NCLC Business Alert

April 18, 2008

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In This Edition

Moot Courts

NCLC Holds Moot Court for Petitioner in Bridge v. Phoenix Bond & Indemnity Co.
On April 10, 2008 NCLC held a moot court for Theodore Becker, who is preparing for the Supreme Court case Bridge v. Phoenix Bond & Indemnity Co.  The case addresses whether the Racketeer Influenced and Corrupt Organizations Act ("RICO") requires proof of reliance when the predicate conduct consists of mail fraud.  Participants in the event included Beth Brinkmann (Morrison & Foerster LLP), Steven Cottreau (Clifford Chance US LLP), Richard Samp (Washington Legal Foundation), and Gene Schaerr (Winston & Strawn).

Recent Decisions

Court Allows Trade Organization to Challenge Prescription Law as Preempted by ERISA
On April 18, 2008 the U.S. Court of Appeals for the District of Columbia Circuit held that Pharmaceutical Care Management Association's (PCMA) claim that the District of Columbia AccessRx Act is preempted by federal law was not barred. The DC law imposed a fiduciary duty on pharmaceutical benefit managers (PBMs) in their relationships with their customers and required PBMs to disclose financial information to clients.  PCMA sought an injunction against the DC law as preempted by ERISA, but the District of Columbia argued that PCMA's previous failed litigation in the state of Maine (challenging a similar Maine statute) precluded PCMA's claim.  In its brief for Pharmaceutical Care Management Association v. District of Columbia, NCLC argued that the DC statute is preempted by federal law because it directly relates to employee benefit plans under ERISA. While the Court did not rule directly on the federal preemption argument, the PCMA will be allowed to move forward and challenge DC's state law as preempted.

Court Approves County's Use of Contingency Fee Counsel for Enforcement Activities
In County of Santa Clara v. Superior Court, a California appeals court disagreed with NCLC and upheld a program by the County of Santa Clara that used private contingency fee counsel to litigate cases involving their enforcement authority.  In this lead paint public nuisance case, the government retained private counsel to litigate on behalf of the government with the promise of a share of the recovery.  In its amicus brief filed April 8, 2008, NCLC argued that the use of contingency fees to compensate litigating counsel encourages enforcement litigation aimed at achieving large awards rather than achieving justice.

Court Refuses to Review a Trial Court Procedure Intended to Reduce Unmeritorious Asbestos Litigation
On April 9, the California Supreme Court denied a petition for review in Snyder v. Superior Court, where defendants sought review of an appeals court's decision striking down a trial court's standing order that required asbestos plaintiffs, within eight months of filing their complaints, to provide some basic information connecting the plaintiffs' asbestos-related condition to the defendants' conduct. In its brief in support of review of the case, NCLC described the "asbestos litigation crisis" which has led to multiple bankruptcies among asbestos manufacturers and to lawsuits against peripheral industries and actors and contends that the standing order reflects a sound approach to managing the asbestos docket so that meritorious complaints are considered more expeditiously.

California Supreme Court Joins Federal, State Courts to Expressly Adopt "Sophisticated User" Defense
In Johnson v. American Standard Inc., the California Supreme Court joined other federal and state courts in holding that manufacturers have no duty to warn a "sophisticated user" about the risks of using the manufacturer's products.  According to the Court's decision on April 7, 2008, a plaintiff is a "sophisticated user" if, as a result of membership in a particular trade or profession, he or she knows or should have known at the time of the accident about the risk of harm from a product.  The court held that the sophisticated user analysis applies to both negligence and strict liability actions.

Court Decertifies Class of Tobacco Plaintiffs with RICO Claims
On April 3, 2008, the Second Circuit agreed with NCLC that the trial court erroneously certified a class of plaintiffs who argued that they were allegedly deceived into believing that "light" cigarettes were healthier than "full-flavored" cigarettes.  In McLaughlin v. Philip Morris, et al. (formerly Schwab v. Philip Morris, et al) the Second Circuit reversed the trial court and decertified the class in part because the plaintiffs' fraud claims under the Racketeering Influenced Corrupt Organizations Act (RICO) require individualized proof of reliance, injury and damages, and therefore the proposed class action is not an appropriate vehicle to address those claims. In its brief, NCLC argued that the district court did not apply the rigorous analysis of class action prerequisites of Federal Rule of Civil Procedure 23(b)(3).  In addition, NCLC explained that affirming the district court's decision could expand civil RICO liability well beyond its intended purpose to address the effect of illicit activities on legitimate businesses.

High Court Declines to Hear Case on Refusal to Enforce Pre-Employment Arbitration Agreement
On March 31, the Court denied a petition to review Circuit City v. Gentry, a Ninth Circuit decision that refused to enforce a pre-employment arbitration agreement that included a class action waiver.  After Robert Gentry ignored an arbitration agreement by filing a class action lawsuit against Circuit City, the lower court refused to enforce the arbitration agreement.  According to NCLC's brief in support of certiorari, the Ninth Circuit's refusal to enforce the agreement is in direct conflict with the language of the Federal Arbitration Act and the Supreme Court's decision in Perry v. Thomas.  NCLC also argued that the circuit court's unconscionability analysis is hostile toward arbitration and conflicts with prior Supreme Court precedent.

FACTA Class Action Settles
On March 28, the parties to Soualian v. International Coffee & Tea, LLC settled claims by a proposed class of consumers alleging that retailers violated FACTA by printing more than the last 5 digits of a credit or debit card and/or the expiration date of the card.  The parties settled after NCLC urged the Ninth Circuit to uphold a district court decision denying certification.  After International Coffee and Tea (Coffee Bean) printed a customer's credit card expiration date on a single receipt, the customer sued and sought to certify a class of similar customers.  NCLC argued that individual treatment of FACTA claims is superior to class certification because class litigation exposes businesses to staggering class-wide damages far out of proportion to any harm suffered by potential class members.  NCLC also argued that certification would be inappropriate because there is no indication that the individual violations of FACTA actually harmed the potential class members.

New Filings

NCLC Defends Pennsylvania Immigration Ruling
On April 17, NCLC joined thirteen state chambers of commerce to urge the U.S. Court of Appeals for the Third Circuit to uphold a lower court decision striking down as unconstitutional the employment provisions of Hazleton, Pennsylvania's immigration ordinance.  In its amicus brief in Lozano, et al. v. City of Hazleton, NCLC outlines the conflicting and diverse employer-related immigration laws that have recently been enacted by state and local governments.  NCLC explains that the existing federal immigration scheme preempts state and local efforts to regulate immigration, particularly with respect to work status verification systems.

Amicus brief.

NCLC Asks High Court to Consider Whether Employee Bears Burden of Persuasion in ADEA Disparate Impact Cases
In Meacham v. Knolls Atomic Power Laboratory, the Supreme Court will consider whether an employee alleging disparate impact under the ADEA must bear the burden of persuasion as to the defense that the employer relied on reasonable factors other than age.  The Court will also consider whether the employer's practice of granting discretionary authority in determining which employees to lay off during a force reduction constitutes a "reasonable factor other than age."  In a brief filed on April 11, NCLC argues that plaintiffs have a statutory burden to establish that the alleged discrimination was because of the plaintiffs' age.  Because a straightforward denial by the employer that a reduction was due to "reasonable factors other than age" (RFOA) is not an affirmative defense, the burden of persuasion remains with the plaintiff.  Shifting the burden to the defendant would frustrate Congress's purpose in enacting the RFOA defense as a means to preserve the ability of businesses to quickly and flexibly respond to economic pressures. 

Amicus brief. 

NCLC Urges Ninth Circuit to Reject Greenhouse Emissions Liability Against U.S. Automakers
In California v. General Motors, et al., NCLC urged the U.S. Court of Appeals for the Ninth Circuit to uphold a lower court's dismissal of the state's lawsuit seeking to hold the top six automobile manufacturers liable for the global warming damages allegedly caused by the emission of greenhouse gases from automobiles.  The state argues that the federal courts have the authority to create federal common law remedies for interstate "public nuisances."  In an amicus brief filed April 11, NCLC argues that the case raises non-justiciable political questions better reserved to the political branches than to individual federal courts.  NCLC also argues that the creation of new federal common law for interstate public nuisances runs counter to nearly a century of precedent.

Amicus brief.

NCLC Requests Supreme Court Review of State Law Regulating Political Speech
On April 9, 2008 NCLC filed an amicus brief urging the Supreme Court to decide whether regulation of political speech that "supports or opposes" a candidate offends the First Amendment on vagueness grounds.  In Voters Education Committee, et al. v. Washington State Public Disclosure Commission, the Washington Supreme Court upheld an enforcement action by the Washington Public Disclosure Commission (PDC) against the Voter's Education Committee (VEC) for failure to follow registration and disclosure requirements required by the Washington Fair Campaign Practices Act ("FCPA").  Under the PDC's application of the FCPA, VEC constituted a "political committee" subject to regulation because it "supports or opposes" a candidate.  NCLC argues that the FCPA violates the First Amendment because the statute's definition of "political committee" is both vague and overbroad, reaching well beyond the traditional understanding of a committee.  Additionally, upholding the Washington Supreme Court ruling would subject to onerous regulation a wide range of organizations that routinely interact with government officials at issue-based forums or discussions.

Amicus brief.

NCLC Urges Court to Require Retrial on Whether Punitive Damages Should Have Been Assessed
On April 9, NCLC filed an amicus letter with the Supreme Court of California, asking the court to decide whether a remand trial on punitive damages should consider liability for, and not just amount of, punitive damages.  In Bullock v. Phillip Morris, the appeals court correctly held that the Constitution requires a new trial where a jury a jury awarded $28 billion in punitive damages, a ratio to the compensatory award of 33,000-to-1. However, NCLC argues that the fact that the jury "ran wild" in assessing the amount of punitive damages suggests a significant risk that the jury irrationally decided whether to impose punitive damages.  Due process requires a retrial on both the amount of punitive damages and whether punitive damages are appropriate.

Amicus letter. 

NCLC Asks Court to Preserve Work Product Protection for Internal Legal Documents Circulated to Outside Auditors
On April 9, 2008 NCLC filed an amicus brief in the First Circuit case United States v. Textron, arguing that work product protection extends to internal legal documents circulated to an outside auditor.  In this case, Textron transferred to an outside auditor its tax accrual work papers, which included spreadsheets by Textron's tax attorneys listing tax return items involving unclear areas of tax law that the Textron attorneys thought might be challenged by the IRS. NCLC, along with the Association of Corporate Counsel, urges the court to hold that work product protection is not waived when a company uses documents prepared for litigation purposes for auditing purposes.  To hold otherwise would punish companies that turn to their lawyers for assistance in running their businesses.

Amicus brief.

NCLC Argues that Federal Labeling Laws Expressly Preempt State Tort Actions Against Cigarette Manufacturers
NCLC filed an amicus brief on April 7 in support of the petitioner in Altria Group v. Good, appealing a First Circuit ruling that federal law does not preempt state law causes of action challenging FTC-authorized statements.  In this case, plaintiffs challenged FTC-approved cigarette labels such as "light" or "lower tar and nicotine" as misleading because the labels failed to account for "real-world" consumer behavior, such as taking larger puffs, to compensate for the lower nicotine content.  NCLC argues that the Federal Cigarette Labeling and Advertising Act expressly preempts state-law requirements or prohibitions, including tort actions, "based on" smoking or health with respect to the advertising or promotion of cigarettes.  When Congress enacted uniform labeling standards, it did so in order to promote efficiency, reduce barriers to interstate commerce, and prevent consumer confusion.

Amicus brief.

NCLC Appeals Lower Court Decision Upholding State Immigration Law
In an opening brief filed on March 31, 2008, NCLC and a coalition of Arizona associations appealed a District Court decision that upheld the constitutionality of an Arizona law that interferes with federal law regulating the employment of undocumented workers.  In Arizona Contractors Association, et al. v. Candelaria, the Ninth Circuit will consider an Arizona law that imposes different liability and conflicting sanctions, including the revocation of business licenses, without an opportunity for a hearing, on employers who are deemed to have hired undocumented workers. The state also requires mandatory compliance with the E-Verify employment verification program, which is voluntary under federal law.  In the appeal, NCLC challenges the Arizona statute as unconstitutional because it ignores employers' due process rights and is preempted by federal law -- the Immigration Reform and Control Act -- which provides a comprehensive plan prohibiting the employment of illegal immigrants in the United States. 

Amicus brief.

NCLC Challenges San Francisco Health Care Mandates Law
NCLC urged the U.S. Court of Appeals for the Ninth Circuit to hold that a San Francisco law dictating how much businesses must spend on employee health care violates federal law.  According to the brief NCLC filed on March 28, 2008 in Golden Gate Restaurant Association v. City and County of San Francisco, ERISA preempts San Francisco's Health Care Security Ordinance.  The ordinance requires companies to make health care expenditures on a per hour, per employee basis with expenditure rates determined by the city.  Under the terms of the ordinance, health care fees may be paid into the city's coffers to be used to provide health care to San Francisco's uninsured residents.  NCLC argues that the law's provisions are heavy-handed, providing substantial penalties and the loss of city permits to businesses who fail to comply with the ordinance's burdensome accounting regulations. 

Amicus brief.

NCLC Urges Environmental Appeals Board to Oppose Regulation of Carbon Emissions from Stationary Sources
At the request of the Environmental Appeals Board, on March 21 NCLC provided an amicus brief addressing the question whether the Supreme Court's decision in Massachusetts v. EPA requires that the EPA regulate carbon dioxide emissions from stationary power sources.  In In re Deseret Power Electric Cooperative, the Sierra Club challenges an EPA decision to issue a "PSD" permit that would allow Deseret Power to construct a new coal-fired power plant.  NCLC argues that the Supreme Court's decision addresses only the authority under the Clean Air Act to regulate emissions of carbon dioxide from new motor vehicles.  NCLC also argues that the sweeping expansion of Massachusetts v. EPA urged by Sierra Club would result in an unworkable regulatory regime that would tax the resources of the EPA and of American businesses.

Amicus brief.