As a manufacturer, the possibility of being sued is an unpleasant reality of doing business. But knowing when and where you might face litigation can at least help your company evaluate risk and inform business planning. Can a fabricator in Freeport, Maine, be sued in Fairbanks, Alaska? Must a manufacturer in Milwaukee, Wisconsin, face a civil trial in Maui, Hawaii? These questions have vexed courts—and manufacturers—for decades. The National Association of Manufacturers’ (NAM) Manufacturers’ Center for Legal Action (MCLA) is working to bring some needed clarity to these issues.
Generally, a business may only be sued in a state where it is headquartered, operates a factory or conducts other business. For some large corporations, that could mean being vulnerable to suit throughout the United States. But small and medium-sized manufacturers might only operate in one region of the country or even in a single state. Courts recognize there are situations where it would be unjust to force manufacturers to face lawsuits in far-flung states where the manufacturer has no operations.
A court has jurisdiction over a defendant if that defendant has “minimum contacts” with the plaintiff’s state. If a company has a physical presence in a state, the “minimum contacts” test is easily satisfied. But determining jurisdiction becomes more challenging when a manufacturer has no operations or other physical presence in a state, but its products are ultimately sold there.
A toy manufacturer is now asking the U.S. Supreme Court to provide some much-needed clarity on these issues. The case—Align Corporation v. Boustred—involves a Taiwan-based manufacturer of toy helicopters. The manufacturer has no operations, employees or other presence in the United States. It sells to U.S.-based distributors who then sell to retailers nationwide. A Colorado man bought one of the helicopters and then sued the manufacturer in Colorado after the helicopter allegedly injured him.
The manufacturer asked the court to dismiss the case because the manufacturer has no operations in Colorado. The Colorado Supreme Court ultimately rejected that argument, reasoning that the manufacturer had placed its product in the “stream of commerce” and did not prohibit distributors from selling to Colorado retailers.
Why should manufacturers in the United States care? This “stream of commerce” theory of minimum contacts means that any manufacturer in the United States, large or small, could be sued anywhere their products end up, regardless of whether the company has any operations or other activity in the state.
Is it fair for a family-run business in Vermont to be dragged into an Oregon court? Should a manufacturer in Pittsburgh be forced to fight a frivolous lawsuit in Alaska? The NAM’s MCLA doesn’t think so, and we filed a legal brief in this case for that very reason. We are asking the U.S. Supreme Court to take the case and reverse the Colorado court’s decision. A more constrained test would significantly narrow and clarify where manufacturers can be sued.
The freedom to speak or refrain from speaking is a cherished right under the First Amendment to the U.S. Constitution. The ability of manufacturers to exercise that right is under attack, and the National Association of Manufacturers’ (NAM) Manufacturers’ Center for Legal Action (MCLA) is fighting back.
Over the past few years, some cities and even the federal government have sought to use manufacturers as ventriloquist puppets to spread political messages that could harm sales and damage company reputations. The latest example comes from San Francisco, where the city council passed an ordinance that requires warnings on certain advertisements for beverages containing added sugar. Here is how the warning would look on an actual advertisement:
Groups representing beverage manufacturers, retailers and advertisers sued in federal court to block the ordinance. They lost at the trial level but won on appeal. The city is now seeking a further appeal to the full U.S. Court of Appeals for the 9th Circuit, located in San Francisco.
The legal issues in this case, American Beverage Association v. City of San Francisco, will have far-reaching implications for manufacturers. If governments like San Francisco’s can force manufacturers to speak out against the very products they create or compel companies to spread controversial messages on their products or advertising, companies’ voices could be silenced and their business harmed.
This week, the MCLA filed an amicus brief in support of the beverage companies that argues against the city’s ordinance and the larger problem of regulation through forced speech. Our brief argues that courts should invalidate government efforts to coerce companies into spreading a political message or speaking out against their product or service. By promoting rigorous judicial review of these misguided regulatory efforts, we expect to deter other like-minded cities from enacting similar requirements. And if other cities continue to do so, the MCLA will be prepared to argue against those requirements and help strike them down as well.
“…the court ultimately sided with the MCLA and others who support the order.”
Saturday marked the last day of Philip Miscimarra’s tenure as chairman of the NLRB. While the Board was fully constituted with five members, it managed to release a passel of decisions of major importance to manufacturers. Highlighted below are the key rulings, each garnering a slim 3-2 majority and culminating long-fought struggles on fundamental questions. In the months ahead, manufacturers will better understand and comply with labor laws on a variety of topics: (1) how broadly an employee bargaining unit should be defined, (2) how much of a connection should one employer have with employees of another in order to be considered a joint employer, (3) whether workplace policies interfere with the labor rights of employees, and (4) whether annual changes in health plan costs and benefits are mandatory subjects of collective bargaining.
The NLRB’s decision in the Specialty Healthcare case in 2011 overturned 70 years of labor law regarding the standard for an appropriate size of a collective-bargaining unit. That decision has now been overruled. In PCC Structurals, Inc., the Board reinstated the traditional community-of-interest standard, throwing out a standard that allowed as few as two people to form a “micro-union” in one facility or location.
The old standard, now reversed, made it harder for a manufacturer to manage operations effectively, enabling one micro-union to shut down production and/or operations at any given time. It also made it easier for union organizers to organize, since fewer people would need to vote on any particular union.
The National Association of Manufacturers (NAM) expressed our opposition to the old standard in at least 11 amicus briefs over the past six years. We also helped lead efforts on Capitol Hill to overturn the opinion through legislation. Finally, the Board has voted to return the law to a more even-handed and rational approach that recognizes the need for bargaining units to be properly defined.
The NLRB provided a substantial victory for manufacturers on December 14 by overturning the Browning-Ferris Industries case and returning the joint-employer standard back to its original definition. It stated that to be classified a “joint employer,” jointly liable for labor violations, a business must have a direct and immediate connection to the employees in question. Browning-Ferris had said that a business could be classified a joint employer even if its relationship to the employees in question were indirect.
“We find that the Browning-Ferris standard is a distortion of common law as interpreted by the board and the courts, it is contrary to the [National Labor Relations] Act, it is ill-advised as a matter of policy, and its application would prevent the board from discharging one of its primary responsibilities under the Act, which is to foster stability in labor-management relations,” the majority wrote in its decision.
The NAM filed amicus briefs in the original Browning-Ferris case at the NLRB, as well as in the appeal now pending in the D.C. Circuit. In addition, the Supreme Court will decide in January whether to review the DirecTV case involving the joint-employer standard. We have also recently filed amicus briefs in two other cases involving this issue.
In another 3-2 victory, the Board ruled in The Boeing Company case that the company’s no-camera rule at the workplace did not interfere with employee organizing, collective bargaining or other labor rights. The NAM’s Manufacturers’ Center for Legal Action filed an amicus brief in this case calling for this result. The ruling established a new test for determining whether a facially neutral policy, rule or handbook provision potentially interferes with the exercise of employee rights under the National Labor Relations Act (NLRA). It rejected a previous ruling that would have determined the legality of the workplace rule by considering whether employees would “reasonably construe the language to prohibit” protected activity. Instead, it delineated three categories of employment policies, rules and handbook provisions and how to analyze them for legality. For facially neutral workplace policies, the Board will evaluate two things: (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the policies. This action promises to provide far greater clarity and certainty to employees, employers and unions and to eliminate conflicting and arbitrary decisions in the future.
Health Care Benefit Changes
Also on December 15, the NLRB released its decision in Raytheon Network Centric Systems. It ruled that a company may modify employee health care costs and benefits annually without that being considered a “change” that would trigger an obligation to bargain with the union representing affected employees. The Board overruled its prior decision in the DuPont case and found that a company has the right to take the same actions it has taken in the past, even though a collective bargaining agreement has expired, without negotiating with the union. The new ruling is grounded on the “long-understood, commonsense understanding of what constitutes a ‘change’ . . . .”
The close votes on all of these cases signals a continuing difference of opinion among political appointees and management and labor over how to structure shop floors to allow U.S. manufacturing employees to achieve the best workplace terms and conditions of employment while also producing high-quality products that can profitably compete around the world. We are hopeful that these latest decisions will clarify the rules and facilitate cooperation and progress toward the shared goals of everyone who makes things in America.
We live in an era of lawsuits based more in emotion than fact. In the manufacturing sector, we see litigation costs continuously rising and often at the expense of a better wage for the American worker. The National Association of Manufacturers (NAM) will shine a light on this concerning trend, beginning with an opinion piece just published in Investor’s Business Daily.
Linda Kelly, NAM senior vice president and general counsel and leader of the Manufacturers’ Center for Legal Action, describes in Investor’s Business Daily how trial lawyers seek to extort American workers, consumers and shareholders purely for profit. The piece lays out the widespread ramifications that new lawsuits pose to manufacturers in America, including the 12 million men and women that the NAM proudly represents across the United States.
Since 2005, manufacturers in America have reduced carbon emissions by 10 percent, all the while growing the American economy by 19 percent. Despite this clear commitment to the environment and economic prosperity for the American people, trial lawyers have initiated a disingenuous campaign, backed by well-funded activists, to discredit manufacturers and reap financial benefits at the cost of American workers and their families.
“Manufacturers are committed to climate action and are actively crafting solutions to this complex global challenge.”
One lawyer in particular, Michael Pawa, is a repeat player in this arena. In 2008, he unsuccessfully argued that American manufacturers had created a “public nuisance” in an attempt to set precedent for future lucrative endeavors. U.S. courts resoundingly rejected Pawa’s claims, but his politically motivated legal efforts continue today in cities like San Francisco and Oakland.
“Manufacturers are confident the courts will once again dismiss these efforts and see these lawsuits for what they are—legal attacks aimed at punishing an industry they don’t like. But manufacturers continue to be harassed by politically motivated legal officers operating with impunity beyond the reach of the courts.”
As Kelly points out, “every dollar spent defending against meritless attacks is a dollar not spent on innovation and game-changing revolutions that make our world healthier and communities safer,” and American manufacturers can ill afford to sustain unnecessary costs to their businesses and reputations.
All Americans should be wary of this free-for-all targeting by trial lawyers against the lifeblood of our economy, especially given the remarkable achievements that manufacturers have made toward enriching our environment and economic prosperity. The NAM is proud to support its members facing these frivolous lawsuits and will continue to work on behalf of the millions of American workers, consumers and shareholders that bear the brunt of these misguided legal attacks.
The American legal system struggles with the conflicting values of competition and intellectual property protection. Antitrust laws promote competition among businesses, while patent laws protect the exclusivity of one’s intellectual property. Problems develop when attempts to foster competition violate patents, which give the patent holder exclusive rights to his or her invention—a monopoly for a limited period of time. Read More
Over the past eight years, manufacturers have been forced to contend with a series of burdensome and damaging regulations, from unwise union rules, to counterproductive worker safety policies, to reckless environmental plans. The National Association of Manufacturers’ (NAM) Manufacturers’ Center for Legal Action (MCLA) has fought back in court, using our expertise and the power of our legal community to stop harmful actions and make important progress. And today, it’s clear that we’re not only succeeding but also inspiring others in Washington to take up the charge.
Last week, the Trump administration released its Unified Agenda of Regulatory and Deregulatory Actions, which provided an up-to-date forecast on the work that administrative agencies are doing to reform regulations across the government. The news was encouraging for manufacturers. On a variety of fronts, the administration is marching in lockstep with the NAM’s advocacy efforts. And at three agencies in particular—the Department of Labor (DOL), the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA)—the Trump administration is tackling issues that the MCLA has long been working to address in court.
At the DOL, we’re seeing increased efforts to enact smart, commonsense reform along the lines we’ve advocated. Leadership is expected to review issues around the “persuader” rule, which required employers to report to the DOL anytime they consulted with labor relations experts on union-organization efforts—a clear violation of manufacturers’ constitutional rights and the subject of the NAM’s successful litigation in Associated Builders & Contractors v. Perez. We expect the DOL to publish a Request for Information about the expensive and problematic “overtime” rule, which the NAM challenged and stopped in Plano Chamber of Commerce v. Perez—a case that the DOL examined before deciding to take action. In both cases, the administration is building on the MCLA’s efforts in court.
We’re also hearing promising news from OSHA. In the coming days, the agency will issue a proposal to reconsider, revise or remove provisions of the “injury and illness rule”—a rule that harms workplace safety by restricting employer safety incentive programs and drug testing programs. OSHA will also be addressing beryllium exposure standards that apply to construction and shipyard operations in a move that we hope will pave the way for similar work on fair beryllium regulations for manufacturing. And while the OSHA agenda doesn’t address the new “silica” rule, which halves the permissible exposure limit and mandates costly engineering controls, we’re optimistic that OSHA will consider reasonable modifications to the current silica standard. Addressing these issues, which the NAM has litigated in Texo ABC/AGC, Inc. v. Perez, Airborne v. OSHA and North America’s Bldg. Trades Unions v. OSHA, will make workers safer, processes more efficient and manufacturers better able to succeed and thrive.
Finally, the EPA is making significant strides in rolling back harmful regulations and streamlining unruly processes. The EPA, along with the Department of Defense, intends to review and rescind or replace the “Waters of the United States” rule, wading through issues that the NAM has litigated in American Farm Bureau Federation v. EPA, Murray Energy Corp. v. EPA and NAM v. U.S. Dep’t of Defense. The EPA has also proposed to withdraw the Clean Power Plan—a set of regulations that the NAM challenged in West Virginia v. EPA—and to address implementation requirements for the 2015 National Ambient Air Quality Standard for ozone, which the NAM argued in Murray Energy Corp. v. EPA would be difficult and expensive for manufacturers.
The Ongoing Fight
These are important strides forward. At the NAM, we’re excited about the progress we’ve made, and we’re pleased to have partners in the Trump administration who are dedicated to our priorities. But we’re not about to get complacent or rest on our laurels. It will be up to manufacturers and the MCLA to defend the progress we’re making when outside organizations and interest groups try to stand in our way by launching litigation of their own. We must be ready—and well-funded—for that fight. We intend to redouble our efforts in court—to protect your interests, to advance your priorities and to stand up for manufacturers across America.
The 2nd Circuit Court of Appeals has interpreted securities laws as requiring disclosure of information about uncertain future conditions, which potentially subjects many public companies, particularly manufacturers, to increasing and unwarranted civil suits. Because of these concerns, the National Association of Manufacturers (NAM) filed an amicus brief in November 2016, asking the U.S. Supreme Court to review the 2nd Circuit’s decision in Leidos, Inc. v. Indiana Public Retirement System. After the Supreme Court agreed to hear this case, the NAM filed another amicus brief addressing the merits of the case on June 28.
This case concerns liability for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 based on a failure to disclose adverse “trends” and “uncertainties,” which requires management to use its judgment in describing known trends and uncertainties that are “reasonably likely” to occur. This is part of necessary disclosures of many reports required of publicly traded manufacturing companies under federal securities laws, including quarterly and annual reports. The 2nd Circuit’s decision calls for far more disclosure than a pure materiality standard, and it calls for disclosure of purely “soft” information, all of which makes it easily susceptible to hindsight pleading.
The Supreme Court needs to resolve this issue because there is an express circuit split between the 9th and 3rd Circuits, on the one hand and the 2nd Circuit on the other. The 9th and 3rd Circuits hold that not disclosing a “trend” or “uncertainty” does not give rise to 10(b) liability, while the 2nd Circuit has held that it does. The 2nd Circuit’s holding will open up a significant new category of securities fraud claims, and, contrary to earlier Supreme Court decisions, it subjects companies to securities fraud liability for omitting disclosures, even when the “omitted” information is not necessary to make any affirmative statement not misleading. This represents a dangerous precedent and exposes issuers to ever-increasing litigation, and the hindsight problem is exacerbated by the fact that it concerns disclosures of “soft information” that are often subjective.
If the 2nd Circuit’s ruling is allowed to stand, plaintiffs might start pleading everything as a “trend” or “uncertainty” that should have been disclosed. Public companies could be exposed to “fraud-by-hindsight” litigation if shrewd plaintiffs allege that an event was known to management as being reasonably likely to occur, including knowledge of “soft information.” This issue is a slippery slope where manufacturers may be subject to private suits for securities fraud for failing to disclose information that may not be material.
Because the 2nd Circuit’s ruling introduces more uncertainty into an area that demands certainty and predictability, the logical outcome for companies is to over-disclose potential “trends and uncertainties” so that they might mitigate the increased likelihood of being sued for securities fraud. As the Supreme Court first anticipated more than 40 years ago, such a rule of law will “lead management simply to bury the shareholders in an avalanche of trivial information—a result that is hardly conducive to informed decision-making.” A win in this case would significantly limit public company exposure to liability for securities fraud as well as provide clarity regarding disclosure obligations.