Arguing that, in a Regulatory Taking case, Penn Central Does Not Establish a Rule that Two Legally and Economically Distinct Parcels Must be Combined as the “Parcel as a Whole” in the Takings Analysis Simply Because They are Contiguous and Commonly Owned.
This case had presented the Supreme Court with an opportunity to take a first step toward defining, or at least setting some limits to, the “parcel as a whole,” which has been a key concept in regulatory takings law since the phrase first appeared in the Court’s 1978 decision Penn Central Transportation Co. v. City of New York, 438 U.S. 104. It is against the value of the parcel as a whole that the extent of any alleged regulatory taking is measured.
The Murrs had attempted sell one of two contiguous lakeside lots they own. The lot, left (unlike the neighboring lot) undeveloped, was bought and retained specifically for the purpose of appreciation and sale. They found, however, that the sale was blocked by environmental regulations that rendered the lot individually unsaleable and largely worthless. After the Wisconsin courts had found that there had been no regulatory taking of the lot because the regulations had legally merged it with the developed lot, the Murrs petitioned the U.S. Supreme Court.
NELF filed a brief in support of the Murrs, urging the court to clarify the concept of the parcel as a whole and arguing that the court should reject the rigid rule used by the Wisconsin courts whereby contiguity of lots plus common ownership equals the parcel as a whole.
NELF first argued on equitable principles that the Court should strike a fair and just balance when identifying the “parcel as a whole.” Invoking the principles of fairness and justice on which the Court has avowedly founded its takings jurisprudence, NELF expressed its concern, echoed by distinguished legal commentators, that the tendency of courts to expand the “parcel as a whole” concept has created a serious risk of under-compensation of property owners.
NELF then went on to illustrate analytically the insufficiency of the rigid two factor rule (based on adjacency and common ownership) that had been applied by the Wisconsin court. NELF argued that these two factors alone are too tenuous to justify evaluating separate parcels as one, and it urged the Court to require at least integrated “unity of economic use” as a third factor (the Murrs’ two parcels, of course, always had different economic uses, one being a developed residential parcel and the other being an investment asset). NELF developed its argument by drawing a close analogy to well-established principles of eminent domain law. As NELF pointed out, both eminent domain law and takings law sometimes must answer a common question: what parcel (if any), other than the one directly affected by government action, must be considered along with the affected parcel in order to evaluate the claim for compensation in a fair and just way in relation to the whole of the relevant property? In eminent domain law this question arises when there has been a taking of one parcel, and additional damages are sought for the economic effects of that taking on a second parcel. The key factor, widely recognized by the states, is that there must be an integrated unity of economic use of the two parcels; mere contiguity and common ownership are insufficient. NELF urged the Supreme Court to reject the two-factor test of the Wisconsin court and to adopt “unity of economic use” as the crucial factor.
When the case was argued before the Supreme Court on March 20, 2017, NELF was encouraged to see that its analogy played a role in the oral argument.
However, on June 23, 2017, the Supreme Court, in a five-justice majority opinion written by Justice Kennedy, rejected NELF’s arguments and affirmed the judgment below. The majority rejected the “formalistic” appeals to state rules made by both sides for determining the parcel as a whole. The state parties had relied on the merger regulation to supply the defining principle, while the Murrs had argued that state laws that establish the identity of legally separate lots should be taken to identify the presumptive parcel as a whole (a position NELF endorsed). Instead, the Court used a multifactor test that first gives substantial weight to state laws regarding how land is bounded and divided, then looks at the physical characteristics of the land in question, especially its topography and environmental features, and then assesses the value of the land under the regulation, with special attention to the value of the burdened land to other holdings. By this test the Court found that the parcel as a whole comprised both Murr lots, and it then concluded that there had been no regulatory taking because the lots, taken together, retained sufficient value.
In a “dissent” which read more like a concurrence in the judgment, Chief Justice Roberts, joined by Justices Alito and Thomas, wrote that while the outcome “does not trouble me,” the majority’s methodology does. He said that the majority double-counted the factors of the takings analysis proper by incorporating them into the threshold analysis of what constitutes the parcel as a whole. The result of this error, he said, is to “tip the scales in favor of the government.” He favored the methodology of the Murrs for identifying the presumptive the parcel as a whole, but apparently believed that the facts of the case overcame the presumption. (Justice Gorsuch did not take part in the decision.)
Arguing that, when an Employee Prevails in An Action Brought for Wages Under G.L. c. 149, § 150, for Unpaid Wages, and Receives the “Liquidated” Treble Damages Mandated By the Statute, Prejudgment Interest is Not Available on Any Portion of the Recovery.
In 2008, the Massachusetts legislature amended G.L. c. 149, § 150, which governs the right to bring suit for violation of a number of state wage laws. As relevant here, previous to the amendment, § 150 had permitted an award of treble damages to be made to a prevailing plaintiff, but the Supreme Judicial Court had held that such an award was discretionary and that, because the enhanced damages were punitive in nature, they required the plaintiff to prove the employer’s bad faith, willfulness, or other culpable conduct, in order to avoid due process problems connected with the imposition of punitive damages. The 2008 amendment worked a major change in § 150—it made the treble damages unconditionally mandatory so that plaintiffs no longer would have the burden of proving bad faith. Perhaps to get around the due process problem such mandatory treble damages might create, in the 2008 amendment the legislature expressly characterized the new mandatory treble damages as “liquidated,” hence compensatory and not punitive.
The present case raised the question of what effect, if any, the amendment has on a plaintiff’s right to prejudgment interest, which is the primary means of compensating a plaintiff for the loss of use of money or its unlawful detention during the time before judgment enters. In other words, does the declared “liquidated” character of the new treble damages mean (as it ordinarily would in other legal contexts) that the damages are intended to compensate comprehensively for all injuries, including those that may be difficult to prove or quantify, such as those arising out of loss of use of money or its wrongful detention?
The plaintiffs here had settled their wage claims with the employer, with the exception of a dispute over their alleged right to prejudgment interest under one of the state’s general prejudgment interest statutes. They construed literally the apparently mandatory language of the prejudgment interest statute. The company’s view, by contrast, was that § 150’s treble liquidated damages function as any liquidated damages provision would, i.e., they displace all other forms of compensatory damages, including prejudgment interest. At the parties’ request, the U.S. District Court certified to the Massachusetts Supreme Judicial Court the question of whether plaintiffs who are awarded liquidated treble damages under § 150 retain a right to separate prejudgment interest in addition.
NELF filed an amicus brief in support of the employer, asking the court to answer no to the question. In the first half of its brief, after recounting the history leading up to the amendment to § 150, NELF focused on the term “liquidated,” noting that it sharply alters the nature of the treble damages from punitive, with all the latter’s attending legal due process complications, to simply compensatory. In particular, NELF observed that the SJC itself has stated that courts owe deference to the legislature’s legal characterizations, like “liquidated,” when the constitutionality of a law may be involved. NELF cited also the U.S. Supreme Court’s decision in Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697 (1945). There, against the background of a mandatory state prejudgment interest statute, much like the one in this case, the court ruled that the liquidated multiple damages awarded under the federal Fair Labor Standard Act precluded application of the state prejudgment interest statutes because liquidated damages compensate for all harms, including those usually addressed by prejudgment interest.
In the second half of its brief, NELF critiqued the plaintiffs arguments directly. First, NELF cited SJC cases holding that the mandatory language of the prejudgment interest statutes must not be taken literally when to do so would defeat the purpose of the statutes and over-compensate a party by awarding duplicative damages. For this reason, NELF rejected the plaintiffs’ contention that there is a “clash” between the mandatory prejudgment interest statutes and mandatory language of § 150. NELF also rebutted the contention that § 150 plaintiffs would be under-compensated if they do not receive prejudgment interest. NELF pointed out that all liquidated damages inherently are an approximation of full compensation, and NELF urged the Court not to modify by judicial decision the general “treble liquidated damages” formula inserted into § 150 by the legislature in its sound discretion. Moreover, NELF argued, the Court should not violate its traditional policy of not taking a “second look” at liquidated damages, in order to see, after the fact, whether they provide full compensation. NELF concluded by pointing out the deficiencies in the plaintiffs’ understanding of the 1945 Brooklyn decision and by explaining to the Court the difficulties that would arise if it accepted the plaintiffs’ last-ditch suggestion to treat the “liquidated” treble damages as punitive.
In its decisions, issued in June, 2017, the Supreme Judicial Court disagreed with NELF and answered yes to the certified question. The court expressed doubt that the legislature would have intended some plaintiffs to receive smaller damages after the amendment than they would have received before the amendment, as might happen in certain circumstances if prejudgment interest were no longer to be available. In effect, the court took a “second look” at the statutory damages and second-guessed the sufficiency of the liquidated formula decreed by the legislature.
Epic Systems v. Lewis; Ernst & Young LLP v. Morris; National Labor Relations Board v. Murphy Oil USA, INC. (United States Supreme Court on the merits) - Pending Case
Arguing that the National Labor Relations Act does not override the Federal Arbitration Act’s mandate to enforce class and collective action waivers in employment arbitration agreements
On October 2, the Supreme Court heard oral argument in these three consolidated cases, in which NELF filed an amicus brief in support of the employers, both at the certiorari stage and on the merits.. NELF argued that the Supreme Court should decide that the NLRA does not displace the FAA’s mandate to enforce class action waivers in employment arbitration agreements. The FAA is the necessary starting point here, and the FAA requires the enforcement of a class action waiver that is contained in a valid arbitration agreement. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011) (“The overarching purpose of the FAA . . . is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.”). The FAA’s mandate to enforce class action waivers applies equally in “claims that allege a violation of a federal statute, unless the FAA’s mandate has been ‘‘overridden by a contrary congressional command.” American Exp. Co. v. Italian Colors Restaurant, 133 S.Ct. 2304, 2309 (2013) (emphasis added) (citation and internal quotation marks omitted). In this case, the burden rests on the employees and the NLRB, as the parties opposing the class action waiver, to show that the NLRA displaces the FAA’s mandate to enforce that contract provision. See Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 227 (1987). And to meet their burden, the parties must show that “such an intent [if any] will be deducible from [the NLRA’s] text or legislative history, or from an inherent conflict between arbitration and the [NLRA’s] underlying purposes.” McMahon, 482 U.S. at 227. And even if this issue of statutory interpretation were a close one, any doubts should be resolved in favor of enforcing the class action waiver under the FAA. See CompuCredit Corp. v. Greenwood, 565 U.S. 95, 109 (2012) (Sotomayor, J., concurring) (“[W]e resolve [any] doubts in favor of arbitration.”).
The Seventh and Ninth Circuits in this consolidated case held that § 7 of the NLRA, enacted in 1935 at the height of the Great Depression, contains a “contrary congressional command” that displaces the FAA’s mandate to enforce class action waivers in employment arbitration agreements. That section protects an employee’s right to “to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 29 U.S.C. § 157 (emphasis added).
NELF argued that neither the employees nor the NLRB can show that the NLRA displaces the FAA’s mandate to enforce class action waivers in arbitration agreements. The residual phrase “other concerted activities,” in § 7 of the NLRA, does not mean that employees have the right to join together and sue their employer. Quite to the contrary, this language simply means that employees have the right to join together in the workplace to discuss working conditions among themselves and with their employer, without having to form a union. Interpreting this catch-all phrase “other concerted activities” in isolation, as the lower courts have done, would contravene the basic canon of statutory construction that the specific governs the general. The enumerated examples of concerted activities in § 7 must limit the meaning of the residual phrase “other concerted activities” to similar conduct. And all of the enumerated examples address employees’ right to associate in the workplace in order to form a union and negotiate a collective bargaining agreement with their employer.
The lower courts’ interpretation of “other concerted activities” would also contravene the NLRA’s statement of purpose, which is to avoid “industrial strife” (such as strikes and lock-outs) by promoting “the friendly adjustment of industrial disputes,” chiefly by protecting employees’ “full freedom of association” in the workplace, so that they may achieve an “equality of bargaining power” with their employer “for the purpose of negotiating the terms and conditions of their employment . . . .” 29 U.S.C. § 151 (“Findings and declaration of policy”) (emphasis added). Clearly, the NLRA’s stated purpose is to protect employees’ freedom of association in the workplace, not in a courtroom or before an arbitrator, so that they may negotiate their differences, not litigate over them. Group legal action would be antithetical to this broad aspirational goal of achieving industrial peace through negotiation and compromise.
NELF also argued that there are other clear indications in the NLRA that Congress did not intend to endow employees with a nonwaivable right of group legal action against their employer. Most conspicuously, Congress chose the phrase “concerted activities,” as opposed to “concerted legal action” or even just “concerted action”--phrases that could entail the right to sue. When Congress wants to protect or proscribe certain conduct, it uses the word “activity,” as it has done here. But when Congress wants to create a right to sue, it generally uses the word “action,” whether by itself or in such phrases as “civil action” or “cause of action.” (And, in some instances, Congress has used both words--“activity” and “action”--in the same statutory section, precisely to distinguish between regulated conduct (the activity) and a right to sue over that regulated conduct (the action).) This point is reinforced by the fact that the NLRA does not provide employees with a private right of action against their employer. Instead, Congress saw fit to delegate exclusive enforcement powers to the NLRB to prosecute claims of unfair labor practices. See 29 U.S.C. § 160(a) (“Powers of Board generally”) (“The Board is empowered, as hereinafter provided, to prevent any person from engaging in any unfair labor practice . . . .”). It is unlikely, then, that Congress would have intended the term “other concerted activities” to include group legal action when Congress did not even allow employees to sue on their own behalf. Moreover, the NLRA was enacted in 1935, decades before the invention of the modern-day, Rule 23 class action, in 1966. Thus, it is unlikely that Congress would have considered group legal action as a form of “concerted activity” in 1935, since there was no such procedural mechanism as we now understand it.
The NLRA’s legislative history also works against the employees’ and NLRB’s position. “Concerted activity” was a loaded word with a specific historical meaning when the NLRA was enacted. In the years preceding the NLRA’s passage, workers were prosecuted under state criminal conspiracy laws, and even under the Sherman Antitrust Act, whenever they acted “in concert” in the workplace, whether to unionize or engage in any other kind of collective conduct. And so the term “concerted activities,” which appeared in two other Depression-era federal labor statutes immediately preceding the NRLA, was intended to provide affirmative legal protection to collective workplace conduct that had been sanctioned in earlier years.
Finally, NELF argued that the Seventh and Ninth Circuits’ reliance on Eastex, Inc. v. NLRB, 437 U.S. 556 (1978), is entirely misplaced. Eastex did not involve the FAA, did not involve a dispute over the NLRA’s “other concerted activities” language, and it did not involve any judicial action taken by employees. Instead, that case decided the unrelated issue whether the purpose or object of certain concerted workplace activity satisfied the NLRA’s “other mutual aid or protection” requirement. In particular, employees wanted to distribute a union newsletter in the workplace, during nonworking hours, urging employees to oppose recent legislative and executive action on wage and other work-related matters. The Court held that the political purpose of this concerted workplace activity did satisfy the “other mutual aid or protection” requirement.
Does the Dodd-Frank Act’s whistleblower anti-retaliation provision apply to employees who have not reported a violation of the securities laws to the Securities Exchange Commission, when the Act defines a “whistleblower” as an individual who “provide[s] information relating to a violation of the securities laws to the Commission?”
NELF, joined by Associated Industries of Massachusetts, filed an amicus brief in the certiorari and merits stages of this case, on behalf of the employer, Digital Realty Trust. The case is now scheduled for oral argument on November 28. At issue is the meaning of a subsection of Dodd-Frank’s “Securities whistleblower incentives and protection” section, 15 U.S.C. § 78u-6, which protects “a whistleblower [from retaliation in the workplace] . . . because of any lawful act done by the whistleblower . . . in making disclosures that are required or protected under the Sarbanes-Oxley Act [SOX] . . . .” 15 U.S.C. § 78u-6(h)(1)(A)(iii). That same section of Dodd-Frank defines a “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC] . . . .” 15 U.S.C. § 78u-6(a)(6). SOX, however, affords protection to the employee who only reports a potential securities law violation to his employer. And the Ninth Circuit in this case interpreted the disputed subsection of Dodd-Frank to mean that Dodd-Frank also protects the employee who only reports to his employer.
This case matters to NELF and its supporters because an employee who sues for whistleblower retaliation under Dodd-Frank is entitled to very generous remedies--a six-to-ten year limitations period, double back pay damages, and a direct right of action in federal court, without having to exhaust any administrative remedies. 15 U.S.C. § 78u-6(h)(1)(B)-(C). Dodd-Frank also awards the whistleblower a substantial monetary bounty if her reporting to the SEC results in a successful administrative or judicial enforcement action by that agency. § 78u-6(b). 
The lower court erred because it abandoned Dodd-Frank’s clear provision that a “whistleblower” is an employee who reports to the SEC. This definition must apply whenever the word “whistleblower” appears in the disputed subsection of Dodd-Frank. And applying this definition to the disputed language yields only one meaning. The employee who reports information to the SEC is protected when he also reports that information to his employer and then suffers retaliation because of his internal reporting.
This subsection of Dodd-Frank therefore protects an employee who has reported to both the SEC and her employer, when the employer does not know that the employee has reported to the SEC. And this subsection is necessary because, without it, such an employee would not be protected under Dodd-Frank. She would only be protected under SOX for her internal reporting. By affording Dodd-Frank protection under these circumstances, then, the disputed subsection encourages an employee to report to both the SEC and her employer.
The Ninth Circuit apparently rejected the statute’s plain meaning. In that court’s view, the disputed language identified a set of circumstances that was “narrow to the point of absurdity . . . .” Appendix to Petitioner’s Petition for Certiorari 8a. But it is not for the courts to pass judgment on congressional line drawing of this sort. Nor is it a court’s role to conform an unambiguous statute such as this one to the court’s own notion of what Congress may have had in mind.
But this is precisely what the Ninth Circuit did here, when it “interpreted” the disputed language to protect employees who are not Dodd-Frank whistleblowers because they have not reported to the SEC. The Ninth Circuit impermissibly substituted the word “employee” for the defined term “whistleblower.” And Dodd-Frank’s specific definition of a whistleblower excludes all other possible meanings of that term. Moreover, Congress chose the word “employee” in SOX’s whistleblower provision but did not do so when it later enacted Dodd-Frank. It must be presumed that this choice was deliberate.
In any event, it is hardly absurd for Congress to assume that an employee may choose to report to both the SEC and her employer, and that the employer may not know that such an employee has reported to the SEC. Consistent with SOX’s purposes, an employee may wish to report a potential violation to her employer, for speedy internal resolution of the matter. But, consistent with Dodd-Frank’s purposes, that same employee may also wish to alert the SEC to the matter, to secure her right to pursue Dodd-Frank’s special financial incentives (a potentially large bounty) and legal protection (including the right to recover double back pay). And the employer may not know that such an employee has reported to the SEC because Dodd-Frank and the SEC regulations both preserve the confidentiality of a whistleblower’s identity.
If allowed to stand, the Ninth Circuit’s decision would certainly eviscerate Dodd-Frank’s definition of a whistleblower. But in so doing, the lower court’s approach would also contravene Congress’ purpose of linking Dodd-Frank’s special financial incentives with its enhanced remedial protection. In the lower court’s view, an employee can sue for retaliation under Dodd-Frank even though he is not eligible for a bounty under that statute, because he has not reported to the SEC. But Dodd-Frank’s incentives and remedies are not severable from each other. Instead, they go hand in hand. And they are only available to the employee who has earned them both, by reporting information to the SEC.
 In particular, Dodd-Frank’s whistleblower provision creates the SEC Investor Protection Fund, § 78u-6(g), and requires the SEC to pay employees between 10% and 30% of the penalties collected by the SEC in a “covered judicial or administrative action,” which is defined as “any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000.” 15 U.S.C. § 78u-6(b).
Cullinane v. Uber Technologies, Inc. (United States Court of Appeals for the First Circuit). - Pending Case
Arguing that an online business should be allowed to enforce its mandatory arbitration policy and class action waiver against a customer, when those contract terms are viewable by clicking on a clearly marked hyperlink to the business’s “terms and conditions,” and the business has clearly provided that the customer is deemed to accept those terms once she has created an account.
On October 2, the First Circuit heard oral argument in this case, which raises an important issue of online contract formation that arises from a large and growing category of online standardized consumer agreements. At issue is whether a business has provided the online customer with sufficient notice of its mandatory arbitration policy and class action waiver, and whether the customer has consented to those terms, when the arbitration provisions are viewable only by clicking on a hyperlink to the agreement’s terms and conditions, and the customer is not required to check an online box indicating that she has accepted those terms. Instead, the business has clearly provided that the customer will be deemed to have accepted all of the contract terms once she has created an online account.
The plaintiff and putative lead class representative, Rachel Cullinane, argues, so far without success, that she had inadequate notice of Uber’s arbitration provisions because they were viewable only in a separate document, and because Uber did not require her to state affirmatively that she had accepted those terms. In essence, she argues that Uber structured the online sign-up process to discourage her from finding out about Uber’s arbitration policy. Consequently, Cullinane filed a putative class action in court, rather than submit her underlying claim to individual arbitration. (In her underlying claim, she alleges that Uber imposed fictitious fees that were hidden in charges for legitimate local tolls to and from Logan Airport, in violation of Mass. G. L. c. 93A.)
NELF filed an amicus brief in support of Uber, arguing that, under well-established principles of Massachusetts contract law, a customer has indeed consented to a business’s arbitration policy once the customer has indicated her consent to all of the terms contained in the agreement, in the manner of acceptance defined by the business. It is well settled in Massachusetts that a party who enters into a contract is bound by all of its terms, whether she has read them or not. That is, the contracting party is presumed to know all of the agreement’s terms and has a duty to read them. This duty applies equally to contract terms that are incorporated by reference in that agreement, such as Uber’s arbitration provisions that are viewable through a hyperlink in this case. It is also well settled in Massachusetts that the offeror, here Uber, controls the manner of acceptance. Accordingly, Cullinane accepted Uber’s arbitration policy once she completed the online registration process, because Uber clearly stated that completion of that process would indicate her acceptance of Uber’s contract terms.
In short, NELF argues that Massachusetts law treats contract formation as an objective process, in which the contracting party’s actual state of mind is irrelevant once that party has manifested her consent to the terms of an agreement, in the manner of acceptance prescribed by the offeror. NELF points out that a decision in Cullinane’s favor would contravene these bedrock principles of contract formation. Such a decision would allow a consumer to evade her contractual responsibility to read and understand the agreement’s terms before she accepts them. She would then be free to attempt to undo the countless transactions that occur over the internet every day, by pleading ignorance of contract terms that she does not like. This, in turn, would disrupt and undermine free enterprise on the internet, to the financial detriment of the business community.
Worldwide TechServices v. Committioner of Revenue, et al. (Massachusetts Supreme Judicial Court) - Pending Case
Rejecting the Massachusetts Commissioner of Revenue’s Position That, Under the Massachusetts Sales Tax Statutes, a Purchaser of Goods Who Believes She Has Been Erroneously Charged A Sales Tax May Sue a Vendor For Breach of Contract To Recover The Amount Paid
This case arises from litigation related to the long-running dispute between Dell (the plaintiff in this case is a Dell subsidiary) and Massachusetts purchasers of Dell computers who allege allege that Dell improperly charged them a Massachusetts sales tax on service contracts that they purchased with their Dell computers. Initially, the purchasers attempted to bring a Mass. G.L. c. 93A class action in the Massachusetts courts. NELF was heavily involved in supporting Dell’s eventually successful arguments before the Massachusetts Supreme Judicial Court that the dispute was subject to the service contracts’ mandatory arbitration provision and class action waiver. Accordingly, the case was ordered to arbitration on an individual basis, and Dell prevailed before the arbitrator.
While the challenge to Dell’s collection of sales taxes was pending in court and, then, in arbitration, Dell, as a protective measure, applied to the Massachusetts Department of Revenue (“DOR”) for an abatement of the disputed sales taxes so that, if it lost on the merits, it would have funds to pay back the sales taxes it had collected. (This was done because, as required under Massachusetts law, Dell had already remitted to the Department of Revenue the disputed sales taxes that it had collected from its purchasers.) When the DOR denied the abatement request, Dell appealed that decision to the Massachusetts Appellate Tax Board (“ATB”). While Dell’s appeal was pending before the ATB, one of the plaintiffs in the c. 93A action, Econo-Tennis Management Corporation, d/b/a Dedham Health and Athletic Complex (“Dedham”), successfully intervened in the ATB appeal. The ATB issued a preliminary decision finding that the sales tax had been wrongly collected by Dell.
Dell, having won in the arbitration, moved to dismiss its ATB appeal, with which motion the DOR concurred. The ATB dismissed the appeal over Dedham’s objection.
The central issue before the Massachusetts court in this appeal is whether the ATB was correct in dismissing Dell’s appeals, even though Dedham objected.
NELF’s participation was requested because the DOR, in its brief supporting the dismissal of the cases, argued that, even if the ATB appeals were dismissed, Dedham still had a remedy. The DOR claimed that Dedham had a statutory right to sue Dell for the improper sales tax under a theory of breach of contract. Dell’s attorneys asked NELF to file an amicus brief disputing the DOR’s position on this issue.
In its amicus brief, NELFargued that neither the Massachusetts sales tax statutes nor the common law of agency authorizes a purchaser to sue a vendor to recover an allegedly erroneous sales tax, which the vendor has collected as an agent of the Commonwealth. Nowhere does the relevant provision of the sales tax code, G. L. c. 64H, § 3(a), mention or even suggest any right of action by the purchaser against the vendor. By contrast, the plain language of § 3(a) protects the rights of the vendor, not the purchaser. Section 3(a) requires the purchaser to reimburse the vendor for the sales tax that the vendor must pay to the Commonwealth under § 2 of the same statute. Simply put, the sales tax statute establishes the respective obligations of the vendor and the purchaser in the payment of a sales tax to the Commonwealth. The statute creates a steady stream of revenue flowing from the purchaser through the vendor to the Commonwealth, and nothing more.
Indeed, the SJC recognized in an earlier stage of this very case that the sales tax statute places the vendor in the role of the Commonwealth’s agent or trustee, for the purpose of collecting a sales tax from the purchaser and remitting it to the Commonwealth, as Dell has done here. See Feeney v. Dell Inc., 454 Mass. 192, 213 (2009) (“[V]endors who, on behalf of the Commonwealth, compute, collect, and file sales tax returns, and remit full sales tax for each customer transaction[,] serve as trustees for the Commonwealth’s retail sales taxes . . . .”) (citation and internal quotation marks omitted). Moreover, the Department of Revenue in this case expressly instructed Dell that, based on the Department’s own regulation, Dell had the duty to collect the disputed sales tax.
Under these circumstances, it is black letter law that Dell, as an agent acting on behalf of the Commonwealth, the known principal, cannot be held liable for any acts performed within the scope of its authority. This foundational principle of agency law recognizes that Dell acted merely as a conduit between the purchaser and the Commonwealth, for the purpose of delivering the sales tax to the Commonwealth. Therefore, any dispute over this tax collection is between the Commonwealth (the principal) and the purchaser (the third party).
NELF also argued that adoption of the DOR’s position would contravene the purposes of the tax statutes and would lead to untenable results. In particular, permitting purchasers to sue vendors every time there is a sales tax dispute would contravene the basic purpose of the sales tax statute, which is to secure a reliable stream of revenue for the Commonwealth. Recognizing such a right of action would actually encourage vendors to under-collect a sales tax whenever the tax law is unclear (a not infrequent occurrence), to avoid their potential exposure to civil liability. As a result, the Commonwealth could suffer a decrease in the amount of sales tax collected. And vendors would be forced to make the impossible choice of incurring either state penalties for under-collection or civil liability for over-collection. The Legislature could not have intended such absurd and draconian results.
In addition, the Commissioner’s position would create the untenable result of allowing purchasers to sue vendors over a sales tax after the expiration of the time period for seeking an abatement of the sales tax. Specifically, an application for abatement must be made within one to three years of the disputed tax assessment, under G. L. c. 62C, § 37. Under the Commissioner’s approach, however, a purchaser would have four or six years to sue the vendor over the validity of the same sales tax. See G. L. c. 106, § 2-725(1)(four-year statute of limitations for sale of goods); G. L. c. 260, § 2 (six-year statute of limitation for express or implied contract claim). As a result, a vendor could be exposed to liability over a sales tax long after the vendor’s right to recoup the sales taxes from the Commonwealth has expired.
And finally, the Commissioner’s position would allow a court to decide in the first instance whether a tax abatement is due. This would deprive both DOR and the ATB of their primary jurisdiction to decide such tax issues.
 That section of the sales tax statute provides, in relevant part:
[R]eimbursement for the [sales] tax hereby imposed [on the vendor under G. L. c. 64H, § 2] shall be paid by the purchaser to the vendor . . . and such tax shall be a debt from the purchaser to the vendor, when so added to the sales price, and shall be recoverable at law in the same manner as other debts.
G. L. c. 64H, § 3(a).
Arguing That Neither An Outside Director of Nor An Investor in a Failed Startup May Be Held Personally Liable for Unpaid Wages and Treble Damages Under the Massachusetts Wage Act
On September 5, the Supreme Judicial Court heard oral argument in this case, in which NELF filed an amicus brief in support of the defendants, a venture capitalist and his manager who invested considerable funds and efforts in a failed biotech start-up limited liability company. At issue is whether such directors and outside investors of a company doing business in Massachusetts can be held personally liable for mandatory treble damages under the Massachusetts Wage Act, G. L. c. 149, § 148, for the company’s nonpayment of an employee’s wages. The Wage Act imposes liability on both the employer and “[t]he president and treasurer of a corporation and any officers or agents having the management of such corporation . . . .” G. L. c. 149, § 148 (emphasis added). And this Court has interpreted an “agent having the management of such corporation” to mean a high-ranking manager of the employer who has authority over the employer’s payment of wages. See Cook v. Patient Edu, LLC, 465 Mass. 548, 549 (2013) (Wage Act applies to “a manager who controls, directs, and participates to a substantial degree in formulating and determining the financial policy of a business entity . . . .”) (citation and internal quotation marks omitted).
The plaintiff in this case, Dr. Andrew Segal, was the president, CEO, and the sole officer of a biotech start-up company called Genitrix, LLC, a Delaware limited liability corporation doing business in Massachusetts. Genitrix’s mission was to develop a cancer-fighting molecule that would train the body’s immune system to attack cancer cells. Dr. Segal prevailed in a jury trial in his claim to hold the defendants, H. Fisk Johnson, III and Stephen Rose, personally liable for Genitrix’s nonpayment of his wages. Neither defendant was ever the president, treasurer, or an officer of Genitrix. And so the issue is whether either defendant was an “agent having the management of” Genitrix under the Wage Act and Cook, when Genitrix failed to pay Segal his salary.
NELF argued that the Wage Act does not, on its face, apply to the directors of a corporation, or to individuals occupying comparable positions in any other entity covered by the Act. This is because the Wage Act omits directors from its list of those corporate actors who are subject to personal liability--i.e., “[t]he president and treasurer of a corporation and any officers or agents having the management of such corporation . . . .” G. L. c. 149, § 148. Nor has the Legislature intended the word “agents” to include directors. To the contrary, the Legislature has recognized throughout the General Laws that directors are not agents of the corporation. In particular, the Legislature has named directors separately from agents in several other statutes that address the duties and powers of corporate actors. In light of the Legislature’s repeated distinction between directors and agents in those other statutes, the word “agents” in the Wage Act should not be interpreted to include directors.
NELF argued further that the Legislature’s frequent distinction between directors and agents is consistent with the common law of agency, under which a director is not an agent of the corporation, for two simple reasons. First, to be an agent, an individual must be subject to the principal’s control. But a director is not subject to the control of another (other than her placement in office by the shareholders). Once in office, a director is free to exercise her own business judgment in overseeing the corporation’s affairs. And second, an agent must be able to act on behalf and for the benefit of the principal. But a director has no power to act on her own for the corporation. Instead, she acts only as one of a board of directors that act as a body to supervise the activities of the corporation.
NELF also argued that investors in a company, and the individuals who manage their investments, should be allowed to take an active role in protecting those investments without risking the loss of their separate legal identities and becoming “agents” of that company under the Wage Act. After all, the Wage Act limits personal liability to “agents with the management of such corporation,” i.e., high-ranking managers of the employer who are in charge of the employer’s financial policy. Cook, 465 Mass. at 549. But the owners and managers of another company (such as the venture capital firm in this case or, for that matter, a parent corporation) that invests in the employer company are not agents of the employer. If they are agents at all, those individuals are agents of a separate legal entity that invests in the employer. Consistent with this foundational principle of corporate separateness, then, investors and their managers should be allowed to take an active role in protecting those investments, such as by specifying the purpose of capital contributions and monitoring the company’s operations, without losing their separate legal identities and becoming agents of the employer under the Wage Act. To overcome this core principle of corporate separateness, the employee would have to prove extraordinary circumstances to justify disregarding the corporate form and treating those individuals as if they were agents of the employer under the Wage Act.
Finally, NELF argued that an adverse decision could chill investment and business growth in Massachusetts, because it would expose venture capitalists and their managers to the additional risk of personal liability for treble damages under the Wage Act. This could, in turn, undermine the Commonwealth’s economy and the public interest. Indeed, Massachusetts’ innovative economy owes its success, at least in part, to venture capital. Without the necessary financing from risk-taking entrepreneurs and the committed efforts of their managers, many start-up businesses with innovative and even life-saving goals (such as the biotech start-up company in this case) would not be able to see the light of day. After all, Genitrix’s mission was to develop a cancer-fighting molecule, and the facts of this case illustrate the crucial role that venture capital can play in financing the early stages of such a business.
However, this case also illustrates that investing in a start-up company is an inherently risky prospect, with no guarantee of success. Exposing investors to more risk, by subjecting them to potential personal liability under the Wage Act, could deter them from investing capital in already risky start-up companies in Massachusetts. In the end, society as a whole could be deprived of many potentially innovative and even life-saving products and services because they lacked the initial capital investment to become a reality. The Legislature could not have intended such socially undesirable results under the Wage Act.
Eastern Maine Electric Corporative, Inc. v. First Wind Holdings LLC, et al. (Maine Supreme Judicial Court Sitting as the Law Court) - Pending Case
Urging the Maine Supreme Judicial Court to Adopt Reliance Damages As the Proper Measure of Compensation for Breach of An Agreement to Negotiate in Good Faith
This case raises an issue of first impression in Maine, namely what should be the proper measure of damages where a court has determined that there has been a violation of a duty to negotiate in good faith. Here, the jury, after finding that the duty had been breached and over the defendants’ objection, was permitted by the trial judge to award “lost profits” to the plaintiff. The appellant, Eastern Maine Electric Corporate, Inc., while not conceding that the jury finding that it had violated its duty was legally correct, also disputes that “lost profits” are a proper measure of damages.
While there is a split in the decisions on this issue throughout the country, NELF has filed an amicus brief urging the Maine Supreme Judicial Court to adopt a general rule that where, as here, a deal has never been finalized, the appropriate measure of compensation for the violation of a duty to negotiate in good faith, should strictly be reliance damages, and not lost profits. NELF relies on the reasoning of the New York court in Goodstein Constr. Corp. v. City of New York, which focused its legal analysis on the precise nature of the sole obligation that was breached, which was not a breach of a contract, but a breach of the duty of negotiate in good faith a contract not yet in existence. Since the contract was never executed, NELF argued that it would be anomalous to award expectancy damages for the breach of an agreement that was never finalized.
In addition, NELF pointed out several policy and logical reasons that dictate that reliance damages are the most appropriate form of compensation when there has been a failure to negotiate in good faith. Among these, NELF noted that holding “lost profits” to be the measure of compensation could have a deleterious effect on the use of term sheets and other interim agreements that are routinely used as the parties work through their negotiations; such a ruling would create an in terrorem regime in which such interim documents could be potential bases for “lost profits” damages, which are typically much larger than the actual costs that the parties have sunk into their contract negotiations. (In this case, the lost profits damage award was $13.6 million, which is exponentially larger than the costs actually incurred by the plaintiff in the negotiations, which were estimated to be not more than $350,000.)
Hall v. Department of Environmental Protection (Massachusetts Division of Administrative Law Appeals) - Pending Case
Opposing Regulatory Encroachment on Coastal Property Rights
In 1991, the Massachusetts Department of Environmental Protection (DEP) adopted a new regulation under G. L. c. 91 that reversed longstanding common law presumptions about the ownership of shorefront property. Because the most common means of shoreline increase is accretion (slow and gradual addition of upland at the mean high tide line) and because it is so difficult to prove imperceptible, gradual growth, Massachusetts courts have adopted a rebuttable presumption that a shoreline increase is due to accretion. The presumption is important because accretion accrues to the property owner, whereas shoreline increases due to major storms or unpermitted filling do not. The 1991 DEP regulation, 310 CMR § 9.02, reversed this presumption and placed the burden on property owners to prove that all land seaward of the “historic high tide” level has resulted exclusively from “natural accretion not caused by the owner . . . .”
Following promulgation of its regulation, DEP suggested that owners of shorefront property seaward of the “historic” high tide line, as mapped by DEP, apply for amnesty licenses. NELF’s client, Elena Hall, owns a parking lot on shorefront property in Provincetown that provides Ms. Hall with her sole significant source of income. Approximately one-third of the parking lot and a portion of a small rental cottage on the property are seaward of DEP’s “historic” high tide line. Ms. Hall applied for an amnesty license and DEP issued a license imposing several onerous and costly conditions on Ms. Hall’s right to use her property seaward of the “historic” line.
Ms. Hall filed an administrative appeal with DEP and NELF agreed to take over Ms. Hall’s representation in this test case of DEP’s regulation. During the administrative and any subsequent judicial proceedings in this case, NELF will challenge DEP’s mapping of the “historic mean high water mark” and argue that DEP’s regulation exceeds that agency’s statutory authority and effects an unconstitutional taking of private property. NELF will further argue that a license condition requiring a four-foot-wide public access way across the entire width of Ms. Hall’s upland property to the beach effects a taking of her property requiring just compensation. This is so because the public’s limited rights in tidelands do not include a right of access across private upland property to reach the water or coastal tidelands. DEP has therefore imposed a license condition that bears no relationship to any recognized public right, let alone a public right protected under c. 91 and affected by the licensed use of Ms. Hall’s property.
NELF filed a potentially dispositive memorandum of law, accompanied by a detailed and thorough expert affidavit, with multiple map overlay exhibits, arguing that DEP simply has no jurisdiction over Ms. Hall’s property. In particular, NELF staff worked closely with the experts in scrutinizing carefully the historical maps pertaining to Provincetown Harbor and in determining that the application of the mean high tide line derived from the earliest reliable historical map to Ms. Hall’s property leaves the disputed portion of her property free and clear of the designation “Commonwealth tidelands.” NELF received a piecemeal, informal response from DEP challenging various aspects of NELF’s expert’s methodology.
The Administrative Law Judge then ordered the parties’ experts to meet, with the attorneys present, to exchange opinions and determine whether settlement was possible. While the meeting was productive, settlement is not possible at this time. DEP’s most salient challenge concerned the historic location of a lighthouse upon which Ms. Hall’s expert relied in determining the location of the historic mean high water mark. This challenge led the expert to reexamine the historic location of other lighthouses which he used in his methodology. NELF has also researched and briefed potential legal challenges to DEP’s regulation and license conditions under the Takings Clause and the ultra vires doctrine, which NELF would be prepared to reach should it not succeed on its position with respect to the historic high water mark.
Click here to read the brief.
At issue in this case is whether the United States Supreme Court should grant certiorari to decide whether the due process clause of the Fourteenth Amendment permits a court to exercise personal jurisdiction over an out-of-state company with no contacts of its own in the forum state, but based instead on the forum contacts of another party who has allegedly engaged in a civil conspiracy with the non-resident defendant.
The out-of-state defendant here is Fitch Ratings, Inc., a financial-products ratings agency headquartered in New York. Fitch has no contacts of its own with the forum state, Tennessee. Instead, the plaintiff, First Community Bank, which does business in Tennessee, alleges that Fitch should be imputed with the Tennessee contacts of its alleged co-conspirators, various co-defendant issuers and placement agents for certain asset-backed securities rated by Fitch and purchased by the bank. The bank alleges that the defendants engaged in a conspiracy to over-value the worth of those securities in order to secure their sale to the bank, which purchased the securities in reliance on the allegedly false ratings and then suffered a substantial loss. For jurisdictional purposes, the bank alleges that certain of those co-defendant issuers and placement agents engaged in sales transactions with the bank directly in Tennessee sufficient to establish personal jurisdiction over them in Tennessee. (The parties do not appear to dispute this jurisdictional fact.) And the Tennessee Supreme Court has permitted the bank to attribute the Tennessee contacts of those co-defendants to Fitch, the out-of-state defendant, if the bank can substantiate its claim that the defendants all engaged in a conspiracy to defraud the bank.
Under the Tennessee law of civil conspiracy, as with the law of most states, each co-conspirator is vicariously liable for the conduct committed by co-conspirators in furtherance of the conspiracy. That is, each co-conspirator is an “agent” of the other co-conspirators for liability purposes, to assist the plaintiff by allowing her to recover damages jointly and severally from each co-conspirator. Due process, by contrast, serves the altogether different purpose of protecting the non-resident defendant’s liberty interest in not having to litigate in a remote and unanticipated forum and have to submit to that court’s coercive judgment. “The purpose of this [minimum-contacts] test, of course, is to protect a defendant from the travail of defending in a distant forum, unless the defendant's contacts with the forum make it just to force him to defend there.” Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 807 (1985). In short, vicarious liability under civil conspiracy law is broad and serves to protect the plaintiff’s interests. By contrast, vicarious personal jurisdiction is a narrow and uncertain concept that serves to protect the defendant’s liberty interests.
In its amicus brief supporting the Petitioner, NELF argued that due process should not permit a court to impute the forum contacts of one party to another, if at all, unless the out-of-state defendant has purposefully availed itself of the forum, such as by substantially directing and controlling the alleged co-conspirator’s in-state conduct. Nowhere does the Tennessee test for “civil conspiracy jurisdiction” require such purposeful availment, and nowhere does the bank allege any such facts. Moreover, the Supreme Court has long rejected as constitutionally inadequate the notion that the exercise of personal jurisdiction can be based on the mere foreseeability of Fitch’s ratings for various financial products winding up in the Tennessee financial market, or in the market of any of the other 50 states, for that matter. “[T]he foreseeability that is critical to due process analysis is not the mere likelihood that a product will find its way into the forum State. Rather, it is that the defendant’s conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980) (emphasis added). And even if the Tennessee test for “civil conspiracy jurisdiction” did contain a purposeful availment requirement, it would not warrant the separate label of “civil conspiracy jurisdiction.” Instead, the so-called test would merely be a particular application of the unitary minimum-contacts test for personal jurisdiction, established long ago under International Shoe and its progeny, to the context of a civil conspiracy. In sum, NELF argues that the notion of a separate category of “civil conspiracy jurisdiction” is an unnecessarily confusing and conclusory doctrine that should be summarily rejected by the Supreme Court.
Despite NELF’s arguments and the importance of the jurisdictional issue, the Supreme Court denied certiorari on June 27, 2016.
Arguing that the First-to-File Bar under the Federal False Claims Act, Which Requires Dismissal by a District Court of a Qui Tam Claim that is Brought While a Related Claim is Pending, Does Not Permit an Appellate Court to Vacate the Dismissal if the Related Claim Has Been Dismissed While the Qui Tam Plaintiff’s Appeal of the Dismissal of His Case is Pending.
Click here to read the brief.
To prevent the proliferation of duplicative or parasitic lawsuits against Government contractors, Congress in 1986 added the “first-to-file” provision to the False Claim Act (“FCA”): “When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5) (emphasis added). At issue here, on a petition for certiorari to the United States Supreme Court, is whether the “first-to-file” provision is an absolute bar requiring a court to dismiss any lawsuit brought by a “whistleblowing” plaintiff on behalf of the Federal Government during the pendency of a related case, or whether, instead, the provision grants a court the discretion to stay the improperly filed lawsuit indefinitely, until the first-filed suit is dismissed. Surprisingly, the First Circuit (opinion by Selya, J.) in this case, alone among all of the other federal circuit courts to have decided the issue, took the latter view and reversed the District Court of Rhode Island’s dismissal of the lawsuit filed by qui tam plaintiff, Robert Gadbois, against PharMerica Corp. U.S. ex rel. Gadbois v. PharMerica Corp., 809 F.3d 1 (First Cir. 2015).
In his FCA qui tam claim, Gadbois alleges that PharMerica had overbilled the Medicare and Medicaid programs by seeking payment for medications dispensed without legally valid prescriptions. When Gadbois filed suit, however, a related case against PharMerica was pending in another federal district court. Accordingly, the trial court in this case dismissed Gadbois’ suit under the first-to-file bar. During Gadbois’ appeal to the First Circuit, however, the related case was dismissed. And so the First Circuit, paying scant attention to the statute’s plain language, ruled that the lower court erred in dismissing the claim and, instead, should have stayed the action indefinitely, pending resolution of the first-filed case. In its remand order, the First Circuit instructed the trial court to consider whether Gadbois may be permitted to supplement his complaint, under Fed. R. Civ. P. 15(d),* to allege the dismissal of the first-filed case and proceed with his qui tam claim. In so deciding, the First Circuit not only disregarded the first-to-file bar’s plain meaning but also rendered meaningless the FCA’s statutes of limitations and repose, discussed in n.1 above, which provide a business with the certainty that it won’t be exposed to potential liability for conduct after the passage of a definite number of years.
In its amicus brief in support of the Petitioner, NELF urged the Supreme Court to grant certiorari to resolve the Circuit split created by the First Circuit and to rule that the First-to-File bar requires a federal court to dismiss any qui tam that is brought while a related claim is pending. NELF argues, first, that the plain language of the statute clearly prohibits the filing here and mandated dismissal of plaintiff’s complaint. Second, NELF argues that the jurisdictional facts under the First-to-File bar must be determined as of the time when the relator files suit, not at some point after that has occurred. Finally, NELF argues that the First Circuit’s decide clearly undermines Congress’s intent in passing the First-to-File bar and defeats the very purpose for which the statute was enacted.
Once again, despite NELF’s arguments, the Supreme Court denied certiorari on June 27, 2016.
*“(d) Supplemental Pleadings. On motion and reasonable notice, the court may, on just terms, permit a party to serve a supplemental pleading setting out any transaction, occurrence, or event that happened after the date of the pleading to be supplemented. The court may permit supplementation even though the original pleading is defective in stating a claim or defense. The court may order that the opposing party plead to the supplemental pleading within a specified time.” Fed. R. Civ. P. 15(d) (emphasis added).
Arguing that in a Claim of Employment Discrimination Under Mass. G.L. c. 151B, an Employer Should Not Be Held Vicariously Liable for Punitive Damages Based on a Supervisor’s Egregious Misconduct Towards a Subordinate Employee, if the Employer Has Made Good Faith Efforts to Comply with c. 151B, Namely by Taking Preventive and Corrective Steps to Eliminate Discrimination in the Workplace.
In this case, the Massachusetts Supreme Judicial Court was presented with the novel issue whether an employer should be held strictly liable under the Massachusetts Employment Anti-Discrimination Act (Mass. G. L. c. 151B) for punitive damages based on the egregious misconduct of a supervisor toward a subordinate employee. The issue was significant because the SJC held many years ago, in College-Town v. Mass. Comm’n Against Discrimination, 400 Mass. 156 (1987), that employers are strictly liable in actual damages for actionable supervisory misconduct under c. 151B. And so the Court was presented with the question whether the same College-Town standard of strict liability should apply to employers with respect to punitive damages, given the markedly different purposes that distinguish punitive from actual damages.
The plaintiff, Emma Gyulakian, was an employee of Lexus of Watertown from 2003 through 2012. In 2014, she prevailed in a jury trial on her claim that her immediate supervisor had sexually harassed her for an extended period of time and had thereby created an unlawful hostile work environment in violation of c. 151B. The jury awarded her $40,000 in compensatory damages and $500,000 in punitive damages. On Lexus’ post-trial motions, the trial court vacated the award of punitive damages. The lower court apparently concluded that, as a matter of law, an employer cannot be held vicariously liable in punitive damages for egregious supervisory misconduct.
In the SJC appeal, NELF filed an amicus brief supporting the decision below, arguing that the College-Town standard of strict liability should not apply, and that an employer should not be liable for punitive damages unless it has engaged in blameworthy conduct itself. Recognizing such a standard is appropriate, NELF argued, because punitive damages serve to punish and deter an employer’s wrongful conduct, not to provide the injured employee with a remedy for the actual harm inflicted by the rogue supervisor. Accordingly, NELF argued that an employer should not be held liable for punitive damages if it can show that it has taken affirmative steps to eliminate discrimination in the workplace, such as by implementing an antidiscrimination policy, through education and training, and by providing internal grievance procedures and acting appropriately on grievances. Indeed, NELF argued, recognizing such a standard would create an incentive for employers to take measures to carry out c. 151B’s important social goal of eradicating discrimination in the workplace.
In its decision of August 24, 2016, the SJC adopted NELF’s position that an employer should not be held liable in punitive damages for a supervisor’s egregious misconduct unless the employer itself has engaged in blameworthy misconduct. The Court announced that the standard to be applied is whether the employer was on notice of the supervisor’s misconduct and egregiously or outrageously failed to respond. “We consider first whether the employer was on notice of the harassment and failed to take steps to investigate and remedy the situation; and, second, whether that failure was outrageous or egregious.” The Court then applied this two-step test to the record and concluded that Lexus was liable in punitive damages for the supervisor’s harassment of Gyulakian. Therefore, the Court reinstated the award of punitive damages. Nonetheless, the principle articulated in NELF’s amicus brief is now the law in Massachusetts. Employers cannot be held liable for punitive damages unless they have engaged in outrageous or egregious misconduct of their own.
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