Blog Posts

Hall v. Department of Environmental Protection (Massachusetts Division of Administrative Law Appeals) - Pending Case

10/17/2017

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.

October 2016 Litigation Report - Recent Decisions

10/26/2016

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).

Gyulakian v. Lexus of Watertown

10/24/2016

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.

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.

Pending Cases

10/22/2016

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.

Initiative Legal Group v. Maxon

10/20/2016

Click here to read the brief.

Opposing a State Court’s Refusal to Enforce an Arbitration Agreement Contained in a Contract that the Plaintiff has Voided Based on a Technicality of State Law.

This case, a putative class action which is before the United States Supreme Court on a petition for certiorari, asks whether the Federal Arbitration Act (“FAA”) permits a state (here California) to refuse to enforce an arbitration provision that is contained within an agreement that the plaintiff has voided based on a technicality of state law, long after the contract was performed, in an obvious attempt to evade his contractual obligation to arbitrate his claims arising from the agreement.

The plaintiff here, David Maxon, signed a contingency-fee agreement with the Petitioner, Initiative Legal Group (“ILG”) to pursue his wage-hour claim against his former employer, the Wells Fargo Bank. The contingency-fee agreement contained a mandatory arbitration clause covering all disputes between the attorney and the client. After ILG had completed its legal services under the agreement, Maxon filed this court action alleging that ILG had committed legal malpractice in representing him. ILG moved to compel arbitration. It turned out, however, that ILG had inadvertently failed to sign the contingency-fee agreement, and Maxon, invoking a California statute that permits a client to void a contingency-fee agreement unless both parties have signed it, gave notice to ILG that he was exercising his right under state law to void the fee agreement because ILG had not signed it. Maxon then argued that, because he exercised his statutory right to void the fee agreement, the entire agreement, including the arbitration provision, no longer existed. The California trial court and Appeals Court agreed with Maxon, and the California Supreme Court denied further appellate review.

As NELF argues in its amicus brief in support of the Petitioner, the California courts were wrong because under well-settled United States Supreme Court precedent, the mere voiding of the fee agreement does not also void the arbitration clause. As the Supreme Court has held, the FAA preempts such state interference with the enforcement of an arbitration provision. Under the FAA, an arbitration provision is severable from its “container” agreement. “[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006) (Scalia, J., for Court) (emphasis added). This principle of severability is mandated by the plain language of the FAA. “[Section] 2 [of the FAA] states that a ‘written provision’ ‘to settle by arbitration a controversy’ is ‘valid, irrevocable, and enforceable’ without mention of the validity of the contract in which it is contained.” Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010) (Scalia, J., for Court) (emphasis in original).

In short, NELF argues that the Supreme Court should grant certiorari, once again, to compel state courts, like those in California, to adhere to the Supreme Court’s arbitration decisions, and to hold that the arbitration provision is enforceable even if the overall agreement is voided under state contract law, for whatever reason--such as illegality, fraud in the inducement, or unconscionability. Unless a party challenges the enforceability of the arbitration provision itself, the arbitration provision survives and must be enforced. See Buckeye, 546 U.S. at 444-46 (challenge to overall loan agreement as usurious, and therefore void ab initio, did not affect enforcement of arbitration provision contained therein). See also Rent–A–Center, 561 U.S. at 70 (challenge to “all-disputes”/scope clause of arbitration agreement as unconscionable did not affect enforcement of separate arbitration clause delegating unconscionability challenges to arbitrator); Prima Paint Corp. v. Flood & Conklin Mfg. Co. 388 U.S. 395 (1967) (challenge to overall agreement as induced by fraud did not affect enforcement of arbitration provision therein).
As of the time of this report, the Supreme Court has not yet decided whether or not to grant certiorari in this case.

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.

Chase v. U.S. Postal Service

10/18/2016

Arguing that a plaintiff who alleges that his employer retaliated against him for taking leave under the federal Family and Medical Leave Act must prove that his leave was the but-for cause of the alleged retaliation

This case raises an issue of first impression in the First Circuit in an important area of employment law. In 2013, invoking traditional principles of tort law, the Supreme Court declared that the default rule is that “federal statutory claims of workplace discrimination” must be proven by but-for causation, i.e., it must be shown that the wrong would not have occurred but for the plaintiff’s protected status or conduct. See University of Texas Southwestern Medical Center v. Nassar, 133 S. Ct. 2517, 2525 (2013).* Since then, outside of Title VII, lower courts have shown reluctance to take the Supreme Court at its word, continuing to allow liability to be established when an improper motivating factor has been shown to have played a role in the employer’s decision, even though the factor was not the but-for cause of it.

In this case, a federal district court judge, faced with the task of deciding the causation standard for a retaliation claim arising under the Family and Medical Leave Act, declined to follow the teaching of Nassar; in the mistaken belief that the act is ambiguous on this point, he deferred to a U.S. Dept. of Labor regulation that adopts motivating-factor causation. That standard of causation is clearly wrong. Because Nassar makes but-for causation the default in the absence of statutory language to the contrary, even statutory silence on the subject of causation will not render a statute ambiguous; it merely signals that but-for causation is to be applied. Moreover, so-called Chevron deference to an agency is proper only when the language of a statute is ambiguous, and here the statute is not ambiguous.

Although the defendant employer is the U.S. Postal Service (USPS), an independent agency of the federal government, the law in question applies equally to private businesses, and therefore the outcome of the case should be of concern to NELF and its supporters in the business and legal communities.

In its amicus brief filed in support of the employer in this case, NELF has presented detailed arguments to supplement and strengthen the Post Office's argument that Nassar governs this case. Simply put, NELF makes two points. First, as NELF explains, Nassar establishes that but-for causation is an unspoken background principle of federal legislation and so does not have to be signaled by any special words. To the contrary, it is any other standard that must be clearly stated in a statute. Second, NELF demonstrates that the district court erred in declining to apply Nassar and in finding that the causation required for an FMLA retaliation claim is ambiguous in the statute. NELF argues that but-for causation is the standard to be applied in this case despite the fact that the statute is silent on the issue because, as Nassar stated, but-for causation is a presumption of federal legislation. In making its arguments, NELF rebuts, point for point, the trial judge’s reasons for believing the statute ambiguous and for declining to apply the teachings of Nassar.

*NELF filed an amicus brief in Nassar.

Balles v. Babcock Power, Inc.

10/17/2016

Arguing that When a Stockholder/employment Agreement Provides that a Corporation’s Board of Directors Has the Exclusive Authority to Decide Whether a Senior Executive Should be Terminated for Cause, the Only Issue for a Reviewing Court Should Be Whether or Not the Board Made its Employment Decision in Good Faith.

Click here to read the brief.

This case, which is before the Massachusetts Supreme Judicial Court on an application for direct appellate review, asks how a court should review a decision of a corporation’s board of directors to terminate a senior executive for cause under the terms of a stockholder/employment agreement. A high-ranking executive is generally an employee at will who can be terminated without cause, as in this case. Nonetheless, under the typical stockholder/employment agreement, such as the one here, an executive who is terminated for cause can lose his stock ownership in the corporation, along with any severance package. And, as with many other such agreements, the contract at issue provides a definition of “cause” and also provides, significantly, that “a determination of ‘Cause’ may only be made by the Board of Directors . . . .” (Emphasis added.) Under this clear contractual language preserving the board’s fact-finding prerogative, should a court defer to the board’s decision so long as the board has acted in good faith? Or should a court instead have the discretion to disregard the board’s decision and determine the issue for itself in a trial de novo? The Superior Court in this case took the latter view and reversed the decision of the board of directors of Babcock Power, a high technology company headquartered in Danvers, Massachusetts, to terminate for cause the employment of Dr. Eric Balles, a high-ranking, senior executive employee. As a result, the lower court awarded Balles approximately $2 million in damages and attorneys’ fees.

This case raises an important issue of internal corporate governance that warrants, and NELF supported Babcock Power’s application for Direct Appellate Review and intends to file an amicus brief on the merits as well. In its amicus brief, NELF will argue, inter alia, that, in the circumstances of this case, the board’s decision should be upheld unless the employee can show that the decision was made in bad faith or was otherwise tainted by fraud, and that the Superior Court’s review should have been limited to those issues alone.

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.

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