Federal Employees’ Entitlement To Unpaid Back Overtime Wages Does Not Constitute Property Protected By The Fifth Amendment

In this case, the United States Court of Appeals for the Federal Circuit upheld the federal government’s power summarily to limit its obligation to its employees for back overtime pay. The case involved Congress’s attempt to save funds by retroactively eliminating liability under administrative law for overtime wages claimed by over 14,000 mid- to high-level federal employees. For years, federal agencies had resisted the application of the Fair Labor Standards Act’s overtime standards (which Congress extended to federal workers in 1974) to their higher level employees, claiming that these employees were exempt as executive, administrative, or professional employees.  In litigation brought in the early 1990s challenging the agencies’ position, the courts found that the employees were eligible for overtime, which, under then applicable administrative law, entitled them to compensation for unpaid overtime for a six-year period amounting in the aggregate to as much as $460,000,000. Faced with this liability, the Comptroller General overruled 16 years of administrative law precedent and retroactively applied a two-year statute of limitations to the employees’ claims, thereby depriving them of compensation for four years of the full six-year period.  The employees successfully lobbied Congress, which in 1994 overruled the Comptroller General’s decision by statute, P.L. 103-329 § 640 (Sept. 30, 1994), eliminating the two-year statute of limitations and thereby recognizing that six-years’ compensation was owed.  Ultimately, however, federal administrators secured passage of another statute by Congress that effectively nullified the 1994 legislation. The employees then sued to recover the full overtime to which they were entitled in the Court of Federal Claims, lost, and appealed to the Federal Circuit, on the ground that by reneging on its 1994 recognition of their full claims, Congress effected a taking under the Fifth Amendment.  Consistent with its core concern for protecting private property against unjust and arbitrary government regulation, 

NELF filed an amicus curiae brief urging the Court to recognize the government’s obligations to the employees for the payment of money as a property right within the purview of the Fifth Amendment. Otherwise, NELF argued, the government could alter other obligations, like bond payments, as it had altered its overtime wage commitment to its employees, with no recourse for those thereby deprived of payment. NELF argued on historical grounds and by analogy that the Fifth Amendment’s Taking Clause protected the employees’ claims for unpaid wages which, therefore, would survive the retroactive reduction of the applicable statute of limitations wrought by the federal administrators and Congress.   The Federal Circuit disagreed, determining that the employees’ wage claims were not “property,” but simply “property interests,” protected by the Fifth Amendment’s Due Process Clause, not the Takings Clause. The hurdle for the government’s retroactive cancellation of mere “property interests” is relatively low. The Federal Circuit directly addressed, and rejected,  NELF’s argument that the overtime wages at issue were similar to the interest due to clients on lawyers’ trust fund accounts, which the Supreme Court has found to be property, and not merely property interests, for Fifth Amendment purposes. The Federal Circuit held that the Supreme Court precedent cited by NELF was limited to the particular facts of that case and did not apply to the federal employees’ claims.  The plaintiffs petitioned the Supreme Court for certiorari on April 13, 2005, and NELF reiterated its arguments in the amicus curiae brief it filed in support of the petition on July 6, 2005.  The petition for certiorari was denied on October 3, 2005.

Protesting An Amendment, By Judicial Fiat, Of The Digital Millennium Copyright Act In Violation Of Congressional Intent

In 1998, Congress addressed copyright issues that had emerged with digital media by enacting the Digital Millennium Copyright Act (“DMCA”).  The DMCA includes an anti-circumvention provision, 17 U.S.C. § 1201(a)(1)(A), which, in pertinent part, states:  “No person shall circumvent a technological measure that effectively controls access to a work protected under this title.”  In prohibiting circumvention, Congress struck a balance between the interests of non-infringing users and the owners of copyrighted computer codes that could easily be pirated.  The plaintiff Storage Technology Corporation (“StorageTek”) manufactures automated tape cartridge libraries for storing computer data.  The libraries are operated via StorageTek’s copyrighted computer code, which, as installed, consists of a functional code that runs the units and a maintenance code that can troubleshoot and maintain the units.    StorageTek only licenses the functional code to its customers, expressly excluding the copyrighted maintenance code from the license.  Unauthorized access to the maintenance code is prevented by a StorageTek password protection function called “GetKey.”  

The business of the defendant, Custom Hardware Engineering & Consulting, Inc. (“CHE”), is repairing StorageTek libraries, which it does by circumventing GetKey and using StorageTek’s copyrighted maintenance code without its permission.  StorageTek sued CHE in the Federal District Court in Massachusetts on a number of bases, including copyright infringement and circumvention in violation of the DMCA.  The district court granted an injunction, which CHE appealed to the Federal Circuit.  In its decision vacating the injunction, Storage Tech. Corp. v. Custom Hardware Eng’g & Consulting, Inc., 421 F.3d 1307 (Fed. Cir. 2005), the Federal Circuit panel held that to establish liability under the DMCA a plaintiff must show not only unauthorized circumvention to access copyrighted material but also that the defendant either infringed or facilitated the infringement of the copyright.  In so holding, the panel relied on  Chamberlain Group, Inc. v. Skylink Technologies, Inc., 381 F.3d 1178 (Fed. Cir. 2004).  Both decisions essentially amended the anti-circumvention provision to contain an  infringement requirement that is not stated in the statute itself.  StorageTek petitioned the Federal Circuit for a rehearing or a rehearing en banc on several grounds.  

NELF filed an amicus brief urging the Court to grant StorageTek’s request  for a rehearing on the ground that the panel’s rewriting of the DMCA violates basic principles of statutory construction and substitutes the court’s view for what the statute actually says.  Since the anti-circumvention provision is unambiguous, the federal courts are bound to enforce it as written.  NELF also pointed out that the panel’s interpretation of the anti-circumvention provision, like that of the panel in Chamberlain, renders it entirely duplicative of already existing copyright protections.  This is not what Congress intended, and the panel in this case impermissibly tampered with the delicate balance that Congress has struck between the various interests in this area.  On December 16, 2005, the Federal Circuit denied Storage Technology’s motion.

Responding To NELF’s Arguments, The First Circuit Clarifies That An Employer Is Not Required To Modify A Salesperson’s Essential Function Of Generating New Business As A Reasonable Accommodation To His Disability 

The issue in this case was whether an employer may be required under anti-discrimination law to modify a salesperson’s essential job function of generating new business as a reasonable accommodation to his or her disability.  A three-judge panel of the First Circuit held that an underperforming salesperson with bi-polar disorder was entitled to a jury trial on his claim that his former employer, Liberty Mutual Insurance Co. (“Liberty”), failed to make a reasonable accommodation for his disability when it refused his request to service highly coveted mass marketing (“MM”) accounts, which would have substantially reduced his essential function of seeking out and securing new accounts.  Liberty moved for a rehearing or hearing en banc before the First Circuit, asking the Court to reinstate the District Court’s grant of summary judgment to Liberty on this claim.  

NELF filed an amicus brief in support of Liberty’s en banc petition, arguing that the panel’s decision erodes the established bright-line rule that a reasonable accommodation does not require modifying the essential functions of a job.  NELF argued that the First Circuit’s opinion weakened this established rule in two ways.  First, the opinion failed altogether to invoke the rule as a clear limit on Liberty’s affirmative duties when making a reasonable accommodation for Tobin’s alleged disability.  Secondly, the opinion failed to recognize that the selection criteria for assignment to the coveted MM accounts, which Tobin requested as a reasonable accommodation, serve to define the essential functions of a salesperson’s job.  In particular, Liberty had argued on summary judgment that a salesperson must perform the essential function of generating new business to Liberty’s satisfaction before being considered for assignment to MM accounts.  The opinion failed to recognize that requiring Liberty to assign MM accounts to an underperforming salesperson like Tobin would eliminate the essential function of generating new business, contrary to well-settled law.  The panel’s decision suggested that, despite a company’s legitimate business need for an employee to perform certain essential tasks such as generating new business, the ADA may nevertheless require the employer to alter or waive these tasks with respect to certain employees even though they were hired expressly to perform them.  The panel’s opinion thereby appeared to remove the employer’s prerogative to define the essential functions of a job. The specter of potential and uncertain liability arising from such a change in the law would be harmful to businesses and, by extension, to their employees.  NELF argued that if it were not corrected, the panel’s decision could lead to confusion concerning an employer’s affirmative duties under reasonable accommodation law. The decision as written could impede an employer’s ability to make routine business decisions regarding the discharge of underperforming employees and could encourage courts to assume the inappropriate role of super-managers of a company’s human relations department.  

On December 23, 2005, the First Circuit granted Liberty’s motion for a rehearing and reissued its decision.  Although the First Circuit did not alter its conclusion on the merits, it addressed NELF’s request for clarification by clearly stating in the reissued decision that (a) Liberty was not required to accommodate Tobin in a way that would have altered his job functions and (b) that Liberty will prevail at trial if it proves that Tobin’s failure to make sales outside of MM accounts constituted a failure to fulfill an essential function of the job.

The Massachusetts Appeals Court Agrees With NELF That A Business Cannot Be Liable For Tortious Interference Merely By Choosing Not To Contract With Another Business

At issue in this case was the decision by Sovereign Bank of New England (“Sovereign Bank”) not to renew a contract between its predecessor bank, Fleet Bank, and Berkshire Armored Car Services, Inc. (“Berkshire”) for cash processing services.  Berkshire sued Sovereign Bank for intentional interference with contractual relations, alleging that Sovereign Bank’s decision caused another of Berkshire’s large customers, Victory Supermarkets (“Victory”), to terminate its wholly separate contract with Berkshire to transport and process Victory’s cash deposits with Sovereign Bank.  Berkshire prevailed at a jury trial on this claim, even though the trial judge threw out its Mass. G.L. 93A claim, which was based on the same facts.  

The issue before the Appeals Court was whether Sovereign Bank could be held liable for tortiously interfering with Berkshire’s business relationship with Victory merely by making the business decision not to contract with Berkshire.  NELF filed an amicus brief in the appeal on behalf of itself, the Massachusetts Bankers Association, and Associated Industries of Massachusetts, supporting Sovereign Bank.  In its brief, NELF argued that, as a matter of law and sound public policy, a business should be able to choose freely to do business with whomever it wishes and should not have to fear potential liability for the incidental consequences that may arise from its legitimate business decisions.  NELF also argued that courts from many other jurisdictions have rejected claims of tortious interference when one business simply has decided not to do business with another, regardless of any adverse economic consequences. Finally, NELF argued that the two verdicts in this case—the trial judge’s finding against Berkshire on its Mass. G.L. 93A claim and the jury’s verdict in Berkshire’s favor on the tortious interference claim—were inconsistent and irreconcilable and failed to provide any rational basis on which a business could plan its conduct in the marketplace.   

In November 2005 the Appeals Court ruled in Sovereign’s favor, reversing the Superior Court’s judgment.  The Appeals Court held that Sovereign's choice of armored car services was a legitimate business decision and that Berkshire “failed to establish that Sovereign had an improper motive to intentionally interfere with Berkshire's contract with Victory.” The Court noted that there was no evidence that Sovereign even knew of Berkshire's contract with Victory when it chose not to renew Berkshire’s contract, and therefore that there was no causal link between any hostility on the part of Sovereign toward Berkshire and Berkshire’s loss of its business relationship with Victory.  On December 21, 2005, the Supreme Judicial Court denied Berkshire’s application for further appellate review.

The Massachusetts Supreme Judicial Court Attempts To Clarify Whether A Consumer May Bring An Action Under The State’s Consumer Protection Act, Mass. G.L. c. 93A, When The Consumer Has Suffered No Actual Damage

In January, 2006, the Massachusetts Supreme Judicial Court (“SJC”) decided three closely-watched cases in which consumers who had not been injured in any way alleged that certain Massachusetts businesses were liable for statutory damages and attorneys’ fees under Mass. G.L. c. 93A.  NELF was active as an amicus in all three cases arguing that the plaintiffs' claims should be dismissed because they had suffered no actual harm.  

In the first two cases, Hershenow and Roberts, the plaintiffs attempted to bring class actions under c. 93A based on a car rental company’s alleged violation of the Massachusetts statute and regulations governing collision damage waivers (“CDW”), even though the alleged violations had not affected them in any way.  (In Hershenow the plaintiffs purchased CDW coverage, but never invoked it because their vehicle was not damaged; in Roberts the plaintiff had not even purchased CDW coverage.)  Similarly, in Albats the plaintiff brought a class action seeking recovery under c. 93A from her health club, alleging that her contract with the club violated the Massachusetts statute that governs health club agreements (and which provides that any violation of its provisions is a per se violation of c. 93A), despite the fact that she had actually suffered no harm from the allegedly illegal provisions.  The plaintiffs in all three cases argued that actual harm was not required for recovery under c. 93A based on the SJC’s decision in Leardi v. Brown, 394 Mass. 151 (1985), in which the Court held that the inclusion of illegal provisions in a residential lease constituted an invasion of the tenants’ legally protected interest and could be the basis for statutory damages and fees.  Each of the three cases was dismissed by the trial court.  The plaintiffs appealed and the three cases were consolidated for hearing on direct appellate review by the SJC.  

In its amicus briefs NELF argued that a plaintiff has no claim under c. 93A, absent proof that the alleged violation caused actual injury.  NELF argued, inter alia, that the Legislature’s 1979 amendment of c. 93A, § 9, which replaced the “loss of money or property” requirement for consumer claims with a general “injury” requirement, did not eliminate the statute’s requirement that the violation must cause actual injury.   NELF urged the SJC to clarify c. 93A jurisprudence by returning to the bedrock principle that a plaintiff has no claim if the defendant has not caused any harm.  NELF warned that to hold otherwise would encourage abusive litigation that could expose Massachusetts businesses to the threat of potentially large awards of attorneys’ fees and large aggregated statutory damages especially in the class action context.  

On January 17, 2006, the SJC issued decisions in Hershenow and Roberts, affirming the trial court’s grant of summary judgment for the defendant businesses in each case, on the ground that the plaintiffs could not maintain their actions because they had suffered no damages.  In its decisions, the SJC relied on NELF’s analysis of the Legislature’s 1979 amendment of c. 93A and addressed many of NELF’s concerns.  The Court stated that the Legislature did not intend to permit a consumer to recover statutory damages, attorney’s fees, and costs just because a consumer contract violates a requirement of law, when the consumer cannot demonstrate that the illegal contract has caused any loss.  

Despite this holding, however, the SJC distinguished Hershenow and Roberts from its holding in Leardi on the grounds that in Leardi the illegal lease provisions did cause the tenants to suffer harm by deterring them from exercising their legal rights on pain of loss of tenancy. “[The mere existence of statutorily prohibited lease provision placed all tenants in a worse and untenable position than they would have been had the leases complied with the requirements of Massachusetts law.”  In contrast, the Court concluded that, in Hersehnow and Roberts, “the statutorily noncompliant terms in Enterprise’s automobile rental contracts did not and could not deter the plaintiffs from asserting any legal rights.”  In her concurrence in Hershenow, Justice Cowin argued that this is a distinction without a difference and that Leardi ought to be overruled to avoid continuing confusion in this area of law.  Three days after its decisions in Hershenow and Roberts, on January 20, 2006, the SJC decided Albats without issuing a decision.  It simply entered an order on the docket stating that “[t]he judgment of the Superior Court [dismissing the case] is affirmed by an equally divided court.”