Protecting a Business’s First Amendment Right to Criticize a Competing Business on an Issue of Public Concern 

This case raises the issue whether the First Amendment should protect a business from liability for a substantial damages award under a state’s consumer protection statute merely for having spoken out during a heated referendum election campaign on an issue of public concern that involved a competing business. The defendant, Fifth Estate Tower (“Fifth Estate”), a New Hampshire business that builds cell towers, is appealing a $6.7 million jury verdict for unfair competition in violation of New Hampshire’s Consumer Protection Act, N.H.R.S.A. 358-A:2 (“CPA”).  The verdict is based on statements that Fifth Estate made during a public referendum election in which voters of the town of Wolfeboro were to decide whether a competing cell tower company, Green Mountain Realty (“Green Mountain”) could build cell towers on public land.  The voters rejected the proposed leases between Green Mountain and the town.  During the election, Fifth Estate prepared and mailed to over 3,300 registered voters a postcard purportedly depicting one of the proposed towers, to illustrate its concern that the tower would be an eyesore. At trial, Green Mountain’s expert testified that the image of the proposed tower was approximately twice the size of an accurate rendering.  The trial judge expressly instructed the jury to ignore the First Amendment.  The jury found that each postcard constituted a knowing or willful violation of the CPA, entitling Green Mountain to damages of $2,000 for each of the over 3,300 mailed postcards. 

In Fifth Estate’s appeal of the judgment, NELF filed an amicus brief on behalf of Fifth Estate arguing that the statements and printed matter for which Fifth Estate has been found liable under the CPA are core political speech warranting the highest First Amendment protection.  As the Supreme Court has made clear, the democratic process must allow for the robust exchange of ideas and opinions in the political arena so that the voter should be free to form his or her own viewpoint without any state intrusion.  Accordingly, where, as here, application of state law burdens core political speech, the First Amendment invalidates that application unless it can survive exacting scrutiny and is narrowly tailored to serve an overriding state interest.  The imposition of CPA liability here fails this test.  Where liability under state law is based on the alleged falsity of speech addressing an issue of public concern, the First Amendment bars liability unless, at minimum, the plaintiff can prove, by clear and convincing evidence, that the defendant uttered the challenged speech with “actual malice,” i.e., with knowledge of its falsity or with reckless disregard to its truth or falsity.  In this case, however, the trial court expressly instructed the jury not to consider the First Amendment.  Moreover, the CPA does not require actual malice and instead imposes liability broadly for any “unfair or deceptive” conduct or any acts of “unfair competition” without regard to truth or falsity.  Because of these constitutional infirmities, NELF argued that the Legislature never intended the CPA to apply to the political arena.  Rules of statutory construction restrict judicial interpretation to the plain language of the statute, thereby precluding a court from “interpreting” the CPA, which applies to all “unfair” or “deceptive” acts, to apply only to false political speech made with actual malice.  Since application of the CPA to political speech would offend the First Amendment, it is logical to conclude that the Legislature never intended the CPA to apply to core political speech or election campaigns.  Finally, NELF argued that, even if the actual malice standard could be engrafted onto the CPA, the statute may still fail strict scrutiny here. One state supreme court has invalidated that state’s fair election law under the First Amendment even though that statute expressly included an actual malice requirement. That court concluded that the First Amendment does not permit the government, rather than the electorate, to be the final arbiter of truth in a heated political debate, in which the line between fact and opinion is frequently blurred, as this very case illustrates.  

In a decision issued on November 10, 2010, the New Hampshire Supreme Court agreed with NELF that Fifth Estate is immune from liability under the CPA, which is designed for the business arena and not the political arena.  In particular, the Court relied on the Supreme Court’s Noerr-Pennington doctrine, which arose in the antitrust context and is derived from the First Amendment’s Petition clause.  Under this doctrine, the First Amendment shields companies from liability based on their engagement in the political process, especially to effect legislative change, even when the disputed conduct is willfully anti-competitive (i.e., seeks to effect a political change harmful to competitors).

Fighting New Hampshire’s Effort to Transfer to the State’s General Fund Monies Wholly Derived from the Contributions of Private Individuals 

This is an appeal by the State of New Hampshire from an adverse declaratory judgment issued by the Superior Court holding that a recently enacted statute requiring the transfer of $110 million from the New Hampshire Medical Malpractice Joint Underwriting Association (“JUA”) to the State’s general fund is unconstitutional under both the federal and state constitutions.  The JUA was formed pursuant to statute for the stated purpose of providing medical malpractice insurance for risks that could not otherwise find coverage in the commercial market.  By 2008 the JUA was writing $8.8 million of the total $40 million in medical malpractice premiums written in New Hampshire and was insuring over 900 of the 11,000 healthcare providers in the state.  The JUA’s accumulated assets of $152 million derive exclusively from premiums paid by policyholders and from investment income earned from those funds.  Despite the state’s role in forming the JUA, New Hampshire has never contributed any money to it and has no obligation to do so.  The JUA’s policies make policyholders liable for assessments that may be needed in the event the JUA has a deficit, while also providing that any excess surplus may be applied beneficially to the policy holders either in the form of distributions to them or as a reduction in future assessments.  The state statute at issue recites that the healthcare interests of the people of New Hampshire would be better served if the JUA’s excess surplus were transferred to the state’s general fund for use in providing health services to “underserved” residents.  

In an action brought by policyholders to enjoin the transfer, the trial court ruled that the law violates both the state and federal constitutions because it effects an unconstitutional taking of the policyholders’ property and impermissibly impairs their contract rights. On appeal, the State argued that the policyholders lack a vested interest in the excess surplus, while the State’s claim rests on the fact that the JUA was created pursuant to statute and “capitalized” by the State’s granting it state tax exemptions.  The policyholders countered that the law is unconstitutional under both the federal and state constitutions because they have a vested property right, arising out of statute, regulation, and contract, in any excess surplus and the State’s taking possession of the funds is an uncompensated taking.  They also argued that the law is retroactive in violation of the state constitution and impairs the obligations of contract in violation of the federal constitution.  NELF, joined by co-amicus National Association of Mutual Insurance Companies, filed an amicus brief in support of the policyholders urging the state Supreme Court to affirm the lower court’s decision.  Supplementing the policyholders’ arguments, NELF argued that the state was improperly attempting to burden the policyholders with societal costs that should be borne more broadly by the New Hampshire public as a whole and that under U.S. Supreme Court precedent the state had no right to the monetary value it was seeking to appropriate because it did not create that value.  

In a 3-2 decision issued on January 28, 2010, the New Hampshire Supreme Court sided with NELF and affirmed the trial court’s decision.  Reviewing the language of the policies, the Court held that the law effects a retrospective impairment of contracts in violation of the state constitution because the law negates the participating character of the policies and divests the JUA’s board of directors of their obligation to apply any excess surplus to the benefit of policyholders.  Rejecting the rationales advanced by the State to justify the impairment, the Court held that the impairment was substantial and unreasonable.  Echoing one of NELF’s arguments, the Court noted that, while the law might be intended to fund an important societal need, it was not broad-based in its effect, but rather “singularly targets . . . discrete funds generated by premiums paid by a discrete class of private parties.”  

Defending In-House Counsel

New Hampshire bar admission historically has been by examination only. As of March, 2003, the New Hampshire Supreme Court also permits reciprocal admission under certain circumstances to attorneys admitted in another state. An attorney admitted to practice in Massachusetts, serving as general counsel to an Illinois corporation in the offices of its New Hampshire subsidiary, applied for admission to the bar under the reciprocity rules. After reviewing the application, the Court asked the applicant to file a memorandum addressing the question whether his legal work in New Hampshire since 2000 constitutes the unauthorized practice of law in New Hampshire. The Court issued an order inviting memoranda addressing the issue, and on October 1, 2003, NELF filed a memorandum suggesting that an attorney in these circumstances should not be considered to have engaged in the unauthorized practice of law. NELF argues that the prohibitions on the unauthorized practice of law are intended to protect the general public against legal services provided by unqualified persons. This concern is not implicated when a lawyer admitted to practice in another state has a single client, a corporate employer who is well positioned to evaluate the qualifications of its attorney-employees. NELF also notes that there is growing recognition nationally that the traditional concept of state-by-state regulation of the practice of law inadequately reflects the modern realities of the practice of law, particularly by corporate counsel. In August 2002 the American Bar Association House of Delegates adopted the recommendations of the ABA Commission on Multijurisdictional Practice. Those recommendations included an amended Model Rule 5.5 that provides, in subsection (d), that a lawyer admitted in a United States jurisdiction may provide legal services in another jurisdiction that “are provided to the lawyer’s employer or its organizational affiliates and are not services for which the forum requires pro hac vice admission.”  In its comment on Model Rule 5.5(d), the Commission said,

"This paragraph applies to in-house corporate lawyers, government lawyers and others who are employed to render legal services to the employer.  The lawyer’s ability to represent the employer outside the jurisdiction in which the lawyer is licensed generally serves the interests of the employer and does not create an unreasonable risk to the client and others because the employer is well situated to assess the lawyer’s qualifications and the quality of the lawyer’s work."

NELF argued that the Court should adopt an interpretation patterned on Model Rule 5.5. NELF also argued that an overly restrictive definition of the “unauthorized” practice of law is bad public policy and will be inimical to the continued growth and prosperity of New Hampshire. Businesses that locate, remain, and expand in the state directly affect the state’s economy by providing jobs and a stable tax base, and have a further economic impact through their purchase of goods, services, and real estate and through contributions to the civic and charitable needs of the communities in which they locate. In-house counsel practice law as their employer corporations practice business—through telephone, fax, email, teleconferencing, and travel to multiple corporate locations. States that create unnecessarily restrictive barriers to the in-house practice of corporate law will increasingly be at a competitive disadvantage in attracting and retaining business to those states that more closely track the approach set out in the ABA’s Model Rule 5.5. 

The Court adopted the recommendation of NELF and in December, 2003 amended its rules to provide that “an applicant’s service as corporate counsel shall not constitute the unauthorized practice of law” if the applicant submits an affidavit that he performed legal services solely for a corporation, received his entire compensation from that corporation, and the corporation is not engaged in the practice of law.  That action puts New Hampshire in the forefront of New England states on this issue.  Maine, Massachusetts, Rhode Island, and Vermont rules contain no exception for in-house counsel practice by attorneys licensed in another jurisdiction, and the Rules Committee of the Connecticut Judiciary has officially said that they will not adopt the Connecticut Bar Association’s proposed rule that would have authorized special admission for in-house attorneys working in Connecticut but admitted in another jurisdiction.

Contesting an Employer’s Liability for Criminal Conduct of an Employee in the Workplace

In a case of first impression, the New Hampshire Supreme Court considered--and rejected--the argument that an employer has a duty to protect an employee against foreseeable criminal attacks by third parties.  The case arose when Hilliard, an off-duty ATT employee, killed Dupont, another ATT employee, in the parking lot of ATT’s facility.  Dupont’s family sued ATT, claiming that the employment relationship was a “special one, analogous to those between school and student, common carrier and passenger, and innkeeper and guest.  The Court rejected this argument, saying that adopting such a rule would impose an “onerous burden” on employers.  The Court did go on to say that under the specific facts alleged, the employer may have become aware of an imminent danger of serious harm to Dupont.  At that point, the Court said, the employer would have a duty to protect Dupont from Hilliard’s attack.

Urging Admissibility of "After-Acquired" Evidence of Employee Misconduct

Environamics Corporation discharged its controller for hiring his daughter in contravention of an explicit directive prohibiting him from doing so. At trial, the plaintiff disclosed that, prior to his discharge, he had misappropriated a letter sent to the company’s president. The trial court denied Environamics’ request to use this separate pre-termination misconduct to establish another breach of the employment contract and limit the plaintiff’s damages. 

NELF filed an amicus brief on behalf of the Business and Industry Association of New Hampshire in the New Hampshire Supreme Court, arguing that the Court should permit the use of "after-acquired" evidence of an employee’s pre-termination misconduct to bar recovery for wrongful discharge in breach of contract cases. NELF argued that the integrity of the employment relationship and the proper balance between the rights of employers and employees require that after-acquired evidence be considered on the issue of liability in such cases. The Court agreed and remanded for a new trial.

Challenging Taxation of Intangible Income from Foreign Subsidiaries

Caterpillar petitioned the U.S. Supreme Court to review a New Hampshire Supreme Court decision which upheld the refusal of the Department of Revenue Administration to redetermine Caterpillar’s business profits tax liability for three years. The Department determined that Caterpillar should have included interest and royalties that it received from its non-U.S. subsidiaries in its "gross business profits." Under New Hampshire law, income earned by foreign subsidiaries is excluded from the calculation of a unitary business’ combined net income that is subject to apportionment. In the tax year in which income from foreign subsidiaries is returned to Caterpillar in the U.S. as interest and royalty payments, it is included in Caterpillar’s unitary business income. Under New Hampshire’s "water’s edge" approach, none of the property, payroll and sales expenses that generated that income are considered. Caterpillar contended that, unless a portion of these expenses is included in the apportionment formula, the fraction vastly overstates its New Hampshire income and is unconstitutional. 

On behalf of the Business and Industry Association of New Hampshire, NELF filed an amicus brief in the U.S. Supreme Court urging the Court to grant Caterpillar’s petition. NELF argued that, contrary to the New Hampshire Court’s holding, Caterpillar’s foreign subsidiaries are not unrelated business entities and should not be treated as such. They should be treated consistently with Caterpillar’s domestic subsidiaries and an appropriate portion of the foreign subsidiaries’ payroll, property and sales expenses should be included in the apportionment formula. Without any consideration of these expenses, NELF contended that New Hampshire discriminates against foreign commerce and discourages foreign investment. The Supreme Court denied cert.

The Self-Created Hardship Exception

The New Hampshire Supreme Court accepted an appeal in another regulatory takings challenge. Rye denied Morgenstern a permit to build a single family home on an approved lot in a single family residential subdivision. Morgenstern submitted two applications, the second of which made some effort to meet Rye’s wetlands concerns and the Town denied the second permit on the ground that it was substantially similar to the first. The Superior Court upheld the denial of the permit, relying in part on the “post-enactment purchaser” theory described above. 

NELF filed an amicus brief arguing that the self-created hardship theory as espoused to date by the New Hampshire Court was not applicable and was, in any event, against public policy. The New Hampshire Supreme Court found for Morgenstern, addressing primarily the zoning issues. The court remanded to the Town holding that, if Morgenstern made a good faith effort to meet the Town’s concerns in the second application, the Town would have to reiview the application seriously. The Court withheld judgment on the regulatory takings claim pending the Town’s reconsideration of Morgenstern’s second application. 

Employee Whose Preexisting Condition Is “Aggravated” by Exposure to Co-Workers Is Not Entitled to Worker’s Compensation Benefit

The New Hampshire Compensation Appeals Board (“CAB”) ruled that an employee’s employment aggravated the symptoms of her preexisting condition, “multiple chemical sensitivity syndrome,” despite the fact that there was no evidence that the job either caused her condition or exposed her to chemicals. The only workplace cause for the aggravation was that the employee was “surrounded by the eleven women co-workers, some wearing fragrances.” The New Hampshire Supreme Court reversed the CAB. While acknowledging the deference to be given the CAB’s decision, the Court reaffirmed its holding in Heinz v. Concord Union School Dist. that a compensable injury “must result from the conditions and obligations of the employment and not merely from the bare existence of the employment.” The Court found that the symptoms did not arise out of her employment, rejecting the employee’s argument that the mere duration of her exposure, a normal workday, was an aggravating factor. 

NELF’s amicus brief argued that nothing about the employee’s job was any different from what people ordinarily experience at work. NELF pointed out that the CAB decision, taken to its logical extreme, would enable every employee who has difficulty tolerating normal work conditions to receive worker’s compensation benefits even if the cause of the difficulty had nothing to do with the job. NELF also argued that the Board’s decision would increase worker’s compensation costs, and employers might refrain from hiring employees with allergies or other pre-existing conditions.