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New England Legal Foundation welcomes inquiries from the media. To contact us by e-mail, click here or call NELF’s President, Martin J. Newhouse, 617-695-3660 - ext. 201. Articles by and about NELF: ▪ Litigating in Delaware: When is it the right choice for New England companies? - New England In-House, November 2007 ▪ Is the Supreme Court 'Biased' Toward Business? - New England In-House, September 2007 ▪ Is Arbitration All That it's Cracked Up to Be? - New England In-House, July 2007
- Boston
Business Journal, May 2005 - The Boston Globe, May 2005
- Portland Press Herald, March 2004
- Boston Business Journal, June 2003
- Massachusetts Lawyers Weekly, May 19, 2003
- Metropolitan Corporate Counsel, October 2002
- Boston Business Journal, July 2002
- The Boston Globe, March 2002 - Rhode Island Lawyers Weekly, August 16, 2001
- The Boston Globe, June 4, 2001
- Women's Business, January 2001
- The Portland Press Herald, October 10, 2000 - Massachusetts Lawyer's Weekly, May 29, 2000
- The Boston Globe, February
29, 2000
- Boston Business Journal, September 10, 1999
-------------
Litigating in Delaware: When is it
the right choice for New England companies?
When do you have the option of litigating in Delaware and when is it the
best choice? These were among the questions addressed at a recent New
England Legal Foundation (NELF) event. The moderated discussion, featuring comments by Vice Chancellor
Stephen P. Lamb of the Delaware Chancery Court and Justice Ralph D.
Gants of the Massachusetts Superior Court Business Litigation Session (BLS),
focused on procedural and structural differences between the two courts. These differences, just as much as differences in the substantive law
of the respective jurisdiction, should be considered by practitioners
when deciding where to litigate a complex business case within the
jurisdictions of both the Delaware court and an analogous New England
forum. For New England corporations formed under Delaware law, Delaware is
an obvious choice if the litigation involves internal corporate
governance. Unlike the BLS, for example, which is simply a session of
the Massachusetts Superior Court, the Delaware Chancery Court is the
ultimate interpreter of applicable corporate law for the many businesses
incorporated in Delaware, subject only to appeal to the Delaware Supreme
Court. However, the Delaware court is more limited than its New England
relatives. Thus, while the Delaware Chancery Court is considered by many
to be the inspiration for the business court movement nationwide, it is
primarily a court of equity. It is also a court of limited jurisdiction
concentrated largely on internal corporate affairs. Other business or
complex litigation courts, such as the BLS, typically cover a much
broader range of business disputes, including “business v. business”
cases and claims for damages tried to juries. While Delaware Chancery has jurisdiction to hear preliminary
injunction applications in non-competition cases, it does not have as
strong a lead over other state courts in that arena as in the realm of
internal corporate disputes. The law to be applied in such cases is
often specified in the non-competition agreement and typically will be
that of the state where the employee is employed or the business has its
headquarters (neither of which may be in Delaware). All business and complex litigation courts are likely to have
considerable experience with the interpretation of non-competition
agreements governed by the law of their own state. And when speed is of
the essence, the best jurisdiction for preliminary enforcement of a
non-competition agreement may be the one where the employee is located. Delaware Chancery does have significant resources. The court is well
funded, with five full-time judges. Each judge has two law clerks and
one secretary. Judges are assigned a case and typically follow it
through to the end. Relatively quick trial dates can be obtained when
necessary. Analogous courts in New England may not have equivalent resources.
The BLS, for instance, has only one full-time judge and two judges who
alternate every three months in a second session. The BLS judges share one law clerk and a half-time secretary. Cases
assigned to the full-time judge stay with him and the part-time judges
are often available to hear cases on which they have had substantial
involvement, even when they are not sitting in the BLS. Nevertheless,
there is a certain discontinuity with respect to cases assigned to the
second session. While a trial date two months out can be obtained where
necessary, decisions on dispositive motions may be delayed significantly
in the BLS given resource constraints. Keeping distinctions like these in mind will help in evaluating
alternative forums. For example, since in the Delaware Chancery the same
judge who will serve as the fact-finder and ultimate decider of a case
will also hear any summary judgment motions, there is less likelihood
that such motions will be effective in narrowing disputes or disposing
of cases. A summary judgment motion in Delaware may be useful in educating the
judge about the facts of and the law applicable to a case, but the judge
may decide to go ahead and have a trial, rather than risk reversal of a
summary judgment decisions. On the other hand, in a court like the BLS,
with much more limited court resources and jury trials, there may be an
institutional imperative to grant summary judgment where warranted. Another stark difference between the Delaware court and New England
business courts is that the Delaware legislature has recently enabled
Chancery Court judges to act as confidential mediators in business
disputes, at the parties’ expense, even in matters that are not in
litigation. Over the past few years 75 percent of the mediated cases have been
resolved on the day of the mediation or very shortly thereafter. If the
matter is not resolved, there is no public record that mediation was
requested or occurred and the parties are free to litigate or engage in
further alternative dispute resolution process in or outside of
Delaware. Other recently adopted legislation grants the Chancery Court
jurisdiction over legal disputes involving high technology issues and
many of the judges’ subsequent mediations have involved intellectual
property and technology-related disputes. No technology cases have yet
resulted in published decisions, so the Chancery Court’s impact in this
area of the law has yet to be felt. Forum selection, whether in a pre-dispute contract such as a
non-competition agreement or at the time of litigation, is often a
complex decision. As a rule of thumb, where jurisdiction exists in both
Delaware and a New England forum, if the case involves internal
governance of a Delaware corporation Delaware Chancery is a natural
choice. But even then there may be cases where strong local ties and the
convenience of the parties warrant trying a corporate governance case in
the BLS or another New England business or complex litigation court,
which will apply a thoughtful interpretation of Delaware law. Perhaps all that can be said by way of general guidance is that the
nation’s first business court, given its considerable resources and
expertise in the area of corporate governance, is very often worthy of
serious consideration by New England companies looking for the optimal
forum for resolution of their disputes.
------------- Is the Supreme Court 'Biased'
Toward Business? Last December, the New England Legal Foundation (NELF) held its 10th
annual CEO Forum in Boston on the topic, “Supreme Business: Business
Cases and the ‘New’ Supreme Court.” Prompted by President Bush’s recent appointments of Chief Justice
John Roberts and Associate Justice Samuel Alito, we asked our panelists
to analyze whether the change in the court had significantly affected
its approach to business cases. The Forum topic was especially timely because, by December 2006, the
Roberts court already had agreed to hear an unusually large number of
business law cases compared to prior years. By the end of the 2006 term, 33 of the 68 cases (48.5 percent) heard
and decided by the Supreme Court involved business or property issues.
While the Forum was a great success, and our panelists (who included
two former U.S. Solicitors General) provided a fascinating glimpse of
Supreme Court advocacy at the highest levels, the panelists ultimately
did not answer the question we had posed. To be fair, it was simply too early at that time to identify with any
confidence trends in the Roberts Court’s business law jurisprudence. Still too early to tell? And even now, it may still be too early. A close reading of the
Supreme Court’s business decisions last term does not reveal any
particular pattern. While some commentators have characterized the
Roberts Court as “uniformly” moving to the right and have labeled it as
“pro business,” these views are too simplistic. Closer to the truth would be a conclusion that the court’s business
decisions reveal an ad hoc approach in which each case was judged on its
own merits, with no overarching economic, business, or political
viewpoint or theory being applied. This view is certainly consistent with the very nature of common law
jurisprudence. It also reflects the reality that the business cases this
past term usually turned on specific statutory, regulatory, or pleading
requirements – each of which had to be interpreted in its own context
and against a backdrop of broader legal and constitutional concerns. It is true the court issued what some might characterize as
“pro-business” decisions in many instances. For example, it vacated the
multi-million dollar punitive damage award (Philip Morris USA v.
Williams), raised the bar for plaintiffs’ Section 10(b)(5) lawsuits
under the Securities Exchange Act of 1934 (Tellabs, Inc. v. Makor Issues
& Rights, Ltd.), and tightened the standard for pleading conspiracy in
anti-trust cases (Bell Atlantic Corp. v. Twombly). However, the court’s decisions in environmental and other major cases
could well increase regulatory and other burdens on business. The court in Massachusetts v. EPA ruled that the Clean Air Act
authorizes the EPA to regulate the emission of carbon dioxide from new
motor vehicles. It also held in United Haulers Association, Inc. v.
Oneida-Herkimer Solid Waste Management Authority that a state’s
requirement that trash haulers bring solid waste only to state-owned
facilities did not violate the Commerce Clause, even though it
eliminated the haulers’ freedom to dispose of waste more cheaply across
state lines. Even some allegedly “pro-business” decisions, when inspected more
closely, seem to negate any claim the “new” Supreme Court is more
favorably biased towards business than the Rehnquist Court, or is more
likely to give clearer answers in business cases. Although the court
overturned the punitive damages award in Philip Morris USA v. Williams,
Justice Breyer’s majority decision, while forbidding on due process
grounds the imposition of punitive damages for alleged injuries to
nonparties, remanded the case without dealing with the issue most
troubling to the business community – the total lack of proportion
between the compensatory damages in the case ($822,000) and the punitive
damages award ($79 million). Similarly, it would be wrong to interpret the court’s decision in
Tellabs, Inc. v. Makor Issues & Rights, Ltd. as arising from a
pro-business bias. In fact, Justice Ginsburg’s majority decision was
simply a middle-of-the-road application of the stricter pleading
standard for 10(b)(5) actions required by the Private Securities
Litigation Reform Act of 1995. NELF, which filed an amicus brief in Tellabs, had argued with others
for an even stricter standard. In any event, it is not the Roberts Court
that made it harder for plaintiffs to sue under 10(b)(5). Congress and
President Clinton did that when they respectively enacted and signed the
PSLRA. Strange bedfellows That two “liberal” Justices – Breyer and Ginsburg – authored the
majority opinions in these cases illustrates what is perhaps the one
certain lesson of the 2006 term, namely that business cases, like
politics, can make strange bedfellows. Look, for example, at the odd constellation of justices in Watters v.
Wachovia, 127 S.Ct 1559 (2007). The question before the court was
whether a wholly owned mortgage lending subsidiary of a national bank
could be regulated by state banking authorities. The answer depended on the enforceability of a regulation of the
Office of the Comptroller of the Currency preempting state regulation of
national bank subsidiaries. NELF, speaking for the business community,
argued as amicus that the OCC regulation was a reasonable interpretation
of the National Banking Act, and that parallel regulation by federal and
state authorities would result in inefficiency, waste, and ultimately
higher costs for consumers. Justice Ginsburg’s majority opinion rejecting the state’s claim of
parallel regulatory authority was joined by Justices Kennedy, Souter,
Breyer, and Alito. Justice Stevens argued in dissent that preemption
should be based on an explicit federal statute, not a mere OCC
regulation, and that the majority’s decision imperiled the delicate
balance between federal and state authority in the banking field. Joining Justice Stevens in defense of federalism were two
“conservatives,” Justices Roberts and Scalia. Could there be a clearer
demonstration that social liberalism and conservatism do not
automatically align with or against business’ perceived interests? For those of us who labor nearly every day to persuade the courts to
recognize the vital importance to the country of the free market and a
vibrant business sector, the Supreme Court’s more hospitable attitude
towards business cases is welcome. It indicates that the court recognizes there are outstanding issues
in this area that need to be clarified. However, based on the decisions
of the 2006 term we should expect in that judicial arena as in any other
that business interests will prevail on the strength and cogency of
legal arguments, not the makeup of the bench. Martin Newhouse is president of the New England Legal Foundation.
NELF is a 501(c)(3) not-for-profit public interest foundation whose
mission is promoting public discourse on the proper role of free
enterprise in our society and advancing free market principles in the
courtroom. ------------- Is Arbitration All That it's
Cracked Up to Be? I The answer is a resounding, “It depends,” according to panelists at a recent panel discussion entitled “Committing Your Company to Arbitration: Benefits and Pitfalls.” The breakfast program was sponsored by the New England Legal Foundation (NELF) and held at the Boston College Club in Boston. Panelist Patrick Lane, Procter & Gamble’s associate general counsel-litigation, enthusiastically endorses arbitration in the context of recurring disputes between competitors, where the parties have incentive to tailor procedures by agreement. Lane considers arbitration a failure, however, for one-off disputes arbitrated pursuant to sales and other pre-dispute contracts. Panelists Kenneth Feinberg, an experienced neutral who served as special master for distribution of the Sept. 11 Victim Compensation Fund, and Richard Gelb of Gelb & Gelb in Boston, an experienced practitioner who moderated the NELF panel, both find arbitration to be at least as slow and expensive as litigation. They both strongly prefer mediation. Professor William W. Park of Boston University’s School of Law, a recognized expert on commercial arbitration, also participated on the panel. Park said he believes arbitration is generally a good choice for resolution of international disputes because it permits a level playing field linguistically and procedurally between parties from different cultures. And arbitration makes sense if participants are from countries where judicial independence is in question. Park also explained that a U.S. arbitration award has more international currency than a decision of the U.S. Supreme Court. Apparently other countries don’t think too much of our system of jury trials in civil cases and runaway punitive damage awards. They have agreed to enforce our arbitration awards, but not our court judgments. Massachusetts Superior Court Judge John C. Cratsley also participated in the panel discussion and expressed concern about the loss of judicial precedent in the securities field, where arbitration is compelled. He noted that an agreement to arbitrate does not necessarily eliminate litigation because disputes routinely arise over enforcement of arbitration agreements and awards. Interestingly, Judge Cratsley supports the notion of complex disputes being resolved by arbitrators with specialized expertise. Other panelists, however, are adamantly opposed to the use of experts as neutrals. What’s a practitioner to do? If there is no across-the-board answer to whether arbitration is the right choice, what’s a practitioner to do? Panelists had a number of practical suggestions regarding the selection of dispute resolution methodology and neutrals, as well as specific ADR procedures, a fuller account of which appears on NELF’s website at www.nelfonline.org. Lane recommends the following approaches: (1) shortening time frames for both discovery and trial; (2) limiting the scope of paper discovery and the number of depositions; (3) requiring reasoned arbitral decisions; (4) jointly choosing three of the “best and brightest” as neutral arbitrators (i.e., no “party arbitrators”) and dispensing entirely with appeals; (5) jointly meeting with the panel before the hearing begins to express the parties’ common desire for a decision based on the facts and the law as opposed to a “split-the-baby” compromise; and (6) using mediation rather than arbitration in disputes with consumers and parties employing counsel on a contingent fee basis. Panelists suggested that the requisite skill sets of both mediators and counsel for parties in mediation differ significantly from the skills of litigators and arbitrators. Lane recommends leaving your litigator at home when you head to mediation. Both he and Feinberg steer clear of former judges as mediators, and Gelb generally lets his opponent choose the mediator. Intriguing solution? An intriguing potential solution to the concerns about arbitration expressed at the NELF event is offered by Henry S. Noyes, associate professor of law at Chapman University School of Law, in an article in the Spring 2007 Harvard Journal of Law & Public Policy. In the article, entitled “If You (Re)Build It, They Will Come: Contracts to Remake the Rules of Litigation in Arbitration’s Image,” Professor Noyes argues that parties generally have the ability before a dispute arises to “choose the public courts as the forum for dispute resolution, yet waive, modify, and displace the ‘normal’ litigation rules.” Starting with the “practical problem” that “arbitration is not all it is cracked up to be,” Professor Noyes argues that such modified litigation has all of the benefits of arbitration other than confidentiality and, properly constructed, will be both cheaper and better than arbitration. There are no tribunal or decision-makers’ fees to be paid, appellate rights will be intact, and litigants will continue to have the benefits of creation of and adherence to legal precedent. And, as Professor Noyes notes, arbitration’s supposed advantage of confidentiality is far from a sure thing. Characterizing civil cases as “owned” by the parties and U.S. rules of civil procedure as “default rules” that generally govern only if the parties have not agreed to other procedures, Professor Noyes suggests that parties have the ability to customize a broad array of litigation protocols. Some modifications have already been found enforceable by most courts, according to Noyes – including waiver of trial by jury and appellate review, forum selection and choice-of-law provisions, and changes to evidentiary rules. Noyes concludes that parties should also be able to do the following: (1) Waive defenses like lack of personal jurisdiction and improper venue; (2) agree not to remove cases to federal court; (3) eliminate the need for unanimous jury verdicts; (4) limit the nature or scope of discovery and/or the time frames for discovery or trial presentations; and (5) waive oral hearings, live testimony, and the rules of evidence. Assuming Professor Noyes is right that parties can tailor litigation procedures, one can nonetheless question the practicality of reaching agreement on a customized set of detailed litigation rules before a dispute even arises. That said, Noyes’ proposal offers food for thought. It presents the possibility of preserving the best of each of the litigation and arbitration alternatives and may even present a partial solution to the e-discovery nightmare by allowing for advance agreements waiving compliance with “litigation hold” requirements prior to litigation and limiting the scope of discovery of electronic data once litigation begins. Evaluating the viability of the modified litigation approach for any particular company will – like the choice of dispute resolution methodology generally – require collaboration among counsel and others with litigation, corporate and contract responsibilities. It will generally be in-house counsel who can best lead this effort. ------------- The following article, by NELF's former President, Andrew R. Grainger, appeared in the Boston Business Journal in May 2005: Whatever Happened “To No Harm No Foul”? Are we suffering from a serious litigation shortage? Do we need to encourage people to bring lawsuits against businesses even when nobody has been damaged? A series of recent consumer cases has been developing the notion that any legal mistake, even unintentional and without consequence, can give rise to substantial monetary awards. This began in
1985 when the Supreme Judicial Court ruled that illegal language in a
lease was actionable, even though the tenant was not aware of the
language and the landlord never tried to enforce the improper verbiage.
Nor was the landlord’s stated willingness to ignore any illegal language
enough to protect him from a lawsuit and damages. This unfair result may
have been partly brought about by the fact that the defendant was Harold
Brown, not the Commonwealth’s most popular landlord. It does explain an
expression used by lawyers: “Hard cases make bad law.” Despite the face saving offer in Lord, our highest court plunged ahead in another “hard” case, Aspinall v. Phillip Morris, and decided that even individuals who had actually benefited from reduced toxin levels in so-called “light” cigarettes could join a class of plaintiffs asserting that the cigarette-makers’ claims of reduced harm were false because the benefit depended on your method of smoking. This latest decision, combined with the previous two cases, creates the interesting result that if you claim to have been actually damaged, you must show that the defendant was responsible - while if you don’t claim any damages you can sue anyway. Now the Supreme Judicial Court has an opportunity to clean up the mess in three pending cases. Two of these, known as Roberts and Hershenow, involve rental car contracts. The plaintiffs in one case are claiming that some limits to coverage under collision damage waiver insurance listed in the rental contract are illegal; but the plaintiffs never made a claim for coverage. The second case involves a complaint that the contract should contain more emphasis of the possibility that renters already have such coverage through other policies; but these plaintiffs didn’t even purchase the insurance. The third, Albats v. Town Sports, involves a health club contract containing an impermissible waiver for injury. The plaintiff has no injuries and the health club has removed the offending verbiage. Even without damages most of these cases are for very real money. Consumer protection statutes and many other laws allow for a minimum award, punitive damages, attorneys’ fees, or all three. In the class action context, businesses can now be exposed to multiple six figure liability for innocent mistakes that caused no harm to anyone. While businesses are hurt, consumers don’t benefit. But the attorneys who bring these cases enjoy a windfall. Andrew Grainger, Former President of New England Legal Foundation, which filed briefs in the Supreme Judicial Court in the Hershenow, Roberts, and Albats cases. --------------
Misusing Courts Against CompaniesWITH SEVERAL investigations and criminal prosecutions of major corporations, it may be hard to believe that corporations could not always be criminally prosecuted. Traditionally, a corporation was considered only a legal entity, with no actual physical, mental, or moral capacity of its own. In 1909, however, the Supreme Court held that a corporation could be prosecuted for the criminal acts of its officers and employees if those acts were committed on the job to benefit the corporation. While this formulation appeared to preserve for corporations the basic principle that criminal liability requires criminal intent, recently the principle has been all but abandoned. Today, under federal law, a corporation may be found criminally liable for the criminal conduct of a single employee, even if the conduct was forbidden by corporate policy or the corporation took reasonable steps to prevent it. Thus, Arthur Andersen was criminally charged for crimes allegedly committed by a few partners and employees, regardless of whether the company had authorized, or even known about, the conduct. Keeping pace with the expansion of criminal liability for corporations has been the equally striking expansion of penalties. Today a corporation may be excluded from any government business, or, in the healthcare area, from participation in all federal and state healthcare reimbursement programs if it is convicted of criminal activity or, in some cases, simply suspected. The threat of these penalties has become a shortcut of prosecutors pursuing corporations whose employees have allegedly committed criminal acts. Companies have decided they have no choice but to plead guilty and pay staggering criminal fines simply to survive. Nowhere have federal prosecutors used this strategy of forcing companies to plead and pay more effectively than against the pharmaceutical industry. In the past seven years, they have won $2.8 billion in settlements from nine companies. The US Attorney's Office in Boston alone was responsible for four of these, totaling more than $1.6 billion. Often the prosecutors are aided by whistleblowers, who, under federal rules, can recover a portion of a settlement. In the drug company cases brought in Boston, that has meant individual payouts of up to $77 million, an enticement that has led to a steady increase in whistleblower cases here. Of course, because of the exclusion threat wielded by prosecutors, the allegations whistleblowers provide against companies are never tested in court because the companies cannot run the risk of a conviction. The injustice of this strategy was dramatically demonstrated by the recent prosecutions in Boston of TAP Pharmaceuticals and individual TAP employees around the marketing of Lupron, a popular treatment for prostate cancer. Prosecutors extracted an $875 million criminal fine from TAP, the largest ever in a healthcare fraud case, and a guilty plea from one of nine individual defendants. The remaining individuals insisted on their right to a trial. All were acquitted. The US District Court then reopened the one individual guilty plea and, after reexamination, vacated it. The obvious conclusion is that if TAP Pharmaceuticals had gone to trial, it, too, would have been acquitted. But TAP could not take the chance of losing all federal reimbursement for Lupron, even though its president said the company ''fundamentally disagreed" with most of the prosecution's allegations. This prosecutorial hunt for enormous, well-publicized settlements has not only set aside the presumption of innocence; it also threatens immediate and practical injuries to the public. In Massachusetts, it handicaps an industry that is vital to the economic well-being of the Commonwealth. Additionally, suspension or exclusion of a drug company from government programs threatens to deprive patients of needed medications. These punishments should therefore be reserved until there has been an actual finding of guilt against a company that has failed to reform its practices, as opposed to the current system, where such measures can be imposed before prosecutors prove their case and even if companies have adopted strong compliance programs. A greater risk is that the use of these threats to gain settlement payments from drug companies will divert financial resources from the research and development of new drugs and therapies. The $875 million TAP Pharmaceuticals payment represents enormous lost potential in healthcare research. Prosecutors should do the work required by law to prove their cases instead of threatening corporate suspects with extinction if they seek a trial. And Congress needs to clarify when these threats are appropriate. ------------- Maine Deserves A Business Court Maine Supreme Court Chief Justice Lee Saufley recently revived an important discussion that surfaced several years ago in the Maine court system – the concept of removing complex time consuming business cases from the general docket (“Business Court Is On To-Do List”, Portland Press Herald, 8/22/03). More than a dozen states, including Massachusetts, Rhode Island and Connecticut, have introduced specialization into their courts to deal with business disputes. Some programs are recent and some, like those in New York and Delaware, have been operating for decades. The track record established by these programs demonstrates that everybody – not just business litigants – benefits from having them. Already probate courts, bankruptcy courts and housing courts around the country help to apply expert knowledge where it is needed, and to release other resources where they can do the most good. Similarly, business courts have shown that they allow court systems to use their increasingly strained resources to better effect. The state as a whole, not just the court system and those who use it, derives an advantage from carving complex time-consuming cases out of the mainstream. Business needs speed and expertise to resolve disputes, and this is increasingly true in a world everyday rendered faster and more complex by technology. Businesses consider a number of factors, such as taxes and schools, in deciding where to locate and whether to move. The ability to resolve uncertainty quickly and predictably is high on the list. Maine ignores the business courts found in nearby states to its own disadvantage. The current
inability of many court systems to provide effective dispute resolution
is causing businesses to seek private solutions, including arbitration,
mediation and ADR. This has proven to be an interim solution for larger
companies, or at least those with the resources to afford the additional
expense. The solution is temporary because only the court system can
create precedent and give us rules for future cases. Private systems
can’t resolve cases without an existing body of law on which to base
decisions that both sides will accept. In the period covered by the survey, the Massachusetts BLS resolved over 200 complicated multi-party lawsuits. These commercial cases, together with other complex disputes such as medical malpractice, had previously consumed a disproportionate amount of public resources for much longer periods. The numbers produced by the survey are dramatic. Fully three quarters of all the attorneys who appeared before the BLS took the time to respond to the survey, and more than half of these had more than one case in the Session. An astounding eighty-seven percent of these attorneys placed the Session in the top two of seven available ratings for overall satisfaction, while only three percent put it in any of the bottom four ratings. Eighty-three percent said that the BLS enabled them to give better legal service, citing the consistency of having one judge in charge of the case, the promptness of hearings and the promptness of decisions. These respondents, who are experienced trial attorneys and not easily impressed, considered the Session as good or better than private dispute mechanisms by eighty-four percent. Their cases were of all kinds, involving contract disputes, landlord-tenant contests, shareholder fights, partnership dissolution, employment disputes - in short, the basic fabric of most civil litigation today. They won, lost and settled in relatively equal amounts, and praised the process regardless of which side they were on. National and multi-national corporations will ultimately be able to absorb the inefficiencies that a slow and uncertain court process can create. Small and medium-sized businesses cannot. And these are a significant part of our region’s economic engine, not to mention an ever increasing part of the employment and tax base. The good news is that courts have shown they can achieve these efficiencies with very little, if any, additional cost simply by reallocating cases and judges to reflect interest and expertise. Chief Justice Saufley’s proposal is a good one, and should be given a chance. ------------- Should Business Enjoy Less Freedom of Speech Than Individuals? One reason free speech is considered so important to our society is the concept of “enough rope.” Free speech gives everyone enough rope to hang themselves, at least in terms of reputation. The best way to generate good ideas and get to the truth is to engage, literally, in a free-for-all. Until recently, we have always trusted our ability to separate what is silly, wrong or misleading from what is genuine, useful and true. Slowly, in the past few decades, courts and legislatures are losing confidence. Courts, in particular, have carved out a difficult and dangerous exception to freedom of expression – so-called commercial speech. The assumption now is that the average citizen needs protection from sales talk. This extends not just to direct sales pitches, (“my oat bran will lower your cholesterol”) but also to corporate commentary on public issues (“dairy cooperatives don’t inflate the price of milk – they just support family farmers”) intended to influence opinion, enhance a business’ image, or both. Which is why the U.S. Supreme Court is currently faced with the case of Nike, Inc. v. Kasky. Nike, like other shoe and clothing companies, has come under attack for the conditions under which its products are manufactured abroad. In response to sustained adverse publicity, Nike sent letters to University Presidents and Athletic Directors, bought newspaper ads, and made statements through press releases. Nike claimed that its labor practices were being misrepresented. The persons and organizations that had been complaining about Nike then claimed that the responses were inaccurate, and sued Nike for unfair competition and false advertising under California consumer protection laws. Nike’s legal defense, based on the First Amendment, is that it should not have to risk a lawsuit for engaging in public debate. Each side claims the other was making false claims but only Nike, seeking to protect its corporate reputation, can be sued because another person has accused it of inaccurate statements. Everyone has an agenda when they speak in public. They want you to vote for them, contribute to their campaign, buy their products or services, join them in a cause, contribute to their charity, give them name recognition, admire the rightness of their position or the clarity of their thought. The idea that a commercial motive sets you apart, and should therefore give you less freedom of expression, is based on several misconceptions. One misconception is that a business knows more about its products or services than anyone else, and enjoys an unfair advantage in public debate. How this could be true, for example, in a debate between General Mills and the American Medical Association over the curative effects of oat bran remains to be explained. Another misconception is that there is some sort of clear dividing line between “commercial” speech and the rest. The Nike case is a good example. The extent to which affluent Americans are exploiting workers in underdeveloped countries is a social and possibly a political issue. It is also an issue which can affect Nike’s bottom line. Suit against Nike was upheld in California despite the fact that it was engaged in a debate on issues of public interest, because its remarks were directed to consumers and it was talking about its own business. In other words, a business is free to enjoy public speech like anyone else only if the subject is of no real interest to it. In today’s world of infomercials, product placement in films and a dozen other creative (if tasteless) techniques to sell the public what it does or doesn’t want, there is no real dividing line. It is unsettling to contemplate state regulators acting as speech police over expression that includes serious matters of public concern. Freedom of speech is especially important when the government is involved. Public officials have essentially unlimited access to the media. While most everyone has a healthy skepticism of corporate messages, businesses at least have the resources to disseminate points of view that will differ from political pronouncements. We need to hear from commercial interests on subjects like NAFTA, the health care system, dividend taxes and many others. It is healthy to question a business’ motives and examine its statements carefully. It is unhealthy and socially self-destructive to erect barriers that will require a business to defend lawsuits because others disagree with what it has to say. Everyone, including corporations, is liable for fraud, slander and similar harm inflicted through speech. Returning public discourse to a level playing field will not immunize anyone from improper behavior, but it will demonstrate that we still trust ourselves enough to give everyone enough rope. ------------- Confidential Settlements: Is the Cure Worse than the Disease?
There have been many
shocking aspects to the scandal over the Catholic Church’s handling of
allegations of sexual abuse by priests. One of the most compelling has
been the coverage of the “secret” settlements between claimants and the
Church. Although national newspapers reported on the Church’s
confidential settlement of sexual abuse cases as long ago as 1988, these
agreements are nonetheless blamed for hiding and perpetuating the abuse.
These cases, together with the Bridgestone/Firestone tire settlements,
other product liability settlements, settlements of environmental
contamination, and other toxic tort cases, have given rise to an
increased call to ban confidential settlements. ------------ The following article appeared in the Metropolitan Corporate Counsel in October 2002: NEW ENGLAND LEGAL FOUNDATION: A VOICE FOR BUSINESS What do taxi medallions in Boston, exports to Burma, ATM surcharges in Connecticut and Mexican migrant workers in Maine have in common? At the moment they are among the approximately thirty subjects of litigation currently on the docket of New England Legal Foundation. They all figure prominently in cases that are destined to have a material impact on the ability of corporations and individuals to do business in a rational manner.
New England
Legal Foundation is the only business-oriented, not-for-profit law
firm in New England. Since its founding in 1977, it has used
litigation to promote free market views and address pocketbook issues
affecting New Englanders.
In recent years, consistent with the nationalization and globalization
of commerce, the Foundation’s cases have also come from other parts of
the country and have occasionally involved foreign relations. “Our focus is on what we believe to be a rational and balanced solution to disputes involving the marketplace. In many cases, but not always, we favor nationwide regulatory schemes so that multi-state businesses can plan and administer their affairs with predictability. For example, last year we participated as amicus curiae in a United States Supreme Court case challenging California’s attempt to change the rules for claims notices in ERISA disability plans only in that state. In other cases, however, we might attack a bad law or regulation in one state even if it is mirrored in many others, because we intend to create precedent that can be used elsewhere. While an ideological approach might favor either a consistent states’ rights or big government bias, our scrutiny remains on what’s best for the conduct of business.” Exports to Burma are an example of NELF’s “fix it locally, think globally” approach. In 1996 Massachusetts enacted a so-called “selective purchasing” statute which punished any business having commercial contacts in Myanmar (formerly called Burma) by adding a 10% penalty to all bids for contracts to provide goods or services to the Commonwealth. In what former Governor William Weld freely conceded was an attempt to formulate foreign policy at the state level, Massachusetts acted to discourage trade with Burma while simultaneously increasing the cost its own taxpayers might incur for goods and services. Agreeing with NELF, both the Federal District Court in Boston and the Court of Appeals for the First Circuit invalidated the law. NELF’s amicus brief was filed with the United States Supreme Court in February of this year; it hopes that a favorable decision will remove such laws (and there are many) from statute books all across the United States. NELF recognizes that government regulation of business is appropriate in many cases, and that taxation is a necessary evil. Its motto, “Providing a Balance”, is intended to signify that it believes in a moderate approach: usually, but not always, championing free market solutions to perceived or real social problems. The recent battle with the State of Connecticut over ATM surcharges is a good example. In that case the state banking commissioner argued that a statute authorizing the use of ATMs by state chartered banks should be read to prohibit fees assessed to non-customers. NELF’s amicus brief pointed out that, regardless of the questionable statutory interpretation advanced by the state, the supposed harm to consumers which the commissioner claimed to be averting was easily managed by the free market. Using Massachusetts as an example, NELF documented the establishment of a network of no-fee ATMs by small and medium sized banks seeking a competitive advantage. In what NELF’s Legal Director Loretta Smith termed a “gratifying recognition that market choice is superior to regulatory fiat,” the Connecticut Supreme Court rejected the commissioner’s arguments and specifically cited to the market alternative. (The network of no-fee ATMs featured by NELF in its brief has, in fact, spread into Connecticut since the case was decided). In the case of the DeCoster Egg Farm located in Turner, Maine, NELF has paradoxically confronted a situation in which regulatory control is probably appropriate while private action, when the private actor is in fact a foreign government, is decidedly not. Following citation by OSHA of myriad working condition violations, DeCoster found itself defending a suit by its employees, many of whom are Mexican migrant workers or American citizens of Mexican descent. On the theory that, as a country of origin, it has been damaged by ill-treatment of its citizens and emigres, Mexico itself helped to initiate the suit as a plaintiff and sought separate damages on a parens patriae basis. “American businesses are faced with enough potential claimants and theories of recovery in today’s markets; it’s a really bad idea, and bad law, to require them to fund foreign countries whose feelings have been hurt,” reacted Grainger to the Mexican suit. NELF’s brief, together with those of the parties, will be filed in the First Circuit Court of Appeals as this issue of Metropolitan Corporate Counsel goes to press. From a market perspective, lawsuits are NELF’s “core business.” The Foundation, however, recognizes limitations to litigation, and has recently begun seeking alternate ways to pursue its mission. “Litigation is inherently reactive,” explains Grainger. “You need a specific case with the right set of facts on a particular issue in order to establish good precedent.” For this reason, NELF has initiated seminar and panel presentations designed to provide a forum on issues confronting the business community, even when there is no lawsuit available. Recently NELF conducted a panel with judges and CEOs from New York and a number of New England states to debate the spread of specialized business courts designed to provide commercial litigants with greater speed and expertise on the bench. It has planned a seminar to be held later this year which will examine the application of genome mapping to insurance, corporate benefit plans and employee relations. Another topic on NELF’s radar screen is the convergence of the legal, consulting and accounting professions (which has been in the news lately as the SEC’s examination of auditor independence is likely to result in the separation of consulting practices from accounting firms, including the Big Five). While most of the Foundation’s court appearances involve broad issues and the precedent setting confrontations exemplified by amicus and appellate work, it also has a tradition of pursuing a few cases in which NELF directly represents a party from the ground up, beginning at the trial court or agency level. Throughout most of the 1990s the Foundation represented the family of Paul Preseault of Burlington, Vermont, who suddenly found their residential property invaded every weekend by hundreds of backpackers and bicyclists as a consequence of the federally funded rails to trails conversion program. The Preseaults had quickly exhausted their own funds in their quest to be compensated for government action by which an abandoned railroad right of way in their back yard was transformed into a recreational thoroughfare. Their local counsel called the Foundation, and NELF assumed their case. After 8 years and a complete circuit from the Interstate Commerce Commission up to the United States Supreme Court and back again, the conversion of the right of way on the Preseaults’ property was recognized as a taking, and they received compensation. In looking back at the case, Grainger points out that NELF should not be described as opposed to the rails to trails conversion program, “...but we do believe that society must recognize the real cost of social objectives and not simply put the burden on certain individuals, in this case landowners.” More recently NELF has represented Robert Lynch, an individual seeking to obtain a taxi medallion (license) from the City of Boston since 1988. After the Police Commissioner denied Lynch’s medallion application because the maximum number of approved medallions, unchanged for more than half a century, had already been issued, Lynch obtained an administrative order from the Department of Public Utilities requiring the City to issue additional medallions. Not until the Foundation filed a lawsuit in 1995, obtained a Mandamus Order from the Superior Court in 1997 and continued to apply pressure for another year and a half, did the City of Boston finally begin issuing medallions in January of 1999. 150 new medallions have now been issued and the City promises to issue another 110. “This case was about letting the market, supply and demand, determine the right number of taxis for Boston rather than maintaining an artificial shortage to keep medallion prices (fees to the City) high,” says Grainger. “Of course, it also evolved into a mission of forcing a public official, and a law enforcement official at that, to obey a court order.” In addition to a Board of Directors comprised of General Counsel from major companies and a few senior law firm partners, the Foundation has developed a network of Advisory Councils, similarly consisting of senior in-house and firm attorneys, in each New England state. Although headquartered in Boston, NELF takes care to emphasize its regional constituency. The Councils are NELF’s “ear to the ground” to ensure that it knows about issues of importance to the business community in their formative stages in each state. Because NELF charges no fees for any of its work, it relies entirely on tax deductible contributions from corporations, law firms, other foundations and individuals. Grainger, with the responsibility to make ends meet, puts it directly: “Like most non-profits, we don’t want anyone who understands and believes in what we do to be deprived of the opportunity to provide us with financial assistance. My message to readers of Metropolitan Corporate Counsel is: ‘Please call us with problems or cases in which we can be helpful, and please consider us an excellent choice for some of your charitable or community investment dollars.’ ” ------------- A Bright Spot In The Court Crisis It is no secret that the Massachusetts court system is in turmoil. Funding for vital functions such as interpreters and court reporters is almost depleted or already gone. The Courts and the Legislature are locked in not one, but two, incipient constitutional crises relating to Clean Elections and to an unseemly power struggle over hiring and control of court employees. All of this is happening in the context of state-wide budget cutbacks and, as if that weren’t enough, an election year. A businesslike reform of the system to give litigants and taxpayers a rational cost effective system of justice and dispute resolution is desperately overdue. Supreme Judicial Court Chief Justice Margaret Marshall has recognized the need for management reform, and the need not to abandon the field to the legislature, by enlisting Boston College Chancellor Father Donald Monan to head a commission on improving court management. The coming months are likely to witness finger pointing and a struggle with the legislature over the line item budget by which it presently decides where, and on which clerical positions, to allocate funds. Neither legislators nor judges are automatically entitled to run the court system. The right result--effective and widespread access to justice at a reasonable cost to the public--is too important. Self-government of our court system makes inherent sense, but only if the judiciary can demonstrate that it will manage the courts in a cost effective and businesslike manner. Fortunately, a recent report on one judicially created program provides a model for good self-government. For the past twenty months, the Suffolk County Superior Court has produced exceptional results dealing with complex multi-party commercial disputes, and has done so without adding one dollar of additional expense. The Business Litigation Session, or BLS as it is called, was instituted in October of 2000 thanks largely to the foresight and determination of Superior Court Chief Justice Suzanne DelVecchio. The BLS takes advantage of the benefits of specialization and the hard work of a few very dedicated judges, principally Judge Allan van Gestel who has presided over the project since its inception. The BLS is monitored by a volunteer Resource Committee of in-house and corporate attorneys from large and small offices, and from different areas of the state. A report covering the first eighteen months of the Session sponsored by the Resource Committee and conducted by an independent survey firm, Atlantic Research and Consulting, was released last month. Both the statistical results and the opinions of close to 100 experienced trial lawyers who were interviewed for the survey show that with good organization and hard work Massachusetts courts can be second to none. In the eighteen month period covered by the survey, the BLS resolved over 200 complicated multi-party lawsuits. It should be emphasized that commercial cases and other complex disputes such as medical malpractice consume a disproportionate amount of public resources. By removing commercial cases from other dockets and closing so many in such a relatively short time, the Session has benefited everyone seeking access to the courts. The numbers produced by the survey are dramatic. Fully three quarters of all the attorneys who have appeared before the BLS took the time to respond to the survey, and more than half of these had more than one case in the Session. An astounding eighty-seven percent of these attorneys placed the Session in the top two of seven available ratings for overall satisfaction, while only three percent put it in any of the bottom four ratings. Eighty-three percent said that the BLS enabled them to give better legal service, citing the consistency of having one judge in charge of the case, the promptness of hearings and the promptness of decisions. Almost ninety percent of those interviewed wanted to expand the BLS to other courts and counties in Massachusetts. These respondents, who are experienced trial attorneys and not easily impressed, considered the Session as good or better than private dispute mechanisms by eighty-four percent. Their cases were of all kinds, involving contract disputes, landlord-tenant contests, shareholder fights, partnership dissolution, employment disputes - in short, the basic fabric of most civil litigation today. They won, lost and settled in relatively equal amounts, and praised the process regardless of which side they were on. The bottom line is that in a very difficult environment, the BLS has compiled a case resolution and customer satisfaction record that would be the envy of any business or institution. If judges and court administrators must demonstrate to the public that they will run the system cost effectively and at a high level of quality, Chief Justice DelVecchio and Judge van Gestel are doing just that with the Business Session. Andrew Grainger was President of the New England Legal Foundation, which supported the creation of the BLS and provided funding for a survey to measure its results. ------------- Andrew Grainger is the former President of the New England Legal Foundation, which supported the creation of the Massachusetts BLS and provided funding for a survey to measure its results.
It Just Got A
Little Harder To Keep Your Business Out of Court -- Andrew Grainger and Thomas Royall Smith Because this is also an age of widespread litigation, arbitration has become popular among businesses and individuals seeking a way to resolve differences without dedicating a substantial part of their time and assets to the process. Arbitration clauses have become exceedingly common in most business agreements, including employment contracts. And, until mid-January, lawyers were able to advise their clients that such clauses are generally respected and enforced by the courts.
Now a chink has appeared in the armor that these clauses are intended to provide. In a recent case, EEOC v. Waffle House, Inc., the U.S. Supreme Court has declared that the EEOC may go to court to seek all available remedies for alleged job discrimination regardless of the employer-employee agreement to resolve their disputes through binding arbitration. In Waffle House these remedies included reinstatement, back pay, compensatory and punitive damages – all of which the employee had agreed only to seek through arbitration.
Since the EEOC itself was not a party to the arbitration agreement between the company and the individual, the Court found the agency could pursue remedies in court for the alleged discrimination, including “victim-specific” relief. Once the EEOC files a charge, the Court noted, the agency becomes “the master of its own case ....” and is not considered a mere stand-in for the aggrieved worker. Unfortunately at the end of the day, it makes little difference to the company whether it had to undergo a lawsuit because it was brought by the EEOC on an individual’s behalf, or by the employee himself.
The situation the Supreme Court considered in the Waffle House case was unusual. As the Court noted in its opinion, the EEOC files a lawsuit in less than one percent of all charges that come before it each year. In fact, in fiscal year 2000, the Commission filed fewer than 300 lawsuits, representing less than five percent of all cases in which the agency itself found reasonable cause to believe discrimination occurred. In contrast, alleged victims of employment discrimination filed more than 21,000 lawsuits in the federal courts in 2000. Thus, it was a rare occurrence that the EEOC filed the lawsuit independently of the employee, alleging that Waffle House’s employment practices, including the discharge, violated the law. Although the employee had agreed to resolve any disputes with Waffle House through arbitration, in this instance he had instead gone directly to the EEOC with his complaint.
Where Does Arbitration of Employment Disputes Stand Now?
Many employers may be wondering whether this Supreme Court decision limits the enforceability or desirability of private agreements to arbitrate employment disputes. In theory, the answer is yes. But, as a practical matter, the Supreme Court is correct, at least temporarily, when it said that its decision “will have a negligible effect on the federal policy favoring arbitration.” The Court went on to say that, given the EEOC’s restrained litigation practice over the past 20 years, concerns that this decision will discourage use of arbitration agreements are “highly implausible.” Legal scholars may say that it is poor argument to defend a decision on the basis that it won’t apply very often, but to businesspeople it will make all the difference.
The reasons employers have turned to the private arbitration of employment disputes have not disappeared. In the past decade, the tremendous increase in employee lawsuits, the ability of plaintiffs to recover virtually unlimited damage awards, and the unpredictability of juries have combined to make employment litigation even more treacherous and costly for employers. Arbitration offers a change of forum, while still assuring the parties the same rights and remedies as a court or fair employment practice agency. The Waffle House decision has not, and cannot, change any of these facts. Let us hope that the Court’s predictions of restraint on the part of the EEOC are proven correct.
Attorney Thomas Royall Smith is the managing partner of the Boston office of Jackson Lewis Schnitzler & Krupman, which represented Waffle House before the Supreme Court. ------------- The Palazzolo Decision Two weeks ago the United States Supreme Court issued its decision in Palazzolo v. Rhode Island et al. 69 U.S. Law Week 4605. At first glance, Palazzolo is a familiar dispute between a landowner and a regulatory body over land use restrictions, in this case wetlands provisions. But the Court's decision goes well beyond the immediate context of the case, and strikes at the relationship between government and governed. Through a corporation of which he was sole shareholder, Anthony Palazzolo owned roughly twenty acres of shoreland in the town of Westerly, Rhode Island. Eighteen of these acres were designated "coastal wetlands" by the Rhode Island Coastal Resources Management Council, an agency created in 1971 at which time Palazzolo, as shareholder, had owned the property for a decade. Seven years later, in 1978, Palazzolo's corporation was dissolved and he took title individually. Thereafter, Palazzolo submitted a series of applications which sought to fill part or all of the property for development. The state's denial both of Palazzolo's applications and of his subsequent takings claim was upheld through the Rhode Island Supreme Court. The United States Supreme Court granted certiorari on four issues. Two of these, involving ripeness and the effect of residual value of an uplands portion of the property, are fact intensive and real estate law specific. This article will discuss the remaining two issues:
These two, it is submitted, are really a single issue splintered by overlawyering. Reduced to its operative core this issue is: Should transfer of property have any effect on the right to challenge existing regulations? The Palazzolo, decision, though in turn splintered by overjudging (six opinions from nine Justices), provides the right answer and, moreover, provides it in exactly the right context by ruling that under our system of government, the state must remain answerable to citizens. The majority opinion, authored by Justice Kennedy, explicitly recognizes the social import of the case: "Future generations, too, have a right to challenge unreasonable limitations on the use and value of land." (Id. At 4611) "[Restrictions which are unreasonable] ...do not become less so through passage of time or title...[and therefore we cannot] absolve the state of its obligation to defend any action restricting land use...." (Id.) The extent to which the opinion, as reflected by these statements, transcends the context of Palazzolo itself has been largely lost in the media's characterization of the decision as property law specific and anti-environmental. It is really neither, since in the final analysis there are many types of laws and regulations which state and local governments might wish to enact with the hope that passage of time or title will remove the need to defend their reasonableness or legality. The Palazzolo decision does not permit development of Palazzolo's land, nor does it provide him with an award because his property use is restricted. It holds only that Palazzolo is entitled to be heard. Consistent with the burdens placed against summary judgments, directed verdicts and other automatic disqualifiers in our system, this is the right result. If Palazzolo prevails on remand, the most likely legal result is a compensatory award. This, again, is probably a good result. The social policy behind takings claims is that society, not selected individuals, should pay for social programs. This brings us to Penn Central Transp. Co. v. New York City 438 US 104 (1978) which recognizes that the Fifth Amendment prohibition against taking private property for public use is "...designed to bar government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Id. 123-124 citing Armstrong v. United States, 364 US 40,49 (1960). Because "fairness" and "justice" depend on the facts in each case, Penn Central identifies tests to be applied to each claim. One of these is "...the extent to which the regulation has interfered with distinct investment-backed expectations." Id. at 124. The Palazzolo majority simply notes that because Palazzolo was not given the opportunity to have his case analyzed under Penn Central, it should be remanded. In an entertaining sideshow, Justices O'Connor and Scalia have issued sparring concurring opinions over the reasonableness of Palazzolo's investment-backed expectation in the face of regulations which, on their face, defeat the expectation. This issue was ignored by the majority opinion, and rightfully so, because it is completely circular. The reasonableness of an expectation which would violate a restriction depends on the unreasonableness of the restriction. An unreasonable restriction, accurately recognized as unreasonable by an acquirer, cannot suddenly be deemed reasonable because it existed before the change of title. Any other result would allow the state, by tautology, to bootstrap itself through Penn Central back to immunity from attack because title has changed. Unfortunately, and dangerously, as many as five Justices (the four dissenters plus O'Connor and possibly Stevens) would allow the pre-transfer existence of a regulation to be used to dispute a showing of expectation. In Palazzolo this remains dicta. In yet another indirect attempt to immunize the state, Justice Stevens, in a partly concurring and partly dissenting opinion, engages in a back-to-the-future exercise by asserting that a "taking" can only occur when the restriction at issue is first imposed. From this he concludes that only the owner at the time of enactment has a takings claim. This is frankly difficult to swallow. It should be evident that the owner against whom an unreasonable restriction is imposed, and every subsequent owner to whom it applies, are deprived of property. Any them should be able to make a claim for compensation. Once one of them does so, the result will be reflected by the market in all subsequent transfers, thereby eliminating future claims. The number of opinions, and the attempts in many of them to undermine the basic concept of fairness laid down by the majority, are unfortunate. But the Palazzolo decision currently brings to a halt attempts in many states, of which Rhode Island is but one, to avoid responsibility for the implementation of land use provisions. ------------- The following article by NELF's former President, appeared on the Boston Globe's Op-Ed page on June 4, 2001: Rent Control Is Still a Bad Idea In 1994, by state-wide referendum, rent control was repealed in Massachusetts. State Senator Diane Wilkerson recently filed a bill which would allow cities and towns to reintroduce rent control to the Commonwealth. A similar bill has been filed in the House. These bills would allow municipalities to enact exact copies of the laws rejected by the voters eight years ago. This is surely excellent support for George Santayana's remark that those who fail to study the past are condemned to repeat it. If we are truly concerned about providing widespread affordable housing in Massachusetts, rent control measures are a strange way of showing it. Across the country rent control has not only failed to achieve its purpose, it has been counterproductive. In fact, rent control has consistently reduced the stock of affordable housing wherever it has been allowed to operate for any significant period of time. Santa Monica, California, enacted rent control in the early 1970s, at roughly the same time that we did so here in Massachusetts. In the decade from 1980 to 1990, Santa Monica's rental housing stock decreased by 5%, while comparable neighboring California towns without rent control saw an increase. Closer to home during the 1980s, Cambridge and Brookline suffered decreases in rental housing units of 8% and 12% respectively, according to a study commissioned by Cambridge policy analyst Rolf Goetze of GeoData Analytics. With hindsight, the reason is obvious: if you regulate the price of a commodity, but allow the cost to fluctuate, suppliers will abandon the market. Contrary to myth, low income and minority tenants are not those who really benefit from rent control. In the early 1990s in Cambridge the average income of those in rent controlled units was higher than that of market rate tenants, while minority occupation of rent controlled apartments was lower than in non-rent controlled units. In 1986 a study for the Rent Stabilization Association in New York City indicated that wealthy white families received the greatest benefit from rent control while poor black and Hispanic families received the least. The preamble of Wilkerson's Senate Bill 657 contains a ritual finding that a serious public emergency exists with respect to the number and condition of rental units in Massachusetts. This language is automatically inserted into rent control statutes to justify taking property (in this case income) away from landowners, and is then promptly forgotten. For example, the Santa Monica statute made such a finding in the early 1970s. Apparently, three decades later the emergency continues to exist, as does the substantial public bureaucracy created to deal with it. Likewise in Cambridge the emergency found to exist in 1970 apparently was not extinguished until the 1994 repeal referendum. Leaving aside the now well-known abuses of the system, there is something fundamentally unfair about rent control. Rent control requires support from only one small segment of the population - ironically those whose activity is already a part of the solution. According to the Small Property Owners Association, 75 percent of rental housing in Massachusetts is owned and operated by individuals and families. These suppliers must already navigate an intricate maze of laws and regulations to stay in the business of providing shelter to others. We should be encouraging them, not making it more difficult for them to stay in business. If we really want to pursue the goal of providing decent shelter to everyone in one of the world's wealthiest countries - and we should - we must recognize the public cost. Through tax subsidies and other means we can encourage the creation of new housing and the maintenance of older dwellings most likely to become rental units. Affordable housing is a complicated issue which involves many different sectors of the economy and is impacted by factors such as interest rates, the labor market, the supply of capital to the construction industry and property use regulations, to name a few. Our public officials shouldn't take a virtuous stance while they let the general public, and themselves, off the hook by making landlords alone pay the bill. ------------- The
following article co-authored by NELF's former Chair and former Vice-Chair, appeared
in the January 2001 issue of Women's Business:
New Legal Issues for a New Age Alicia R. Lopez and Laurie B. Burt We are living in an era of breathtaking scientific and
technological change. We are aware that the history books of the
future will define ours as an age of revolution. One telling statistic
of the dramatic changes taking place: until 1980, phone calls over
copper wire could carry one page of information per second; today, a
thin fiber optic wire can transmit 90,000 volumes per second. The new
technologies of our age for example, in telecommunications and
biology promise great advances in human productivity,
prosperity, understanding, and health. But there are risks and
tensions implicit in these new technologies that confront the
business, legal, and policy-making communities with legal and ethical
ramifications and challenges heretofore unknown. No area of the law better illustrates these new
challenges than that concerned with genetics. The preliminary mapping
of the human genome will revolutionize the tools we have for
predicting and ultimately treating our most common diseases, such as
cancer, diabetes, and heart disease. Our growing ability to determine
who is likely to develop certain maladies raises a number of important
issues. Should such information be protected under a veil of privacy?
Can employers rely on this same information to make employment
decisions, given the rising costs of health benefits provided to
employees? Should employers be permitted to use the results of genetic
screening as a condition of employment or benefits? Are providers of
health and life insurance entitled to use such information to make
determinations of coverage? Today, when nearly two-thirds of New
Englanders rely on employment-based health coverage, these questions
are critical. Massachusetts already has enacted comprehensive genetic
privacy legislation that also prohibits the use of genetic test
results as a condition of employment or insurance. And over thirty
other states have passed laws along similar lines. These laws
represent just the beginning of society's efforts to come to grips
with these changes that are sure to radically impact our personal
lives and our business models. Genomics confronts policymakers, legal professionals,
and businesspeople with the need to make choices among competing, but
equally compelling, values. Our society is predicated on a free market
economy and the protection of individual rights and freedoms. But what
happens when these clash? As is evident in the current U.S. economy,
when business flourishes society benefits in the form of more jobs and
higher wages. Thus, we believe that businesses should possess the
freedom to make decisions that will allow them to succeed in a hyper-competitive and increasingly global economy. Today, one factor
inhibiting U.S. competitiveness is the crisis of spiraling benefits
costs, which is putting increasing pressure on corporate budgets,
profits, and shareholder returns. Genomics might give business a means
to better control these costs. Yet these tools may conflict with
cherished individual privacy rights and raise serious concerns over
discrimination in the workplace. Which right should prevail? Can these
competing claims be reconciled? These are the burning questions with which
businesspeople, lawyers, legislators, regulators, and judges and
juries will have to grapple. These are not issues that can be
postponed to some indefinite point in the future. Employment,
health care, and corporate lawyers will soon be fielding clients
questions about privacy, discrimination, and benefit plan
administration if they haven't already. We must begin to address
the potential of genetic mapping and its impact on numerous social
values and goals: access to health care for all Americans, the
protection of individual privacy, and the prevention of
discrimination. A second area that illustrates these tensions is
e-commerce and As was revealed in the course of the case of former CIA Director John Deutch, sophisticated hackers can intercept information sent electronically without leaving a trace. Of immediate and more practical concern is the growing reality of employee theft of company trade secrets and other confidential and proprietary information. Today, employees easily can and do download volumes of company-owned materials to themselves or third parties. Employers probably give little thought to the degree to which they are losing control of their electronic property. In a world where information is power, this declining control can lead to financial losses, the loss of technological advantage, and enhanced risk of competition. The duplication, use and redistribution of trademarked and copyrighted information has become practically effortless. While widespread access to information on the Internet is desirable, businesses also have a critical interest in protecting their proprietary information. If e-commerce is going to fully realize its potential, issues of property rights must be resolved so that users can compensate producers of information. The huge profits that can be generated by developing commercial information before one's competitors (witness Microsoft) is what spurs entrepreneurs to invest their resources financial, intellectual, and time - and take enormous risks. But investment and risk-taking will take place only if intellectual property rights can be enforced. As leaders of the New England Legal Foundation, we are committed to promoting public understanding and debate of the crucial issues raised by cutting-edge technologies. Towards this end, we have hosted a number of forums designed to spur freewheeling discussions of these challenges. As in all of life, there is no such thing as a free lunch. Economists have a concept called opportunity cost, which tells us that a resource employed for one use cannot at the same time be employed for a different use. The concept alerts us to the costs implicit in the choices we make. The dramatic efficiency gains made possible by newer technologies simultaneously create new risks and a thicket of legal and ethical issues with which corporations must be prepared to grapple. These issues will be contentious because they go to the core of Americans' values. ------------- The following article, by NELF's former President, appeared in the Portland Press Herald on October 10, 2000: What The Business Community Can Expect From The Genome Project Unless you've spent the last nine months on a Pacific atoll under rigidly enforced Outward Bound restrictions, you are certain to have heard of the Genome Project - the imminent ability of medical technology to identify and interpret our individual genetic data bases. In the past four months we've been treated to a Bioworld Convention in Boston, a White House reception and press conference as well as maneuvering by various Presidential hopefuls to be on the "right" (i.e., more popular) side of the death penalty/DNA testing dispute. In addition to inmates on death row, the public imagination and press coverage have focused on embryo manipulation and food alteration. While these issues can be expected to continue to dominate much of the public debate on genomics, there will be other more immediate impacts on society, and especially on business. The predicted arrival of changes is being updated so rapidly that this writer, in preparing a brochure describing a seminar on commercial Genome Project effects to be held in Boston this fall, had to revise the forecasted time lines twice in a three week period. Changes which only a short time ago were thought to be on a two to three year track are now expected within six months to one year. And what are these changes? What do business managers and their advisors need to anticipate and understand in order to do their jobs effectively in the next few years?
Americans have never rejected the use of new technology, regardless of the dangers. Many of the practical and ethical issues described above are a result of the present gap between genetic technology's ability to predict illness and its inability to prevent it. Since we can't put the toothpaste back in the tube, we must understand how genetic mapping will change today's commercial landscape if we are going to develop fair and rational solutions to fast approaching economic and workplace issues. For more articles relating to NELF and the Genome Project, see: Boston Business Journal of March 16, 2001, "DNA Testing Raise Thorny Issues - Even For Business." Massachusetts Lawyers' Weekly of October 2, 2000, "It's All In The Genes." ------------- Everyone Will Benefit From The Business Court Last week's Lawyers Weekly carried an article by Massachusetts Academy of Trial Attorneys' President Warren Fitzgerald about the proposed Business Court. Mr. Fitzgerald's article ("Justice Would Suffer with A Business Court") opposes the pilot project being advocated by, among others, the New England Legal Foundation, the Boston Bar Association and the business community in Massachusetts. His approach fails to take into account existing experience with such courts in other jurisdictions and overlooks the steps already taken towards specialization in today's multifaceted world of dispute resolution. In so doing he arrives at a conclusion which is not only wrong, but against the best interests of both the court system and the non-business litigants he wishes to protect. Mr. Fitzgerald correctly points out that all trial lawyers have felt at one time or another that it would have been "more beneficial to our clients if the [assigned] judge had possessed more background or facility with the particular subject matter at hand." His analysis fails, however, when he speculates that specialization for complex commercial matters might hurt other cases and litigants. In fact, we need not speculate. Roughly a dozen jurisdictions have created some form of the special docket now being proposed in Massachusetts. At New England Legal Foundation's forum on this subject last December, judges from Connecticut and New York, and individuals involved in promoting such initiatives in other states, recounted their experiences with special complex or commercial dockets. Without exception they reported that everyone who depends on the court system for rational and timely dispute resolution benefits from the advantages of carving complex and unwieldy commercial disputes out of the general docket. Commercial matters unquestionably benefit from the scrutiny of judges who have been afforded the opportunity to familiarize themselves with current legal and economic developments. At the same time the rest of the docket is free to operate without the disproportionate burden to judges who are also expected simultaneously, and in a timely fashion, to handle every other kind of case that comes to them in rotation. Removing such cases from the general docket provides exactly the same result that all businesses - and law firms - achieve by offering separate areas of expertise to the public. When was the last time a law firm was asked by a business client requiring representation in a shareholder derivative action to assign an attorney who had handled a medical malpractice case the previous month, a criminal case the month before, and so on? We have long ago accepted and adopted the advantages of specialization in every segment of our society. The high technology age which we have entered, and the bio-technology age in which we will shortly be immersed, will not be forgiving of inefficiencies resulting from the failure of our institutions to focus areas of effort. It should also be pointed out that large profitable business corporations are not the ones that have the greatest need for faster and more specialized treatment of their disputes. These companies, by and large, have the resources to undergo years of costly litigation without having their existence threatened. Pick up the business pages on any day of the week and you will see evidence that large companies are becoming both larger and fewer in number. Corporate demographics today include an explosion of smaller and medium sized companies, start-up and high technology firms, family businesses and sole proprietorships. These are a vital part of Massachusetts' future economic growth. These businesses, no less than the large established survivors, must be attracted and retained. These are the business ventures that require expert and fast resolution of uncertainties that can affect their ability to do business; these are the businesses most in need of the current business court proposal. There is one point entirely omitted from Mr. Fitzgerald's article. Like it or not, business litigants - and especially those with ample resources - already have a specialized docket. They have voted with their feet, as the mushrooming of ADR, mediation services and other private solutions testify. This may be temporarily a good solution for business, but it is bad for the judicial system. We need the court system to stay competitive, and to provide us with enforceable precedent by which future disputes can be tried or settled. We need to keep the judicial branch of government involved in fashioning the rules by which we pursue our livelihoods, seek security and aspire to one aspect of personal fulfillment. The business court proposal presents one good way, but not the only way, for the system to "work smarter" with existing resources, which we all know to be inadequate. Our Superior Court judges have been required to operate with inadequate resources for far too long. Courtrooms, working spaces, technological support and staffing are among the areas where more support is needed. The business court itself would almost certainly be able to benefit from future adjustments (for example, different states have implemented a wide variety of subject matter jurisdictions) after being launched. Neither the fact that there is much other work to be done, nor the likelihood that this particular proposal could be improved with testing, should prevent us from any measure which will help the Superior Court achieve its fullest effectiveness. For more articles on NELF and the Business Court, see: Boston Business Journal of December 3, 1999, "'Business Court' Proposal Gets Aired While Bill Stays Mired In Committee." Boston Business Journal of May 19, 2000, "The Jury Is Still Out On Creating A Business Court." ------------- Why Are We Making Foreign Policy In Massachusetts? Today, at the request of Attorney General Tom Reilly, the United States Supreme Court agreed to review carefully considered decisions by two lower federal courts, both of which have invalidated the so-called Massachusetts "Burma Law". The Burma Law, which is now unenforceable as a result of these rulings, is an attempt by the Massachusetts legislature to use taxpayers' money to punish, and perhaps overthrow, the government of Myanmar (formerly called Burma). How is it supposed to work? Let's say a company you work for, or own stock in, or which simply has been doing business in Massachusetts is also exporting a product to the far east, including Burma. It could just as easily be importing a product or component from Burma, or producing one in that country. If any of these, or a large number of other possible Burmese connections exist, Massachusetts will impose a 10% penalty on that business whenever it wishes to supply goods or services to the Commonwealth. For example, if that company submits a bid of $1 million for a state contract, and the next bid is $95,000 higher, the state will pretend the second bid is the lowest and spend the extra funds The reasons that our system restricts foreign policy decisions to the federal government are not mysterious. More than one foreign policy is no policy at all. In fact, if the federal government does not have sole authority in this area, there is no reason to rule out counties, cities or towns. Miami, in fact, has not hesitated to establish its own approach to relations with the island of Cuba, and New York City is well on the way to having a clearly defined middle east policy. Closer to home, it isn't hard to imagine Cambridge jumping into the ring with both feet. It is undisputed that the present government of Myanmar is undemocratic and repressive. It shares that quality with many other regimes in many parts of the globe. If this law could pass constitutional muster, Massachusetts might choose to focus on Burma, while Delaware addresses obvious problems in China and Tennessee deals with Syria. While some U.S. companies have publicly stated that the Massachusetts Burma Law has caused them to reconsider doing business in that country, there is regrettably no evidence of any effect in Burma. It is not only unconstitutional to fractionalize our approach to foreign governments; it is a pretty good way to ensure that we will be unable to exercise influence anywhere. There is probably no limit to the reasons why a state or local government might wish to try to impose economic sanctions on a foreign government. Displeasure with Canada (our largest trading partner) for fishing in disputed waters would be an equally strong motivation to impose penalties on companies that do business there. In the 60s and 70s there was a strong movement to restrict investment in South Africa as a reaction to apartheid. This movement took the form of selective investment of pension funds and other monies. These restrictions were defended with the argument that the law should treat states and other governments like private parties and recognize the right to act as "market participants" in choosing how and where to do business and invest funds. This theory has not yet been addressed by the United States Supreme Court, so it remains a theory. Even if it were to be upheld, the problem with the Burma Law is that it is not based on a market rationale. To the contrary, it requires spending funds unnecessarily and acting against market principles. The supporters of the Burma Law are well motivated, but that doesn't change the fact that the United States Senate does not convene on Beacon Hill. We have a good Attorney General in Tom Reilly. Regardless how the Supreme Court rules in this case, the political pressure to pursue sanctions against Myanmar should not be placed on him, but directed at our representatives in Washington. Andrew Grainger was President of New England Legal Foundation, which submitted a brief in opposition to the Burma Law on behalf of Associated Industries of Massachusetts and the Retailers Association of Massachusetts in the Court of Appeals for the First Circuit. ------------- Why Does Boston Dislike Taxi Service? A recent Globe article featured a long line of curbside travelers waiting for cabs at Logan. The article itself ("Logan Line Dance") contained anecdotes and opinions about the cause of the problem from all sorts of people including Massport officials, state troopers, travelers and the vice Mayor of Tampa, Florida. But it isn't necessary to guess what's going on here. There are facts that explain the situation, and there's a long history. For half a century, from the end of World War II until 1990, Boston issued no new taxi licenses or medallions, as they are called. Two years earlier, in 1988, the Police Commissioner denied a medallion application by one Robert Lynch because the maximum number of approved medallions, 1,525 as set in 1934, had already been issued. Lynch sued to open up the market by bringing an administrative proceeding before the Department of Public Utilities. The City of Boston itself joined the DPU proceeding and admitted that Boston did not have enough taxis to meet the needs of the elderly and the hospitality and convention industries. That was almost a decade ago. After the usual legal maneuvering, a final DPU Order in late 1991 set the new number at 1,825 "effective immediately". Neither the Commissioner nor the Boston Neighborhood Taxi Association, which had joined the Commissioner in fighting the increase, appealed this Order. The Commissioner of Police, acting contrary to the usual assumption that public officials (not to mention law enforcement officials) will obey the law, simply ignored the DPU Order. In May 1995 Lynch, now represented by New England Legal Foundation, a non-profit public interest law firm, filed a lawsuit in the Superior Court seeking a court order requiring the Commissioner to do what he had already been ordered to do by the DPU in 1991. In August of 1997, the Superior Court issued such an Order, called a Mandamus. The Court ordered Police Commissioner Evans to issue 260 new medallions "without cessation and with reasonable dispatch." Commissioner Evans chose to understand the words "without cessation and with reasonable dispatch" to mean he could wait one and one half years - until January of 1999 - and then issue 75, not 260, medallions. Apparently exhausted by that effort, he then paused for breath. He now has scheduled a second auction, albeit with a minimum of publicity and again of only 75 medallions, for September 17, 1999. The result is that, more than eight years after the DPU Order, the Commissioner will have complied a little more than 55%. No other sale dates have been set. The Commissioner claims that he has a plan for a series of auctions over a three to five year period. As a result (and before the September 17 auction was scheduled) New England Legal Foundation asked the Superior Court to consider holding the Commissioner in contempt of court. The Court recently has held, in a decision that reminds us of the difference between the language spoken in court and anywhere else, that the announced plan is close enough to the Mandamus order to escape contempt. New England Legal Foundation on behalf of Robert Lynch, still trying to obtain the medallion for which he applied in 1988, has appealed the finding that this behavior could not lead to a finding of contempt. So why is this happening? Money, and lots of it. A few more facts:
This is simply not the way government is supposed to work. The market, left alone, would provide a greater number of less expensive taxis for everyone who lives here and anyone who comes to visit. The next time you're doing the Logan Line Dance, there's no need to wonder who's picking the tune. ------------- The following statement appeared on the NELF website opening page after 9/11: Our Response to the Events of September 11, 2001: We are deeply saddened by the loss of so many lives, and by the depths of disease and alienation that the planners and perpetrators of mass murder have shown to the world.
It was no accident that an attempt to harm this country was directed in
large part against commerce and our markets. The months and years ahead
will see the need for careful balancing between the needs of our
government to wage war on many fronts, including the economic one, and
the vital role of free markets in a free society to provide the strength
and the resources we will need. -------------
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