Category: Government Regulation/Administration Of Justice

Fitch Ratings, Inc. v. First Community Bank

10/26/2016

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.

Pharmerica Corporation v. U.S. ex. rel. Robert Gadbois

10/25/2016

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).

Martinez v. Empire Fire & Marine Insurance Co.

10/23/2016

Arguing that an In-State Errand by a Trucking Company Employee That Resulted in an Accident Does Not Trigger a Federally Mandated Insurance Endorsement, Which Applies Only When a Vehicle is engaged in Interstate Transportation of Property For Hire at the Time the Accident Occurs.

This case presented an issue of first impression in Connecticut dealing with the interplay of federal interstate commerce jurisdiction and motor vehicle insurance law, which is usually the province of the states. Congress has given the Secretary of Transportation carefully delimited jurisdiction over the interstate transport of property by motor carriers and directed the Secretary to impose minimum liability insurance coverage amounts in order to protect the public. (These limits are often higher than state-imposed minimums, and thus are a preferred source of recovery in lawsuits.)

At issue here was how to determine whether the federally mandated insurance coverage applies to particular accidents. The defendant was the insurer of a New Haven towing company. The plaintiff, Martinez, was injured in a collision with one of the company’s trucks while the driver of the truck was running a purely local errand for the company to pick up truck parts. Having obtained a judgment against the company in an earlier action, in this action the plaintiff invoked the terms of the federal insurance endorsement in order to obtain from the insurer the unpaid portion of the earlier judgment. To establish interstate commerce jurisdiction (which is required by the federal endorsement), she argued that the court should look to the company’s operations as a whole (which did encompass commerce outside Connecticut), rather than to the route taken by the truck on this specific trip. She also argued that the vehicle parts that were the purpose of the truck driver’s errand, once installed in the towing company’s trucks, would travel in interstate commerce. She also invoked general public policy grounds.

NELF filed a brief in which it emphasized that this is an issue of federal, not state, law. The brief closely read the statutes, regulations, and the endorsement and demonstrated that, as courts elsewhere have overwhelmingly ruled, jurisdiction is to be determined by the nature of the specific trip that caused the accident and not by other, more general considerations. In addition, NELF distinguished a series of cases invariably cited by plaintiffs like Martinez when they argue against the trip-specific rule.

On July 12, 2016, the Connecticut Supreme Court issued its decision adopting the trip-specific rule by a vote of 6 to 1. The decision clearly shows NELF’s influence. The court not only followed NELF’s unique approach in how it distinguished the plaintiff’s cases, it also followed NELF in noting that some of plaintiff’s public policy arguments could be ruled out because they are inconsistent with how federal law addresses intrastate commerce with respect to liability coverage. A little surprisingly, the majority stated that they would have adopted the trip-specific rule even if they had thought it wrong (which they did not) because it is the rule used by the U.S. Court of Appeals for the Second Circuit. The state court explained that, because Connecticut lies within the federal jurisdiction of that circuit, it customarily follows the Second Circuit on federal questions in order to avoid problems like forum-shopping. It is worth noting that NELF alone had argued in favor of the trip-specific rule in part by reminding the state court of this customary deference.

Epic Systems v. Lewis; Ernst & Young LLP v. Morris

10/22/2016

Click here to read the brief in Epic Systems v. Lewis

Click here to read the brief in Ernst & Young LLP

NELF will be filing an amicus brief in support of certiorari in both of these cases, arguing that the Supreme Court should grant certiorari and decide that the NLRA does not repeal the FAA’s mandate to enforce class and collective action waivers in employment arbitration agreements. An employee’s NLRA “right to . . . engage in . . . concerted activities for mutual aid or protection” lacks the specificity and directness required by the Supreme Court to override the FAA’s mandate to enforce arbitration agreements according to their terms. NELF argues that, to displace the FAA’s mandate, the NLRA would have to state clearly that employees have the nonwaivable right to pursue group legal action against their employer. Nowhere does the NLRA announce this “contrary congressional command” to displace the FAA’s mandate. Therefore, the FAA should require courts to enforce class and collective action waivers in employment arbitration agreements. The background facts and procedure for each case are provided below.

Epic Sys. v. Lewis (7th Cir.): Jacob Lewis was a technical writer for Epic Systems, a health care software company. Epic required Lewis and certain other groups of employees, as a condition of continued employment, to agree to to submit any future wage-hour and other employment claims to binding individual arbitration only. Lewis consented by email to Epic’s arbitration agreement. (The agreement also contained a nonseverability or “jettison” clause, in which the parties agreed that if the class arbitration waiver were declared invalid, Lewis could only bring a class action in court.) A dispute arose concerning whether Lewis was entitled to overtime pay under the FLSA and state wage-hour law. Lewis filed both a Rule 23 class action and collective (opt-in) under the FLSA. Epic moved to dismiss the complaint and to compel the arbitration of Lewis’ claims on an individual basis. Lewis argued in opposition that Epic’s arbitration agreement was an unfair labor practice, in violation of § 8 of the NLRA, because it interfered with his right to engage in concerted activity for mutual aid or protection under § 7 of the same statute. The federal district court agreed, and the Seventh Circuit affirmed the lower court’s decision.

Ernst & Young v. Morris (9th Cir.): Stephen Morris and Kelly McDaniel were employees of the accounting firm Ernst & Young. As a condition of employment, Morris and McDaniel were required to sign agreements promising to pursue any future work-related claims exclusively through arbitration, and on an individual basis only. Notwithstanding the arbitration agreement, Morris brought a class and collective action against Ernst & Young in federal court, which McDaniel later joined, alleging that Ernst & Young had misclassified Morris and similarly situated employees as exempt from overtime pay under the FLSA and California law. The trial court granted Ernst & Young’s motion to compel, but a 2-1 panel of the Ninth Circuit reversed, agreeing with the employees that the NLRA provided them with a nonwaivable right to pursue group legal action. The dissent agreed with Ernst & Young and with the Fifth Circuit that the NLRA’s “concerted activities” language falls short of the “contrary congressional command” required by the Supreme Court to override the FAA’s mandate.

In particular, NELF will argue that, to escape their contractual obligation to arbitrate disputes on an individual basis only, the employees in these cases would have to show that the NLRA announces a “contrary congressional command” that employees have the nonwaivable right to pursue group legal action against their employer. But the NLRA contains no such contrary congressional command. The statute makes no mention of class actions and was enacted decades before the advent of the modern class action. Nor does the NLRA mention collective actions or even provide for an individual right of action. Congress could not have intended to provide employees with certain nonwaivable procedural rights associated with a nonexistent right of action.

The NLRA’s “right . . . to engage in . . . concerted activities for . . . mutual aid or protection” lacks the specificity and directness that this Court has required for a federal statute to repeal the FAA’s mandate to enforce arbitration agreements according to their terms. Under CompuCredit v. Greenwood, 132 S. Ct. 665, 669 (2012), a contrary congressional command should announce itself clearly on the face of a statute. Such an intent should not be “found” in the interstices of a statute, and certainly not by engaging in a strained and anachronistic interpretation of a vague statutory term such as “concerted activities.”

As with the Credit Repair Organization Act (“CROA”) under review in CompuCredit, the NLRA is also silent on the issue of invalidating the terms of an arbitration agreement. At issue in CompuCredit was whether the CROA overrode the contractual term to submit claims to binding arbitration. At issue here is whether the NLRA overrides the contractual term to arbitrate all employment-related disputes on an individual basis only. In both cases, the federal statute at issue says nothing about the enforceability of the disputed contractual term. Therefore, the FAA’s mandate to enforce the arbitration agreement according to its terms remains undisturbed for both CROA and NLRA claims. Accordingly, Lewis’ class and collective action waiver should be enforced.

This is confirmed by the NLRA’s statement of purpose, which makes no mention of legal action of any kind. To the contrary, the NLRA was expressly intended to avoid “industrial strife” through the “friendly adjustment of industrial disputes,” by protecting the employee’s right to self-organization in order to negotiate on an equal footing with the employer over the terms and conditions of employment. This clear purpose of industrial progress through negotiated compromise is incompatible with the coercive aims of a class or collective legal action, with its attendant threat of exacting an “in terrorem” settlement from the employer.

Finally, NELF intends to argue that the lower courts’ reliance on Eastex, Inc. v. NLRB, 437 U.S. 556 (1978), is entirely misplaced. Eastex did not involve any judicial action taken by employees, did not involve the FAA, and did not even interpret the NLRA’s “concerted activities” language. Instead, that case decided the entirely unrelated issue whether employees acted “for mutual aid or protection” if they acted outside of the immediate employer-employee relationship, by taking political action with respect to work-related issues.

Murr v. State of Wisconsin and St. Croix County

10/21/2016

Click here to read the brief.

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 presents the Supreme Court with an opportunity to take a first step toward clarifying, and hopefully setting some limits to, the “parcel as a whole,” 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, the term has been adapted to a variety of circumstances. As used in Penn Central, it meant that the economic impact of a government regulation should be evaluated in terms of the entire piece of property in question and not solely in terms of the specific property right targeted by the regulation. The Court observed, “‘Taking’ jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated.” Penn Central, 438 U.S. at 130.

Since Penn Central, the concept has been extended by analogy to account for the great diversity of factual circumstances met with in regulatory takings cases. Now, when some or all of a parcel is affected by a regulation, the “parcel as a whole” concept is sometimes invoked as reason for evaluating the impact of the regulation on that parcel by grouping the parcel with other, related parcels, as if the parcels, on analogy with the situation in Penn Central, were “discrete segments” that must not be considered separately from the larger parcel of which they are part. While a wide variety of factors has been employed by courts in determining when to aggregate parcels in this manner, the most common major factors probably are: (i) common ownership, (ii) contiguity with each other, and (iii) unity of use.

This case focuses on the extended application of the concept and asks whether the mere contiguity of commonly owned parcels requires, as a rule of takings law, that such parcels be considered together as the parcel as a whole, even when unity of use or any other factor is absent. NELF has filed an amicus brief in the case, on the merits, supporting the Murrs in their contention that the proposed rule of law should be rejected because it is overly inclusive and unfair to property owners.

The petitioners in this case are the Murrs, four siblings. In 1960, their parents purchased a certain Lot F in rural St. Croix County, Wisconsin. Their father owned a plumbing business, and he placed title to Lot F in his business. Soon after the purchase, the parents built a three-bedroom recreational cabin on the lot. Recognizing the growth potential of the area, in 1963 they purchased a second parcel, Lot E, as investment property. They held the title to Lot E in their own names. Lot E is adjacent to Lot F; both are waterfront parcels approximately 100 feet wide and somewhat over one acre in size. Since its purchase, Lot E has remained vacant and undeveloped. There is no dispute that, as created and as originally purchased, the parcels were separate, distinct legal lots, and that each could have been separately developed, used, and sold.

In the 1990s, the parents made donative transfers to their children, the present petitioners, of developed Lot F and investment Lot E, and for the first time the adjacent lots came under common ownership. In 2004, when the Murr children wanted to sell Lot E and use the proceeds to finance improvements to Lot F, they discovered from officials that they could not develop or sell Lot E separately. Twenty years earlier, in 1975, while the lots were still owned separately by their parents and the plumbing business, local environmental regulations had been adopted requiring a “net project area” of at least one full acre as a prerequisite to development of any lot in that lakeside, environmentally sensitive area of the county.

Lot E has a net project area of only 0.5 acres. The regulations do contain a grandfather provision for any substandard lot created before 1976, as Lot E was, but it permits the separate development and sale of such a lot only if the lot “is in separate ownership from abutting lands.” Because Lots E and F abut and are now both owned by the Murr siblings, the grandfathering exception does not apply to Lot E; the two lots are treated as merged, and the Murrs cannot sell Lot E, although it was acquired by their parents specifically as an saleable investment.

The Wisconsin Court of Appeals rejected the Murrs’ takings claim, ruling that the “parcel as a whole” rule requires combining the two parcels for takings analysis “under a well-established rule that contiguous property under common ownership is considered as a whole regardless of the number of parcels contained therein.” Murr v. State of Wisconsin, 2014 WL 7271581, at *4 (Wis. App. Ct. Dec. 23, 2014) (per curiam) (unpublished). After the Wisconsin Supreme Court denied further review, the Murrs petitioned the U.S. Supreme Court for certiorari, and the petition was granted on January 15, 2016.

In its amicus brief supporting the Murrs, NELF argues 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 expresses its concern that the tendency of courts to unduly expand the parcel as a whole creates an unfair risk of undercompensation to property owners. NELF then goes on to illustrate the insufficiency of the two factor rule (adjacency and common ownership) applied by the Wisconsin court. NELF argues that these factors alone are too tenuous, and that the Court should require at least “unity of use” as a third factor in deciding whether to aggregate legally separate. NELF’s argument draws a close analogy to the principles on which severance damages are awarded in eminent domain cases.

Sikkelee v. Lycoming, et al.

10/19/2016

Arguing that the Pervasive Federal Regulation of Aircraft Safety and the FAA’s Certification of the Design of the Aircraft Engine in a Plane that Crashed Preempts the Plaintiff’s State Law Claims of Product Liability Based on Design Defect and Failure to Warn.

This matter was referred to NELF by Textron, a NELF supporter headquartered in Providence, Rhode Island. It involves a pending Third Circuit appeal, Sikkelee v. Lycoming. The respondent, Lycoming Engines, is a division of AVCO, a Textron subsidiary that is also headquartered in Providence. Lycoming sold a certain aircraft engine in 1969. Nearly thirty years later the engine was installed "factory new" on a Cessna aircraft, even though the engine was not actually certified for that particular airframe (Lycoming was not involved in the installation of the engine). Lycoming and others were sued by Jill Sikelee, the widow of a newly licensed pilot who died in a crash of the Cessna, under product liability theories of design defect and failure to warn. The issue that Textron asked us to support is its preemption defense, based on which it obtained summary judgment in the trail court, i.e. that state law standards of care are preempted by the pervasive federal regulation of aircraft safety, and that the FAA's certification of the design of the engine preempts Sikkelle's claims. Because this appeal is in the Third Circuit, after discussion with our Rhode Island Advisory Council member from Textron, Julie Duffy, NELF joined with the Atlantic Legal Foundation, whose remit includes Pennsylvania (indeed, Atlantic Legal was for years headquartered in Philadelphia). NELF and ALF jointly filed an amicus brief supporting Lycoming in the Third Circuit, arguing that the pervasive nature of federal air safety regulation requires preemption of state law claims.

On April 19, 2016, the Third Circuit issued its opinion. Disagreeing with NELF and ALF, it held that the plaintiff’s claims in this case were not pre-empted by federal law. Lycoming moved for a rehearing en banc, and, since that was unsuccessful, is now seeking certiorari from the Supreme Court. NELF and ALF will be filing an amicus brief in support of the Petition for Certiorari.

Turra v. Deutsche Bank Trust Company Americas

10/16/2016

Click here to read the brief.

Arguing that an Otherwise Valid Foreclosure Should Not Be Invalidated Because the Mortgagee Allegedly did Not Comply Fully with the Requirement Under Massachusetts Law that, Before Taking Possession or Conveying Title, Notice Must Be Given to Tenants, Certain Municipal Officials, and Any Provider of Water and Sewer Services to the Property

Since the collapse of the housing market in 2008, there has been an increased number lawsuits in which a homeowner has sought to thwart or undo a foreclosure on the grounds that the foreclosing party failed to comply with some requirement of the Commonwealth’s nonjudicial foreclosure law. This is another such case, the latest in a string of cases that commenced with U.S. Bank N.A. v. Ibanez, 458 Mass. 637 (2011).

The homeowner here asks the courts to find the foreclosure sale of his property void on the grounds that the mortgagee bank failed to comply with one of a series of statutes that, purportedly, the SJC has declared set out the steps required in order to effect a valid foreclosure sale under the statutory power of sale. This particular statute requires that, within 30 days of the closing, the foreclosing party give notice of the closing to the municipal tax assessor and any sewer or water provider. Since there is no dispute about the failure of the bank to comply with this requirement, the case boils down to whether the SJC really meant what it purportedly said in the six cases the homeowner relies on—and, if so, whether the SJC should continue to mean it.

In its amicus brief, filed in support of the bank, NELF argues that the plaintiff relies exclusively on pure dicta, a point NELF illustrates by analyzing U.S. Bank N.A. v. Schumacher, 467 Mass. 421 (2011), Turra’s strongest case. NELF urges the Court not to be bound by dicta because this important issue has never been placed squarely before the Court and briefed until now. Moving to the substantive legal question raised by this case, NELF demonstrates that the plaintiff’s view of this post-sale notice statute cannot be reconciled with the plain language of G.L. c. 183, § 21, which creates a right to foreclosure by statutory power of sale and which describes all the statutory requirements for the exercise of that power as pre-sale requirements. NELF then shows that the description given in § 21 also excludes from being foreclosure sale requirements other statutes mentioned in the dicta Turra cites, thereby further undermining his argument that the dicta provides a reliable, complete list of statute a mortgagee must comply with. Finally, NELF analyzes the language of the notice statute in question and shows that the statute is not even mandatory, but rather directory.

Chitwood v. Vertex Pharmaceuticals

10/15/2016

Click here to read the brief.

Arguing that a shareholder does not have a right under the Massachusetts Business Corporation Act to inspect a corporation’s books and records after the board of directors has refused his litigation demand concerning alleged corporate wrongdoing.

In this case, which the Massachusetts Supreme Judicial Court has taken sua sponte for direct appellate review, the Court will decide under what circumstances a shareholder may be permitted to inspect a corporation’s books and records after the board of directors has refused his litigation demand concerning alleged corporate wrongdoing. Under the Massachusetts Business Corporations Act, G. L. c. 156D, § 16.02(1), a shareholder has the right to inspect certain corporate books and records if he establishes a “proper purpose” with “reasonable particularity,” among other statutory requirements. At issue, then, is what constitutes a “proper purpose” sufficient to permit a shareholder to inspect the board’s books and records after the board has refused the shareholder’s litigation demand.

NELF will argue, in support of Vertex, that a “demand refused” shareholder should not be permitted to inspect the board’s books and records unless he can show that the board’s decision making process may have lacked the good faith and diligence necessary to warrant protection under the business judgment rule. This is because another key provision of the Act, addressing shareholder derivative actions, expressly codifies the business judgment rule and requires a court to uphold a board’s refusal of a shareholder’s litigation demand, so long as a majority of independent directors “has determined in good faith after conducting a reasonable inquiry upon which its conclusions are based that the maintenance of the [shareholder derivative suit] is not in the best interests of the corporation . . . .” G. L. c. 156D, § 7.44(a). That is, a demand-refused shareholder is limited to seeking judicial review of the board’s decision making process itself, and only when the shareholder has presented a credible threshold challenge to the integrity of that process to overcome its presumptive validity. Therefore, to harmonize the books-and-records provision with the shareholder derivative provision of the same statute, as NELF will argue the Court should do, a demand-refused shareholder who seeks discovery of the board’s documents should be required to persuade the trial court that the board’s decision making process does not warrant protection under the business judgment rule. Accordingly, the shareholder should be required to show that the board’s decision has fallen short of at least one of the three statutory requirements quoted above: good faith, reasonableness, and independence. For these and other reasons discussed below, NELF will argue that the SJC should affirm the lower court’s dismissal of Chitwood’s books-and-records request.

Spokeo, Inc. v. Robins

6/2/2016

Arguing that Article III’s “Case or Controversy” Requirement bars a plaintiff from suing in federal court for the technical violation of a statute that has not caused any concrete harm.

This case was a putative consumer class action pending before the United States Supreme Court on the merits. The plaintiff and putative class representative, Thomas Robins, sought statutory damages in federal court under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (“FCRA”), for a technical violation of that statute that has not caused him any harm. (In particular, Robins alleged that the defendant, Spokeo, Inc., a website operator that provides users with information about other individuals, published false (but favorable!) information about him, such as by misstating his educational level and financial status.) FCRA permits recovery for the bare violation of a statutory right. The case thus raises a constitutional separation of powers issue long familiar to NELF: does Article III of the United States Constitution, which limits the federal judiciary’s jurisdiction to “cases” and “controversies,” confer standing on a plaintiff who alleges a violation of a federal statute but who does not allege any resulting injury? Can Congress create standing in the federal courts that otherwise would not exist by legislative fiat? The Supreme Court has interpreted Article III’s case-or-controversy requirement as mandating “injury in fact”—i.e., a “concrete” and “particularized” harm that is “actual or imminent.” Clapper v. Amnesty Internat’l USA, 133 S. Ct. 1138, 1147 (2013). Despite this clear constitutional requirement of injury in fact, the Ninth Circuit in this case denied the motion to dismiss of defendant Spokeo, Inc., a website operator that provides users with information about other individuals. The lower court concluded that, because FCRA allows a plaintiff to recover statutory damages for the bare violation of a statutory right, the statutory violation is itself an injury in fact sufficient to satisfy Article III.

Notably, NELF briefed the same standing issue in the Supreme Court in 2011, in Edwards v. First American Corp., a case also arising from the Ninth Circuit. (And the Ninth Circuit in this case has based its decision primarily on its Edwards decision.) In Edwards, the Supreme Court granted certiorari but then dismissed the case without reaching the merits, on the basis that certiorari had been improvidently granted. While the Court did not explain its decision, it may have been due to the unique procedural posture of that case. Therefore, this pressing issue of Article III standing, in the absence of any actual injury, remains unresolved. (NELF has also briefed the same issue at the state statutory level, in particular under Mass. G. L. 93A before the Massachusetts Supreme Judicial Court. See Hershenow v. Enterprise Rent–A–Car Co., 445 Mass. 790 (2006)). Moreover, there are several federal statutes, like the ones at issue here and in Edwards (the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601 et seq.), that allow plaintiffs to recover statutory damages (and reasonable attorney’s fees) without proving any concrete harm.* Therefore, the issue of Article III standing is of great significance to businesses in our region and the country as a whole. A business’s broad exposure to liability for statutory damages and attorney’s fees under these numerous laws is compounded by the class action mechanism, which is the procedural vehicle of choice for many consumers and employees (and their attorneys) suing under such statutes. Putative class members arguably need only show the bare, classwide violation of a common statutory right to obtain class certification. Businesses are thereby exposed to potential liability for vast, aggregated sums of statutory damages and high attorney’s fees, often resulting in a large settlement on a claim in which no class member has been injured.

NELF, joined by Associated Industries of Massachusetts, argued, on behalf of Spokeo, that Article III requires dismissal of Robins’ complaint because it fails to allege any injury in fact. “Injury in law” under FCRA, based on the bare violation of a statutory right, cannot satisfy Article III’s requirement that the violation must cause some concrete harm. Congress cannot create an injury in fact. It can only provide a private remedy to redress an injury in fact. Therefore, the injury-in-fact requirement under Article III is not satisfied merely because Congress has authorized an award of statutory damages for the violation of a statutory right. A federal court must always exercise independent review of a federal statute, along with the allegations of a plaintiff’s complaint invoking that statute, to determine whether the plaintiff has identified a concrete harm resulting from the violation of a statute. In short, the Article III inquiry to determine an injury in fact “has nothing to do with the text of the statute relied upon.” Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 97 (1998). As the Court has emphasized, “[i]t is settled that Congress cannot erase Article III’s standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing . . . .” Raines v. Byrd, 521 U.S. 811, 820 (1997). Simply put, statutory standing to sue in federal court does not automatically create constitutional standing under Article III. In reaching its decision, the Ninth Circuit and other federal circuit courts have apparently disregarded this key precedent and have also misinterpreted other Supreme Court precedent as equating statutory standing with Article III standing. Certiorari should therefore be granted to resolve the confusion among the lower courts on this crucial issue and clarify that injury in fact is not coextensive with injury in law.

NELF initially filed an amicus brief supporting the defendant, Spokoe Inc’s petition for certiorari. When certiorari was granted in April, 2015, NELF filed an amicus brief on the merits in the case. On Monday, May 23, 2016, the Supreme Court issued its decision, agreeing with NELF, 6-2, that the plaintiff lacked standing because he had not demonstrated a concrete injury. Rather than dismissing the case, however, the Supreme Court remanded the case to the lower courts for a determination whether the plaintiff could demonstrate a concrete injury resulting from the alleged breach of the FCRA.

Although the Supreme Court did not dismiss the case outright, as NELF had argued it should do, this is nonetheless this is a victory for the principles underlying NELF’s brief—namely separation of powers and the federal judiciary’s exclusive authority to determine whether standing exists. In short, Congress cannot create standing in federal court for the mere breach of a statutory requirement that Congress has enacted.

*See, e.g., the Truth in Lending Act, 15 U.S.C. § 1640(a)(2)(B)); the Fair Debt Collection Practices Act, 15 U.S.C. § 1692k(a)(2)(B); the Telephone Consumer Protection Act, 47 U.S.C. § 227(b); the Employee Retirement Income Security Act, 29 U.S.C. § 1132(a)(2); and the Video Privacy Protection Act, 18 U.S.C. § 2710(c)(1).

Alfred Gobeille, in His Official Capacity as Chair of the Vermont Green Mountain Care Board v. Liberty Mutual Insurance Company

6/2/2016

Supporting the Broad Sweep of ERISA Preemption with Regard to State Law Requirements

The issue before the United States Supreme Court in this case was whether the preemption provision of the Employee Retirement Income Security Act (“ERISA”) barred a State from imposing reporting requirements on ERISA plans beyond what ERISA itself requires.

The case arose when Liberty Mutual instructed the third-party administrator of its ERISA plan in Vermont not to comply with a subpoena from the State requiring that certain health claims information be collected pursuant to Vermont law. Vermont, like a number of other States (including the other five in New England), has a statute that requires health care providers and health care payers in Vermont to provide claims data and related information to the State’s specialized health care database. The State says that it relies on the data collected to inform its health care policy decisions in a number of ways. As the basis for its refusal to comply with this Vermont law, Liberty Mutual argued, both in the suit it brought in the Vermont federal District court and, subsequently, in the Court of Appeals for the Second Circuit, that since ERISA requires certain forms of reporting by ERISA plans, any additional form of reporting imposed by State law is preempted under ERISA’s broad preemption provision.

Liberty Mutual lost on summary judgment in the district court, but obtained a ruling its favor from the Court of Appeals in a split 2-1 decision. On June 29, 2015, the Supreme Court granted certiorari to hear the matter on the merits, and NELF filed an amicus brief in support of Liberty Mutual.

In its brief, NELF addressed recent Supreme Court ERISA decisions in which the court adopts a “presumption against preemption,” and NELF argued that there exist several reasons for the Court to abandon or limit its use of that presumption. The presumption is usually traced back to Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947), where the Court adopted a working “assumption” that the “historic police powers of the States” should not be deemed to be superseded when “Congress legislate[s] . . . in [a] field which the States have traditionally occupied” unless such preemption was “the clear and manifest purpose of Congress.” As preemption has long been declared by the Court to be a matter of congressional intention, use of the presumption is especially inapt when one is dealing with an express preemption provision, as in ERISA. Such an express provision banishes the need for any kind of presumption because it clearly establishes the fact of Congress’s intention to preempt. From that point on, the actual language, purpose, and context of the statute provide much surer guidance to Congress’s intended meaning than could be given by any presumption unmoored to the statutory text.

Not surprisingly, therefore, while the presumption formulated in Rice may have been adopted by the Court in order to assist it in discerning Congress’s intention, there has been no shortage of scholars who, however much they may disagree among themselves on other legal points, agree that the Court has signally failed to employ the presumption in a consistent methodological fashion.

Moreover, use of the presumption in instances of express preemption is bedeviled by the problem of deciding how narrowly or expansively to define the relevant field of supposed traditional State regulation. Cf. Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 546-47 (1985) (“We therefore now reject, as unsound in principle and unworkable in practice, a rule of state immunity from federal regulation that turns on a judicial appraisal of whether a particular governmental function is ‘integral’ or ‘traditional.’”). The present case exemplified that problem, as the two sides contended over whether the field should be viewed broadly, with the emphasis falling on traditional State health and welfare concerns, or narrowly, with the focus on the novelty of the means by which data is to be collected under the Vermont law. This disagreement was mirrored in the differing views of the majority opinion and the dissent in the appeals court.

Finally, because the judicially fashioned presumption against preemption necessarily works to narrow interpretation, it gives the safeguards of federalism a kind of double weight, beyond the weighting given by Congress when it composed the text of the statute.

For these reasons, the “presumption against preemption” is an entirely inappropriate tool of statutory construction, and NELF urged the Court not to adopt it in this case when determining the scope of the express preemption provision found in ERISA.

On March 1, 2016, the Supreme Court issued its decision in this case. The Court agreed with NELF, 6-2, holding that ERISA preempts Vermont’s statute as applied to ERISA plans.

Town of Lunenburg Zoning Board of Appeals v. Hollis Hills LLC and Massachusetts Housing Appeal Committee

6/2/2016

Arguing that the Housing Appeals Committee Did Not Exceed Its Authority by Supposedly “Invalidating” Town Bylaws and, In the Process, Failing to Presume their Validity While Also Misallocating to the Town the Burden of Proof as to the Issue.

In 1955, in order to facilitate the construction of affordable housing, Massachusetts enacted General Law c. 40B, which enables a developer to obtain a single, comprehensive permit for the construction of any project that includes affordable housing units. Should a town deny the application for such a permit, the developer may appeal to the state-wide Housing Appeals Committee (HAC). The law arose in response to towns’ use of local laws to exclude affordable housing from their locale. In the present case, the developer, Hollis Hills LLC, sought a comprehensive permit, believing the sewer fees for its project in Lunenburg would be about $17,000 under applicable town bylaws, only to discover later that the town would invoke different bylaws, under which the fees soared to about $1.75 million.

Against its will, Lunenburg had previously been required by the HAC to grant Hollis Hills a comprehensive permit (see Zoning Board of Appeals of Lunenburg v. Housing Appeals Committee, 464 Mass. 38 (2013)), with the issue of sewer fees reserved for later determination. Subsequently, when reviewing the sewer fees at issue, the HAC ruled, after taking extensive evidence, that the bylaws relied on by the town for setting the fees so high had not even been enacted at the relevant time (i.e., the date the permit application was submitted) and therefore they could not be used to calculate the fees applicable to the project. The town appealed to the Superior Court, arguing that the HAC was wrong about the relevant time, had erroneously placed the burden on the town to prove what bylaws were in effect at that time, and had exceeded its powers by, supposedly, “invalidating” the town’s preferred set of sewer-fee bylaws, whose validity, so the town claimed, should have been presumed by the HAC. The court dismissed the appeal on grounds that the town had failed to preserve these issues below. The town then appealed to the Appeals Court, where it repeated its arguments.

NELF filed a brief supporting Hollis Hills and asking the Appeals Court to affirm the judgment below, albeit on substantive grounds, rather than on the procedural grounds cited by the trial judge. NELF pointed out that, under statute and case law, Massachusetts courts and adjudicatory agencies like the HAC are not permitted to take judicial notice of either the text or the effective date of local laws. In short, what local law governs is a question of fact that must be proven by the proponent, just as any other facts a party wishes to establish. The burden of proof was therefore properly placed on the town by the HAC, NELF contended, and the HAC’s ruling that the town had failed to carry its burden was therefore not an “invalidation” of the bylaws. NELF then demonstrated that the principle that the validity of laws is to be presumed applies only when there is a direct judicial challenge to a law’s validity, as occurred in all ten of the cases the town relied on to argue its point. Here, by contrast, the HAC was dealing with the antecedent evidentiary problem of determining what legal text counts as the apparently applicable law in the first place. NELF concluded its brief by discussing the aims of the comprehensive permit law and how the past use of local laws to exclude projects like Hollis Hills makes it imperative that a permit not be subject to local laws enacted after the developer submits its application.

On March 3, 2016, the Massachusetts Appeals Court, agreeing with NELF, affirmed the judgment below. Addressing the issue briefed by NELF, the court wrote: “Furthermore, the HAC did not purport to invalidate any of the town’s regulations; it decided simply that in this case, other than a charge of $125 per unit, no validly adopted sewer charge applies to the project. That this determination required the HAC to consider whether the town validly had adopted fees does not mean the HAC ‘invalidated’ any town regulations.”

Directv, Inc. v. Imburgia, et al.

2/10/2016

Arguing that, in an Arbitration Agreement Falling Under the Federal Arbitration Act, a Reference to State Law with Respect to the Enforceability of a Class Arbitration Waiver Does Not Displace the Federal Arbitration Act’s Mandate to Enforce Such a Waiver.

At issue in this Supreme Court case was whether, in an arbitration agreement falling under the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (“FAA”), a reference to state law with respect to the enforceability of a class arbitration waiver displaced the FAA’s mandate to enforce such a waiver.The arbitration provision at issue was in satellite television provider DIRECTV’s customer agreement in 2007 with Amy Imburgia. The agreement required binding arbitration of any future disputes and also prohibited class-wide procedures. However, while the arbitration provision recited that it “shall be governed by the Federal Arbitration Act,” it also stated that enforcement of the class action waiver, and indeed of the entire arbitration provision, would depend on the law of each customer’s state: “If, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration agreement] is unenforceable.” Id. (emphasis added).

The California Court of Appeals interpreted “the law of your state” as referring to the law of California without regard to the preemptive force of federal law and read the 2007 contractual language as intending to oust the FAA’s mandate to enforce the class arbitration waiver, as announced four years later in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). On that basis, the California court invalidated the class arbitration waiver under the California law that bars class action waivers in consumer actions and, giving effect to the arbitration agreement’s so-called “jettison” clause, voided the entire arbitration agreement, in essence forcing the parties to litigate in court.

From NELF’s point of view, the case raised one central issue: Did the parties to the disputed agreement intend to elevate state law over the FAA on the subject of class arbitration waivers? NELF argued that reference to “the law of your state” in the 2008 agreement was never intended to oust the FAA in favor of state law. Rather, it reflected the understanding, current in 2007, that, under the FAA, the enforceability of class action waivers in arbitration agreements was governed by state law. That is, the 2007 agreement was intended to comply with the FAA as then understood. This understanding, however, was dispelled by the Supreme Court in 2011 in Concepcion, which held that state law cannot impede the enforcement of class arbitration waivers under the FAA. NELF argued that, since “the law of your state” was not intended to oust the FAA, and since “the law of your state” cannot, after Concepcion, impede enforcement of the class arbitration waiver, DIRECTV’s motion to compel arbitration of Imburgia’s individual claims should have been allowed.

In its decision of December 14, 2015, a six-member majority of the Court agreed with NELF and enforced the class arbitration waiver, although for slightly different but nonetheless compelling reasons. In a skillful opinion written by Justice Breyer, the Court held that the FAA preempts the lower court’s opinion, which singles out arbitration agreements for unfavorable treatment and interprets “the law of your state” as referring presumptively to invalid state law. The Court explained that, since the FAA limits the states to applying general contract law principles to arbitration agreements, “the law of your state” must be interpreted under California general contract law. The Court observed that, as an empirical matter, California cases interpreting such contract language (along with cases from every other state) read “the law of your state” as referring presumptively to the valid law of a state. This means that “the law of your state” in this pre-Concepcion agreement evolves with the times and reflects any intervening changes made by a state Legislature, a state supreme court, or, as in this case, any pronouncements of controlling federal law by the Supreme Court under the Supremacy Clause, as announced in Concepcion.

Therefore, once the Court in Concepcion held that the FAA preempted California’s Discover Bank rule (which had effectively invalidated all class arbitration waivers in California consumer form agreements and had required the availability of class arbitration), “the law of your state” no longer included the invalidated Discover Bank rule. Thus, the class arbitration waiver in the pre-Concepcion agreement at issue must be enforced under the FAA, and the jettison clause is never reached.

Notably, the Court explained that, while indeed the FAA allows parties to apply any body of law, even preempted state law, to their arbitration agreements, this is not what “the law of your state” means on its face. To override the presumptive meaning of “the law of your state,” then, parties would have to refer expressly to preempted state law in their arbitration agreements (an unlikely but nonetheless enforceable contract clause).

Kellogg Brown & Root Services, Inc. et al. v. United States ex. rel. Carter

10/30/2015

Arguing the Wartime Suspension of Limitations Act does not apply to civil qui tam claims brought under the False Claims Act

Note: In what we believe is a NELF first, during the hearing of this case on January 13, 2015, Supreme Court Associate Justice Sotomayor specifically referred to NELF’s amicus brief, when she asked the attorney for the Petitioner whether he was “adopting the argument of the New England [Legal] Foundation, the amic[us] brief?” Counsel indicated that this was the case.

In this case the Supreme Court considered whether the Wartime Suspension of Limitations Act, 18 U.S.C. § 3287 (“Suspension Act”), a criminal code provision of the federal False Claims Act (“FCA”), that suspends, during and for five years after times of armed conflict, the statute of limitations for “offenses involving [contractor] fraud . . . against the United States,” also applied to civil qui tam actions brought under the FCA. The FCA, first enacted during the Civil War, provides both criminal and civil remedies against federal government contractor fraud. On the civil side, the FCA encourages private whistleblowers (“relators”) to bring suit on behalf of the Government (“qui tam” actions); if successful, a civil qui tam plaintiff is awarded a share of the government’s damage award (between 15% and 30%). Such civil qui tam claims under the FCA are subject to a six-year limitations period. 31 U.S.C. § 3731(b)(1). The Fourth Circuit in this case concluded that the Suspension Act applies to both criminal and civil claims of contractor fraud against the Government. Consequently, the lower court allowed the plaintiff-relator’s otherwise untimely qui tam FCA claim to proceed on the merits against defendants Halliburton Company, KBR, Inc., Kellogg Brown & Root Services, Inc., and Service Employees International, Inc. (collectively “KBR”).

Since the vast majority of claims under the FCA are brought as civil claims initiated by qui tam plaintiffs, the Fourth Circuit’s extension of the Suspension Act to civil as well as criminal cases under the FCA would likely have had enormous consequences for companies doing business with the federal government if it had been upheld by the Supreme Court.

NELF submitted an amicus brief in support of KBR, arguing that the Fourth Circuit had erred and showing, based on an extensive analysis of the Suspension Act’s legislative history, the source of its mistake. The lower court had misunderstood a crucial part of the Suspension Act’s statutory history. Prior versions of the Suspension Act, enacted in 1921 and 1942, had applied to offenses that were “now indictable under existing statutes.” I.e.,i.e, their coverage was retrospective only, applying to crimes, still timely, that had already occurred when those 1921 and 1942 statutes took effect. In 1944, however, Congress, made the Suspension Act prospective as well, by deleting the phrase “now indictable under existing statutes.” However, the Fourth Circuit, along with virtually every other court and commentator, misinterpreted this 1944 amendment. In particular, the lower court concluded that Congress’ removal of the phrase “now indictable” in 1944 expanded the meaning of the word “offenses” to include non-indictable, civil claims. NELF demonstrated compellingly that, to the contrary, when Congress removed the phrase “now indictable” in 1944, it simply extended the Suspension Act to future offenses of contractor fraud. (Congress also preserved other language in the 1944 Suspension Act to make it clear that the 1944 statute applied to past timely offenses as well.) By no means did the 1944 amendment affect in any way the exclusively criminal meaning of the word “offense.”

In its unanimous decision issued on May 26, 2015, the Supreme Court agreed with NELF’s arguments in the case. In an opinion that largely parallels NELF’s brief, the Court held that the Act only applies to criminal offenses under the FCA.

Commonwealth v. Lucas

10/29/2015

Arguing That the First Amendment Should Prohibit Massachusetts from Criminalizing Knowingly False Political Campaign Speech

At issue was whether Mass. G. L. c. 56, § 42, a 1946 statute that criminalizes any knowingly false statement in relation to any candidate for nomination or election to public office, violated the First Amendment to the United States Constitution. The statute punishes the convicted speaker with either a fine of up to $1,000 or imprisonment for up to six months. This case was initiated during the 2014 state elections by an incumbent (and subsequently reelected) candidate, State Representative Brian Mannal, who successfully applied for the issuance of a criminal complaint against Melissa Lucas, the chairperson and treasurer of Jobs First, an independent-expenditure Political Action Committee. Mannal alleged that Lucas was responsible for the PAC’s publication and circulation of a brochure falsely stating that Mannal, a criminal defense attorney, would benefit personally from the passage of bill that he was sponsoring. Mannal’s proposed legislation would earmark state funds for court-appointed criminal attorneys representing indigent convicted sex offenders in post-conviction proceedings. The SJC stayed Lucas’ arraignment in Falmouth District Court until it decided the constitutionality of the statute, in the exercise of its general superintendence powers. The Court issued an amicus announcement and heard oral argument on May 7, 2015.

In its amicus brief in support of the defendant, NELF argued that this case was not about protecting the right to lie in political campaigns. Instead, it was about protecting the First Amendment right of everyone, including State Representative Brian Mannal himself, to engage freely in political debate about the qualifications of candidates for public office, without fear of criminal reprisal from the government. Such speech is “integral to the operation of the system of government established by our Constitution. The First Amendment affords the broadest protection to such political expression . . . .” McIntyre v. Ohio Elections Comm'n, 514 U.S. 334, 346 (1995) (citations and internal quotation marks omitted).

As NELF argued, political speech does not lose its First Amendment protection even if it is false (to the extent that political speech can be reduced to truth or falsity). This means that the disputed statute is a content-based prohibition on protected speech. Therefore, the statute violates the First Amendment unless the Commonwealth can show that it survives “exacting scrutiny.” It must be narrowly tailored to serve an overriding state interest.

This the Commonwealth cannot show. Indeed, “it might be maintained that political speech simply cannot be banned or restricted as a categorical matter . . . .” Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 340 (2010). This is because political campaign speech is the essence of self-government and thus occupies the highest rung of First Amendment values. To ensure the proper functioning of a representative democracy, core political speech must be afforded ample breathing space to flourish. The First Amendment thus requires that the electorate shall engage freely in political debate and shall decide whom and what to believe during an election campaign, without any governmental interference.

By contrast, the fact or threat of criminal prosecution is antithetical to this First Amendment value because it stifles political discourse, especially when that discourse is needed most, on the eve of an election. The statute thus impinges the rights of the electorate, both as speaker and listener. As a result, the political process suffers.

The First Amendment ensures a wide-open marketplace of ideas in which the appropriate remedy for allegedly false speech is simply more speech, and not enforced silence through actual or threatened criminal prosecution. As the Supreme Court has long recognized, counter speech is a particularly effective remedy during a political campaign, because a candidate is likely to respond immediately and forcefully to false accusations, as this case illustrates.

Not only does the statute fail exacting scrutiny. It is also void for vagueness. Political speech is often an unruly mixture of fact and opinion that cannot be reduced to neat categories of truth and falsity. This means that the statute cannot provide adequate notice of what speech is permitted or proscribed. This can only result in widespread self-censorship among the electorate. The statute’s vagueness could also invite prosecutorial abuse, such as the silencing of views that are critical of incumbents or government generally.

In its decision issued on August 6, 2015, the Supreme Judicial Court agreed with NELF that Mass. G. L. c. 56, § 42 was unconstitutional. The Court, however, based its decision entirely on the Massachusetts constitution holding that “§ 42 is antagonistic to the fundamental right of free speech enshrined in art. 16 of our Declaration of Rights and, therefore, is invalid.” On this basis, the Court dismissed the criminal complaint charging the defendant with criminal charges under § 42.

Vale v. New England Cleaning Services, Inc.

10/28/2015

Whether an Agreement to Submit Valuation of Stock to the Binding Decision of Arbitrators is an Arbitration Agreement Enforceable Under the Massachusetts Arbitration Act

At issue in this case, pending before the Massachusetts Supreme Judicial Court (“SJC”), is whether a stock valuation provision in the articles of organization of a closely held Massachusetts corporation is enforceable under the Massachusetts Arbitration Act, G. L. c. 251, §§ 1-18 (“MAA”). The SJC requested amicus briefing on this issue. Under this familiar contract provision, the shareholders have agreed in advance to submit any future dispute about the value of a departing shareholder’s stock to a binding and final determination by an arbitral panel. Unlike the common law, the MAA provides for expedited specific performance of an arbitration agreement, via a motion to compel arbitration, along with other streamlined statutory mechanisms designed to enforce the parties’ bargained-for expectations.

The departing shareholder in this case has refused to complete the parties’ agreed-upon process for arbitrating the value of his shares. Instead, he has sought an accounting in court, as part of his claim for breach of fiduciary duty against the defendant, New England Cleaning Services, Inc. (“NECS”). The Superior Court denied NECS’ motion to compel arbitration, concluding that the parties’ valuation agreement was not an arbitration agreement. The lower court based its decision on Palmer v. Clark, 106 Mass. 373 (1871), and its progeny. In Palmer, decided nearly a century before the MAA’s enactment in 1960, this Court drew a distinction between an appraisal and an arbitration agreement. The SJC has also requested amicus briefing on whether Palmer and its progeny survive the MAA.

In its amicus brief supporting NECS, NELF has argued that the parties’ valuation agreement is indeed an arbitration agreement enforceable under the MAA, which applies broadly to any “controversy” that the parties have designated in their agreement for resolution in binding arbitration. In fact, this Court has already enforced a property valuation agreement under the MAA. See Trustees of Boston & Maine Corp. v. Massachusetts Bay Transp. Auth., 363 Mass. 386 (1973) (enforcing railroad right-of-way valuation agreement under MAA). As the Court recognized implicitly in Trustees of Boston & Maine, the MAA allows the parties to decide in advance both what is to be arbitrated--however specific and factual the issue--and how it is to be arbitrated--however informal the procedures. See G. L. c. 251, § 1 (MAA applies to “any controversy thereafter arising . . . .“), § 5 (MAA requires certain arbitral procedures “[u]nless otherwise provided by the agreement . . . .”) (emphasis added). In short, the MAA embodies the modern notion of party autonomy in the crafting of arbitration agreements tailored to each particular dispute. Therefore, the parties’ valuation agreement should be specifically enforced under the MAA. As a result, the old distinction between an appraisal and an arbitration agreement under Palmer should not survive the MAA. That distinction was drawn under a predecessor arbitration statute that did not apply to valuation agreements. Moreover, Palmer was decided when predispute arbitration agreements were voidable. Thus, in its day, Palmer actually protected the rights of shareholders to an appraisal agreement. Such protection is no longer necessary now that such an agreement can be enforced under the MAA.

On May 22, 2015, the Supreme Judicial Court issued its opinion in this case. Agreeing with NELF, the Court concluded that Article 5 of NECS's articles of incorporation contained a valid agreement to arbitrate future controversies regarding the value of NECS's stock. However, the Court also concluded that no such controversy existed at the time of NECS's motion to compel arbitration and, therefore, affirmed the order denying the NECS's motion to compel arbitration.

<<Previous

Fitch Ratings, Inc. v. First Community Bank

Pharmerica Corporation v. U.S. ex. rel. Robert Gadbois

Martinez v. Empire Fire & Marine Insurance Co.

Epic Systems v. Lewis; Ernst & Young LLP v. Morris

Murr v. State of Wisconsin and St. Croix County

Sikkelee v. Lycoming, et al.

Turra v. Deutsche Bank Trust Company Americas

Chitwood v. Vertex Pharmaceuticals

Spokeo, Inc. v. Robins

Alfred Gobeille, in His Official Capacity as Chair of the Vermont Green Mountain Care Board v. Liberty Mutual Insurance Company

Town of Lunenburg Zoning Board of Appeals v. Hollis Hills LLC and Massachusetts Housing Appeal Committee

Directv, Inc. v. Imburgia, et al.

Kellogg Brown & Root Services, Inc. et al. v. United States ex. rel. Carter

Commonwealth v. Lucas

Vale v. New England Cleaning Services, Inc.

The Docket

Categories

Archives