Urging the Supreme Court to Flesh Out the “Pretext” Exception to its Controversial Ruling inKelo v. City of New London


In this case, NELF joined with a number of amici to urge the U.S. Supreme Court to grant certiorari for the purpose of clarifying how courts should analyze a case in order to determine when the government’s “public use” rationale for taking private property is a sham or pretext intended to cover a scheme of private, third-party enrichment. 

In Kelo v. City of New London the Supreme Court ruled that a governmental taking of private property for private (as opposed to public) development, would satisfy the "public use" requirement of the Fifth Amendment, so long as the private development was intended to benefit the public at large. 

The Court ruled that the taking there did not violate the Fifth Amendment because New London's purpose was for the private development of the property to provide increased local employment and tax revenues to the city. (In fact, to date the property taken has not been developed and remains a vacant lot and an eyesore, mainly because after the Kelo decision, Pfizer--whose presence in the city was a vital expectation for the development--made the corporate decision to leave New London.)

However, in Kelo the Supreme Court did place an important limitation on such takings. With little elaboration, the Court stated that such a use of eminent domain would fall afoul of the Fifth Amendment if the alleged public purpose were merely a pretext, i.e., if the property was taken in actuality just to benefit a particular private party, as opposed to the public at large.

Since Kelo, both the lower federal courts and the state courts have adopted divergent approaches to determining whether the alleged public benefit is merely a pretext. In the present case, involving property located in Guam, the Petitioners claim that the taking of their property violated Kelo--i.e., that the alleged public purpose was actually a sham, under cover of which their property was taken to benefit the family of the local mayor. 

The Guam Supreme Court was completely deferential to the municipal authorities in this instance, seeing little reason to sift through the powerful set of facts that the Petitioners presented to prove a pretextual taking. While there are other facts that would perhaps validate the taking, the Guam Supreme Court performed no balancing of factors and did not look seriously at the plaintiffs' case. In their brief, NELF and its fellow amici did not deal so much with the factual inquiry, as emphasize that this case provides a golden opportunity for the Supreme Court to clarify how lower courts should proceed analytically when faced with such a set of facts. Any such guidance would determine how inquiry should be conducted throughout the country, including New England. 

Despite the importance of the question presented, the Supreme Court denied the writ of certiorari on April 15, 2013. 
 

Arguing Against the Regulation of Truthful, Non-Misleading Corporate Speech

This case, in which NELF has filed an amicus brief supporting the business’s Petition for Certiorari, deals with the First Amendment’s protection of speech concerning an industry’s economic activity--an issue that follows from the Court’s recent decision in Sorrell v. IMS Health, in which NELF filed an amicus brief on the merits. IMS Health was an important victory for so-called “commercial speech.” In IMS Health the Supreme Court invalidated, under the First Amendment, a Vermont statute prohibiting pharmacies from selling factual data to pharmaceutical marketers about doctors’ prescribing practices (data that revealed nothing confidential).

At issue in this case is a Department of Transportation (“DOT”) regulation whose stated purpose is to protect consumers from confusion about the total price of airfares. On that basis, the regulation requires that airlines display prominently the total price that a consumer must pay for an airline ticket. That part of the regulation is not objectionable to NELF because it serves the government’s legitimate purpose of protecting consumers. However, the regulation does not stop there and aggressively regulates the manner in which airlines may advertise their competitive base fares and the substantial, applicable federal taxes and fees—i.e., the component prices that comprise the total price. These component prices are not, according to DOT’s own findings, the source of any consumer confusion. Therefore, DOT lacks a constitutional basis to regulate their manner of expression. In particular, the regulation requires that, if the airline wants to list separately these component prices (the base fare and government charges), they may only do so literally “in fine print,” in “significantly smaller type” than the total price, and in a less prominent position in the advertisement. DOT even specifies that the “[t]he break-out of charges should not have special highlighting that sets it apart and makes it more prominent than the total price (e.g., bold font, underlined, or italicized).” 

A few airlines challenged this regulation on First Amendment grounds, arguing primarily that the regulation must fail under strict scrutiny because, in obscuring the government’s “cut” of the total price, the rule restricts core political speech that is critical of government. By a vote of two-to-one, a split panel in the D.C. Circuit found that the regulation passed First Amendment muster, but there was a strongly worded dissent from the Chief Judge agreeing with the airlines; the airlines are now seeking certiorari from the Supreme Court. 

NELF’s amicus brief in support of the airlines argued that this case neatly follows from the groundwork already laid by the IMS Health decision, in which the Court broadened the First Amendment protection for so-called commercial speech and held that a content-based regulation of speech concerning a business’ economic activity warrants heightened scrutiny. Moreover, under IMS Health, a regulation should fail heightened scrutiny where, as NELF argues is the case here, the regulation lacks a neutral justification. In short, NELF argued that, if the Court takes the case, it will have the opportunity to clarify the extent to which the First Amendment limits government action (under the guise of consumer protection) that has the purpose or effect of stifling an industry’s efforts both to promote its competitive prices and to hold the government accountable for its “cut” of the total price. 

The Supreme Court denied the petition for certiorari in this case on April 1, 2013.

Arguing That Reliance on the Expertise of an Intermediary Does Not Transform an Arms’ Length Business Transaction Into a Fiduciary Relationship

Priceline.com, Inc., (“Priceline”) operates a website that provides travel related services. In one of its hotel reservation services, “Name Your Own Price” (“NYOP”), consumers bid to obtain a room in a designated city at a discounted rate that would not ordinarily be available to them. Using NYOP, the consumer may only specify the dates when the room is wanted, the geographical area, and the desired quality of the hotel; the consumer gives up the right to choose the hotel by name. The consumer then enters a “bid price” in the amount that the consumer wishes to pay per night, and Priceline attempts to find a room that matches the consumer’s bid price and other criteria. The plaintiffs commenced an action against Priceline in the Connecticut federal district court, alleging that although Priceline provided rooms at the bid price, the rooms actually cost Priceline less than what the plaintiffs had agreed to pay, and that the difference between the bid price and the price paid to the hotel was a “secret profit” that Priceline retained in violation of a fiduciary duty that it owed to the plaintiffs as their “agent.” After the trial court granted Priceline’s motion for summary judgment on the ground that no agent-principal relationship had been created between the plaintiffs and Priceline, the plaintiffs appealed to the Second Circuit. 

In support of Priceline, NELF filed an amicus brief urging the Second Circuit to affirm the dismissal of the plaintiffs’ complaint. NELF argued, first, that under Priceline’s terms and conditions, Priceline agreed only to act as a self-interested service-provider functioning as an intermediary between the plaintiffs and the participating hotels, not as the plaintiff’s agent. NELF also noted that, contrary to the allegations in the complaint, Priceline never represented that all of its compensation would be captured in its “fees and services” charge, rather than in the bid price; in fact, Priceline specifically stated that only “part” of its compensation was found the services charge. Moreover, NELF contended that the elements of the principal-agent relationship simply cannot be found in the actual conduct of the parties. In particular, NELF explained why the conduct of Priceline was indistinguishable from the kinds of ordinary retail customer services one finds in any arms’ length transaction between a customer and a merchant. NELF cautioned against the huge expansion of liability that businesses would face if such services were recognized by the court as fiduciary in nature. Finally, NELF argued that because the plaintiffs chose to use the NYOP bidding method, they cannot now be heard to complain about the unremarkable fact that the bid price may exceed the undisclosed minimum price the seller may be willing to accept (i.e., the reserve price). 

In its decision affirming the dismissal of the complaint, the Second Circuit adopted NELF’s characterization of Priceline as a mere intermediary, not a fiduciary, and agreed that nothing in Priceline’s conduct went beyond ordinary customer service when Priceline used its expertise to check available hotel inventory against the plaintiffs’ requests for reservations. Finally, the court specifically cited NELF’s brief when adopting NELF’s argument about the significance of the reserve price to this case. After the decision issued, a request by the plaintiffs for a rehearing was summarily denied by the panel.