s attention. But what about the cases that directly affect manufacturers? How did the Supreme Court rule on issues that affect your ability to compete and create jobs, such as the burden of government regulations and aggressive litigation against you?
There is good news to report. First, the Supreme Court issued a rare decision ordering the Environmental Protection Agency (EPA) to halt enforcement of the Clean Power Plan while the rule’s legality is sorted out in a lower court. The Manufacturers’ Center for Legal Action (MCLA) sought this order because of the dramatic way in which the EPA decided to regulate the electric generation sector.
Second, the Supreme Court was quite willing this year to allow manufacturers to challenge other agency decisions in court. The Hawkes Co. case allows immediate judicial review of the Army Corps of Engineers’ decisions about their jurisdiction. The Encino Motorcars case shows how companies can challenge significant changes in agency interpretations that are insufficiently justified. At the same time, the Supreme Court made it clear that parties that sue companies must meet rigorous standing requirements to be in court. However, it allowed the certification of a class of plaintiffs through statistical evidence of injury rather than actual injury, making class-action cases against manufacturers easier to file.
Third, a couple of aggressive theories of liability have been tamped down. In particular, litigation from foreign parties against manufacturers in the United States continued to be scaled back when the Supreme Court ruled that the European community cannot use our Racketeer Influenced and Corrupt Organizations Act to litigate claims arising from acts occurring abroad unless there is a clear injury in the United States. In addition, claims by third parties against manufacturers under the False Claims Act for regulatory violations were substantially limited to claims for actual fraud.
Fourth, the Supreme Court continues a longstanding policy of enforcing arbitration agreements that states have tried to undermine with consumer protection laws allowing for burdensome class-action procedures. The DIRECTV case threw out a California statute that would have eliminated class-action waivers in consumer contracts.
Most of these decisions stand the test of time, making it even more important for the Supreme Court to hear from manufacturers about the substantial effect that litigation has on their ability to survive and thrive. The MCLA made your voice heard in the Supreme Court this year, with important and beneficial results.