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A class of cigarette consumers sued five major cigarette manufacturers for conspiracy to fix prices because, for a period of years, the manufacturers matched each other’s price increases. This parallel behavior is normally not considered to constitute a “conspiracy,” since there is no actual agreement between competitors. However, in this case, the New Mexico Court of Appeals, overturning the dismissal of the case below, ruled that one expert’s testimony that “it is highly unlikely that independent behavior explains the price restructuring and price changes” is enough to submit the case to a jury. Its ruling was premised on the notion that “complex, multi-variable, multi-price-tier parallelism” was involved.

The NAM joined with the Association of Commerce and Industry of New Mexico, as well as the U.S. Chamber of Commerce, in an amicus brief arguing that the lower court’s ruling means that “businesses engaged in legitimate, productive, competitive economic activity in New Mexico will be threatened with crippling antitrust liability.” We urged the New Mexico Supreme Court to rule that its standards for summary judgment should be the same as federal standards, which likely would not allow this case to proceed to trial. In addition, the lower court’s ruling against parallel conduct in a “complex, multi-variable industry” makes it much easier for a plaintiff to bring antitrust claims against businesses in oligopolistic industries – and virtually impossible for businesses to predict the circumstances that will give rise to such liability or to conform their conduct to the law.

On June 25, 2010, the Supreme Court of New Mexico overruled the appeals court and affirmed the district court’s ruling. The ruling held that defendants in a class action should have the opportunity to rebut an inference of collusion by presenting evidence that no reasonable fact finder could conclude that a price-fixing conspiracy existed. With the support of the NAM’s brief, the court found that the pricing strategy was not a conspiracy, and that the plaintiff class failed to produce evidence that the defendants’ conduct was not undertaken independently.

Merchants participating in American Express’s credit card network agree to an arbitration provision that precludes class action arbitration; each dispute must be resolved individually. The Second Circuit ruled that such waivers are invalid because they keep disputes small and less likely to be litigated, thus conferring “de facto immunity from antitrust liability” on American Express. This ruling was appealed to the Supreme Court.

The NAM joined Verizon Communications Inc. in an amicus brief urging the Supreme Court to hear this appeal. We argued that it is a well-established rule that parties are free to waive their constitutional and statutory rights – indeed, arbitration agreements waive the right to proceed in a judicial forum. In limited circumstances waivers are inappropriate, and the lower court considered the effects of class action waivers on antitrust remedies. However, it critically omitted consideration of the negative effects that class actions have on antitrust objectives, including extorted settlements in cases where the legal standards of liability (tying arrangements) are so uncertain.

In addition, we support the important role that class action waivers play in assuring the viability of arbitration as an alternative forum for the resolution of small disputes. Allowing class action arbitration raises costs and diminishes the value of arbitration.

In May, the Supreme Court granted the petition, vacated the ruling, and sent the case back to the Second Circuit to reconsider its decision in light of a recent decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp.

An employment contract provided for arbitration of disputes, including any questions involving the "interpretation, applicability, enforceability or formation" of the agreement. The Ninth Circuit ruled that unconscionability of a contract provision relating to arbitrability is for a court to decide, not an arbitrator.

The Supreme Court 6/21/10 further clarified its general policy upholding the Federal Arbitration Act and enforcing agreements to arbitrate. It found that there are two types of challenges to the validity of an agreement to arbitrate: (1) a challenge to the arbitration clause itself and (2) a challenge to the contract as a whole. Challenges to the arbitration clause are resolved in court; challenges to the entire contract are resolved by an arbitrator, where the contract so provides.

In an antitrust dispute, the parties agreed to arbitration, but did not specify whether the arbitration could include class arbitration. When arbitration is conducted on behalf of a class, the value of the claims is affected by the size of the class, and as a practical matter, the pressure on the defendant to settle is enormous. In this case, the Supreme Court decided that an arbitrator may not impose class arbitration when the parties did not expressly allow it under their agreement. A federal court had rejected class arbitration because it is not customary in the maritime industry, but an appeals court reversed, saying the law in this area is not so clear.

In its decision on April 27, 2010, the Court ruled 5-3 that imposing class arbitration on parties that have not agreed to it is inconsistent with the Federal Arbitration Act. The central purpose of that Act is to ensure that private agreements to arbitrate are enforced according to their terms. If the parties did not agree to arbitrate class action claims, arbitrators may not infer such an agreement solely from the fact that the parties agreed to arbitrate. According to the Court, "The differences between simple bilateral and complex class action arbitration are too great for such a presumption."

New York state law imposes a 2% monthly interest penalty on overdue payments of insurance benefits. In this case, plaintiffs filed a class action lawsuit in federal court based on diversity of citizenship claiming that Allstate failed to pay this penalty on overdue payments. Under the well-known Erie Doctrine, federal courts exercising diversity jurisdiction (as in this case) apply state substantive law and federal procedural law. If the source of the federal procedure is the Federal Rules of Civil Procedure (FRCP), federal rules trump state law if they conflict with one another.

Allstate moved to dismiss, arguing that the federal class action was barred by Section 901(b) of the New York Civil Practice Law and Rules (CPLR), which prohibits a class action for recovery of a New York statutory penalty. The trial court granted Allstate’s motion.

The Second Circuit affirmed after applying the Erie Doctrine. It held that the New York rule is substantive and does not conflict with the federal rule governing class actions. Additionally, allowing this case to proceed as a class action in federal court would circumvent state policy and lead to forum shopping, both of which go against the aims of the Erie Doctrine.

On 3/31/10, the Supreme Court reversed, holding that Federal Rule 23 allows class actions like this. The splintered decision can be expected to generate additional litigation. The ruling provides an incentive to plaintiffs to bring class actions in federal court where state procedures limit such suits.

The NAM, the Chamber and the NFIB joined together in an amicus letter on March 18, 2010, to the California Supreme Court urging that court to review a lower court decision that allowed a group of plaintiffs to be certified as a class for litigation purposes. The case is a breach of warranty claim under California's Unfair Competition Law, involving a piece of dental equipment.

The trial court had decertified the class because there were many individualized questions of damages and reliance, but the appeals court reversed, finding that only the class representatives needed to satisfy these requirements, not the entire class. Our letter brief urged the California Supreme Court to review this decision and provide guidance on what class certification standards apply in Unfair Competition Law cases. We believe that the claims of class representatives must be typical of those of the rest of the class, that trial judges must have the flexibility to revise class certification orders when they are incorrect, and that a product user must prove reliance on a warranty provision before he or she may sue for damages.

Consumer class actions have been steadily increasing in frequency in California for years, and Proposition 64 was intended to rein in some of them. This case offered an opportunity for the California Supreme Court to recognize those limits, and to reduce unjustified burdens on companies that do business in that state. Unfortunately, the court on 4/14/10 declined to review the lower court's ruling.

Jeffrey Skilling, former CEO of Enron Corporation, was prosecuted for, among other things, engaging in a scheme to deceive investors about Enron's true financial performance by manipulating its publicly reported financial results and making false and misleading statements. He was prosecuted for committing "honest services" wire fraud, by depriving Enron and its shareholders of the intangible right of his honest services.

The Supreme Court decided, in order to avoid declaring the statute unconstitutionally vague, to construe the honest services provision to apply only to bribes and kickbacks, which Skilling did not take. It reversed his conviction on that count and sent the case back to the lower court to determine if any of the other convictions for money or property wire fraud or securities fraud would be affected by this narrow interpretation of the statute.

On July 26, 2010, the NAM and six other business organizations filed an amicus brief urging the Nevada Supreme Court to reconsider a decision that took away defense rights in a product liability case. Case law overwhelmingly states that an order striking all defenses to liability dictates the outcome of a case, and due process protections are required. This kind of sanction has been nicknamed the "civil death penalty," since it kills all defenses. Such a sanction, awarded for alleged discovery violations, should only be used as a last resort after lesser sanctions, such as fines or adverse inferences, are tried first, and a court should look carefully at the actual underlying discovery dispute.

Unfortunately, the Nevada Supreme Court refused to rehear the case. It held that Nevada law does not entitle defendants to an evidentiary hearing before their answers are stricken as to liability, and the state does not follow the federal model that provides for progressive sanctions for discovery errors. It also ruled that since eliminating defenses does not end the case -- there are still issues of how much damages are to be awarded -- a full evidentiary hearing is not needed.

A dissenting judge argued that the discovery errors here seemed "fairly minor" -- timely serving interrogatory answers but with the verication to follow later, producing documents without labeling them to correspond to specific discovery requests, and accepting a penalty instead of going through a records authentication deposition during the week between Christmas and New Year's Day. In such a case, the trial court should have required a showing of irremediable prejudice to the plaintiff's case from the discovery errors.

If Nevada can so easily remove constitutional due process protections, manufacturers will face more difficult litigation burdens there that could make it into a magnet litigation jurisdiction.

Toyota settled a personal-injury lawsuit in April of 2007, and the trial court lost jurisdiction over the case by law 30 days after that. Two and a half years later, the plaintiff sought to reopen the case and get monetary sanctions for an alleged violation of a discovery order. The company appealed to the Texas Supreme Court to order that the discovery be halted, since the trial court no longer has jurisdiction over the case.

The NAM filed an amicus brief in support, arguing that the trial court's proceedings disturb the public policy in favor of finality. There is a strong societal and judicial interest in bringing cases to an end. The proceedings also undermine settlement agreements, since every settled case has the possibility that new evidence could come to light, and the parties take that into consideration when they agree to settle. In addition, there are several legal avenues the plaintiff can pursue other than reopening a case that has been settled, without burdening the courts with never-ending challenges to final judgments.

Unfortunately, on Aug. 27, the Texas Supreme Court denied Toyota's request.

The Department of the Interior approved an exploratory oil and gas drilling permit in the Beaufort Sea north of Alaska that was then challenged by various groups. The Department conducts a 4-stage process: (1) preparing a five-year leasing program, (2) selling leases, (3) permitting exploration in the leased regions, and (4) allowing development and production in the leased region. This challenge involved the exploration phase, and came after the Department had prepared a 1,001-page environmental impact statement in the preparation phase, a 4-volume environmental impact statement in the sales phase, and a 109-page environmental assessement of the exploration plan. Finding that the exploration would cause no significant impact on the environment, it approved the plan.

The NAM joined with other business groups in filing an amicus brief urging the federal court not to block the exploratory drilling. In light of the massive investments needed and already made in Outer Continental Shelf (OCS) development, and the shortness of time during the Alaskan summer, it was important that exploratory drilling not be disrupted by this litigation. Congress intended to promote the "swift, orderly and efficient exploration of our almost untapped domestic oil and gas resources in the Outer Continental Shelf," which is predicted to account for more than 40% of domestic oil production and 25% of natural gas production by 2012. Allowing exploratory drilling is an important step in the process of utilizing the OCS to move toward greater energy self-sufficiency, to provide economic stimulation, to improve national security, to maintain a favorable balance of payments in world trade, and to create jobs.

We also argued that an environmental impact statement is not required for an exploration plan, based upon the fact that an EIS was completed at an earlier stage.

On April 7, the NAM filed another amicus brief on the merits, making many of the same points previously made. On May 13, the court ruled that the Minerals Management Service met its obligations to take a "hard look at the consequences of its actions" and to provide a "convincing statement of reasons to explain why a project's impacts are insignificant." The court found that the agency's decision was supported by substantial evidence on the record and that it did not act arbitrarily.

The NAM and other organizations supported an appeal of an adverse decision by the U.S. Court of Appeals for the Fifth Circuit in a global warming public nuisance case. The plaintiffs, Mississippi residents and property owners, alleged that the emissions from more than 150 energy and manufacturing companies increased global warming and contributed to the severity of damages resulting from Hurricane Katrina. Our brief in support of the appeal argued that the plaintiffs' theory of liability would dramatically expand tort law beyond anything ever recognized because of the tenuous link between the alleged conduct and the alleged harm. In addition, this case involves a complex regulatory matter requiring the balancing of economic, environmental and international interests, and is constitutionally the domain of the political branches of government, not the courts.

The trial court had dismissed the case on these grounds, but a three-judge panel of the Fifth Circuit reversed, allowing the case to proceed. The NAM and the defendants wanted all the judges of the Fifth Circuit to review this ruling. That court did agree to review the 3-judge ruling, and arguments were scheduled for May 24, 2010.

On May 10, the NAM filed an additional brief arguing to a larger group of judges that the goal of this lawsuit is less to obtain compensation than to achieve the regulation of greenhouse gas emissions through litigation. We described how plaintiffs have tried to define a "nuisance" broadly to encompass the kind of claims that have largely been rejected by other courts. In addition, these kinds of political questions should be handled as a public policy debate, not as an adversarial proceeding in court.

Subsequently, the court announced that another judge had been recused from the case, destroying the quorum. On May 28, the court dismissed the appeal, and since it had previously vacated the 3-judge panel's ruling, the trial court's decision dismissing the lawsuit stands. This very unusual procedural development means that the appellate ruling that the NAM opposed was nullified without a formal opinion from a majority of the judges. The case was appealed to the Supreme Court, which declined to review it.

The plaintiffs later filed a similar suit, but the district court dismissed it because the claims had already been dismissed in the first case. In addition, the judge found that the parties had no standing to sue, since they cannot show a sufficient connection between the defendants' emissions and the plaintiffs' property damage. The court also found the claims non-justiciable political questions that have no "judicially discoverable and manageable standards for resolving" them, and because these policy determinations are entrusted to the EPA.

New York City adopted a very strict electronic waste collection law that mandates manufacturers of computers, monitors, televisions, laptops, portable digital music players and other equipment to set up door-to-door collection programs and collect a prescribed amount of discarded products every year, or pay a stiff fine. The law also imposed retroactive liability for products already sold, and requires manufacturers to pick up products made by other manufacturers. Only manufacturers are held liable; distributors, retailers, consumers, and the City of New York are not responsible for sharing in the cost of this waste collection program.

The Consumer Electronics Association and the Information Technology Industry Council sued the city, and the NAM put together a coalition of business groups to file an amicus brief in support of a motion for a preliminary injunction against the law. Our brief warned that the proliferation of state and local laws such as New York City's E-Waste law would impose a severe burden on manufacturers in violation of the Commerce Clause of the Constitution, in part because it would shift costs that should properly be borne by the city's own residents and taxpayers to out-of-state manufacturers. The law could disrupt and discourage voluntary industry efforts, and penalizes companies that have no control over consumer decisions regarding the disposal of their products.

In many ways New York's law is much different from other local and state laws, and the NAM is concerned that many products other than consumer electronic products are being targeted for similar treatment. This is a long-term issue that will be addressed in a variety of ways, and the NAM will be active in helping to develop reasonable solutions.

Late in May, New York State passed a new electronics recycling law that preempts all local regulations like New York City's. On June 28, 2010, the court approved a settlement agreement dismissing the litigation. The parties agreed to work together to develop an accessible system to collect used electronics in New York City.

When EPA determines that an environmental cleanup is required at a contaminated site, it has three options: (1) conduct the cleanup itself and file suit to recover the costs, (2) get a court order, or (3) issue a Unilateral Administrative Order (UAO) compelling a potentially responsible party to undertake a specified action. This case involves the constitutionality of UAOs, which are issued without any right to a hearing prior to their issuance.

The NAM filed an amicus brief supporting GE in this case, arguing that such orders constitute immediate and substantial deprivations of property without any opportunity for a pre-deprivation hearing before a neutral decision-maker. The lower court improperly found that the cost to EPA of providing a hearing to be substantial (if all UAOs are challenged), but the court did not consider the cumulative effect of UAOs on business in the balance. We also questioned the court's ruling that constitutional rights are less where the company has not shown that EPA's administrative procedure result in an unacceptable rate of error. We argued that no case requires a company to show that an agency has erred on the merits of a case in order to establish a due process violation. Furthermore, many potential defendants do not have substantial resources to reallocate from job creation, product development or other productive uses in order to vindicate their constitutional rights.

On June 29, 2010, the court affirmed the lower court's ruling, finding that manufacturers have the option of refusing to comply with a UAO, thus forcing the EPA to go to court to enforce the order. It also did not feel that the losses experienced by a company subjected to potentially improper UAOs (stock declines, loss of brand value or increasing costs of financing) were enough to constitute violations of due process.

Specifically, it ruled that a company that refuses to comply with a UAO has several safeguards under the law: a court must find (1) that the UAO was proper, (2) that the company "willfully" failed to comply "without sufficient cause," and (3) that, in the court's discretion, fines and treble damages are appropriate. The company has protections if it reasonably believes the UAO is improper.

On March 31 and April 9, 2010, the EPA issued permits for exploratory oil and gas drilling operations in the Chukchi and Beaufort Seas north of Alaska. Various environmental groups challenged the permits before EPA's Environmental Appeals Board, arguing that carbon dioxide that will be emitted during the exploration is currently subject to regulation, despite EPA's conclusion that greenhouse gases will not be subject to regulation until January 2, 2011, when the motor vehicle rule takes effect.

The NAM, American Petroleum Institute and Independent Petroleum Association of America filed an amicus brief 6/25/2010 arguing that challenges to EPA's regulatory decisions regarding whether to regulate greenhouse gases should be directed to those notice-and-comment rulemakings, not raised in the context of permit decisions. The challengers should either petition EPA for reconsideration of its "subject to regulation" ruling, or go to court to litigate over that regulation. The Environmental Appeals Board does not have the legal authority to review EPA regulations, but may only determine a challenged permit's compliance with the Clean Air Act and applicable regulations.

In December, 2010, the Appeals Board invalidated the permits and sent them back to the EPA, which granted them in September, 2011.

Genetically engineered crops are subject to approval by the Animal and Plant Inspection Service of the U.S. Department of Agriculture, which must prepare an Environmental Assessment to be approved for commercial use. Environmental groups brought suit under the National Environmental Policy Act (NEPA) arguing that the assessment was inadequate, and the trial court issued a permanent injunction against the use of the genetically engineered product (alfalfa) until a more extensive environmental impact statement could be prepared.

The Supreme Court decided that environmental plaintiffs are required to show irreparable harm to obtain the injunction. A permissive ruling would have made it much easier for environmental plaintiffs to stop the sale of certain products that are subject to government approval.

A federal judge imposed strict emissions controls on TVA power plants in Tennessee and Alabama based on a finding that the plants created a "public nuisance" in North Carolina under state law. The controls went far beyond state and federal emissions controls.

On August 18, 2009, the NAM and other business groups supported TVA's appeal of this ruling to the Fourth Circuit, arguing that the state claims are preempted by the comprehensive interstate air pollution control scheme of the Clean Air Act, and that virtually any source of emissions in the country could be subjected to arbitrary case-by-case claims that they contribute to a public nuisance. The EPA established several major programs that already address interstate pollution, including the Clean Air Interstate Rule, the Nitrogen Oxide Budget Trading Program, the acid rain rules, the regional haze rules and the rules requiring permits for emissions. The lawsuit also amounts to a collateral attack on the national ambient air quality standards for particulate matter and ozone.

This litigation is similar to that brought by various states against 5 major electric utilities and recently decided by the Second Circuit. See Connecticut v. American Electric Power. Such litigation is a dangerous threat because it not only interferes with the uniform regulation of emissions but it also expands the law of public nuisance in a way that could be used against many other industries.

On July 26, 2010, the Fourth Circuit overturned the district court, ruling that Congress is the policymaking branch of government responsible for setting national standards, and that public nuisance law does not encompass an activity expressly permitted and extensively regulated by both federal and state government. It also ruled that one state is not able to apply its home state law to activities occurring in another state.

The court's opinion highlights the chief problem created by this kind of litigation: "To replace duly promulgated ambient air quality standards with standards whose content must await the uncertain twists and turns of litigation will leave whole states and industries at sea and potentially expose them to a welter of conflicting court orders across the country." In addition, it ruled that, "An activity that is explicitly licensed and allowed by Tennessee law cannot be a public nuisance." This decision is an important milestone in our fight against the use of expansive and unwarranted legal theories by trial lawyers against manufacturers.

Please refer to the summary of the Alaska Eskimo Whaling Comm'n v. Salazar case.

In 2009, the NAM, the Chamber of Commerce and the Business Roundtable asked the Supreme Court to overturn a Second Circuit decision that interfered with administrative decisions by those who run company pension plans. The case on appeal involved how a Xerox Corp. administrator should account for lump-sum retirement payments made to employees who retired, but who later returned to work for the company. The trial court refused to allow the administrator to take into account the time value of the previous distribution.

We argued, and on 4/21/2010 the Supreme Court agreed, that this kind of decision, which involves an interpretation of benefit plan language, should be made the way courts normally make benefit decisions -- by deferring to the judgment of the plan administrator. The Second Circuit’s ruling drew an improper distinction between a formal benefits determination and decisions that relate to the plan but that are not actual claims. The Supreme Court held that courts should normally not interfere with reasonable interpretations by plan administrators, even if those administrators have made occasional mistakes in the past.

The Court's ruling is an important principle that will help manufacturers that want to offer retirement and other benefits to employees. Our brief argued that acceptance of the lower court's unorthodox test would call into question a variety of decisions routinely made by benefit plan administrators, such as (1) how to invest plan assets, (2) setting minimum annual funding levels, (3) deciding whether to seek subrogation and reimbursement from plan participants, (4) selecting an insurance underwriter for the plan and (5) determining when valuations and contributions of employer stock must be made.

ERISA class actions lead all other forms of workplace litigation, yet one of the primary objectives of enactment of the law was to encourage employee-benefits plans. The Supreme Court's 5-3 decision in this case returns certainty and predictability, and helps to minimize litigation expenses, administrative costs, and exposure to unanticipated benefits obligations.

Effective January 1, 2008, San Francisco enacted an ordinance that requires private employers with twenty or more employees to make minimum health-care expenditures on behalf of their employees, such as paying employees’ health insurance premiums and contributing to their health savings accounts. The Golden Gate Restaurant Association challenged the ordinance in federal court on the basis that the employer mandates are preempted by the Employee Retirement Income Security Act (ERISA). The federal district court granted an injunction, holding that San Francisco’s ordinance is preempted because it has an impermissible connection with employee benefit plans and its expenditure requirements make unlawful reference to employee benefit plans.

The Ninth Circuit granted a stay, allowing the city to enforce its ordinance while the issue was on appeal. The NAM filed an amicus brief arguing that the minimum health-care spending requirement conflicts with long-settled federal law that governs employee benefits, but the Ninth Circuit reversed. See our summary here.

The case was appealed to the Supreme Court, and the NAM supported the appeal on 7/7/09 with an amicus brief. We argued that (1) the ordinance required an employer to establish or maintain an employee welfare benefit plan within the meaning of ERISA and is therefore preempted, (2) the Ninth Circuit's decision directly conflicted with the Fourth Circuit's ruling in a similar Maryland health payments case and the conflict should be resolved, and (3) resolving this issue was particularly urgent in light of the impending comprehensive health care reform that was being debated in Congress.

The Court declined to hear this appeal on June 28, 2010. It is expected that there will be additional litigation over similar state and local health care mandates in the future, and that the Supreme Court will address the conflict in the circuits sooner or later.

In a suit against an employer under ERISA, a plaintiff may seek an award of attorneys' fees if she is a prevailing party, and the Fourth Circuit ruled that a plaintiff must receive "at least some relief on the merits" of a claim to be a prevailing party. In this case, a woman claimed disability benefits for carpal-tunnel syndrome, but was denied. She filed a complaint, and the court, while not providing a benefits award or an enforceable judgment, found that the denial was not based on substantial evidence, and ordered the insurance company to reconsider the claim. It did, and eventually paid the benefits.

The Supreme Court decided 5/24/10 that the statute does not require a party to be a prevailing party to be entitled to attorneys' fees. This statute is different from others in that it allows a court to award fees to either party in its discretion. This discretion is guided by the Court's ruling that the party must have obtained "some degree of success on the merits." The plaintiff did so in this case and was awarded attorneys' fees. The case is significant for manufacturers, who pay for ERISA benefits, because awards of attorneys' fees increase the cost of providing benefits.

The NAM and the Washington Legal Foundation filed an amicus brief on 3/22/10 urging the Supreme Court to hear an appeal of an adverse ruling against Philip Morris under the Racketeer Influenced and Corrupt Organizations Act (RICO) for speech relating to the sale of "light" cigarettes. The Government used federal fraud statutes to target the speech of industry members made during decades-long public debates over the health and safety of smoking. It did so without any showing that the speaker had fraudulent intent or that the speech was material to consumers, and the appeals court failed to independently review the trial court's finding, eliminating a key safeguard for First Amendment protections.

The NAM and WLF brief highlighted the importance of First Amendment speech protections for the particular modes of speech principally at issue in this case -- newspaper articles, op-eds, congressional testimony, press releases, and television appearances. Speech in these forums about the health and safety effects of cigarettes are matters of public concern, and all parties with a viewpoint should be equally protected by the First Amendment, even if those parties have an economic motive.

Appellate court review is an important safeguard against an unwarranted holding that the challenged speech merits no constitutional protection. The Supreme Court agreed to review this issue in 2003 in the Nike case, but never did. Unfortunately, on 6/28/10, it declined to hear this appeal as well.

A galvanized deck screw manufacturer sued a law firm that had placed a newspaper advertisement telling the public that they "may have certain legal rights and be entitled to monetary compensation, and repair or replacement of your deck" if they used the company's screws. The law firm defended, claiming that California's law against lawsuits that restrict free speech applies here. At issue is whether an exemption in the law applies.

The NAM and the California Manufacturers & Technology Association filed an amicus letter urging California Supreme Court review of a lower court ruling that rejected the lawsuit. We urged clarification of the law regarding the kinds of advertising that lawyers may publish. We warned that the permissibility of lawyer advertising in recent years has led to more ads and a greater challenge in policing them. Our letter cited a recent study showing that many on-line sites about medical information appear legitimate but are actually lawyers posing as medical experts. Many routine searches produced results that are "dominated by Web sites paid for and sponsored by either class action law firms or legal marketing sites searching for plaintiff referrals."

We also argued that the advertisements at issue contain facts about the services being provided by the law firm, and consequently fall within an express exemption that would allow the manufacturer's suit. In addition, the ad provides information that serves to begin the process of delivering the lawyer's services, also an exemption that would allow the suit.

The NAM has been a long-time champion of free commercial speech and has opposed various efforts by the government to restrict it. In this case, however, we ask that the commercial speech of one person (a law firm) be responsible and fair in the context of calling into question the qualities of the goods or services of manufacturers or other companies, particularly when the speech proposes a commercial relationship that is designed to be in conflict with other existing commercial relationships.

The California Supreme Court on 7/30/08 agreed to hear this appeal, but ultimately rejected our argument. It found that the attorney ads were about the screws, not about a competitor of the law firm as required by the statutory language. In addition, the firm's promise to investigate was deemed not a statement of fact that might allow the suit, but a statement of what it will do if the reader responds to the ad. It thus appears that the California statute protects law firms that want to increase their business by making controversial statements about a business, like a manufacturer, that is not one of their competitors.

On January 21, 2010, the Supreme Court overturned part of the Bipartisan Campaign Reform Act of 2002 (BCRA), better known as “McCain-Feingold.” The provision in question prohibits the use of general corporate funds, including those of nonprofit issue advocacy groups, to pay for an “electioneering communication” within 60 days before a general election or 30 days before a primary election. The case arose when a conservative advocacy group wanted to distribute “Hillary: The Movie,” a film critical of Senator Hillary Clinton, and run ads for it, within the restricted time periods in 2008.

A lower court had said that the movie was an “electioneering communication” with the aim of urging viewers to vote against Senator Clinton. The panel also required that ads for the film include disclosures, such as the following: “Citizens United is responsible for the content of this advertising.”

The Supreme Court ruled 5 to 4 that the law improperly prohibits the use of corporate funds for independent expenditures in political campaigns. The Supreme Court made clear that corporations may advocate the election or defeat of political candidates, overruling prior case law and portions of BCRA. Four Justices dissented. The ruling allows companies and labor unions to make independent expenditures freely in support of or in opposition to candidates, and is not limited to federal elections.

The majority rejected various arguments trying to distinguish this communication from the prohibitions of BCRA. Instead, it considered the validity of the statute on its face under the First Amendment. The law acts as the functional equivalent of a prior restraint on speech, since those who want to avoid criminal liability and defense costs must ask a government agency for permission to speak about candidates.

The Court overruled Austin, which had limited corporate independent expenditures for campaigns. The Act imposes an outright ban on speech, backed by criminal sanctions, and the government may not impose restrictions on certain disfavored speakers like corporations, which are protected by the First Amendment. First Amendment protections do not depend on the speaker’s financial ability to engage in public discussion. All speakers use money amassed from the economic marketplace to fund their speech. In addition, independent expenditures by corporations do not give rise to corruption or the appearance of corruption, and increased influence over or access to politicians does not mean those politicians are corrupt. “No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.”

Eight Justices upheld Sections 201 and 311, which impose disclaimer and disclosure requirements. Citizens United offered no evidence that its members face the type of threats, harassment or reprisals that might make the disclosure provision unconstitutional.

Justice Stevens’ dissent, joined by three others, warned that this decision would do damage to the Court and threatens to undermine the integrity of elected institutions across the Nation. He argued that there are other avenues left open for corporations to be involved in elections, such as through PACs, and that this law is just a source restriction or a time, place, and manner restriction.

Goods shipped from China are regulated by the Carriage of Goods by Sea Act (COGSA) for the ocean leg of the shipment, and by the Carmack Amendment to the Interstate Commerce Act for the inland leg. In this case, one bill of lading was used for both legs, and an accident occurred on the inland leg, damaging the cargo.

The Supreme Court ruled 6/21/10 that the stricter requirements of the Carmack Amendment do not apply to the inland portion of a shipment originating overseas under a single through bill of lading. The Carmack Amendment imposes stricter venue requirements (where suit may be brought) and a more burdensome standard of liability (strict liability as opposed to negligence). In this case, the parties agreed that the entire shipment from China to its ultimate inland destination here would be governed by Japanese law and must be brought in Tokyo District Court. The Supreme Court upheld that contractual arrangement.

Federal law allows certain claims under state law to be heard in federal court if the claims involve plaintiffs and defendants that are citizens of different states. Having a case heard in federal court is often beneficial to out-of-state corporations who may not enjoy a fair hearing in certain state courts. This case involves how to define the state of citizenship of a corporation.

On February 23, 2010, the Supreme Court ruled that a corporation's principal place of business means the place where the corporation's high level officers direct, control, and coordinate the corporation's activities, i.e., its "nerve center," which will typically be found at its corporate headquarters. This conclusion may be difficult to apply in a few cases, but it will avoid overly complicated jurisdictional questions in most cases and will make for a more uniform legal system.

On Aug. 20, 2010, the NAM and the California Manufacturers and Technology Association filed an amicus letter urging the California Supreme Court to review a state appellate decision that subjects manufacturers to treble damages liability for inadvertent violations of a state statute that prescribes various formalities for contracts with sales representatives. The Independent Wholesale Sales Representative Act, Cal. Civ. Code Sec. 1738.13, requires, among other things, that contracts specify the rate and method by which commissions are computed, the precise geographical area covered, and that sales representatives sign a written receipt acknowledging that he or she has received a copy of the contract. "Willful" violations are subject to treble damages, but the statute does not specify the level of damages that are available for non-willful violations. In this case, a California appellate court ruled that this legislative oversight would be corrected by allowing suits for single damages where a party does not act willfully, but it also adopted a loose standard of willfulness that could make most suits by sales representatives subject to treble damages.

Our amicus letter urged the California Supreme Court to review this decision. The lower court's ruling threatens to "open the floodgates of litigation against manufacturers doing business in California who inadvertently run afoul of the Act . . . No matter how innocuous the violation." In addition, by lowering the threshold for recovery of treble damages, the opinion "creates a trap for unwary manufacturers who do not know about technical requirements of the Act." The result is bad for manufacturers doing business in California.

The California court declined to review this appeal.

How broad is the EEOC's administrative subpoena authority? That agency urged the courts to allow it to seek information from companies and third party testing firms that goes far beyond the bounds of an individual complaint. The EEOC wants to search for systemic discrimination by employers or the third parties they hire to do personality tests or other tests prior to employment. However, the courts are not all so expansive.

The defendant in this case, Kronos, won before a federal judge. The EEOC appealed to the Third Circuit. The NAM and others filed an amicus brief arguing that the EEOC’s tactics in this case exceed its statutory authority. Pursuing unbridled fishing expeditions in search of a big system case diverts valuable resources from investigating actual, live charges. The statute granting the EEOC investigatory powers is limited to investigations relating to the specific charge that an individual files.

Also on appeal was a district court order protecting the confidentiality of personality test information disclosed to the lawyers during discovery. We argued that validated employment tests are important hiring tools whose integrity could be compromised by even a minor breach of confidentiality.

On Sept. 7, 2010, the Third Circuit reversed in part, allowing the EEOC authority to expand an investigation of a single complaint into a broader investigation involving hiring practices in general and other job positions. It allowed a broadening of the time period to be examined and allowed the EEOC to look at the effect of the company's use of an employment assessment in hiring nationwide. According to the Third Circuit, the EEOC's power to investigate "encompasses not only the factual allegations contained in the charge, but also any information that is relevant to the charge." The court also ruled that while the EEOC may expand its investigation to include various legal theories of disability discrimination, it may not expand its investigation to seek out racial discrimination that is wholly unrelated to the original charge. Only "reasonable" expansion of the investigation is allowed.

The court sent the confidentiality issue back to the trial court for further explanation.

After Granite Rock reached an agreement with the union representing one of its facilities, and the workers ratified the agreement, the union sought an additional contract provision that would absolve the international union of any liability for damages arising from its activities at other Granite Rock facilities. The company refused to make the additional concession, and the union went on strike. When Granite Rock sued for breach of the no-strike clause, two issues wound up on appeal to the Supreme Court.

The first involved whether a court or an arbitrator should decide whether there was in fact a valid contract. The NAM filed an amicus brief May 1, 2009, urging the Supreme Court to hear the appeal and apply existing law that federal courts have the authority to determine the existence of a collective bargaining agreement. In its ruling on June 24, 2010, the Court agreed. Whether a collective barganing agreement has been created is an issue to be decided by a court, not an arbitrator, according to the 7-2 majority.

Also at issue in the case was whether there is any remedy under Section 301 of the Labor Management Relations Act against the international union for allegedly interfering in the contractual obligations of the local. The NAM supported review of the Ninth Circuit decision, which said the international union was immune from suit even if it compelled its affiliated union to refuse to honor its previous commitment to Granite Rock. We argued that many unionized employers will face the prospect of internationally sanctioned strikes that violate local bargaining agreements but that cannot be remedied. It is very common for international unions to retain control over the bargaining process even though they do not sign the final agreement, and the Ninth Circuit's narrow interpretation conflicted with other federal court rulings and ignored the realities of the relationship between local unions and their international controllers. On this issue, the Supreme Court ruled unanimously that the Ninth Circuit did not err in rejecting Granite Rocks' request for a remedy under Section 301, but 7 Justices left the door open to such a claim if further proceedings in this case fail to provide relief under a different statute. It is possible that the Court could recognize a claim under Section 301 if no other remedies are available.

Before an employee may file a suit against an employer for discrimination, the employee must file a charge with the EEOC "within 300 days after the unlawful employment practice occurred." This case, brought under Title VII of the Civil Rights Act, involved whether the 300-day period begins when the employer announced the results of a discriminatory hiring test, or whether it begins again each time the employer makes a hiring decision based on the results of the test. On 5/24/10, the Court ruled unanimously that the employment practice that allegedly was discriminatory was the selection of firefighter hires on the basis of an old test. Thus, each new decision based on old test results constitutes a new employment practice that starts the 300-day time limit for filing suit.

This outcome could substantially lengthen the time during which employers are exposed to liability from tests or other employment practices that are nondiscriminatory of their face but that may have a discriminatory impact.

The National Labor Relations Board had only 2 members beginning on December 31, 2007, even though 5 were authorized and the Board allows 2 members to decide cases when a quorum of 3 exists. The Seventh Circuit upheld a decision by the 2-member board, but the D.C. Circuit, on the same day, ruled that the Board must have at least 3 sitting members. Several hundred decisions by the 2-member Board were affected. This dilemma was caused when President Bush's recess appointments were blocked by Senate Democrats.

On 5/24/10, the Supreme Court ruled 5 to 4 that the National Labor Relations Act requires that there be at least 3 members on the Board in order to exercise the delegated authority of the Board. Section 3(b) requires delegation to at least 3 members. Their membership must be maintained for this delegation to continue to be valid. Since the decision, the NLRB has been revisiting many of the decisions that were thrown into doubt.

The NAM is a member of the Human Resource Initiative for a Legal Workforce, which filed an amicus brief on 10/23/08 in the 10th Circuit in a case involving an Oklahoma law that requires every business that has a contract or subcontract with a public employer to use the federal Status Verification System to verify the employment authorization status of all new employees. The law also makes it illegal to fire a U.S. citizen or permanent resident alien while retaining in a similar job an employee who is an illegal alien. Employers using the federal system are exempt from liability, investigation or suit under this section; those who do not are at risk of litigation.

The problem is that Oklahoma is one of a growing number of states and municipalities that have passed or are considering such laws, but their enforcement schemes are different, making it increasingly difficult for an employer doing business in multiple states to navigate the conflicting requirements. The laws impose a wide variety of inconsistent verification requirements, squarely conflicting with the intent of Congress to create a nationally uniform and comprehensive federal system for regulating the employment of alien workers.

Our amicus brief enumerated the serious flaws that exist with the federal verification system, specifically the experimental Basic Pilot Program known as E-Verify. Studies have pointed out the errors in the system, including 17.8 million records that contain discrepancies related to name, date of birth or citizenship status. The GAO reported that the government is not equipped to manage a significant expansion of E-Verify users. Employers have complained of multiple problems and delays, prompting Illinois to prohibit employers from using it. Participation in the program is burdensome and costly.

On 2/2/2010, the court ruled that the lawsuit was likely to succeed on the merits regarding Sections 7(C) and 9 and that the trial court properly issued an injunction against enforcement of the law. The court also found that Section 7(B) of the law is not impliedly preempted by federal law. Section 7(C) prohibits discharging an employee who is a U.S. citizen while still employing employees who are unauthorized aliens, and Section 9 requires verification of employment authorization.. Section 7(B) applies to state government contractors.

On December 12, 2008, OSHA published a rule that adopted or amended 34 workplace standards and permitted OSHA to obtain multiple penalties against an employer for providing incorrect personal protective equipment (PPE), no PPE, or incorrect training to employees. The new principle adopted in the rule is that the penalty is to be assessed for each employee, rather than based on the single decision or failure by the employer to use the proper training or PPE for all employees or a group of employees. The rule applies even when the violation is minor, not willful, and causes no harm or injury to employees. A $7,000 penalty for a “serious” violation, for example, could now become a $700,000 penalty if 100 employees are potentially affected, and OSHA could expand the per-employee penalty rule to other cases, not just PPE or training cases.

The NAM, the National Association of Home Builders, and the U.S. Chamber of Commerce joined together in a lawsuit challenging this rule in the D.C. Circuit. We opposed the rule because we believed that Congress did not give OSHA the power to address penalty issues in its standards. Whether “per employee” penalties may be assessed is a question committed solely to the Occupational Safety and Health Review Commission, which may impose penalties on a “per employee” basis when they are warranted on the facts of a specific case. The suit did not challenge OSHA's requirements for training each employee or equipping each with personal protective equipment.

Our briefs argued that Congress did not delegate authority to OSHA to word a standard to change or affect a unit of violation; rather, Congress committed this authority to the OSH Review Commission and the courts.

On April 16, 2010, the D.C. Circuit upheld OSHA's rules. It found that OSHA "stands in the shoes of the legislature" and can both define what constitutes a violation and define the unit of prosecution, or how many times a company can be fined for a single decision that affects many employees.

The decision will result in substantially greater fines and settlement leverage against companies that are alleged to have violated OSHA rules. Although OSHA's Field Operations Manual tells inspectors to issue multiple citations only when the employer's behavior is willful and egregious, the decision gives great discretion to the agency to change its practice in the future.

This case involves the patentability of business processes. The U.S. Court of Appeals for the Federal Circuit adopted a standard that makes it harder for business processes to be patented. It decided that only methods that are "tied to a specific machine or apparatus" or transform "a particular article into a different state or thing" qualify for a patent. Previously, the standard did not require the use of a particular machine as one alternative, and the U.S. Patent and Trademark Office has been much more restrictive in approving patents. The case attracted nearly 40 amicus briefs in the Federal Circuit, and the Supreme Court's decision will have an important effect not only on business process patents, but potentially on computer software and financial instruments as well.

On 6/28/10, the Court affirmed the Federal Circuit Court. It did not, however, agree that a patent-eligible process must be tied to a machine or the transformation of an article. It found that the machine-or-transformation test is not the sole test for patent eligibility, and business methods might be used to secure a "process" patent. Nevertheless, it rejected the attempt to patent both the concept of hedging risk and the application of that concept to energy markets, since they are nonpatentable abstract ideas.

The NAM joined with the Coalition for Public Nuisance Fairness, the American Chemistry Council, and the Property Casualty Insurers Association of America in an amicus brief challenging the power of various cities and counties in California to hire trial lawyers on a contingent-fee basis to sue private industry for public nuisance. The issue arose when the cities and counties filed suit alleging that a group of companies created a public nuisance by selling lead pigments used in house paint decades ago. The companies filed a motion to bar the state from paying its counsel using a contingent fee arrangement, and the trial court agreed. The court of appeal reversed, claiming that because the cities and counties exercised "final authority over all aspects of the Litigation," the private attorneys were "merely assisting government attorneys in the litigation of a public nuisance abatement action and [were] explicitly serving in a subordinate role, in which private counsel lack any decision-making authority or control . . . ."

This ruling was appealed to the California Supreme Court. The NAM and other groups supported the appeal with an amicus letter. We opposed allowing private attorneys with a profit motive to prosecute cases using the police power of the state. Our amicus letter argued that the ruling brings confusion to an area that had previously been clear, and it invalidates legislative and judicial requirements that government attorneys be neutral and unaffected by financial motivations. The lower court ruling converted a firm ethical rule designed to maintain a belief by the people that our system is just and impartial into a "flexible" guideline that can be abused in the name of safeguarding the "right" of public entities to select counsel of their choice. In other contexts, government officials are not allowed to participate in activities that indirectly affect their own financial interests, and the government should not be allowed to transfer even a percentage of financial interest to outside counsel working on a contingent fee basis. In addition, it will be very difficult to detect abuse by outside counsel, meaning that the public must resort to "trust," a dangerously vague ethical limitation that will shake public faith in our judicial system.

The court agreed to hear the appeal, and the NAM and the other amici argued in a brief on the merits that the private interests of contingent-fee counsel conflict with the public interest. Government attorneys owe a duty of neutrality to the public, and allowing them the potential to earn huge profits "creates a powerful incentive for private attorneys wielding the power of government to make decisions based on their own pecuniary interests, rather than the interest of justice." The combination of temptations raised by extraordinary potential rewards with extraordinary power raise obvious appearances of impropriety.

In addition, the California legislature has already addressed lead poisoning, and the legislature is likely to strike a fairer and more effective balance between competing interests because it considers all pertinent issues in their entirety, rather than in the truncated form presented by litigants in court.

On July 26, 2010, the court unanimously ruled that local governments may use contingency fee lawyers as long as the ultimate authority for the litigation remained with the governments. Using a balancing of interests test, it found that neither a liberty interest (such as in a criminal case) nor the right of an existing business to continued operation is threatened by the government's litigation, so contingent fees may be allowed, as long as the lawyers act under a "heightened standard of neutrality." It ruled that "retention of private counsel on a contingent-fee basis is permissible in such cases if neutral, conflict-free government attorneys retain the power to control and supervise the litigation." It imposed protections such as: (1) only government attorneys may settle a case, (2) defendants may contact the government attorneys directly without having to confer with contingent-fee counsel, (3) government attorneys retain a veto power over any decisions made by outside counsel, and (4) a government attorney with supervisory authority must be personally involved in overseeing the litigation.

Even though the court sent the case back for further scrutiny of the contingent-fee arrangements at issue, it will be difficult for defendants to determine whether government lawyers are in fact exercising proper control over contingent-fee lawyers. Communications between such lawyers are subject to attorney-client confidentiality protections.

The use by state and local authorities of contingent-fee private lawyers has been gaining national attention with recent high-profile cases like the lead paint litigation in Rhode Island, which ended in 2008 with a state Supreme Court ruling throwing out the entire public nuisance theory of liability in that context. Although the private lawyers claimed that this litigation would be cost-free to the state, the defendants were ultimately awarded $242,000 in costs.

The NAM and other business and legal reform groups filed an amicus brief supporting the efforts by CSX Transportation, Inc. to counter the litigation industry for generating fraudulent asbestos lawsuits. The brief backed the railroad’s appeal of a judge's dismissal of its fraud and conspiracy complaint filed against a law firm and a radiologist who screened test results for evidence of asbestos-related diseases. The suit alleged that the defendants conspired to fake asbestos screenings in order to win cash settlements from the company.

Our amicus brief provided a history of rampant, coordinated asbestos fraud in arguing that CSX’s suit should be allowed to proceed. We argued that the entrepreneurial model developed by plaintiff's lawyers to pursue asbestos claims provides powerful incentives for fraud, and when suits are filed in so-called "magic jurisdictions" that favor plaintiffs, companies have very little option but to settle. Individuals with legitimate claims may be harmed most, as resources are depleted by a disproportionate amount of settlement dollars going to claimants with no discernible asbestos-related physical impairment whatsoever. It is important that courts step in to police the potential for fraud in these kinds of cases.

Fortunately, on 12/30/2010, the Fourth Circuit overturned the lower court's ruling and reinstated the CSX law suit. It found that the statute of limitations on the lawsuit did not begin running until the lawsuit alleged to be fraudulent was actually found to be meritless. It also ruled that there was sufficient evidence that a jury can find that the law firm fraudulently manufactured the claims.

The NAM joined with the Louisiana Association of Business and Industry in an amicus brief urging the Louisiana Supreme Court to overturn a lower court’s refusal to dismiss a 15-year-old product liability lawsuit. The suit claims that the manufacturer’s contraceptive, Norplant, was defectively designed. However, the Louisiana Products Liability Act (“LPLA”) requires that the plaintiff prove that an alternative design for the product was available at the time of sale to prevent the alleged harm. The alternative design created by the plaintiffs’ expert did not come into existence until many years after the product was sold.

The LPLA was enacted in 1988 to discourage fringe litigation, link a manufacturer’s liability to its actual fault, produce consistent and predictable results, and conserve the resources of both the courts and the litigants. Rules on summary judgment direct that a claim must be dismissed if a plaintiff is unable to produce factual support for any essential element of that claim. Without a showing that a practical alternative product design was in existence at the time, this case should have been dismissed.

The trial court expressed policy misgivings about the law and determined that the word “existed” was ambiguous, and that it could be read to include a claim if the scientific knowledge or technology for an alternative design was available at the time of sale. Our brief argued that this kind of policy decision should be made by legislatures, and in any case, the court’s conflation of “design” with the “science and technology out of which a design might flow” was not straightforward, offended the ordinary use of ordinary words, read “design” out of the law altogether, ignores the plain use of “design” in related contexts, and introduced absurdity where there was none before.

On Nov. 19, 2010, the Louisiana Supreme Court declined to review this appeal.

A man shot outside a convenience store sued the store claiming it did not provide enough security. A judge reduced the subsequent jury verdict to $1 million for noneconomic damages (pain and suffering) in accordance with a recent Mississippi law limiting such damages to a maximum of $1 million. The constitutionality of that limit is on appeal in this case.

The NAM and many other business organizations filed an amicus brief arguing in favor of the cap. We explored the evolution and the skyrocketing rise of pain and suffering awards in the 1990's, particularly in Mississippi, and cited statistics showing that such awards total more than half of all tort damages. We also showed the positive results to the state's economy when noneconomic damages were capped by the legislature. The law carries a presumption of constitutionality, and the courts should not act as a "super legislature" to second-guess the tort policy decisions of the state's elected representatives.

On Sept. 23, 2010, the court avoided the issue of the constitutionality of the statutory cap, instead ruling that the plaintiff failed to prove that any negligent omission by the store caused the injury.

The NAM joined with 6 other organizations urging a California appeals court to affirm a lower court ruling that refused to hold a manufacturer liable for failing to disclose the hazards that arose from products made, sold or installed by another manufacturer. Under common law, manufacturers are only liable for hazards in their own products. We opposed the creation of a new duty to warn about hazards a manufacturer does not produce or put in its products. The third-party liability concept that plaintiffs sought to impose here is so extreme that almost no plaintiff during the 30-plus years of asbestos litigation has dared even raise it until recently. Such a duty would require bread or jam manufacturers to warn of the foreseeable risk of peanut allergies in peanut butter and jelly sandwiches.

Consumer safety could also be undermined by the potential for over-warning (the "Boy Who Cried Wolf" problem) and through conflicting information that may be provided by manufacturers of different components and by makers of finished products. The duty to warn should be placed on the party in the best position to know the risk, and any economic loss should be borne by the party who caused it.

On February 16, 2010, the California court affirmed the lower court ruling and rejected a new duty to warn in these circumstances.

On March 9, 2010, the NAM and nine other business groups filed an amicus brief urging the 3rd Circuit to reject a claim that a manufacturer should pay for medical monitoring of a plaintiff that has no proven physical injury from the use of the manufacturer’s product. The U.S. Supreme Court and a majority of state supreme courts over the last decade have rejected such claims. We argued that Delaware courts have repeatedly affirmed the need for a physical injury in tort cases, and radical changes in public policy should be made by the legislature, not the courts.

This case involves an implanted medical device (stent) that did not have FDA pre-market approval. Even if special considerations were to apply in this case, the plaintiff still would not satisfy them because there has been no exposure to a proven hazardous substance.

On August 24, the Third Circuit ruled that trial court erred in extending Delaware law "beyond the bounds of the recognized medical monitoring claim in which a plaintiff alleges long-term exposure to a proven toxic substance with known tendencies to produce serious future medical injuries." In this case, the implanted stent was not a toxic or hazardous substance, and there was no risk of "contracting a serious latent disease." Because the Delaware Supreme Court has not recognized any variant of a standard medical monitoring claim, the Third Circuit declined to agree to the plaintiff's version.

May states hire private attorneys under contingent fee agreements? On August 28, 2009, the NAM filed an amicus brief in the Pennsylvania Supreme Court arguing that private lawyers that sue a manufacturer under a contingent fee contract with the state government have financial motivations that prevent them from acting in the interests of justice on behalf of the people of the state. It is improper to give government-hired attorneys the potential to earn huge profits while wielding the power of government.

Such arrangements are gaining increasing attention and controversy because the retained lawyers often contribute to political campaigns of the officials who hire them.

On 8/17/2010, the court ruled that defendant did not have standing under Pennsylvania law to challenge the authority of the state's legal representation. It therefore did not address the substantive issue regarding the propriety of a state using private contingent-fee lawyers in court.

The NAM joined with seven other organizations in an amicus brief on 8/2/07 supporting Texas’ tort reform statute that limits the total asbestos liability of successor companies to the total gross asset value of the predecessor company at the time of the merger or consolidation (adjusted for inflation). Passed in 2003 by the state legislature in Texas, which has historically been a magnet for asbestos cases from around the country, this statute was meant to lessen the devastating effects of asbestos litigation on innocent successor companies which, according to a report published by RAND in 2005, shoulder the burden for over half of asbestos expenditures.

As the successor to a bottle cap manufacturer that had a side business involving asbestos insulation, Crown Cork & Seal has been named in numerous asbestos-related lawsuits and has spent nearly $600 million in asbestos-related costs, despite the fact that Crown itself never manufactured, sold, or installed any products containing asbestos.

We believe the statute is a valid exercise of the legislature’s power to protect the public welfare and should not be overridden by courts, who should defer to the reasonable public policy judgments of the legislature.

The Texas Supreme Court ruled 10/22/2010 that the statute unconstitutionally limited liability retroactively when applied to pending lawsuits. It found that there is a presumption against retroactive legislation, to protect settled expectations and prevent the abuse of legislative power. The court accepts retroactive legislation by considering 3 factors: "the nature and strength of the public interest served by the statute as evidenced by the Legislature's factual findings; the nature of the prior right impaired by the statute; and the extent of the impairment." Using these criteria on the facts of this case, the court found the statute unconstitutional.

On Jan. 18, 2010, the NAM filed an amicus brief in a California appellate court arguing that manufacturers should not have a new legal duty to warn customers about the risks that might arise from products made by other manufacturers that are used in conjunction with their products. The plaintiffs tried to make a manufacturer liable for asbestos products like insulation and gaskets that were added to the manufacturer's valves. Our brief showed how such a duty is inconsistent with California law and with most courts around the country, and how creating this new duty raises serious public policy questions that should be considered in the context of the overall asbestos litigation environment. The new rule of liability would be unsound public policy, because economic loss should be borne by the party that caused it, and because the manufacturer of the product that produced the risk is in the best position to warn about that risk. The proposed rule would fuel claims against defendants and make asbestos litigation even worse than it already is, particularly in California which is a magnet for asbestos plaintiffs.

On April 22, 2010, the California court agreed. It overturned a $5.6 million jury award, ruling that a manufacturer does not have a duty to warn about products made by other manufacturers, and there was no evidence the defendant provided the asbestos materials that caused the injury. In addition, a manufacturer of a component part has no duty to inspect the parts of other manufacturers that may be incorporated into an integrated product, since the manufacturer has no control over those other parts.

The NAM and the International Association of Defense Counsel filed an amicus brief 9/28/10 urging the Supreme Court to review an Oklahoma state court decision that imposed a $53 million punitive damage award on top of an award of $750,000 in a breach of contract dispute. The punitive damages portion is far greater than the Court has found acceptable in other rulings that compare the ratio of the punitive damages to the actual damages in the case, along with other factors, such as the reprehensibility of the conduct at issue. The lower court added pre-judgment interest (at a special 12% compounded rate over a period from 1973 through 1985) to the actual contract damages, thus making the final punitive damages ratio (4 to 1) smaller and easier to affirm on appeal than a ratio based on the actual contract damages award (70 to 1).

Our brief urged the Supreme Court to review how courts are adding extra amounts to actual damages to inflate compensatory damages, and consequently punitive damages derived from them. Different state courts categorize different types of damages as “compensatory,” leading to wide variations and unpredictability. This unconstitutionally skews the punitive damages ratio, depending on the state rather than the extent of the injury to the plaintiff. We urged the Court to adopt a rule that encourages settlements by giving all sides consistent case valuation parameters, thus conserving judicial resources while preserving legislative flexibility. Examples of controversial claims that are sometimes counted as compensatory damages include emotional distress with a partially punitive aspect, lost profits and attorneys’ fees. State legislatures can cause further mischief by enacting language changes, such as removing the word “penalty” from an interest statute, that lead to excessive punitive damage awards. Uncertainty in this area leads to substantial problems when manufactures and their insurers cannot reasonably estimate exposure limits. We urged the Court to provide guidance that focuses on the actual harm inflicted on a plaintiff when calculating any punitive damages that might also be awarded.

Unfortunately, the Court declined to hear the appeal on 12/13/2010.

The plaintiff moved to California, was diagnosed with mesothelioma, and sued over asbestos exposure that allegedly occurred about 50 years before in Oklahoma. A California court held that California's statute of limitations should govern the suit, rather than Oklahoma's 10-year statute of repose for improvements to real property.

The NAM supported this appeal with an amicus brief arguing that the ruling disregards Oklahoma's interest in drawing a balance between consumers who suffer an injury, the need for all consumers to have access to affordable goods and services, the need for businesses to operate under fair and predictable liability law rules, and the state's interest in stimulating investment and economic growth. The trial court's ruling undercuts the predictability and certainty of laws that companies rely on when making business decisions, including how to price their products and how much insurance to buy. It encourages out-of-state plaintiffs to continue to flock to California courts to file asbestos and other types of hazardous material exposure cases long after most states would prohibit them.

Fortunately, on February 18, 2010, the California Supreme Court reversed. It ruled that Oklahoma law should apply, since that state's interest in having its statute of repose applied outweighed California's interest. Weighing in the balance in favor of the manufacturer was the court's view that a state law limiting liability for commercial activity conducted within the state in order to provide fair treatment and incentives for business enterprises, applies equally to both in-state and out-of-state companies that conduct business in the state. This is a favorable ruling that will help prevent forum shopping by claimants whose claims have long since been extinguished under state law.

In order to claim "fraud, deceipt, manipulation or contrivance" under federal securities law, a plaintiff must bring the suit "not later than the earlier of . . . 2 years after the discovery of the facts constituting the violation[] or . . . 5 years after such violation." Some courts start the 2-year statute-of-limitations clock when the plaintiff receives sufficient notice of those facts, some require that the facts show the defendant acted with sufficient intent, and others allow additional time for a plaintiff to conduct an investigation. The Third Circuit ruled in this case that Merck shareholders alleging misrepresentations could sue the company more than 2 years after FDA issued a warning letter on one of the company's drugs.

On April 27, 2010, the Supreme Court clarified how much evidence of misrepresentation is enough to start the clock on the statute of limitations. It ruled unanimously that the statute of limitations period begins to run once the plaintiff "actually discovered or a reasonably diligent plaintiff would have 'discover[ed] the facts constituting the violation' -- whichever comes first." The results of a study about Vioxx, an FDA warning letter, and various lawsuits being filed may be useful in identifying a time when a reasonably diligent plaintiff might begin investigation, but the plaintiff would still need to discover the fact that the defendant had the requisite "scienter," or "mental state embracing intent to deceive, manipulate, or defraud." Because neither the FDA warning nor subsequent litigation revealed facts indicating that the defendant acted with scienter concerning Vioxx, the statute of limitations did not begin to run, and the plaintiff's law suit was filed in a timely manner.

As a result, it will be more difficult for companies to have securities fraud cases under Section 10(b) of the Securities Exchange Act of 1934 dismissed on statute-of-limitations grounds.

In 2003 and 2004, New York City sued several online cigarette retailers for failing to pay city taxes on cigarettes that were shipped to city residents. The city had been unsuccessful in getting the online cigarette retailers to turn over information about their customers to state officials for tax-collection purposes, and thus based its claim on an alleged violation of federal racketeering law, better known as RICO.

Defendants asserted that the city did not have standing to invoke RICO, arguing that New York City’s loss of tax revenue was not an injury that was incurred as a party to a commercial transaction.

After a district judge dismissed the city’s RICO complaint, the Second Circuit reversed, holding that lost taxes are property under the mail and wire fraud statutes and therefore meet the RICO standing requirement.

On January 25, 2010, the Supreme Court reversed, with 4 Justices holding that the connection between the alleged fraud by the defendant and the injury to the city was too remote. There must be a proximate cause between fraud and injury. Justice Ginsburg supplied the fifth vote to reverse the lower court, but found that the city could not compel the defendant, a New Mexico corporation, to collect city taxes, and could not broaden the remedies available to it under the relevant statute.

Manufacturers are very concerned about this effort by state and local jurisdictions to skirt constitutional limits on the extraterritorial reach of their laws. If New York can have asserted jurisdiction over a company that has no physical presence in the city, and then claim a RICO violation for failure to collect sales taxes, along with treble damages, this case could have revolutionized tax enforcement around the country. It is another example of efforts by states to greatly expand the traditional requirement that it may only exercise jurisdiction over persons or companies with a physical presence, or nexus, in the state.

Natural gas suppliers sued Ohio, claiming its tax system benefits local gas distributors unfairly, interfering with interstate commerce and violating the Equal Protection Clause of the Constitution. The Sixth Circuit ruled that the Tax Injunction Act (TIA), a federal law designed to keep federal courts out of many of these kinds of cases, does not prevent a federal court from deciding this one, nor does the principle of "comity," which encourages federal courts to defer to state courts. Several other federal appeals court agreed with this interpretation of the TIA, but one did not.

On June 1, 2010, the Supreme Court ruled that the comity doctrine applies and this case must proceed in state court. The Court ruled that both the comity doctrine and the Tax Injunction Act operate to constrain federal courts from interfering in the states' ability to impose taxes to fund their governments' operations. Even where a state tax law discriminates, the Court said that it generally defers to state courts to fashion a remedy that provides for equal treatment. State courts are in a better position to know what their state legislative preferences are, and the state enjoys wide regulatory latitude when it comes to commercial matters. Manufacturers prefer to go to federal court when challenging a state's laws, but discriminatory tax laws will be particularly difficult to challenge in federal court after this ruling.

The Ninth Circuit Court ruled that a taxpayer who is engaged in a cost-sharing agreement with a related person must share all costs related to the agreement, including stock option costs, even where unrelated parties would not do so. This decision fundamentally weakens the "arm's length standard" of section 482 of the Internal Revenue Code - which serves as a core principle of international transfer pricing agreements.

On Aug. 21, 2009, the NAM joined 15 other organizations in an amicus brief urging a larger complement of the Ninth Circuit to reconsider the 2-1 decision by three of its judges. We argued that for more than 75 years, Congress, the courts and the IRS consistently have mandated the application of the arm's length standard for transactions governed by Section 482 of the Code. This is designed to prevent the manipulation of profits between related entities. It is very important that one internationally accepted objective measure be used to evaluate related-party transactions to prevent double taxation.

The judges vacated their original ruling, and on March 22, 2010, ruled as we had suggested. They affirmed the trial court's ruling, holding that the relevant statute should be construed to give parity between taxpayers in uncontrolled transactions and those in controlled transactions. In addition, the "arm's length" standard was part of the US-Ireland tax treaty obligations that applied to the transaction in question, and our treaty negotiators thought that this standard should apply in such cases.