NCLC Business Alert

May 14, 2008

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In This Edition

NCLC To Host Fourth Annual End-of-Term Supreme Court Media Briefing
On June 24, 2008, NCLC will host its Fourth Annual End-of-Term Supreme Court Media Briefing.  The event will review the high court's decisions on business cases from the completed October 2007 Term. Supreme Court practitioners Walter Dellinger, partner and Chair of the Appellate Practice at O'Melveny & Myers LLP, and Miguel A. Estrada, partner and Co-Chair of the Appellate and Constitutional Law Practice Group at Gibson, Dunn & Crutcher LLP, will brief members of the media on the Court's decisions and their impact on the business community.

Committee Member Update
NCLC is pleased to announce that Dennis Wilson, Assistant Secretary, Assistant General Counsel and Chief Litigation Counsel for Rohm and Haas Company, has joined NCLC's Constitutional and Administrative Law Advisory Committee.  Rohm and Haas is a global specialty materials and salt company headquartered in Philadelphia.  A member of the Law Department's leadership team, Mr. Wilson manages the company's global litigation portfolio and conducts internal investigations into alleged code of conduct and corporate policies violations.  Mr. Wilson began his career as a trial lawyer for the law firm of Dechert, where he specialized in antitrust, securities, toxic and mass tort and employment law litigation.  Before joining Rohm and Haas, Mr. Wilson served as Managing Senior Counsel for Mobil Oil Corporation.  He holds a B.A. degree in biology from the University of Pennsylvania, and received his J.D. degree from the Georgetown University Law Center.

NCLC's Conrad and Sarwal to Participate in Conference on Federal Preemption
On June 17, 2008, NCLC Executive Vice President, Robin Conrad, and General Litigation Counsel, Amar Sarwal, will participate in a conference hosted by the law firm McKenna Long & Aldridge LLP.  The conference will focus on the hotly debated subject of States' rights and federal preemption of state and local law.   The one-day program will bring together policy, legal, and government affairs experts to address the many sides of the federal vs. state debate. Registration is offered free of charge.  For more information and to register, click here.

Recent Decisions

Supreme Court Lacks Quorum to Hear Alien Tort Statue Claim
On May 12, 2008, the Supreme Court announced that, as a result of the recusal of four of the Justices, the Court lacked a quorum and could neither grant nor deny review of American Isuzu Motors, Inc., et al. v. Ntsebeza, et al.  The Supreme Court affirmed the result of the Second Circuit.  NCLC had urged the Supreme Court to grant review of the Second Circuit's erroneous decision to permit plaintiffs to hold liable—via the Alien Tort Statute—dozens of leading American and foreign companies for aiding and abetting South African apartheid.  During the 1980s, the political branches of the United States government settled on a policy of constructive engagement with South Africa in the hopes of spurring on political change.  This lawsuit contravenes that policy and further undermines the South African government's own efforts at reconciliation.  Underscoring the lack of clarity for American business engaged in foreign trade, NCLC made clear that whether the Alien Tort Statute provides for aiding and abetting liability is vitally important to the American business community and therefore deserves immediate review.

Court Declines to Review Federal Removal Case
On May 12, 2008, the Supreme Court declined to review Centerior Energy Corp., et al. v. Mikulski, which would have considered whether a state court case arising out of allegations that the defendant improperly prepared a Form 1099 can be properly removed to federal court. The Sixth Circuit concluded that the question of whether the Form 1099 was improperly prepared—while raising federal issues—was not substantial and therefore rejected the availability of federal jurisdiction.  In its brief, NCLC argued that the Sixth Circuit misread Supreme Court precedent to the detriment of federal taxpayers, who deserve the uniform application of federal law that federal jurisdiction promises.

Rhode Island Adopts Doctrine of Forum Non Conveniens in Asbestos Cases
On May 9, 2008, the Rhode Island Supreme Court joined virtually every other jurisdiction in adopting the doctrine of forum non conveniens. NCLC had filed an amicus brief in Kedy v. A.W. Chesterton Co., et al., describing the history of the doctrine and its virtually uniform acceptance. In this case, Canadian plaintiffs who suffered their injuries in Canada have taken advantage of Rhode Island's apparent lack of such a doctrine to avoid litigating the issue in their home forum.

New York Rejects Heightened Pleading Requirements for Fraud Liability Claims Against Corporate Officers
The Court of Appeals of the State of New York disagreed with NCLC on May 6, 2008, finding that the complaint seeking to hold an individual corporate officer liable for the allegedly fraudulent activity of a corporate employee satisfied the pleading requirements. In Pludeman, et al. v. Northern Leasing Systems, Inc., et al., NCLC pointed to well-established precedent and argued that a claimant must allege and prove that the officer or manager was personally involved in the fraudulent act, or (at a minimum) actually knew of it and approved it, if the officer or manager is to be held personally liable for harm flowing from the employee's allegedly wrongful act.

Oregon Rejects Medical Monitoring Causes of Action
On May 1, 2008, the Oregon Supreme Court agreed with NCLC and followed the United States Supreme Court and many of Oregon's sister jurisdictions in rejecting medical monitoring causes of action under federal and state laws respectively. In Lowe v. Philip Morris USA Inc., et al., NCLC argued that creation of such a cause of action was better suited to the legislature and that, in any event, traditional tort law principles undermine the creation of a medical monitoring cause of action absent a physical injury.

Washington Court Grants Review of Class Certification Decision
The Washington Supreme Court granted review, on May 1, 2008, to review a lower court's erroneous decision to certify a class under Washington's Consumer Protection Act ("CPA").  NCLC argued in Schnall, et al. v. AT&T Wireless Services, Inc. that the lower court (1) incorrectly held that plaintiffs were not required to prove that each class member relied on the defendant's alleged misstatements about the Universal Connectivity Charge listed on subscribers' monthly statements and (2) affirmed an erroneous decision by the trial court that applied Washington's CPA to the deceptive advertising claims of subscribers, nationwide, even though the vast majority of subscribers received the allegedly deceptive representations in their home states and had virtually no contacts with Washington.

Class Action Certification Remanded to District Court in California Wage and Hour Case
On April 25, 2008, the Ninth Circuit disagreed with NCLC that the trial judge properly denied certification of a wage and hour class action involving a proposed class of Wal-Mart assistant managers who claimed they were denied overtime pay.  In Sepulveda v. Wal-Mart Stores, Inc., the Ninth Circuit remanded the case to the district court to reconsider the certification question. In its brief, NCLC argued that class certification under the federal rules of civil procedure is appropriate only if the predominant form of relief sought by the class is injunctive or declaratory.  Here, the highly individualized proof that would be required to make out the assistant managers' claims for monetary relief establishes that those claims predominate over their claims for injunctive relief.  Moreover, the relief sought by the managers was predominately monetary since more than half of the putative class members were no longer employed at Wal-Mart, and thus could not benefit from injunctive relief from the court.

Kentucky Requires Remands of Punitive Damages Awards to Consider the Need For, and Amount of, Punitive Damages
On April 24, 2008, the Kentucky Supreme Court agreed with NCLC that when an appellate court concludes that a punitive damages award is unconstitutionally excessive, it must remand for trial on both the need for, and amount of, punitive damages.  In Sandoz Pharmaceuticals Corp. v. Gunderson, the appellate court properly determined that plaintiffs could not seek punitive damages for defendant's conduct directed at third parties not before the court.  However, the appellate court remanded the case for determination of the proper amount of punitive damages instead of permitting the jury to revisit the issue of punitive damages liability in the first place.  In its brief, NCLC argued that the remand jury also must reconsider the question of punitive damages liability.  Otherwise the same constitutional issues which plagued the initial jury's punitive damages verdict may be left undisturbed.

California Holds That Agreement to Do Business With Each Other Does Not Create a Fiduciary Duty for Companies
The California Supreme Court agreed with NCLC on April 24, 2008, setting aside $200 million in punitive damages awarded as part of a claim for breach of fiduciary duty.  The Court set aside the award because an agreement to develop, patent, and commercially exploit a secret scientific discovery in exchange for the payment of royalties does not make the assignee a fiduciary of the assigner. In its brief for City of Hope v. Genentech, Inc., NCLC argued that turning businesses into fiduciaries for each other does not comport with modern understandings of contract law and imposing such a rule would impede technological development.  The California Supreme Court reversed the punitive damages award resting on the breach of a supposed fiduciary duty arising from a contract to commercialize intellectual property.

Alabama Declines Review of Case Surrounding Consolidation of Dissimilar Litigation and Risks of Jury Confusion
On April 18, 2008, the Alabama Supreme Court declined to review a trial court's erroneous consolidation of the state's separate actions against three drug manufacturers.  Employing a novel theory of liability and seeking punitive damages, these actions concern decisions involving hundreds of drugs over a fifteen year period.  In its brief for In re Alabama Medicaid Pharmaceuticals Average Wholesale Price Litigation, NCLC argued that, by joining these cases together, the trial court set a dangerously low standard for consolidation that threatens defendants' rights to a fair trial and presents significant risks of jury confusion.

Improper Class Certification
On April 14, 2008, the Ninth Circuit withdrew Ellis, et al. v. Costco Wholesale Corp. after NCLC urged the court to vacate a district court's order certifying a class of 700 women alleging gender discrimination in promotion and management practices by Costco.  In its brief, NCLC argued that the lower court's willingness to certify broad, unmanageable class actions under Rule 23(b)(2) with no regard for Costco's right to present rebuttal testimony would force defendants to settle massive class actions regardless of their merit, and encourage the adoption of quotas that undermine the goals of Title VII.

Review Granted in Case on Cost-Benefit Analysis and the Clean Water Act
The Supreme Court granted review on April 14, 2008 to consider whether the Clean Water Act bars the use of cost-benefit analysis by the EPA in the context of cooling water intake structures.  In PSEG Fossil LLC, et al.  v. Riverkeeper, Inc., et al. and Utility Water Act Group v. Riverkeeper, Inc., et al., NCLC's brief made clear that precluding cost-benefit analysis and restoration measures would have significant adverse effects beyond the utility industry.

New Filings

NCLC Files Brief in Supreme Court Case on Enforceability of Arbitration Clauses in Collective Bargaining Agreements
In 14 Penn Plaza v. Pyett, NCLC urged the U.S. Supreme Court to hold that a collective bargaining agreement's arbitration clause purporting to waive the union members' right to a judicial forum for statutory discrimination claims is enforceable. NCLC argued in its May 12, 2008 brief that the Second Circuit erred in concluding that the Supreme Court's decision in Alexander v. Gardner-Denver requires a per se rule barring enforcement of such arbitration provisions. Although NCLC agrees that substantive rights may not be waived in predispute arbitration agreements, the Court has made clear that the procedural right to a judicial forum may be exchanged for access to arbitration. Moreover, the lower court failed to recognize that the Court's jurisprudence under the Federal Arbitration Act supports a presumption of arbitrability. NCLC argued that the enforceability of judicial forum waivers is important to encourage unions and employers to support the efficiencies made available through arbitration agreements.

Amicus brief.

"Business Nexus" Element of Foreign Corrupt Practices Act

The Supreme Court should review a Fifth Circuit decision expanding the scope of criminal liability under the Foreign Corrupt Practices Act (FCPA), according to an NCLC amicus brief filed May 12, 2008. In Kay & Murphy v. United States, the Fifth Circuit upheld the criminal convictions of two corporate officers who allegedly paid bribes to Haitian officials in order to reduce taxes and duties. NCLC argued that the Fifth Circuit's decision criminalizes activity not covered by the plain language of the FCPA, which applies only to payments to foreign officials for the purpose of "obtaining or retaining business." The Fifth Circuit's ambiguous and broad interpretation of the FCPA, if upheld, will greatly increase the investigative and compliance burdens U.S. companies face.

Amicus brief.

NCLC Urges Clarification of "Substantial Factor" Requirement, "Consumer Expectation" Test in Asbestos Litigation
In Norris v. Crane Co., NCLC urged the California Supreme Court to clarify that de minimis or incidental exposure to asbestos does not satisfy the legal causation requirement that asbestos exposure be a "substantial factor" in bringing about particular injury. Urging the Court to grant review of the case, NCLC argued that some lower courts were interpreting "substantial factor" in a manner that imposed liability based on flimsy causation testimony. NCLC also urged the Court to reject the "consumer expectations" test, a flawed test used by a minority of jurisdictions to determine whether a product design is defective. NCLC also stressed in its May 9, 2008 brief that clearer guidance from the Court on asbestos litigation is required, given the dramatic impact asbestos litigation has had on the California economy, thus far forcing at least eighty-five employers into bankruptcy.

Amicus brief.

Use of Non-class Representative Suits to Bypass Class Action Rules Challenged by NCLC
On May 1, 2008, NCLC urged the California Supreme Court to affirm the lower court holding that Proposition 64 eliminates the possibility of non-class representative class actions, and to reverse the Court of Appeal's ruling that plaintiffs may pursue non-class representative actions under the Labor Code Private Attorney General Act. In Arias v. Superior Court of the State of California, County of San Joaquin (aka Arias v. Angelo Dairy, et. al.), an employee attempted to bypass the class certification requirements by seeking to pursue non-representative claims for labor code violations (such as overtime compensation and meal and rest break violations) on behalf of other employees. NCLC argued in its brief that non-class representative suits are far more unjust than class actions, which also may create injustices. If the plaintiff succeeds, employers could be subject to the same litigation threats that class actions cause but without any of the procedural safeguards provided by class action law.

Amicus brief.

NCLC Seeks Review of Scope of Remand in Punitive Damages Cases
NCLC urged the U.S. Supreme Court on April 23, 2008 to review a lower court decision regarding a case that the Supreme Court had remanded with instructions to "apply the appropriate constitutional standard" for the determination of punitive damages.  NCLC argued in Philip Morris v. Williams (II) that the lower Oregon court disregarded the Supreme Court's decision in Philip Morris v. Williams (I), which remanded the case after holding that Oregon unconstitutionally permitted punitive damages to be based on harm to nonparties. Instead of applying the appropriate constitutional standard, the state court applied an "independent state law standard" to affirm the decision of the trial judge. 

Amicus brief.

NCLC Supports Reversal of Decision on L-1B Visas for Personnel with "Specialized Knowledge"
On April 21, 2008, NCLC urged the U.S. Department of Homeland Security Administrative Appeals Office to reverse a prior ruling by the California Service Center (CSC) that erroneously limited the scope of individuals with "specialized knowledge" who would qualify for L-1B visas.  In In re: L-1B Immigration Litigation, the CSC denied a petition seeking an L-1B visa petition for a foreign information technology professional to work at an IBM subsidiary in the U.S.  NCLC argued that in rejecting the petition, the agency departed from long-standing guidelines for determining whether a foreign national has specialized knowledge, and ignored the language and history of the Immigration and Nationality Act.  The agency's narrow ruling, if allowed to stand, would limit the ability of multinational corporations to transfer specialized information technology professionals.

NCLC Urges Court to Adopt Balancing Approach Articulated in Malcolm v. National Gypsum in Determining Consolidation of Asbestos Cases
On April 11, 2008, NCLC urged the California Court of Appeal to adopt the balancing approach articulated in the Second Circuit case Malcolm v. National Gypsum to determine whether to consolidate asbestos cases for trial. In its brief for Foster-Wheeler v. Superior Court, NCLC argued that efficiency interests should not override a defendant's right to a fair trial. Trial consolidation, NCLC argued, "can be abusive of individual rights." Moreover, the consolidation of asbestos trials does not result in lasting efficiency gains, but rather increases the demand for new cases to be filed and places more pressure on defendants to settle, regardless of the merits of the claims. 

Amicus brief.

NCLC Urges Court to Review NLRB Decision on Worker Classification
In FedEx Home Delivery v. National Labor Relations Board, NCLC urged the U.S. Court of Appeals for the D.C. Circuit to reject a decision by the National Labor Relations Board that ordered FedEx to recognize and bargain with the Teamsters union, based on an NLRB decision that the truckers in question should be classified as employees, not independent contractors.  NCLC argued in its March 31, 2008 brief that, because the use of independent contractors in the trucking industry is mutually beneficial to trucking companies and to independent contractors, the opportunity for entrepreneurial gain by the truckers justifies the classification decision by FedEx. In this case, the independent truckers supplied or owned their own trucks, controlled the details of their contracted service work, and worked for profit rather than wages. Moreover, NCLC argued that work performance restrictions that are based on customer demands or on regulatory requirements are not indicative of an employment relationship. The NLRB worker classification decision, if upheld, threatens to undermine the ability of businesses to utilize mutually advantageous independent contractor agreements.

Amicus brief.