Four Ways the Supreme Court Helped Your Business This Year

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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 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 Court issued a rare decision ordering the 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 sought this order because of the dramatic way in which the Environmental Protection Agency decided to regulate the electric generation sector.

Second, the 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 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 U.S. manufacturers continued to be scaled back when the Court ruled that the European Community cannot use our Racketeer Influenced and Corrupt Organizations Act (RICO) 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 Court continues a long-standing 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 Court to hear from manufacturers about the substantial effect that litigation has on their ability to survive and thrive. The Manufacturers’ Center for Legal Action made your voice heard in the Supreme Court this year, with important and beneficial results.

Unanimous Supreme Court Ruling Offers Some Relief

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Responsible government contractors can breathe a short sigh of relief as a result of a surprisingly helpful opinion, albeit one that does not entirely relieve companies of liability under the broadly worded and highly punitive False Claims Act. At a time when consensus is hard to come by in other branches of government, a unanimous Supreme Court decision today cracked down on an expansive litigation tactic that would have subjected manufacturers across the country to potential treble damages liability for a wide range of regulatory or contractual violations.

The ruling affects companies that sell goods or services to the federal government. If you submit a bill to the government, someone may claim that you are trying to defraud the government if you are not in full compliance with your contract or with statutory or regulatory requirements under it. Fortunately, the Supreme Court scaled back the types of claims that third parties can make about your billing. It reversed an appeals court ruling that would have made every bill an implied representation of compliance with all relevant regulations and would have made any undisclosed violation of a precondition of payment grounds for a lawsuit for fraud.

Instead, courts will recognize fraud claims only if they involve violations of material statutory, regulatory or contractual requirements. The FCA does not apply to insignificant regulatory or contractual violations. However, the court will allow implied false certification claims in limited circumstances, where your claim for payment makes specific representations about the goods or services provided and where your failure to disclose noncompliance with material requirements “makes those representations half-truths.” This means that future lawsuits will require courts to conduct a “rigorous” and “demanding” inquiry into what you told the government about your deliverables, what part of your performance of the contract was deficient and how important that deficiency was to the government. Much leeway remains for third parties to make claims arising from a company’s lack of compliance with its obligations, but the legal standards are much clearer and eliminate FCA liability for insignificant violations of thousands of complex statutory and regulatory provisions that are not material to the contract.

The case is Universal Health Services, Inc. v. United States ex rel. Escobar, and the Manufacturers’ Center for Legal Action filed an amicus brief supporting this result.

Appeals Court Errs on Net Neutrality; NAM Will Press for Legal Fight in Higher Court

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By Patrick Forrest, vice president and deputy general counsel and Cedrick Dalluge, legal fellow, National Association of Manufacturers

On June 14, 2016, a federal appeals court ruled to uphold new Federal Communications Commission (FCC) regulatory action on “net neutrality” classifying broadband providers not as an information service, but as a telecommunications provider.

The FCC heavily relied on a Great Depressionera statute enacted long before the internet was created to create its rule. Congress in 1934 never intended its Communications Act to govern 21st-century internet operations. Rather than substantively analyzing the FCC’s rule, the court insulated itself by deferring to the agency.

The court also rejected the business communities’ argument that reclassification will undermine investment in broadband infrastructure. Ironically, the court relied on the FCC assertion that “major infrastructure providers have indicated that they will, in fact, continue to invest under the framework. Those same parties later walked away from those statements, but the court emphasized that the FCC’s conclusions don’t have to be “the ones that we would reach on our own,” they only have to be “reasonable, and the majority concluded they were.

Consequently, the court failed to conduct a reasonable analysis regarding the operational business impact this rule would have on broadband providers, creating an opening for the possible deterioration of services. Overregulation risks providers diverting money from the development of new networks and technologies, stifling investment in U.S. broadband.

In dissent, Judge Williams correctly found the FCC’s order violates basic principles of agency rule-making. Regarding reclassifying broadband services on the basis of the 1934 statute, Judge Williams writes that the FCC’s justification “fails for want of reasoned decision making.” Beyond that, in crafting its rule, the FCC relied on changed factual circumstances and weak policy decisions. Judge Williams’ grave concerns regarding this ruling, shared by the National Association of Manufacturers (NAM), demand greater consideration.

By handing down this ruling, the U.S. Court of Appeals for the D.C. Circuit dictated the future of internet use. In effect, the court allowed the FCC to usurp the legislative process to pursue an inefficient quick fix to a complicated issue.

The NAM, as a leader on this issue, will continue this fight. Likely the ultimate decision-making body will be the Supreme Court, and the NAM is committed to seeing this issue through to the end.

The National Economy Gets a Boost from a Federal Appeals Court

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State legislators continue to try to impose their particular requirements and policy preferences on out-of-state manufacturers. Today, a federal appeals court issued a long-awaited ruling striking down an attempt by Minnesota to ban the use of electricity generated by large energy facilities in other states that use disfavored fossil fuels. The decision makes clear that states are limited by national laws like the Federal Power Act and the Clean Air Act, and one judge went even further to find the state’s restrictions to be an unconstitutional interference with interstate commerce. The Manufacturers’ Center for Legal Action supported this outcome with an amicus brief in the case, and the ruling is an important judicial restraint on local restrictions with interstate and national effects.

Unfortunately, states continue to adopt laws that purport to protect their own interests but that can cause dramatic effects on manufacturers outside their borders. Unique state labeling requirements, such as those for genetically engineered products, force companies to find national solutions for a single-state requirement. Trucking regulations in one state affect any manufacturer whose products move in interstate commerce.

Now under consideration are permit conditions for an export facility in Longview, Washington, that would prevent a manufacturer from simply transporting its product through the state because it is a disfavored fossil fuel. While it’s not a state law that is under consideration, it’s another way that state and local authorities are trying use their regulatory power to impede manufacturing, transportation and exports and the jobs that come with them. We will continue to remind them, even if we have to enlist the support of federal judges, that we must work together to develop national strategies to attain all of our economic and environmental goals.

Court Expedites Land Use Jurisdictional Challenges

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If you are injured, the Supreme Court usually finds a way to allow you into a courtroom to air your grievances. Then it’s up to you to convince a judge or jury that the law provides a remedy.

Today’s unanimous decision from the Supreme Court in the Hawkes Co. case is an important reminder that the courts are open if your legal rights are impaired by the government. The courts serve a critical role in our tripartite system of democracy, providing checks and balances that are essential to prevent overreach by Congress and the executive branch. The decision gives a property owner the right to go to court after an agencyin this case the U.S. Army Corps of Engineers (Corps)decides that your property is under its regulatory authority. Corps or Environmental Protection Agency (EPA) decisions that your property is within their jurisdiction subject you to liability under the Clean Water Act, and you now have the right to challenge those decisions in court.

This ruling is important to ensure that such agency decisions are not arbitrary and capricious, or do not otherwise exceed an agency’s statutory authority. But legal challenges themselves are very expensive and time-consuming. It is far better that the agency get its jurisdictional determinations right from the beginning, under clear direction from Congress and with the proper application of its delegated authority.

Unfortunately, the Clean Water Act is anything but clear about the Corps’ jurisdiction, and the Manufacturers’ Center for Legal Action is in the middle of a long legal battle to clarify the meaning of the statute. That fight is over the administration’s latest interpretation of federal jurisdiction over “waters of the United States,” and we hope to provide further arguments to property owners when they think the government has reached too far. At the end of the day, we look forward to a final decision from the Supreme Court on how far the Corps’ and EPA’s jurisdiction goes, so that everyone, including individual landowners like the Hawkes Co., will better know where permits are required and whether they need to head back to the courtroom to vindicate their rights.

Permit Traps—Proceed at Your Own Risk

By | Energy, Infrastructure, Manufacturers’ Center for Legal Action, Shopfloor Legal, Shopfloor Policy | No Comments

Government decisions derailing permits for infrastructure projects raise serious questions about future access and the cost of energy in this country. Affordable energy supplies are critical to the viability and competitiveness of manufacturers in the United States, but equally important is the ability to obtain a wide variety of other permits to carry on routine manufacturing operations. After successfully navigating federal, state and local government requirements, as well as opposition from national environmental groups during the permit approval process, a company is authorized to do business as long as it follows the permit.

When a Clean Water Act permit is approved and the individual is in compliance, the act provides a shield against arbitrary enforcement actions and citizen suits. The permit sets those limits. Unfortunately, a company can be forced to defend itself in court when someone tries to claim that the permit requires more than it does. If undermined, the permit shield can be no shield at all, or at least a very expensive one to maintain.

That’s the situation in a case now before the U.S. Court of Appeals for the Fourth Circuit in Richmond. A citizen’s group wants the court to insert new limits in a permit that the government had considered and decided not to include. In an amicus brief, the Manufacturers’ Center for Legal Action argued that suits like this upend the process for setting and implementing water quality standards by second-guessing the interpretations of those responsible permitting authorities. They also create serious after-the-fact liability without fair notice.

This kind of regulation by litigation threatens to add another layer of government control, activated by special interest groups, on regulatory decisions. Enforcing permit requirements is appropriate, but changing the terms of a permit in the middle of production is an entirely new problem that increases uncertainty, saps the life from productive investments and dampens our ability to create and sustain jobs.

Pipeline Permitting and the Limits of Executive Power

By | Energy, Manufacturers’ Center for Legal Action, Shopfloor Legal, Shopfloor Main | No Comments

The tortured, roundabout, drawn-out process that led last fall to the final disapproval of the Keystone XL pipeline project was equal parts astonishing and frustrating.  After a seven-year process, in the wake of determinations clearly to the contrary by the State Department, and in the face of unambiguous Congressional support, the Administration finally disapproved of the pipeline, finding that it was not in the national interest to approve the project.  Supporters of the pipeline wondered how it could be possible that the Executive branch could have such sweeping authority to kill a private commercial project that enjoyed strong bipartisan Congressional support and which the Administration had previously supported.  The decision clearly appeared to be one based on politics, but was it also one based on legitimate Constitutional authority?   In a brief recently filed by the Manufacturers’ Center for Legal Action in the US District Court for the Southern District of Texas, we join TransCanada in arguing that it was not.

In our amicus brief in TransCanada v. Kerry, we argue that the State Department’s prohibition of the pipeline violated the Constitutional separation of powers.  The Constitution explicitly grants to Congress the authority to regulate foreign commerce.  A cross-border pipeline clearly falls in the domain of foreign commerce.  While the Executive branch possesses the implied authority to regulate foreign affairs, which is oftentimes exercised collaboratively with Congress, and has relied upon that authority in this case, it does not have the authority to usurp the power of Congress to regulate commerce, particularly when Congress has clearly and repeatedly acted to demonstrate its support for construction of the pipeline.

While the President has noted that the pipeline crosses an international border, thereby implicating foreign affairs interests that fall within the realm of the implied power of the Executive, the justification offered for regulating the pipeline has nothing to do with border crossing, relations with Canada, or national security.  Rather, the President encroached on Congressional authority to regulate commerce in this case to create a helpful bargaining chip in the unrelated matter of the Paris Climate Change talks.  While this may be a legitimate political concern, it is not a permissible exercise of the foreign affairs power.

Stay tuned as this case progresses through the courts.  Not only are the specifics of the case very important, but in this era of heightened Executive branch power, the underlying separation of powers principles are equally so.

Court Upholds Industry Position on Requisite Harm to Initiate Litigation

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On May 16, 2016, the Supreme Court ruled in a 62 decision in favor of the NAM position in Spokeo, Inc. v. Robins. This case arose from an alleged statutory violation of the Fair Credit Reporting Act (FCRA). Spokeo published inaccurate information on its website that portrayed that the plaintiff, Robins, as having more education and a higher income than was true. Robins sued under the act for this error. This was a significant case for the business community that could have opened the litigation floodgates. The Ninth Circuit held that “the violation of a statutory right is usually a sufficient injury in fact to confer standing,” and that Robins could establish injury-in-fact because he alleged violations of “his statutory rights.”

The Supreme Court rejected the Ninth Circuit’s reasoning that particularization alone is enough to constitute injury-in-fact. Rather, the Supreme Court said to constitute injury-in-fact the harm must be both particularized (meaning that it must affect the plaintiff in a personal and individual way) and concrete (meaning it must be a de facto, real harm).

The Ninth Circuit erred by eliding over the separate concreteness inquiry, rendering its standing analysis incomplete.

The Supreme Court emphasized that concrete injuries need not necessarily be tangible, giving examples of injuries to free speech and free exercise. And it added that Congress plays an important role in elevating intangible harms to judicially redressable injuries. However, the Supreme Court said, “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” A plaintiff cannot simply allege a “bare procedural violation.” After all, a failure to provide the required notice under the FCRA might not cause any harm, because the information reported might be accurate. And even inaccurate information (for example, the Supreme Court said, listing an incorrect zip code) may not present any material risk of harm. The Supreme Court remanded the case to the Ninth Circuit to address whether the procedural violations of the FCRA alleged by Robins entail a degree of risk sufficient to meet the injury-in-fact concreteness requirement.

Has the EPA Gone Too Far on Ozone?

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We think so. The Environmental Protection Agency’s (EPA) latest round of rulemaking setting a National Ambient Air Quality Standard for ozone lowers the tolerance level from 75 to 70 parts per billion (ppb). Though the change in the numbers is small, it is expected to be very difficult to achieve and, we argue, not “appropriate” as required by the Clean Air Act.  This is particularly true in areas of the country that are already struggling to comply with the previous levels, and the new rule will subject additional regions to stricter emission controls or permit denials.

Today, in our first major legal brief challenging the rule in court, we detailed why the EPA has actually exceeded its statutory authority to reduce the level. A key reason stems from background ozone levels. The new limits will simply be impossible to achieve if ozone naturally occurs at 70 ppb without any cars, trucks, power plants or manufacturers in this country.

The EPA said it was prohibited from considering the effect of background levels of ozone when setting its standard. Unfortunately, background levels fluctuate. Spikes in ozone can occur from natural phenomena like wildfires, lightning storms and weather conditions that transport ozone and the substances that create it from other countries, including those as far away as China. Even vegetation like pine trees produce gases that react to create ozone. Studies show that lightning can add as much as 25-30 ppb and wildfires can add more than 50 ppb. One modeling study estimates that Asian emissions contributed 8-15 ppb in certain areas of our country and that nearly half of springtime ozone readings above 70 ppb in the southwestern United States would not have occurred without migration of these pollutants from Asia.

A region fails to comply with the standard if it exceeds the ozone limits for an average of four days a year. Shouldn’t there be an exception when there are identifiable spikes from uncontrollable external sources? The law requires that standards be attained, but lowering the standard to this new level makes that much harder, if not impossible, in some areas. The EPA must take appropriate account of the evidence that background ozone concentrations that cannot be controlled can reach levels that will prevent attainment. The act requires such consideration, and failure to do so is arbitrary.

MCLA Helped Secure Another Win for Businesses and Manufacturers

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This week, the MCLA helped secure another win for the business community. The decision in DC, CCDC v. DOL, by the D.C. Circuit Court, applied commonsense reasoning to reject the Department of Labor’s unprecedented attempt to expand the scope of federal law applicable to public works into the private sector. The court confirmed that where a public entity is not party to a construction contract, a “public works” project will not be subject to Davis-Bacon wage regulation, unless the project meets at least one of two criteria: (i) construction with public funding, or (ii) ownership or operation by the government.

The ruling could encourage private developers to seek out further opportunities to lease land from government entities for cost-efficient construction and development of private enterprises, because the risk of being subject to increased wage costs is eliminated if the developers follow the project delivery method used for the CityCenterDC, in which the District was not a party to the construction contracts leased the land to private developers. That being said, there are other similar cases in the legal pipeline, and this decision may be appealed to the U.S. Supreme Court. Notably, the president’s nominee for the Supreme Court was on the panel to hear the case, but recused himself from this decision.

The MCLA will continue to advocate for manufacturers in the courts preventing radical expansion of federal regulations. To learn more about the MCLA, visit our website.

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