Arguing the Rhode Island Supreme Court to Affirm the Individuals and Businesses Who Assist Law Enforcement are Shielded from Civil Liability for Those Actions

The background to this case is the history of acrimonious relations between car insurers and the auto body repair industry in Rhode Island. Simply put, each side has long believed that it is being cheated by the other.

David Miller, the plaintiff in this case, is the former head of the trade association of repair shops and has long played a prominent role in the ongoing dispute between the shops and insurers like Amica. In 2001 he was the target of two sting operations. Apparently allegations had been made by several sources that Miller inflated the costs of repairs; in other words, Miller was alleged to have committed insurance fraud. As part of the undercover investigation, Metropolitan Property and Casualty Insurance Co. provided the Rhode Island State Police with a vehicle that was taken into Miller’s shop for repairs. This sting operation led to Miller’s being charged with billing more than $1,100 in fraudulent repairs. In a second sting operation, Amica provided a damaged vehicle and a fake insurance policy, and Miller supposedly billed $1,050 in fraudulent repairs on that job. Miller was arrested and charged with insurance fraud and with attempting to obtain money under false pretenses. The charges were later dismissed because of evidentiary problems, but Miller was required to surrender his license to run his repair shop.

In this case, he claimed that Amica and Metropolitan vindictively abused legal process in order to get him arrested. The case went to a jury, which found against both insurers. The trial judge, however, finding a dearth of evidence against Amica, granted Amica’s motion for judgment notwithstanding the verdict (he, however, found ample evidence to justify the jury’s verdict against Metropolitan). Miller appealed. Miller’s argument urging reinstatement of the abuse of process verdict rested entirely upon an analysis of the sufficiency of the evidence presented at trial. He claims that the evidence is sufficient to support a jury-finding that Amica initiated the investigation against him, rather than Amica’s having merely assisted the police when called upon to do so.

On appeal, Amica argued that the evidence presented at trial was insufficient, as a matter of law, to support the verdict against it. It also responded that it merely did its civic duty in assisting police in an investigation that the insurer played no role in initiating.

NELF filed an amicus brief in support of Amica. While NELF was in no position to decide between conflicting views of the trial evidence, it laid out for the Court the ancient, widely-recognized Anglo-American public policy of protecting private individuals from civil liability when they have rendered assistance to law enforcement officials at the latter’s request. First, NELF reviewed the numerous Rhode Island statutes, including insurance law statutes, that codify this policy, some of which acknowledge the living common law background of the policy. Then NELF discussed the policy’s broader common law background as most memorably embodied in Justice Cardozo’s decision in Babington v. Yellow Taxi Corp., 250 N.Y. 14, 164 N.E. 726 (1928). NELF concluded by examining two federal cases that it suggests clarify the situation in which Amica finds itself in this case. In filing its brief, NELF hoped to spur the Court to use the occasion of this appeal to acknowledge, for the first time in Rhode Island decisional law, the vitality of the common law principle.

In its March 20, 2015 decision, Miller v. Metropolitan Property and Cas. Ins. Co., 111 A.3d 332 (R.I. 2015), the Court decided the appeal in Amica’s favor on the basis of a release Miller had given as part of the dismissal of the criminal case against him. Unfortunately, therefore, the Court did not reach the issue of common law immunity.

Arguing that the Federal Arbitration Act Requires Enforcement of a Class Action Waiver in a Valid Arbitration Agreement, and that only Congress can Override the FAA’s Mandate in the Arbitration of Federal Statutory Claims

In this case, a resounding victory for NELF and the business community generally, the U.S. Supreme Court, in a 5-3 decision (with Justice Sotomayor recusing herself) agreed with NELF and held that the FAA mandates the enforcement of class action waivers in the arbitration of federal statutory claims. As NELF had argued, the Court also held that courts have no discretion to override the FAA’s mandate when the costs of proving a federal statutory claim on an individual rather than aggregated basis may be prohibitive.  The Court reversed the decision of the Second Circuit, which had invalidated a class action waiver in the arbitration of federal antitrust claims under the Sherman Act, based on the plaintiffs’ projected expert costs in proving their case. The Court agreed with NELF that the Second Circuit failed to heed both AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), under which the FAA requires enforcement of class action waivers, and CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), under which only Congress, and not the judiciary, can override the FAA’s mandate enforcing class waivers with respect to the arbitration of federal statutory claims. Congress has not exercised that power in the Sherman Act at issue here.  Thus, the disputed class action waiver in this case must be enforced. The Court also agreed with NELF that the FAA and Concepcion forbid both a per-se rule against class waivers (the issue in Concepcion) and a case-specific invalidation of a class waiver based on the plaintiff’s projected costs of proof (the issue in Amex).

As NELF had also argued, the Second Circuit misinterpreted the Supreme Court’s decisions in Green Tree Fin. Corp. v. Randolph, 531 U.S. 79 (2000),  and Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). In those cases, the Court stated that arbitration agreements should be enforced so long as they allow for the vindication of federal statutory rights. Agreeing with NELF, the Court held that, the “vindication” principle discussed in Mitsubi shi  and Green Treedoes not consider the inherent costs of proving a claim, whether on an individual or class-wide basis. Those costs would apply as much in court as they would in arbitration. Once again agreeing with NELF, the Court noted that the antitrust laws do not guarantee an affordable procedural path and that the “effective vindication” exception does not refer to the expenses involved in proving a claim. Embracing NELF’s analysis, the Court limited the “vindication of rights” dictum to whether the arbitration agreement forgoes substantive statutory rights and also, possibly, to whether the agreement imposes prohibitive costs that do not apply in court litigation, such as arbitrators’ fees. 

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.

Supporting Businesses’ First Amendment Rights to Buy and Sell Information for Commercial Purposes

This Vermont case was one of three cases brought in the New England federal courts challenging state laws restricting the transfer and use for commercial purposes of information regarding individual physicians’ medication prescribing practices, so-called “prescriber-identifiable information.”  This data is sold by pharmacies to data-mining companies like plaintiff IMS Health, which organize and compile the data and sell it to pharmaceutical companies for use in “detailing,” or marketing their drugs to doctors. Laws restricting pharmacies from selling this data and pharmaceutical companies from using it for commercial purposes were enacted in New Hampshire, Maine, and Vermont.  While these cases most immediately affect the rights of pharmacies and pharmaceutical companies, they raise more generally questions regarding the level of protection to be afforded the sale or other voluntary transfer of information (e.g., marketing lists) by and between businesses.  

IMS raised its First Amendment challenge to the Vermont statute in an action filed in the Vermont federal District Court against Vermont’s Attorney General. NELF filed an amicus brief in the District Court action on behalf of itself and co-amicus National Association of Chain Drug Stores (“NACDS”) arguing, in support of IMS Health, that Vermont’s version of the statute restricting the transfer or sale of prescriber identifiable information restricted speech and was in violation of the First Amendment. In addition to its legal arguments demonstrating that the statute did not pass Constitutional muster, NELF noted that in our “information age,” sales and other voluntary transfers of data by and between businesses are fundamental to the free enterprise system and often serve, as in this instance, societal interests as well as the interests of individual businesses. NELF argued further that, since market forces provide the incentives and resources for dissemination of most information in our society, restricting the transfer and use of data for commercial purposes can be expected to have consequences far beyond that intended focus to the detriment of the public interest.  

In his 2009 decision, U.S. District Judge Murtha agreed with NELF that the Vermont statute restricted speech, as opposed to just conduct, but concluded that the regulated speech qualifies as “commercial speech” and that the Vermont statute survives the intermediate level of scrutiny applicable to that category of speech under the First Amendment. Whereas NELF had argued that only speech proposing a commercial transaction should be considered commercial speech, the court disagreed and appeared to consider “commercial speech” as encompassing any information that is put to a commercial use, a definition that NELF had argued was in conflict with both Supreme Court and Second Circuit precedent.  

IMS appealed to the Second Circuit and NELF again  filed an amicus brief in support of IMS in the appeal. In a decision issued on November 23, 2010, while agreeing with the lower court that the speech at issue is commercial speech, the Second Circuit nevertheless reversed, consistent with NELF’s position that the Vermont statute violated the First Amendment, although for different reasons.  The Second Circuit viewed the restriction as unconstitutional because it unduly restricts commercial speech under the Supreme Court’s Central Hudson balancing test.  

The Supreme Court granted the Attorney General of Vermont’s petition for certiorari, and NELF again filed an amicus brief on the merits in support of IMS Health in the Supreme Court, making arguments similar to those in its Second Circuit brief. NELF argued essentially, that the information in question should be accorded full First Amendment protection because, since it is indeed speech and does not propose a transaction, it is not commercial speech. Therefore, Vermont’s Prescription Restraint Law restricts noncommercial speech and is subject to, but cannot survive, strict scrutiny under the First Amendment.  The Court has consistently held that speech is commercial under the First Amendment only if it proposes a commercial transaction.  In applying this clear, content-based test for commercial speech, the Court has consistently found speech to be commercial only when it has advertised or promoted a product or service.  No such content is provided by the information at issue.

NELF also argued that the Supreme Court’s content-based test for commercial speech best serves the primary rationale for according less First Amendment protection to commercial speech--namely, the prevention of economic harm that can arise from false or misleading advertising to promote the sale of a product or service.  Commercial speech therefore implicates the well-established governmental interest in regulating the underlying transaction by ensuring the accuracy and clarity of its promotional “pitch” to consumers. Under this precedent, the prescriber-identifiable information at issue is clearly noncommercial speech because it does not advertise a product or service or otherwise propose any commercial transaction whatsoever.  Instead, the prescriber-identifiable information simply provides the names of drug prescribers and related accurate information concerning their prescribing patterns.  This unadorned information cannot satisfy the definition of commercial speech and should be accorded full First Amendment protection. 

While the prescriber-identifiable information may ultimately be used by pharmaceutical company representatives as a tool in the marketing of their companies’ products, such use of the information is irrelevant to determining whether the content of the information proposes a commercial transaction.  The incidental or indirect commercial use of the information cannot transform it into commercial speech for First Amendment purposes, when the information on its face simply does not propose a commercial transaction. Accordingly, Vermont’s Prescription Restraint Law warrants strict scrutiny and, as forcefully argued by IMS in its brief, cannot survive this standard of review and should be declared invalid under the First Amendment.

Finally, NELF argued that, because market forces fuel the compilation and publication of most information in modern society, efforts to restrict the transfer of information that serves a business purpose could have significant, unintended consequences to the detriment of the public interest.  It is therefore critical that legislative measures restricting transfers of information that does not propose a commercial transaction receive strict First Amendment scrutiny, even if the restricted information does serve a business’s economic interests.  Vermont’s Prescription Restraint Law should accordingly be subject to strict scrutiny and should be invalidated as an unconstitutional suppression of speech under the First Amendment.

On June 23, 2011, the Supreme Court affirmed, by a 6-3 majority , the Second Circuit’s decision, agreeing that Vermont’s statute had to be stricken because it violated the First Amendment.  See Sorrell v. IMS Health, et al., 131 S.Ct. 2653 (2011).  Like the Second Circuit, the Supreme Court ruled that the Vermont statute in fact regulated speech.  Further, in his majority opinion, Justice Kennedy pointed out that the regulation imposed “more than an incidental burden on protected expression,” and noted (importantly in light of the concerns expressed by NELF in its brief), “[w]hile the burdened speech results from an economic motive, so too does a great deal of vital expression.”  131 S.Ct. at 2665 (citations omitted). 

Opposing Duplicative State Regulation of a National Bank Subsidiary

Agreeing with Wachovia and NELF, the Supreme Court held in a decision rendered on April 17 in the Watters case that Wachovia’s mortgage business, whether conducted by the bank itself or through its wholly owned operating subsidiary, is subject to federal superintendence under the National Bank Act, 12 U.S.C. § 1 et seq. (“NBA”), and not to the regulations of the several states in which the subsidiary operates.  It has long been established that the NBA preempts duplicative or conflicting state regulation of national banks themselves.  Wachovia argued for extension of federal preemption to its wholly owned subsidiary based in part on 12 C.F.R. § 7.4006, a regulation of the Office of the Comptroller of the Currency (“OCC”) which provides that “[u]nless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.”  

NELF filed a merits amicus brief in support of Wachovia concentrating on the reasonableness prong of the federal preemption analysis of Chevron, USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), in order to counteract Michigan’s argument that state regulation of national banks’ mortgage subsidiaries is required to prevent abuses like “predatory lending.”  NELF argued that (1) duplicative state and federal regulation is economically inefficient and (2) constitutional history demonstrates the importance of the Supremacy Clause as part of the system of checks and balances in our federal system.  

Justice Ginsburg wrote the majority opinion (joined by Justices Alito, Breyer, Kennedy, and Souter) holding that, while state law may govern issues related to incorporation of a national bank’s subsidiaries, it does not govern the “business of banking” conducted by those entities.  Justice Stevens filed a dissenting opinion joined by Chief Justice Roberts and Justice Scalia (Justice Thomas taking no part in the case), arguing that the majority opinion improperly found preemption based, in the dissenters’ view, on an OCC regulation rather than an explicit federal statute.  On April 27 the Court denied the Connecticut Banking Commissioner’s petition for certiorari in the case of Wachovia Bank, N.A. v. Burke, which raised this same preemption issue and in which NELF had filed a similar amicus brief with the Court of Appeals for the Second Circuit.

Protecting Landowners against Targeted Downzoning

This case involves the downzoning of a parcel slated for development as a retail shopping center by plaintiff Kittery Retail Ventures, LLC, (“KRV”). In 1999, KRV started work to develop a retail shopping mall as permitted by the Kittery zoning law then in effect. That zoning ordinance permitted up to 30% of a parcel to be developed for retail purposes. Because many town citizens opposed additional retail development, the Town passed a referendum on June 13, 2000 amending the zoning bylaw to restrict development to 15% of a parcel. When anti-development forces determined that the KRV project and others were grandfathered and would continue despite the zoning change, the citizens passed a referendum making the June 13, 2000 amendment retroactive to September, 1999. Campaign literature indicated that the intent of the retroactivity referendum was to prohibit otherwise grandfathered development. After the retroactivity referendum passed, the Town rejected KRV’s application to develop the property.  KRV then appealed to Superior Court, which granted summary judgment for the Town.  KRV then appealed to the Maine Supreme Judicial Court (“SJC”).  

In an amicus brief filed in support of KRV, NELF argued that retroactive zoning specifically intended to prohibit a particular development violates the Maine and United States Constitutions’ due process and equal protection provisions. Moreover, Maine recognizes the doctrine of equitable vested rights, which applies where the municipality has exhibited bad faith by amending a zoning provision during a real estate developer’s application process but before legal vested rights could accrue under a valid building permit.
  
On May 11, 2004, the SJC affirmed the decision below, ignoring NELF’s argument that the inhabitants of the town violated KRV’s due process rights by referendum and justifying the town’s conduct based on the good faith of the town selectmen and boards.  On May 24, 2004, KRV requested reconsideration and NELF submitted an amicus letter in support of reconsideration.  The SJC denied reconsideration August 12, 2004.  Thereafter, KRV petitioned the United States Supreme Court for certiorari on January 10, 2005, and NELF filed an amicus brief in support.  On March 7, 2005, the Supreme Court denied certiorari.

Opposing Duplicative State Regulation of a National Bank Subsidiary

At issue in this case was the claim by Connecticut’s Banking Commissioner that the Connecticut-based Wachovia Mortgage Corp. (“Wachovia Mortgage”) is subject to state regulation even though it is a wholly-owned subsidiary of Wachovia Bank (“Wachovia”), which is a national bank.  Connecticut’s position is directly contrary to 12 C.F.R. § 7.4006, a federal regulation promulgated by the Office of the Comptroller of the Currency, which provides that “[u]nless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.”  Since state laws do not apply to national banks, under this regulation they also do not apply to a national bank’s wholly owned subsidiary.  

In this case, Wachovia Mortgage was initially a partially-owned subsidiary of Wachovia and, as such, it complied with Connecticut’s state licensing, inspection and reporting procedures.  When Wachovia Mortgage became a wholly-owned subsidiary on January 1, 2003, it notified the Connecticut Banking Commission and claimed exemption from state regulation under § 7.4006 and the Supremacy Clause.  The Commissioner responded by threatening to issue a cease and desist order, prohibiting Wachovia Mortgage from doing business in Connecticut unless it renewed its state license.  Wachovia and Wachovia Mortgage then initiated a declaratory judgment in the federal district court in Connecticut, obtaining a judgment that Wachovia Mortgage is exempt from state regulatory oversight. Wachovia Bank, N.A. v. Burke, 319 F. Supp. 2d 275 (D. Conn. 2004).  The Connecticut Banking Commissioner appealed to the U.S. Court of Appeals for the Second Circuit.  

Consistent with NELF’s longstanding support for rational administrative procedures that provide adequate oversight without burdening business with conflicting mandates, NELF filed an amicus curiae brief on November 8, 2004, in the Court of Appeals for the Second Circuit appeal in support of Wachovia.  In its brief, NELF concentrated its argument on the reasonableness prong of the federal preemption analysis of Chevron, USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), in order to counteract the Banking Commissioner’s public policy argument that state regulation of national banks’ mortgage subsidiaries is required to prevent abuses like “predatory lending.”  NELF argued that (1) duplicative state and federal regulation is economically inefficient and (2) constitutional history demonstrates the importance of the Supremacy Clause and federal preemption as part of the system of checks and balances in the United States federal system.  

n its decision issued on July 11, 2005, the Court of Appeals affirmed the district court, agreeing with Wachovia and NELF “that federal law preempts state regulation of a national bank operating subsidiary to the same extent that it preempts regulation of the parent national bank.”

Resisting an Unwarranted Extension of the NPDES Permitting Process

The question raised in this case was whether the owners of a shopping mall parking lot located in South Burlington, Vermont, should be required to obtain a National Pollution Discharge Elimination System (“NPDES”) permit under the Clean Water Act (“CWA”) for the storm water runoff from the parking lot even though neither the federal Environmental Protection Agency (“EPA”) nor the delegated state agency, the Vermont Agency for Natural Resources (“VANR”) has required the owners to obtain such a permit.  Under the broad definitions of the CWA, the storm water runoff is a point source that discharges pollutants into United States waters (in this case, Lake Champlain). 

At issue were the interpretation of the 1987 amendments to the CWA and the regulations promulgated by the EPA under those amendments.  Hannaford’s position—which was supported by the EPA—was that the EPA and the delegated state authority (the VANR) have residual authority under the CWA to require that a storm water runoff permit be obtained upon a determination that it is necessary. Absent such a determination, the owners in this case are not required to obtain a permit.  CLF, on the other hand, argued that Congress’s amendment of the CWA did not alter the CWA’s original requirement that all storm water runoffs that discharge pollutants into the nation’s waters are illegal absent an NPDES permit.  After having its complaint dismissed by the Federal District Court in Vermont, CLF appealed to the Second Circuit. 

On October 29, 2004, NELF filed an amicus brief in support of Hannaford’s opposition to CLF’s appeal, presenting to the Second Circuit its members’ concern that, if CLF prevailed in the case, it would mean that all owners of storm water runoffs that discharge into federal waters, from large and small businesses to individual home owners, would be required to go through the complicated permitting process even though the agencies charged with carrying out the mandate of the CWA have not determined that this is necessary.  This would involve potentially huge expense and inconvenience that NELF argued would have a negative effect on land development and the New England economy in general.  

On July 22, 2005, the Court of Appeals, agreeing with Hannaford and NELF, entered a Summary Order affirming the District Court’s decision dismissing CLF’s complaint.