Numerous pending cases could significantly impact New England companies

Viability of arbitration

NELF’s participation in Hall Street Associates, L.L.C. v. Mattel, Inc., pending before the U.S. Supreme Court, reflects its support of arbitration as a viable mechanism for the resolution of business and employment disputes.
At issue in Hall Street is whether parties can, by the terms of arbitration agreements, obtain more expansive judicial review of arbitral decisions than the limited review for flaws in the arbitral process under Section 10(a) of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA).
The federal circuit courts are split on whether Section 10(a) is an exclusive list of bases for review, or whether it’s a minimum default standard that parties are free to supplement.
In arguing for the latter interpretation, NELF marshaled Supreme Court precedent and reviewed Congress’s intent in passing the FAA. NELF also pointed out that, where it is deemed to be exclusive, the FAA’s narrow standard for judicial review leaves businesses vulnerable to irrational and excessive arbitral awards that cannot be reviewed on the merits.
Recent studies demonstrate that many businesses are now avoiding arbitration, and the lack of judicial review on the merits is a significant motivating factor. The outcome in Hall Street may well affect whether businesses wish to arbitrate at all and, if they do, what terms they will include in their arbitration agreements regarding judicial review.

Massachusetts class actions

NELF has long opposed inappropriate consumer class actions under the Massachusetts Consumer Protection Act, G. L. c. 93A (Chapter 93A). NELF submitted an amicus brief in Hershenow v. Enterprise Rent-A-Car Co., 445 Mass. 790 (2006), in which the Massachusetts Supreme Judicial Court confirmed that plaintiffs must allege and prove actual injury to recover under Chapter 93A. While that was an important and welcome development, confusion evidently remains as to what constitutes injury sufficient for individual suits and class actions under the statute.
Two Massachusetts class actions on NELF’s current docket, Iannachino v. Ford Motor Co. pending before the SJC and Kwaak v. Pfizer Inc. pending before the Massachusetts Appeals Court, raise this issue.
In Iannachino, the plaintiffs complain of allegedly defective door handles on their Ford vehicles, but concede that to date none of the handles has malfunctioned. Kwaak is based on an alleged misrepresentation that Listerine mouthwash “is as effective as flossing,” but again the plaintiffs fail to allege any actual harm (such as cessation of previous flossing practices with resulting injury to teeth or gums) caused by that representation.
In both cases, NELF has filed amicus briefs arguing that the purchase and use of an allegedly misrepresented product are not sufficient to establish injury under Chapter 93A. The product must also fail to perform properly during use.
In another class action on appeal before the Massachusetts Appeals Court, McGonagle v. The Home Depot U.S.A., Inc., NELF is opposing expansion of consumer protection liability to violations of statutes unrelated to consumer protection. The case involves a retailer’s alleged overcharge of sales tax in violation of the state tax code.
At issue is 940 C.M.R. § 3.16(3), a regulation of the Massachusetts Attorney General providing that any violation of a state statute “meant for the protection of the public’s health, safety or welfare” and “intended to provide the consumers of this Commonwealth protection” constitutes an unfair or deceptive practice under Chapter 93A exposing the alleged violator to potential liability for multiple damages and attorney’s fees.
Taken to its logical conclusion, the argument of the plaintiff class would extend the scope of the regulation and the scope of Chapter 93A to violations of virtually any state statute. NELF’s amicus brief in the case argues that the regulation is limited, both by its express terms and by the scope of its enabling legislation, to violation of state statutes that, unlike the revenue-generating tax code, are enacted for the protection of consumers.
Pending before the SJC is Moelis v. Berkshire Life Insurance Co., in which NELF has addressed issues of first impression regarding the standards for nationwide class certification and statewide consumer class certification. NELF’s brief argues that jurisdictions such as Massachusetts that have no opt-out procedure for non-resident plaintiff class members are constitutionally precluded from certifying a class containing non-residents, since non-resident plaintiffs have no other way of indicating whether they consent to the court’s jurisdiction.
NELF also argues that, even if the lack of an opt-out is not fatal, Massachusetts courts are still precluded from entertaining nationwide class actions where, as in this case, there is no basis under Massachusetts law to exercise long-arm jurisdiction over non-resident class members.
And even a class limited to Massachusetts residents cannot be certified under Chapter 93A where individual issues are presented as to whether class members suffered any injury.

Protecting trade secrets

Paramount for any business, regardless of whether it deals with consumers, is the ability to protect its confidential information. In Brown & Brown, Inc. v. Richard Blumenthal, on appeal before the Connecticut Supreme Court, NELF opposes the Connecticut Attorney General’s view that he is free to disclose a business’s trade secrets and other confidential business information to competitors as part of a state antitrust investigation.
Section 35-42 of the Connecticut General Statutes authorizes the Connecticut AG to subpoena documents from “any person” (including, as in this case, non-party witnesses) when he has “reason to believe” that an antitrust violation has occurred. However, the statute also provides that the subpoenaed documents “shall not be available to the public.”
Attorney General Blumenthal asserts that this language does not limit his discretion to disclose such subpoenaed information to third parties (including competitors) in the course of conducting investigative depositions and witness interviews.
NELF argues in Brown & Brown that the Connecticut statute bars disclosure of subpoenaed documents to anyone outside the Attorney General’s office. The issue is especially important because it is not clear that protective orders are available during the Attorney General’s investigations.

Public nuisance

The Rhode Island Supreme Court is considering an appeal of a jury verdict that, under a vastly expanded public nuisance theory, would require lead pigment manufacturers to abate alleged lead paint hazards in many Rhode Island buildings based on product sales that were legal when they occurred decades ago.
To accomplish this result, the trial court necessarily rejected numerous established limitations on common law public nuisance liability. There was, for instance, no proof linking any defendant manufacturer’s pigment to the lead paint in any specific Rhode Island building allegedly requiring abatement.
And, of course, it is the building owners, not manufacturers, who sold lead pigment decades ago, and who have the ability to maintain lead paint on building surfaces so as to prevent the risk of exposure.
This fact is recognized by Rhode Island’s comprehensive statutory scheme for lead paint abatement, which places that responsibility squarely on the shoulders of property owners.
NELF argued in its amicus brief filed in the case that legislatures are in the best position to deal with society-wide concerns like lead paint, and that expanding public nuisance law in this way is against public policy.
There is simply no deterrent value to imposing unforeseeable, no-fault liability on parties who lawfully sold products decades earlier.
While a decision by the Rhode Island Supreme Court upholding the trial court’s approach would place Rhode Island well outside the mainstream, it would nonetheless provide precedent potentially attractive to other state Attorneys General and judiciaries. It would certainly provide precedent attractive to the plaintiffs’ mass tort bar that would not be limited in application to companies involved with lead paint.

Jo Ann Shotwell Kaplan is general counsel of the New England Legal Foundation. NELF is a non-profit foundation sustained by tax-deductible contributions from businesses, law firms, and individuals that support NELF’s mission of advocating the interests of business through amicus briefs in appellate litigation and promoting public discourse on legal issues of concern to business.