Whether the State May Use the Public Trust Doctrine to Charge Filling Fees to Owners of Property

This case involved Massachusetts Department of Environmental Protection (“DEP”) fees for fill placed in the Acushnet River in New Bedford pursuant to an 1806 statutory grant. The predecessor in interest of Trio Algarvio, Inc. (“Trio”) filled a wharf within its grant for a fish processing plant. DEP asserted that the public trust doctrine permits it to charge fees for such fill.  The Appeals Court ruled in favor of Trio, resting its decision primarily on the historic decisions holding that owners of public trust land alienated by the Commonwealth before 1866 are not required to pay tidewater displacement and occupation fees when they fill in accordance with the terms of their grant from the Commonwealth.  The SJC granted further appellate review and solicited amicus briefs. 

NELF filed a brief in support of Trio, arguing that the statutory grant to Trio’s predecessor in title merely requires Trio to use filled wharves in conformity with public trust purposes, which it is doing.  NELF argued that any displacement or occupation fees would be improper non-proportional exactions under the United States Supreme Court’s decisions in Nollan v. California Coastal Commission and Dolan v. City of Tigard. Those cases require that any property development fees be “roughly proportional” to the adverse impact of the proposed development. As the Commonwealth has already granted the right to develop, there is no adverse impact caused by the filling unless the filled land is used for an impermissible, non-public trust purpose.  NELF’s brief also discussed the public policy importance of upholding state property grants.  

On September 9, 2003, the SJC issued a decision holding that one of the fees, for tidewater displacement, was authorized because both the 1806 grant and the public trust doctrine reserved to the Commonwealth the right to impose later conditions on a tidelands grant as necessary to protect navigation.  Because the fill on Trio’s tidelands displaced the flow of tide and adversely affected the navigability of the river, a compensatory fee was justified.  A second fee for occupying the tidelands, however, would not be valid if in the original grant to Trio’s predecessor in title, the Commonwealth had transferred full fee title.  The SJC remanded the case for determination of the nature of Trio’s title.

Opposing Expansion of Insurance Companies’ Liability for Attorneys’ Fees to Claimants of the Insured 

NELF supported Chicago Insurance Company in its appeal of a Massachusetts superior court decision holding Chicago responsible for legal fees of a claimant against an insured, Robert Lappin. Chicago insured Lappin, an attorney, against professional liability and malpractice. During the term of the insurance coverage Lappin’s secretary embezzled several million dollars from Lappin’s clients, who eventually sued Lappin. Chicago initially defended Lappin with a reservation of rights. Arguing that Lappin had made material misrepresentations in his application for insurance, Chicago subsequently rescinded the policy and ceased to defend him. Chicago then brought an action for declaratory judgment seeking court approval of the rescission of the policy and withdrawal of defense. Chicago joined the client-claimants as defendants as required by Mass. Gen. L. c. 231A, §8, which requires joinder of all “parties who have or claim any interest which would be affected by the declaration.” The superior court held that Lappin was entitled to defense and indemnification and thus was also entitled to the fees and costs he had incurred in defending the declaratory judgment action. Although Massachusetts follows the so-called “American Rule” requiring each party to litigation to bear its own attorneys’ fees and costs, there is a narrow exception to that rule for fees and costs an insured incurs in successfully establishing an insurer’s obligation to defend him. In an unprecedented extension of this narrow exception, the superior court held that the client-claimants were intended third-party beneficiaries of the policy and thus also entitled to fees and costs they incurred in defending the declaratory judgment. Chicago appealed the decision. 

NELF filed an amicus brief in support of Chicago arguing that the court’s decision flies in the face of all known precedent in Massachusetts regarding an insurer’s liability to claimants for attorneys’ fees. The rationales that justify the limited exception to the American Rule—the “special relationship” between insured and insurer and the insured’s payment of premiums to the insurer—do not exist in this fact pattern. This extension of liability to a class that never contracted for it and never paid premiums for it, NELF argued, would create uncertainty in the industry and increase premiums for all policyholders.  On August 17, 2003 the appeals court issued an opinion overturning the award of attorneys’ fees to the claimants.

Whether the Government May Use the Public Trust Doctrine to Prohibit Development of Property Previously Transferred by the State for Development 

This case involved an effort by the City of Seattle to prevent, on the basis of the public trust doctrine, the development of property that the State of Washington sold as buildable property. The public trust doctrine holds that land under water is owned by the state and held by the state in trust for the public. Historically, states have alienated significant parcels of property free of the public trust or subject to limited public trust restrictions. In recent years, the environmental movement has tried to re-assert the public trust doctrine to prevent development of such property without payment of compensation for a regulatory taking.  

In 1991, Esplanade Properties (“Esplanade”) bought the property already platted as housing lots and zoned residential by the City of Seattle.  In 1992, Esplanade sought zoning relief to develop the property.  The City of Seattle ultimately denied Esplanade the ability to develop the property in any manner, citing its right under the public trust doctrine to preserve the area for recreational purposes.  Esplanade commenced a regulatory taking action in the United States District Court for the Western District of Washington. The District Court granted summary judgment to Seattle on its public trust defense. The District Court’s decision was affirmed by the United States Court of Appeals for the Ninth Circuit. The Ninth Circuit decision contained some particularly broad and overinclusive language that retains public trust jurisdiction forever over all property that has ever been under water, no matter how long ago it was filled.

Pacific Legal Foundation, representing Esplanade, filed a petition for certiorari and NELF filed an amicus brief in support of that petition. NELF’s brief discussed the significant amount of alienated public trust property in New England, highlighting the national scope of the problem of state re-assertion of public trust restrictions over alienated property. NELF argued that federal courts need to protect property owners of former public trust properties and limited public trust properties from novel interpretations of the public trust that would retroactively eviscerate property owners’ long-held expectations for productive use of their properties.  On June 16, 2003 the Court denied the petition for writ of certiorari.

Compelling Class Action Relief in Arbitration

The Supreme Court says that an arbitrator, not a court, must determine the permissibility of class action arbitration when an arbitration agreement is silent.  The issue arose from consumer financing agreements that Green Tree Financial Corp. signed with individual consumers in South Carolina. Consumers brought two class action lawsuits against Green Tree, claiming that it failed to provide them with attorney and insurance preference disclosure forms required by South Carolina law. In one case, involving home improvement loans, the trial court first granted the class certification motion and then compelled arbitration as to the entire class. In the companion case, involving mobile home financing, the arbitrator certified the class himself without resort to the trial court. The two cases resulted in damage awards against Green Tree in excess of $20 million, plus $6.7 million in attorneys’ fees. Green Tree appealed to the South Carolina Supreme Court, arguing, in accord with the majority of federal circuit courts of appeal, that the Federal Arbitration Act (“FAA”) implicitly prohibits class action arbitrations. South Carolina rejected that argument, interpreting the silent arbitration agreements to allow class actions as a matter of state law. Green Tree appealed to the United States Supreme Court, which granted certiorari. 

NELF, working with Nixon Peabody LLP, filed an amicus brief on its own behalf and on behalf of Verizon Wireless, arguing that the decision below ignored the express language and long-standing federal policy of the FAA that arbitration agreements should be enforced according to their terms. The brief also argued that the South Carolina Supreme Court improperly sought to turn class-action procedures into a fundamental right, using state court notions of “equity and efficiency” to require class-wide arbitrations without the agreement of the parties involved. The United States Supreme Court reversed and remanded the case, holding that the threshold question—whether the contracts forbid arbitration—is precisely the sort of question that an arbitrator, not a court, should decide. The Court pointed to the sweeping language of the contract concerning the scope of questions submitted to arbitration and the ability of arbitrators to determine issues of contract interpretation and arbitration procedures. Court interpretation, the Court said, should be reserved for limited “gateway” matters such as the validity of the underlying arbitration agreement or its applicability to a particular dispute. By reversing the South Carolina Supreme Court, the United States Supreme Court implicitly rejected the lower court’s strong support for class action remedies in arbitration.

First Amendment Protection of Corporate Speech

Nike issued press releases, advertisements, and other publications defending its treatment of foreign workers.  Some of Nike’s statements reached California consumers, including plaintiff Mark Kasky.  Kasky sued under California’s unfair advertising and unfair competition laws, alleging that Nike’s statements were false and misleading.  Nike moved to dismiss the lawsuit on First Amendment grounds.  The trial court and the court of appeal allowed the dismissal, but the California Supreme Court reversed, holding that the statements were commercial speech because they served the purpose of promoting sales of Nike’s products.  Nike argued that corporate statements on matters of public interest are not commercial speech, even if they could also influence consumers’ purchasing decisions, and therefore that its statements should be protected by the strict scrutiny standard applicable to content-based regulation of non-commercial speech under the First Amendment.  Nevertheless, the California Supreme Court concluded that Nike’s statements were entitled to less constitutional protection, and that California could regulate or prohibit the speech if it were false or misleading.  

The United States Supreme Court granted certiorari, and NELF joined the amicus brief of Pacific Legal Foundation.  NELF and PLF argued that corporate speech, such as Nike’s statements in this case, frequently addresses issues of public concern beyond the mere selling of a product or service.  The commercial speech doctrine has yielded highly confusing and unpredictable results that can chill protected speech. This doctrinal confusion is likely to continue, the brief suggested, as corporations develop increasingly innovated and nontraditional means of communicating positions on a wide range of public and business issues.  

On June 26, 2003 the Court dismissed the writ of certiorari as “improvidently granted.”    That dismissal left standing the California Supreme Court decision, with the likely result that Nike would face trial in California without First Amendment protection for its speech.  A concurring opinion from Justice Stevens explained that it was inappropriate for the Court to take the case because the state court decision was not a final judgment; because neither party had Article III standing to invoke the jurisdiction of the federal courts; and because the First Amendment issues would benefit from a full, factual trial record rather than a review of mere unproven allegations. Justices Kennedy, Breyer, and O’Connor dissented from the dismissal. Earlier this month Nike agreed to settle the case by paying $1.5 million to a workers’ rights group.