The Center News: September 2017

NAM Impact
Legal Perspectives
By Linda Kelly, SVP, General Counsel and Corporate Secretary

According to an analysis released on September 19 by the group Truth in Accounting, 41 states currently face budget deficits.  Not surprising, then, is a trend we have observed in which states are becoming increasingly creative and aggressive in their efforts to extract taxes and fees from manufacturers, sometimes sidestepping procedural and legal requirements.  

This was the case with a law recently struck down by the Oklahoma Supreme Court.  Naifeh v. Oklahoma, described in more detail below, challenged a tax on cigarettes that was part of a revenue-raising package passed on the last day of the legislative session.   Characterizing the tax as a regulatory fee, the legislature bypassed state constitutional requirements that require tax increases to be passed by a 3/4 supermajority and prohibit passage of tax increases in the last five days of the legislative session.  The MCLA supported this outcome with an amicus brief, which was heavily quoted in an editorial in the main capital newspaper.

A similar approach was taken by the California legislature in their passage of their state cap-and-trade program regulating greenhouse gas emissions.  The state imposed the emissions fees without the required 2/3 supermajority in the legislature required to impose a new tax, arguing that the fees were regulatory in nature, but resulting in a program that collected $289 million in its first calendar quarter in operation, far beyond the $62 million required to implement the program.  A legal challenge supported by the MCLA had less success in this case, and the California Supreme Court recently declined to review a state court of appeals decision finding that the fees are not taxes because they are not compulsory, and purchasers receive something of value in return.

Two additional cases that have come to our attention involve the authority of states to impose taxes on items in interstate commerce.  In BNSF v. California State Board of Equalization, two railroads are opposing California’s imposition of hazardous materials fees which the carriers must collect from their customers and turn over to the state.  The companies argue that the fees are preempted by federal law and are an unconstitutional interference with interstate commerce.  In a similar state effort to tax interstate commerce, Harris County Texas has imposed a tax on natural gas temporarily stored in its jurisdiction during interstate shipment through an interstate pipeline network.  In ETC Marketing, Ltd. v. Harris County Appraisal District, the Texas Supreme Court upheld the tax despite the argument that the locality is constitutionally prohibited from taxing items in interstate commerce.  There will be more to come on both of these cases soon.

The MCLA team will continue to push back against legally questionable efforts to close budget gaps on the backs of manufacturers.  If you hear of similar cases, we would love to hear from you.

MCLA in the Courts

Court allows New York to veto Constitution Pipeline: On August 18, the 2nd Circuit upheld a New York State Department of Environmental Conservation decision that denied a permit for construction of the Constitution Pipeline through part of the state. It ruled that state authorities can apply their own environmental laws and reject a project already approved by the Federal Energy Regulatory Commission. The Manufacturers’ Center for Legal Action filed a brief in 2016 supporting the natural gas pipeline as a critical energy infrastructure project, but the court deferred to the judgment of state officials that the company had not provided sufficient information about how the pipeline would cross sensitive streams. The decision affirms the power of states to block infrastructure projects on environmental grounds even when those projects have been given the green light by other federal and state agencies.

More Information: Constitution Pipeline Co. v. New York State Dep’t of Envtl. Conservation (2nd Circuit)

NAM files main brief in Waters case: The Supreme Court is moving ahead with briefing and argument in our case seeking to determine which court is the proper forum for challenges to the rule. On September 11, we filed our main brief on the merits, arguing that the Clean Water Act requires challenges to regulations in the courts of appeals in limited circumstances, and our challenge to the Waters of the U.S. rule is not one of them. The case will be argued on October 11.

More Information: National Association of Manufacturers v. U.S. Dep’t. of Defense (U.S. Supreme Court)
Government Regulation

Arguments held on two-for-one regulatory relief executive order: On August 10, oral arguments were held in this case in which Public Citizen and other groups challenged President Trump’s executive order requiring government agencies to repeal two outdated or ineffective regulations for every new regulation. Much of the argument centered on whether the plaintiffs had standing to challenge the order in court in the first place, since the rule does not change any regulations. The NAM filed a brief in June emphasizing the importance of making the regulatory system efficient and describing the way this new order is an extension of a bipartisan history of executive orders with the same goals. We also highlighted important recent successes in similar regulatory budgeting efforts in the United Kingdom and Canada.

More Information: Public Citizen, Inc. v. Trump (D.D.C.)

Court upholds NLRB ruling that racist statements by striking worker are not grounds for firing: The NAM filed a brief in support of Cooper Tire & Rubber Company in its employment termination appeal before the U.S. Court of Appeals for the 8th Circuit last September. On August 8, the court upheld a National Labor Relations Board (NLRB) decision reinstating a Cooper employee who used racial epithets toward replacement workers on the picket line. Our amicus brief was cited by the dissenting judge, who found that the right to picket, even in a rough-and-tumble manner, does not permit outright racial insults and bigotry. The company could face liability for racial discrimination by allowing individuals with a history of racial bias or bigoted statements to work in the plant.

More Information: Cooper Tire & Rubber Co. v. NLRB (8th Circuit)

Overtime lawsuit win: For nearly a year, the NAM, other associations and 21 states fought the Department of Labor’s (DOL) new overtime rule in the Eastern District of Texas. On August 31, the Texas judge ruled in our favor and granted summary judgment. The judge held that because the rule “would exclude so many employees who perform exempt duties, the [DOL] fails to carry out Congress’ unambiguous intent. Thus, the final rule…is unlawful.” The decision is an important win for all manufacturers in America, halting what would have been a dramatic and devastating change in labor law that manufacturers could not afford. The new overtime rule would have altered salary requirements drastically and more than doubled the minimum salary level to qualify for the exemption.

More Information: Plano Chamber of Commerce v. Perez(E.D. Texas)
Product Liability

NAM files brief supporting Merck in innovator liability case in Massachusetts: On August 25, the NAM joined with the Pharmaceutical Research and Manufacturers Association and the American Tort Reform Association in an amicus brief urging the Massachusetts Supreme Court to reject a consumer’s claim over injuries sustained from the ingestion of a drug made by another company. The drug, finasteride, is a generic version of one originally made by Merck but now sold by competitors. We argued that brand-name manufacturers do not owe a duty to users of generic medicines and that imposing such an obligation is bad social policy and fundamentally unfair. The overwhelming majority of courts that have addressed this issue have rejected innovator liability, and making innovators liable for injuries alleged to occur from the consumption of generics would expose them to limitless liability.

More Information: Rafferty v. Merck & Co. (Massachusetts Supreme Judicial Court)

Oklahoma state tax disguised as a regulation struck down: On August 10, the Oklahoma Supreme Court struck down a new law that imposed a $1.50 fee on each pack of cigarettes sold in the state. The court agreed with NAM arguments that the fee is actually a tax that was enacted in violation of a constitutional guarantee that new taxes will originate in the state House of Representatives, be passed before the last five days of the legislative session and be approved by a three-fourths supermajority of the legislature. It found that the primary purpose of the tax was to raise revenue rather than to impose regulations. We are seeing more states use purported regulatory programs as a way of raising revenues for nonregulatory purposes, and the NAM will continue to seek ways to challenge them.

More Information: Naifeh v. Oklahoma (Oklahoma Supreme Court)

NAM filed brief supporting UTC and Honeywell in a liability case for telemarketing calls: On September 1, the NAM joined with the U.S. Chamber and the Security Industry Association in an amicus brief in the 4th Circuit addressing the issue of vicarious liability for alleged telemarketing calls made by third-party dealers that sold equipment. UTC and Honeywell, as the manufacturers of the equipment, are the deep pockets the plaintiffs are trying to make pay for telemarketing violations under the Telephone Consumer Protection Act (TCPA), but the manufacturers had no control over the calls whatsoever. The court below held that UTC and Honeywell could not be vicariously liable under the TCPA for the complained-of calls placed by such “authorized dealers,” and we agree. Holding otherwise would have serious economic consequences and could punish manufacturers for a wide range of unlawful conduct by third parties that they do not control.

More Information: Hodgin v. UTC Fire & Security Americas Corp. (4th Circuit)
Questions or Comments?

Contact Senior Vice President & General Counsel Linda Kelly at [email protected].