Opposing an Unauthorized Expansion of Regulatory Authority

In this case NELF filed an amicus brief in support of Entergy Nuclear Generation Company, which operates the Pilgrim Nuclear Power Station in Plymouth (the only remaining nuclear station generating electricity in Massachusetts).  Entergy withdraws water from Cape Cod Bay in order to use the water to cool the power station. The company commenced a declaratory judgment action to contest the claim of the Massachusetts Department of Environmental Protection (“DEP”) that DEP possesses the authority under the state Clean Waters Act to regulate these withdrawals.  Unlike DEP’s undoubted statutory authority to protect water quality by regulating discharges into surface waters of the Commonwealth, DEP possesses no apparent authority under the Act to regulate withdrawals of water.  Entergy succeeded in obtaining a declaratory judgment to that effect in the state trial court. On appeal, DEP sought to overturn the judgment, justifying its regulations on the basis of an interpretation of the Act that ignored the plain language of the Act, discarded DEP’s own regulatory definitions, and misrepresented the relationship between federal and state environmental law.  The case therefore provided an excellent opportunity for NELF to advocate its position that statutes affecting property and business should be interpreted in a manner that is both reasonable and consistent with legislative intent.  

In its brief, NELF systematically rebutted DEP’s legal and factual mischaracterizations by examining the definitions of a series of crucial terms as well as by countering DEP’s wayward interpretation of specific provisions of the Act.  NELF also clarified interrelations of the state Act and the federal Clean Water Act and argued that, contrary to DEP’s contentions, federal law neither requires nor authorizes state regulation of water withdrawals.  In the policy section of its brief, NELF observed that DEP’s result-oriented arguments diverge greatly from the intent of the Act and had burdened Entergy’s operations with unnecessary costs and uncertainty.  

In its April 2011 decision, the SJC vacated the lower court’s ruling in favor of Entergy and ordered that judgment enter for DEP.  In doing so, the Court did not rely on any of the arguments of DEP that NELF had criticized, but rather on the principle that an agency’s powers include not only those expressly set out in statute but also those that are not inconsistent with statute and are reasonably necessary to fulfill the agency’s clear statutory duties.  The Court found that DEP’s asserted power to regulate withdrawals was such a power. 

Defending Arbitration Provisions in Employment Agreements

NELF’s concern in this case was that the Massachusetts Commission Against Discrimination (“MCAD” or “Commission”) claimed, in effect, an absolute immunity from the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq.  In this case, a terminated employee alleged unlawful sex discrimination and retaliation under G. L. c. 151B.  Under that chapter, such claims must be filed initially with the MCAD for administrative investigation.  If the MCAD finds probable cause and the complainant so chooses, the MCAD may then both prosecute and adjudicate the claims.  A complainant always has the right, however, to remove claims from the agency for adjudication in another forum.  

In this case, the complainant refused to exercise her right remove her claims from the MCAD so that they could be arbitrated pursuant to a binding arbitration agreement.  Instead, she insisted on remaining in the MCAD and, without saying so expressly, obtaining an adjudication there, in violation of her agreement to arbitrate.  Her argument, largely couched in terms of the MCAD’s statutory power to prosecute claims, was that the MCAD is unaffected by private arbitration agreements.  After the employer brought an action in Superior Court to compel arbitration, the Commission intervened on the employee’s behalf, arguing that no private agreement can divest it of jurisdiction to prosecute claims of discrimination because it is charged by the Legislature with the public mission of eliminating discrimination.  The judge refused to order arbitration and the employer appealed.  The SJC granted direct appellate review and solicited amicus briefs.  

Believing that if the complainant and the MCAD were to prevail, pre-dispute arbitration agreements in employment agreements encompassing discrimination claims would become voidable at the discretion of the employee and the MCAD, NELF filed an amicus brief in support of the employer.  NELF argued that the arguments of the complainant and the MCAD ignore the distinction between the MCAD’s prosecutorial role and its rule as adjudicator.  The U.S. Supreme Court relied on this distinction in Preston v. Ferrer, 552 U.S. 346 (2008), in which that court held that, under the FAA, state agency adjudication must yield to a private arbitration agreement.  NELF argued Preston governs this case and that therefore the MCAD could not displace the arbitration agreement.  This conclusion is further supported by an earlier Massachusetts discrimination case, Warfield v. Beth Israel Deaconess Medical Center, Inc., 454 Mass. 390 (2009), in which the SJC declared that an arbitration agreement waives both judicial and administrative remedies.  NELF also argued that the reliance that the Commission and the complainant placed on the MCAD’s limited power to prosecute claims is doubly misguided.  Not only does it fail to address the issue of adjudication specfically, but it also ignores that under c. 151B the MCAD cannot prosecute private claims unless the complainant first chooses agency adjudication, a choice the arbitration agreement here precludes.  Finally, NELF argued that the position of the MCAD and the complainant contravene the strong federal and state policies favoring arbitration.  

On March 10, 2011, the SJC, agreeing with NELF, quoted the holding of Preston as the rule of decision in this case and vacated the Superior Court’s decision denying the employer’s motion to compel arbitration. 

 

Arguing Against Per Se Invalidation of Class Action Waivers in Consumer Form Arbitration Agreements

The issues addressed on the merits by NELF as amicus in this U.S. Supreme Court appeal is whether the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, preempts a state’s per se rule against the enforcement of class action waivers in consumer form contracts that predictably involve small-value claims, i.e., most consumer contracts.  The case involves putative consumer class action brought in U.S. district court in California alleging that AT&T Mobility (“ATTM”) engaged in fraudulent advertising when it offered its customers a “free” phone for which it nevertheless charged sales tax, as required under California law.   ATTM moved to compel arbitration in accordance with the arbitration provision of its service agreement, which barred class arbitration.  The district court denied ATTM’s motion ruling that the class arbitration waiver was unconscionable under California law, relying on a California case, Discover Bank v. Super. Ct, 113 P.3d 1100 (Cal. 2005). The Ninth Circuit affirmed. ATTM filed a petition for certiorari, which was granted by the Supreme Court. 

In its brief, filed in support of ATTM, NELF argued, first, that in light of the FAA’s mandate that arbitration agreements must be treated equally with other contracts, the Ninth Circuit’s decision should be vacated because it rests on the California court’s Discover Bank decision which created an unconscionability rule that singles out consumer class arbitration waivers and invalidates them categorically.  NELF also argued that California’s court-created rule offends the FAA because it markedly departs from the general law of unconscionability in California, which, as in most states, requires a case-specific inquiry into all of the facts and circumstances surrounding the contract.  Here, in particular, there was considerable record evidence bearing on the fairness of the ATTM arbitration provision vis-à-vis consumers, all of which the Ninth Circuit felt constrained to disregard as of no consequence under Discover Bank. Finally, NELF argued that the Discover Bank decision, which the federal courts applied as the governing law in this case, may actually harm consumers by discouraging businesses from offering the consumer-friendly terms that are generally meant to compensate consumers for the waiver of class-action arbitration.  

On April 27, 2011, the Supreme Court, in a 5-4 decision, reversed the Ninth Circuit and held that the FAA preempts the Discover Bank rule for unconscionability.  The majority opinion by Justice Scalia essentially agrees with NELF’s arguments that the Discover Bank rule is a “toothless” standard that effectively singles out arbitration agreements for per se invalidation. In addition, the Court concluded that the Discover Bank rule effectively requires class arbitration, and that compelled class arbitration is incompatible with the FAA’s purposes “to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”