The National Law Forum

Constitutionality of Philadelphia’s Salary History Ban Appealed to Third Circuit

The constitutionality of the Philadelphia ordinance aimed at regulating employers’ requests for and reliance on salary histories has been appealed to the U.S. Court of Appeals for the Third Circuit.

Both the City of Philadelphia and the Chamber of Commerce for Greater Philadelphia appealed U.S. District Judge Mitchell Goldberg’s decision to grant in part and deny in part entry of a preliminary injunction, issued at the end of April. In the 54-page opinion, Judge Goldberg held that the ordinance’s provision banning an employer’s inquiry about an employee’s prior salary violated the First Amendment, but he upheld the ordinance’s prohibition against the use of that information to set rates of pay.

While Judge Goldberg applauded the intent behind the ordinance, he found the City had failed to present sufficient evidence to support its argument that discriminatory pay is perpetuated by an employee’s disclosure of his or her prior wages to a subsequent employer.

The parties each filed their notices of appeal on May 25, 2018. For details of Judge Goldberg’s Opinion and Order, see our article, Philadelphia’s Salary History Inquiry Ban Violates the First Amendment, Federal Court Rules.

This case potentially implicates the state and local salary history bans that have recently passed around the country.

This article was written by Amanda E. Steinke of Jackson Lewis P.C.

Supreme Court Limits American Pipe Class Action Tolling

Resolving a conflict in the courts of appeals, the U.S. Supreme Court unanimously ruled yesterday that after a denial of class certification, a putative class member may not file a successive class action beyond the applicable statute of limitations.

In China Agritech, Inc. v. Resh, the Court held that its American Pipetolling rule tolls the statute of limitations during the pendency of a putative class action only to allow unnamed class members to join the action or file an individual action after denial of class certification. However, “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”

The Court reversed the U.S. Court of Appeals for the Ninth Circuit, which held that applying American Pipe tolling to permit successive class actions would not cause unfair surprise to defendants and would promote judicial economy by reducing incentives for filing protective class actions during the pendency of an initial class certification motion.

The Ninth Circuit’s view that American Pipe tolling permitted successive class actions was shared by the U.S. Court of Appeals for the Sixth Circuit, but the Courts of Appeals for several other circuits (First, Second, Fifth, and 11th) rejected that position.

The opinion for the Supreme Court, written by Justice Ruth Bader Ginsburg, declared that “American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action. The ‘efficiency and economy of litigation’ that supports tolling of individual claims do not support maintenance of untimely successive class actions; any additional class filings should be made early on, soon after the commencement of the first action seeking class certification.”

The approach advocated by plaintiffs and adopted by the Ninth Circuit was impermissible because it “would allow the statute of limitations to be extended time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation.” The Supreme Court stressed that “[e]ndless tolling of a statute of limitations is not a result envisioned by American Pipe.”

This article was written by Alan S. Kaplinsky and Burt M. Rublin of Ballard Spahr LLP

Employment Litigation Impacted By U.S. Supreme Court Decision Reining In Successive Attempts at Class Litigation

In 1974, the U.S. Supreme Court decided in American Pipe & Construction Co. v. Utah, 414 U.S. 538, that the timely filing of a class action complaint tolls the applicable statute of limitations for all persons encompassed by that complaint. The impact of that ruling was that potential class members did not have to intervene as individual plaintiffs in the class representatives’ case unless and until the class ultimately was not certified (assuming the case remained pending at the time intervention was sought). Alternatively, as determined in later cases interpreting American Pipe, former class members can pursue their own individual claims rather than intervening in a former class action, even if their individual claim would otherwise be untimely.

American Pipe left unresolved whether a former putative class member can still pursue relief on a class basis after the statute of limitations has run on the underlying claim, or if the former putative class member is limited to bringing only his or her own individual claim. The Supreme Court answered that question on June 11, 2018 when it issued its unanimous opinion in China Agritech, Inc. v. Resh, 584 U.S. ___ (2018), in which the Court concluded that a putative class member cannot commence an otherwise untimely class action upon denial of class certification in the earlier-filed suit. His remedies are limited to promptly joining an existing suit or filing an individual action, but serial attempts at class certification after the statute of limitations has run are impermissible.

Resh was not an employment case, but instead involved three successive putative class actions brought on behalf of purchasers of China Agritech’s common stock, each alleging essentially the same violations of the Securities Exchange Act of 1934. Class certification was denied in the first of the three actions and it settled. Shortly thereafter, the lawyer in the first action filed a new complaint alleging nearly the same facts, but with new putative class representatives. Once again, the court denied class certification and the case settled. Plaintiffs’ counsel filed yet a third putative class lawsuit naming as putative class representative an individual, Michael Resh, who had not sought lead-plaintiff status in either of the two previous cases, but who would have been within the scope of the class had it been certified in either earlier case. There was no dispute Mr. Resh’s claim was untimely unless it had been tolled under American Pipe. The trial court dismissed his class claims as untimely but the Ninth Circuit Court of Appeals reversed, holding that the reasoning of American Pipe extends to successive class claims.

The Supreme Court disagreed and reversed, thereby resolving the Circuit split over the implication of American Pipe and its progeny on successive class litigation. The Court held that the “efficiency and economy of litigation” that supports tolling of individual claims until after class certification has been ruled on is not present where one seeks to litigate untimely successive class actions. Class certification is intended to determine early whether claims are better resolved individually or as a class, and whether certain putative representatives and their counsel are suited to represent the class’ interests. Class representatives who commence suit after expiration of the limitation period are not diligent in asserting claims and pursuing relief, for themselves or the putative class members. Therefore, the Court limited American Pipe to permitting only individual intervention or individual claim prosecution after the denial of certification of a class to which the individual otherwise would have belonged. In other words, although parties who were part of a proposed-but-ultimately-rejected class can bring claims after denial of class certification, they can only do so on their own individual basis, and not as a proposed class action.

Although a securities case, the Resh decision has (welcome) implications for employers. Should one or a group of employees seek certification of a class with respect to a particular employment practice, such as for employment discrimination affecting a broad class of workers or for alleged wage and hour violations, and should the motion for class certification be denied, the would-be class members must promptly move to intervene in the representatives’ non-class lawsuits or promptly file lawsuits on their own individual behalves, or else their right to proceed will be time-barred. The decision eliminates the uncertainty – the “endless tolling of a statute of limitations” – that employers would face if plaintiffs’ lawyers could continually refile putative class actions related to the same policy or incident notwithstanding the statute of limitations having run, until they define the class sufficiently well or find adequate representatives such that the trial court grants class certification. After Resh, once the statute of limitations on a claim has run, so too has the threat of further class action litigation.

This post was written by Laura Lawless Robertson of Squire Patton Boggs (US) LLP.

The Tale of Standardization: The Use of LMA Standard Forms in CEE

If there is a holy book for finance lawyers, at least on this side of the Atlantic Ocean, it would be the Loan Market Association (LMA) standard form.

Aimed to improve liquidity and efficiency in the syndicated loan markets in EMEA, the recommended standard forms developed by the LMA are here to stay. Although intended as a non-binding recommended form to be used as a starting point for negotiation only, boilerplates and other provisions proposed by the LMA have become widely accepted market standards.

English law governs the LMA standard documentation. In fact, it is not a single form but a selection of different forms for various types of transactions, including investment grade, real estate or leveraged transactions. While Germany, France and Spain enjoy their own LMA-based primary documents governed by their respective local laws, CEE jurisdictions are still in the basket of the developing markets for which the LMA produced its developing markets standard documentation. Standard forms for developing markets are governed by English law, based on the assumption that international lenders are likely to opt for legal documentation governed by a globally recognized legal framework instead of the law of the borrower’s jurisdiction.

So, what is the practice of using LMA standard forms like in Poland, the Czech Republic, Slovakia and Hungary?

Poland

For many years, the use of facility agreements based on the LMA standard has been widespread in the Polish market. The LMA standard has been followed in transactions documented under English law and Polish law. In large-cap deals and where the primary syndicate includes foreign lenders, especially international financial institutions such as the EBRD and EIB, the parties are more likely to use facility agreements governed by English law. In medium-cap deals and transactions where only Polish banks are involved, especially to avoid additional legal costs, frequently the facilities agreements, although based on the LMA standard, are governed by Polish law. Banks and law firms have developed their own templates, to greater or lesser degree, based on the LMA form. When it comes to specific LMA provisions that have to be modified to conform to mandatory Polish law provisions, various solutions are proposed.

The above approach has been taken a step further with the development by the Polish Bank Association (Związek Banków Polskich, ZBP) of a Polish law-governed standard form of a facility agreement based on the LMA standard documentation. The ZBP standard form is not an official LMA document, but it has been developed with the LMA’s consent. It is not only a transposition of the LMA form to Polish law, but also a translation of the LMA standard form to the Polish language. The objective, similar to the Western European LMA standard forms, was to adapt the LMA documentation specifically to the requirements of local law while also, to the extent possible, retaining the form and substance of the LMA English law documents.

The Polish standard form was initially announced in November 2016. It will certainly help to unify the various approaches on how the specific LMA provisions can be transposed to Polish law. Some banks specifically require that credit loan documentation is based on the ‘Polish LMA’ standard form. Whether such standard form will completely replace the numerous forms used by financial institutions and law firms so far, time will tell.

Czech Republic

LMA standard forms modified with respect to Czech law are frequently used in the Czech Republic, especially for large-scale and complex transactions. Czech lawyers started to draft facility agreements based on the LMA standard some 15 years ago.

Small- and medium-scale transactions are usually carried out based on the respective bank’s forms. Banks’ internal forms are substantially simpler and shorter than the LMA standard forms and usually include reference to the bank’s business terms and conditions.

In 2011 and 2012, the Czech Banking Association (CBA), in cooperation with major Czech banks and law firms with extensive finance experience, developed its own standard based on the LMA standard. The CBA standard was further amended in 2013 and 2014 to adopt the new Civil Code in the Czech Republic. Based on the CBA effort, a facility agreement form and an enforcement agreement form (regulation of the enforcement procedure among the finance parties) were introduced, in both the Czech and English languages.

Although these CBA standard forms are now available, banks and law firms prefer to use their own agreements, which they have developed over the years based on the LMA standard, which nevertheless reflect the Czech law specifics.

Slovakia

LMA standard forms modified with respect to Slovak law are frequently used in the Slovak Republic, especially for large-scale and complex transactions (clubs and syndications). Depending on the type of financing, investment grade, leveraged or real estate forms are used. Slovak modifications relate mostly to the position of the security agent, repayment and transfer certificate, and there are specific provisions that deal with insolvency proceedings. Slovak facility agreements based on the LMA standard have been used for some 15 years, mostly by Slovak offices of international law firms that are usually seen as banks’ counsels (which also helped to standardize the forms used on the local market).

In the beginning, borrowers and bankers struggled to understand the clauses of the LMA standard forms. A negotiation strategy based on an argument that the wording of a clause is “LMA standard” was not well received. Today, borrowers, although still unhappy to see that they have to negotiate over a 100-page document, are becoming more familiar with the LMA standards. One of the reasons for this is that Slovak language versions of the forms are also standardized to some extent, which makes negotiation for borrowers easier.

Hungary

In Hungary, loan documentation based on the LMA standard form started to be used around 10-15 years ago, especially for syndicated loans. Today, such LMA standard forms are used in nearly all significant international and Hungarian domestic financing transactions, despite the fact that the legal thinking and legal concepts that underlie the LMA standards do not always match the Hungarian legal terminology and regulatory tradition.

According to market players, the importance of the LMA standard forms in Hungary will increase in the coming years, since growth of project financing is expected in Hungary following the long-lasting downturn after the financial crisis.

What’s next?

Although the use of the LMA standard forms is widespread in CEE jurisdictions, in many cases, the governing law of the LMA-based facility agreement is adapted to the local law and LMA forms are modified accordingly to conform to the local mandatory provisions. As such, transposition of a common law-based document to the laws of civil law jurisdictions can be tricky. In some countries, initiatives were undertaken to further standardize loan documentation on a local level.

This is the first part of a series of posts devoted to the LMA standard provisions sensitive to jurisdiction-specific concerns in CEE, so stay tuned!

This article was written by Silvia Belovičová, Hana Čekalová, Malgorzata P. Grzelak, and Ákos Mester of Squire Patton Boggs (US) LLP

California AG Leads Attack on Lead in Infant Formula

Fresh off a victory in the CA primary, California Attorney General Xavier Bacerra filed suit on June 7, 2018 against Nutraceutical Corporation of Park City, Utah and Graceleigh, Inc. dba Sammy’s Milk of Newport Beach, CA, alleging violations of California’s Proposition 65 and California’s consumer protection laws.

At issue are Sammy’s Milk Free-Range Goat Milk Toddler Formula, made by Graceleigh, and Peaceful Planet Toddler Supreme Formula, a rice formula made by Nutraceutical. The complaint, filed in Alameda County, CA, alleges that the levels of lead in both products result in exposures above the Provisional Total Tolerable Intake level for lead of 6 micrograms per day (“ug/day”) applicable to children 6 years of age and younger, as set by the U.S. Food and Drug Administration. A statement issued by the AG asserts that State testing showed that the products actually cause lead exposure between 13 and 15 times the maximum allowable dose under California law. The AG’s office also advised that both companies have voluntarily agreed to stop selling the products at issue in California.

Prop 65 Claims

Lead was placed on the Prop 65 list on two occasions: on February 27, 1987 for reproductive toxicity and on October 1, 1992 for cancer.

Nutraceutical said it intends to vigorously contest the suit, which it said lacks merit. The company has reported that its Toddler Supreme protein supplement’s ingredient levels comply with applicable laws and regulations and don’t pose any safety risk to consumers, based on an opinion from a former FDA toxicologist. An issue will be if the levels meet the safe harbor provisions for lead, which would preclude the requirements for a Prop 65 warning. Prop 65 safe harbors do not always align with FDA standards. The no significant risk level (“safe harbor”) for a cancer warning regarding lead is 15 ug/day (oral exposure). The maximum allowable dose level (“safe harbor”) for a reproductive toxicity warning regarding lead is 0.5 ug/day.

Claims Under CA Consumer Protection Laws

The complaint further alleges that due to the excess levels of lead, the products are adulterated within the meaning of the California Sherman Food, Drug and Cosmetic laws and therefore violates the unlawful prong of CA Bus. & Prof. Code section 17200. The false and misleading statements of the two companies are alleged to also violate CA Bus. & Prof. Code sections 17200 and 17500 in the following ways:

With respect to Graceleigh, by asserting that its ingredients in Sammy’s milk are “selected for purity” and provide “clean nutrition.”
With respect to Nutraceutical, by asserting that its Peaceful Planet product is “CLEAN” and “PURE.”

The State has requested that the court award both injunctive relief and civil penalties (Prop 65 statute calls for $2500 per violation).

We will continue to follow this case and other actions in California related to the continued assault on lead contamination of consumer and children’s products.

This post was written by Daniel J. Herling of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Read more on California legal updates on our California jurisdiction page.

President Trump Announces Tariffs on Canadian Steel and Aluminum, Canada Quickly Retaliates with Tariffs on U.S. Imports: An Unprecedented Trade War Looms

On May 31, 2018, by way of two Presidential Proclamations, President Trump imposed tariffs on Canadian exports of steel, which will be subject to a 25% tariff, and Canadian exports of aluminum, which will be subject to a 10% tariff. This move follows President Trump’s March 1, 2018 announcement that he intended to impose global tariffs on these products. The announcement stands in contrast with President Trump’s previous statements that Canadian products could remain exempt.

These Proclamations are:

Canada’s Department of Finance has indicated that it will retaliate to President Trump’s Tariffs by imposing countermeasures against imports of steel, aluminum and other goods originating in the United States. Canada’s tariffs on U.S. goods will total up to $16.6 billion CAD ($12.8 billion USD) representing the value of the impact that President Trump’s steel and aluminum tariffs will have on Canadian exports. Canada will impose tariffs on U.S. steel at a rate of 25%, and aluminum and various other items at a rate of 10%.

In addition to the tariffs, Canada is launching disputes at the World Trade Organization and under Chapter 20 of the North American Free Trade Agreement (NAFTA).

How Did We Get Here

On May 31, 2018, President Trump unilaterally issued these two Presidential Proclamations under the authority of Section 232 of the Trade Expansion Act of 1962, as amended, section 301 of title 3, United States Code, and section 604 of the Trade Act of 1974, as amended. The measures were implemented directly from President Trump and are not considered to be safeguarding measures.

Products Affected

The Trump Steel Tariffs and Aluminum Tariffs cover a wide range of steel and aluminum products, defined on the Harmonized Tariff Schedule (HTS) (See (March 8, 2018) and ).

Canada’s retaliatory tariffs will affect steel and aluminum that originate in the U.S. Other goods that will be affected by retaliatory tariffs include plywood, veneer, boats, playing cards, beer kegs, whisky/bourbon, coffee, orange juice, strawberry jam, tomato ketchup, mustard, mayonnaise, maple syrup, licorice candy, soup, gherkins and cucumbers, toilet paper, dishwasher detergent, candles, hair lacquers, combined refrigerators/freezers, laundry-type washing machines, dishwashers, water heaters, mattresses, sleeping bags, lawn mowers, ballpoint and felt-tip pens, etc. (See ).

Canadian Foreign Affairs Minister Chrystia Freeland has said that “the list has been put together with a few considerations in mind. One has been to support and defend the Canadian steel and aluminum industries that are now facing unfair barriers in their exports to the United States. It is appropriate that their U.S. competitors face equivalent barriers in exporting to Canada.” The list of goods is also believed by some to be strategically targeting industries in states that voted for Trump’s protectionist message in 2016 during the election.

The Tariffs will impact products that originate in the United States. NAFTA Country of Origin Marking rules will be relied upon to determine this. These rules are used to clearly indicate to the ultimate purchaser of a product where it has been made. Under NAFTA, Canada, Mexico and the U.S. were permitted to institute their own country of origin marking rules applicable to goods imported from the other two trade agreement partners. The American NAFTA marking rules are set forth under 19 CFR Part 102 – Rules of Origin (19 U.S.C. 66, 1202).

Impact on Exporters and Importers

According to the U.S. Department of Commerce’s International Trade Administration, last year, U.S. steel imports from Canada made up 17% of total steel imports. Canada imports roughly half of U.S. steel and aluminum exports.

How Long Will It Last

Canadian retaliatory tariffs will begin on July 1, 2018. The countermeasures will remain in place until the U.S. terminates the Trump Steel Tariffs and Trump Aluminum Tariffs.

At present, President Trump has not stated a termination date for the Trump Tariffs.

How to Protect and Promote Interests

Canadian importers must closely consider the impact that both United States and Canadian tariffs will have on their products and should take several actions including:

Identifying which goods will be affected by the new tariffs;
Reviewing H.S. codes of imported items and certificates of origin for NAFTA goods (See: );
Reviewing existing purchase orders and supply contracts that are scheduled to come into effect after July 1, 2018;
Considering supply alternatives from other countries;
Reviewing increases in prices of goods sold in Canada and reflecting changes in pricing and contractual obligations.

United States exporters should take action by:

Reaching out to Canadian purchasers in order to encourage them to lobby the government to remove their products from the list of goods impacted by the countermeasures.

Recap: Previous Proclamations: new tariffs on steel and aluminum

Below are the links to two DW client alerts that have addressed the global Steel and Aluminum tariffs

Carly Walter contributed to this post.

This article was written by Brenda C. Swick of Dickinson Wright PLLC

Teamsters On The Hook For Full Back Pay, Says NLRB

The National Labor Relations Act protects the rights of employees with respect to both employers and labor organizations (i.e., unions). A recent decision by the National Labor Relations Board (NLRB) regarding the Teamsters is another reminder that unions – just like employers – can be held liable for damages stemming from labor law violations.

At issue in the case was the Teamsters’ unlawful operation of an exclusive hiring hall. Specifically, it was found that the union unlawfully refused to refer a specific employee for work opportunities. Based on that finding, the NLRB ordered the Teamsters to remit to the employee back pay for a three-and-a-half year period (March 2008 – August 2011). The Teamsters, however, resisted payment and argued that the employee’s back pay damages should be substantially reduced based on an alleged “failure to mitigate damages” defense. Under the law, employees have a duty to take reasonable measures to offset their damages, such as by trying to find subsequent, similar employment. The Teamsters went so far as to commission a report in an effort to show the employee did not avail herself of other work opportunities that were available in the area. The NLRB, however, rejected the union’s arguments, noting there were several deficiencies in the report (e.g., lack of essential details on whether the allegedly available jobs were comparable, etc.). Accordingly, the union was ordered to pay the employee full back pay for the three-year period.

While NLRB cases targeting unions are relatively rare as opposed to those against employers, this case demonstrates the agency does prosecute labor organizations’ violations when they occur. It also serves as a reminder that while a failure to mitigate defense can be useful in potentially reducing back pay exposure, a party must be sure to produce credible evidence that supports the defense.

This article was created by the Labor and Employment Law Department of Barnes & Thornburg LLP

Nick Seifer contributed to this post.

Blockchain Technology, Tax Attorneys, And The IRS

Blockchain could very possibly solve many difficulties that face the Internal Revenue Service (IRS). Blockchain, the underlying technology of bitcoin, could revolutionize how the IRS conducts business. In revolutionizing how the IRS conducts business, it stands to reason that how tax attorneys conduct business would also be revolutionized.

Blockchain Background

According to Deloitte, “it is clear that implementing Blockchain would require far-reaching changes to the legal system, reforming laws on databases, intellectual property, and legal identity.”

What is blockchain and how does it work? Cryptocurrency is an example of blockchain technology. This distributed ledger technology is the underlying force behind bitcoin, ethers and other blockchain projects. DLT is decentralized. Transactions are recorded onto a multitude of computers simultaneously. Each block of data is linked to a previous block of data, that is, “chained” together. The transaction is synchronized and all nodes reflect the updated figures as they occur. Once a transaction is validated and added to a blockchain, the transaction or asset is theoretically immutable.

An anonymous group or person called Satoshi Nakamoto introduced the first blockchain-based bitcoin in 2009. Blockchain has taken off in the last few years as both currencies and as a business tool. Meanwhile, the world’s legal and government sectors have been playing catch up.

There are both public and private blockchains. Both use decentralized ledgers, both use protocol consensus, and both ensure ledgers are immutable. While anyone can join a public blockchain, a private blockchain may only be joined by invitation or permission and must be validated by the network starter or by rules set up by the network starter. Today, many businesses are establishing private blockchains to help operate their systems.

Revolutionizing Tax Law

There are a number of situations where IRS complications could be smoothed out using private blockchain technology. There are several instances where the IRS must wait for lengthy periods before payments are settled or information is received. Blockchain could safely and securely speed the receipt of data from a mountain of forms. It could render payments settled in a matter of hours rather than days. Blockchain is an ideal tool for reducing taxpayer identity theft. It would also alleviate staff and budget reductions. Storing taxpayer information via blockchain would offer a groundbreaking approach to ensure security and maintain the accuracy of taxpayer data.

To properly and efficiently guide clients, tax attorneys will have to become well versed in blockchain technology and how it will affect the changed tax law landscape. A tax law attorney must understand, interpret and be able to use this technology in practical ways.

Implementation of Blockchain Technology

Other industries, including banking, insurance, real estate, and the arts, have begun capitalizing on blockchain capabilities. These and other clients will expect their attorneys to be able to understand and work with blockchain, including understanding its advantages and disadvantages. Attorneys who transform themselves into blockchain experts today will more than likely see enormous returns in the future.

Another area where blockchain could cause disruption is in the use of smart contracts. It is possible to create these limited, simple contracts with blockchain. The IRS could certainly put smart contracts to multiple uses.

A smart contract is a self-executing, self-enforcing program on a blockchain that, among other things, enables money or agreements to be exchanged. They are written in such a way that the rules are spelled out. Certain conditions must be met before the program will allow a party to proceed to the next step. Each time a criterion is met, the program will execute certain contract terms.

Using smart contracts would free up an enormous amount of time for the IRS and tax attorneys. Learning how to effectively use these contracts would help clients, attorneys, and the IRS. Eventually, tax attorneys who become blockchain wizards will work out how to use more complex contracts that will continue to bring huge changes to the tax law industry.

Conclusion

It is in all likelihood simply a matter of time before the IRS and many other government agencies adopt blockchain technology to provide a secure, speedy, efficient, and cost-effective manner to analyze, store, and transform data and currency. Forward-thinking tax attorneys will be at the forefront of this wave.

This article was written by Jaliz Maldonado of PracticePanther

Lawsuits Filed in Federal District Court Regarding WPS Training Delay

On May 30, 2018, two complaints were filed against the U.S. Environmental Protection Agency (EPA) in the United States District Court for the Southern District of New York. Both of these suits concern a decision by EPA to defer publication of a notice of availability (NOA) of training materials prepared pursuant to the Agricultural Worker Protection Standard (WPS), 40 C.F.R. Part 170. The WPS was originally promulgated in 1974, substantially amended in 1992, and then revised again in 2015. Although the 2015 revisions to the WPS are currently in effect, employers are not required to adopt new training programs for agricultural workers and handlers until 180 days after EPA publishes the NOA announcing the availability of the new training materials in the Federal Register.

On December 21, 2017, EPA issued a Federal Register notice indicating that it “expects to publish a Notice of Proposed Rulemaking in FY 2018 to solicit public input on proposed revisions to the WPS requirements for minimum age, designated representative, and application exclusion zones.” In this 2017 notice, EPA acknowledged that the WPS provisions it will propose to revise are already in effect and that training materials consistent with the 2015 rule have already been prepared, but stated that EPA does not expect to issue the NOA for these new training materials until after it completes a rulemaking concerning the proposed revisions to the 2015 WPS rule. The plaintiffs in both of the new district court cases are challenging the decision of EPA to defer issuance of the NOA, which has delayed the timetable for expanded training for agricultural workers and handlers contemplated by the 2015 WPS rule.

The first of two complaints was filed by Rural & Migrant Ministry, et al. (RAM) v. EPA, Case No. 1:18-cv-04743. RAM’s complaint’s includes four causes of action based on EPA’s failure to issue the NOA. RAM alleges that this failure is “arbitrary and capricious,” constitutes “agency action unlawfully withheld and unreasonably delayed,” and violates the publication requirements of the Administrative Procedure Act (APA) and the Federal Register Act. RAM requests a declaratory judgment that EPA has violated the APA and the Federal Register Act, and injunctive relief to require immediate publication of the NOA.

The second complaint was filed by the States of New York, California, and Maryland, New York v. Pruitt, Case No. 1:18-cv-04739. These State plaintiffs also contend that EPA’s failure to publish the NOA is “arbitrary and capricious,” and constitutes “action unlawfully withheld or unreasonably delayed.” Like RAM, the State plaintiffs seek a declaratory judgment and an injunction requiring that EPA immediately publish the NOA for the expanded training materials. EPA will presumably seek consolidation of the two cases, which both challenge the same EPA actions and seek comparable relief.

The principal question presented by these two WPS cases is whether EPA can lawfully defer full implementation of the expanded training required by the 2015 WPS while it undertakes and completes a new rulemaking to revise certain provisions of the same rule. Although EPA acknowledges that it has prepared the written materials needed to effectuate the expanded training required by the 2015 WPS, EPA will likely argue that it is both more efficient and less confusing for employers and workers to use the existing training materials until after EPA has finished revising the WPS. In contrast, the plaintiffs in these two cases will argue that the 2015 WPS is already in effect, and that the protection for workers associated with the expanded training required by this rule has been improperly delayed by EPA without any prior notice and comment rulemaking.

The decision by EPA to defer full implementation of the 2015 WPS while EPA considers potential revisions to the WPS may be deemed analogous in some respects to other EPA actions that delayed the effective date for a rule expanding requirements for certified applicators who apply restricted use pesticides (RUP). In a decision issued by the U.S. District Court for the Northern District of California on March 21, 2018, the court vacated several EPA actions that had delayed the effective date for the RUP rule, holding that EPA was required to provide notice and opportunity for comment before taking such actions and that EPA lacked “good cause” for acting without notice and comment. See Order Granting Plaintiffs’ Motion for Summary Judgment, Pineros Y Campesinos Unidoa Del Noroeste v. Pruitt, Case No. 17-cv-03434-JSW.

The current cases may be distinguished from the actions EPA took to defer the effective date for the RUP rule because EPA has declined to take affirmative action to effectuate certain requirements in the 2015 WPS, rather than deferring the effective date for any of the requirements in that rule. It remains to be seen whether the district court will consider this procedural distinction to warrant a different outcome.

This article was written by Timothy D. Backstrom of Bergeson & Campbell, P.C.

California Court of Appeal Enforces Delaware Forum Selection Clause Contained in Certificate of Incorporation

In Bushansky v. Soon-Shiong, 2018 Cal. App. LEXIS 493 (Cal. App. May 25, 2018), the California Court of Appeal, Fourth Appellate District, affirmed the dismissal of a shareholder derivative action brought in the Superior Court of California, San Diego County, on forum non conveniens grounds based upon an exclusive Delaware forum selection clause in the corporation’s certificate of incorporation. This decision interpreted for the first time a condition in a forum selection clause requiring that the Delaware courts have personal jurisdiction over all indispensable parties in order to trigger exclusive forum selection. The Court rejected plaintiff’s assertion that Delaware personal jurisdiction must exist at the time of the filing of the suit, and instead held that post-filing conduct by a defendant voluntarily accepting Delaware personal jurisdiction within a reasonable timeframe thereafter was sufficient. In so doing, the Court disagreed expressly with a decision from the Washington Court of Appeals. This decision reflects continued deference by the California courts to Delaware forum selection clauses in certificates of incorporation.

Plaintiff Steven Bushansky filed a shareholder derivative action purportedly on behalf of nominal defendant NantKwest, Inc., a Delaware corporation headquartered in San Diego County, California, alleging causes of action against its directors for breaches of fiduciary duty. Plaintiff also alleged accounting malpractice and aiding and abetting claims against Mayer Hoffman PC, an accounting firm that served as NantKwest’s auditor.

NantKwest moved to dismiss based upon forum non conveniens, arguing that the exclusive Delaware forum selection clause in its certificate of incorporation mandated dismissal of the action brought in San Diego. The clause in question designated Delaware as the “sole and exclusive forum” for any action brought, subject to the condition precedent that the Delaware courts have “personal jurisdiction over the indispensable parties named as defendants.”

The San Diego Superior Court enforced the forum selection clause and dismissed the case. Plaintiff appealed. Plaintiff argued that the forum selection clause was never triggered because the Delaware courts lacked personal jurisdiction over Mayer Hoffman — allegedly an indispensable party — at the time the action was filed. Although Mayer Hoffman consented to personal jurisdiction in Delaware less than two months after filing, plaintiff argued this was insufficient under a traditional minimum contacts analysis, under which personal jurisdiction is determined at the time of filing.

The Court of Appeal affirmed. First, the Court noted that plaintiff’s argument failed to account for a consent analysis, whereby personal jurisdiction could be established post-filing by a defendant’s voluntary consent to jurisdiction. The Court held that reading a rigid time limitation into the term “personal jurisdiction” was unreasonable, and declined to do so. Rather, the court held that where, as here, a condition precedent to a forum selection clause in a Delaware corporation’s certificate of incorporation was silent as to a timeframe for performance, it would be presumed that it was to be performed within a reasonable time. The two-month time period Mayer Hoffman took to consent was deemed reasonable, the Court held, and thus the condition precedent was thus effectively complied with.

The Court noted that its decision would not be read as endorsing gamesmanship, whereby parties could strategically delay consent to personal jurisdiction until it became “tactically advantageous” to give it. The Court held that Mayer Hoffman had not engaged in any gamesmanship, but rather specifically requested that its demurrer be heard after the motion to dismiss, filed only a few weeks later by NantKwest.

The Court concluded its analysis by elaborating on the shortcomings it saw in the Washington Court of Appeals’ decision in Shatas v. Synder, 2016 Wash. App. LEXIS 2517 (Wash. App. Oct. 17, 2016), a case factually similar to Bushansky. There, the Washington court held that post-filing consent was “irrelevant” in determining jurisdiction. The California Court took issue with (1) the fact that Shatas was unpublished, and thus questioned its persuasive value and (2) the logic underlying the Washington court’s assertion that post-filing consent was irrelevant, as it could not “invalidate properly invoked jurisdiction” (presumably referring to jurisdiction already invoked in Washington). The California Court held this to be a logical fallacy, reiterating that “parties may not deprive courts of their jurisdiction over causes by private jurisdiction.” The Court instead looked to the practicalities inherent in forum selection clauses, classifying them not as a weapon of gamesmanship, but rather, as a tool of efficiency.

The precedent set by Bushansky represents a meaningful affirmation of the principles underlying basic contract law between private parties reflected in a certificate of incorporation, as well as continued deference to Delaware exclusive forum selection clauses.

This article was written by John P. Stigi III of Sheppard, Mullin, Richter & Hampton LLP

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