Tag: legal

The Spooky Consequences of Halloween Celebrations in the Workplace

There is no greater Halloween horror for employers than a workplace celebration that creates legal risks such as inappropriate costumes or safety hazards, among other issues. Thus, there are many considerations when planning an office celebration for this spooky holiday. If you are a manufacturer hosting an office Halloween party, consider following these three tricks to make the best out of your workplace treat.

1. Provide Guidance on Expectations

First and foremost, manufacturers should be transparent about expectations surrounding employee participation including costumes. With regard to costumes, when crafting guidance, manufacturers should consider both civility as well as safety, especially if the employees will be permitted to wear their costumes during the workday. For example, employees should understand what costumes or outfits do and do not meet manufacturing floor safety guidelines. Employees should also be expressly reminded that costumes must conform to all employer policies including anti-harassment, discrimination and respect policies and that costumes, outfits or accessories that violate such policies will not be tolerated.

This election year in particular, some employees may don political costumes. The free speech rights under the First Amendment of the U.S. Constitution do not apply to employees working for private manufacturers. Thus, private manufacturers can generally establish rules that, for example, prohibit costumes that support (or criticize) a political candidate or party. That said, manufacturers should be aware that several states have laws regulating when employers can lawfully discipline employees for political activity; further, there are state and federal laws that may be implicated with regard to employees expressing political views. If manufacturers are considering disciplining an employee for a political costume, they should first consult with legal counsel.

2. Prioritize Safety

There are more safety hazards at workplace Halloween parties than the cavity causing candy. This is especially true if the celebration is being held on the manufacturer’s shop floor. Manufacturers should ensure that all of the decorations in the workplace comply with the fire and safety codes set forth by local governments and by OSHA. Manufacturers should also avoid activities that inherently involve risks and could result in workplace injuries, such as pumpkin carving contests.

Lastly, manufacturers should carefully consider whether to serve alcohol. If the celebration is being held on the shop floor, it is highly recommended that alcohol is not served, especially if heavy machinery is accessible. For celebrations held elsewhere, manufactures should consider taking steps to ensure alcohol is consumed in moderation and is not central to the party, and follow best practices for serving alcohol; when considering tips for limiting alcohol consumption or its impact on employees, employers should consider only serving beer and wine, serving a meal (as compared to light appetizers), limiting the amount of alcohol served by, for example, using a drink ticket system, using bartenders to serve alcohol, serving non-alcoholic options; among other practices. In some circumstances, manufacturers may be legally responsible for the conduct of their intoxicated employees.

3. Make it Optional

Workplace celebrations are a great way to boost employee morale and help foster employee relationships. That said, these celebrations should generally be optional. Manufacturers should keep in mind that employees may not want to attend a Halloween party for various reasons, including, for example, their religious practices and beliefs; therefore, ensuring that the party is optional may support all employees including those that do and do not celebrate Halloween.

If attendance is mandatory, there may be implications from a workers’ compensation perspective if there are any injuries or illnesses. Further, manufacturers should pay the employees for their time pursuant to the Fair Labor Standards Act (FLSA) and applicable state laws regardless of whether the celebration was held outside of normal working-hours. Requiring non-exempt employees to attend unpaid celebrations can expose the manufacturer to wage and hour claims in the future.

Copyright © 2024 Robinson & Cole LLP. All rights reserved.

by: Abby M. Warren, Madison C. Picard of Robinson & Cole LLP

For more news on Workplace Halloween Party Considerations, visit the NLR Labor & Employment section.

Supreme Court Declines to Hear “Willfulness” Case

On Monday, October 7, 2024, the U.S. Supreme Court declined to consider a petition for certiorari in United States ex rel. Hart v. McKesson Corp., Case No. 23-1293, where relator, Adam Hart (“Relator”), sought review of a Second Circuit decision upholding the dismissal of Relator’s complaint against pharmaceutical distributor, McKesson Corporation (“McKesson”).

The case involved allegations that McKesson violated the Anti-Kickback Statute (“AKS”), which prohibits offering, paying, soliciting, or receiving remuneration to induce the purchase of goods and services paid for by a federal health program. Relator, a former McKesson employee, filed a qui tam action, claiming McKesson provided valuable business management tools—valued at over $150,000—to oncology practices at no cost, in order to induce them to purchase oncology pharmaceuticals from McKesson.

The Second Circuit dismissed Relator’s federal claims, reasoning that the allegations failed to meet the mens rea (intent) element under the AKS. The Court held that, to act willfully under the AKS, a defendant must know that its conduct is unlawful, either under the AKS or other law. Since Relator’s allegations did not plausibly suggest McKesson acted with knowledge of illegality, his federal False Claims Act claims based on the federal AKS were dismissed.

The Supreme Court’s refusal to hear Relator’s case preserves the existing circuit split regarding the interpretation of “willfulness” under the AKS. The Second Circuit, along with the Eleventh Circuit, has adopted the view that the AKS is violated when a defendant intends to violate a legal standard. This contrasts with the Fifth Circuit, which interprets the mens rea element to prohibit acts done knowingly and willfully, as opposed to by mistake or accident, and the Eight Circuit, which requires intent to commit an act known to be wrongful, but not necessarily known to be unlawful.

As it stands, the unresolved split among the circuits on this critical issue remains, and providers should be mindful that, at least in the Second and Eleventh Circuits, the stricter interpretation of “willfulness” under the AKS will continue to apply.

© Polsinelli PC, Polsinelli LLP in California
For more news on Anti-Kickback Litigation, visit the NLR Health Law & Managed Care section.

Texas-Sized Fraud: Corporate Relator Takes on Laboratory Referral Kickback Scheme

17 October 2024. In a qui tam whistleblower settlement, Jeffrey Madison, the former CEO of Little River Healthcare in Rockdale, Texas, has agreed to pay over $5.3 million to resolve alleged violations of the Anti-Kickback Statute. This successful whistleblower lawsuit illustrates the critical role of whistleblowers in uncovering fraudulent schemes and upholding ethical standards within the healthcare industry. The corporate whistleblower in this qui tam action, STF LLC, could be rewarded between 15-25% of the government’s recovery.

Understanding the Case

The allegations against Madison stem from violations of the False Claims Act, specifically linked to illegal payments made to physicians to induce laboratory referrals. These actions contravened the Anti-Kickback Statute, a federal law designed to ensure that medical decisions, particularly those about Medicare, Medicaid, or TRICARE beneficiaries, are based on patient welfare rather than financial incentives.

Key Allegations:

Kickback Scheme: The lawsuit alleged that between January 2015 and June 2018, Little River Healthcare, under Madison’s leadership, engaged in a scheme involving paying commissions to recruiters. These recruiters, using management service organizations (MSOs), funneled kickbacks to physicians who referred laboratory tests to Little River.

False Certifications: Madison was accused of knowingly falsely certifying compliance with the Anti-Kickback Statute in Medicare cost reports, resulting in fraudulent claims to federal healthcare programs, including Medicare, Medicaid, and TRICARE.

Disguised Payments: An additional component involved Dr. Doyce Cartrett Jr., who was allegedly paid $2,000 monthly to refer his laboratory testing business to Little River. These payments were allegedly disguised as “medical director fees” despite Dr. Cartrett rendering no medical director services.

The Importance of the Anti-Kickback Statute

Violations of the Anti-Kickback Statute can significantly harm patients by distorting medical decision-making priorities and eroding trust in healthcare providers. When healthcare decisions are influenced by financial incentives rather than patient welfare, there is a risk that unnecessary or substandard care is administered, potentially leading to adverse health outcomes. Patients may receive treatments not based on their individual needs but on the financial gains of unscrupulous providers. This not only affects the quality of care but also contributes to rising healthcare costs, ultimately burdening patients and taxpayers financially. Upholding the statute is crucial in ensuring that patient care is determined by medical necessity and clinical expertise.

This case underscores the vital role of whistleblowers in identifying and exposing fraudulent activities. By coming forward, whistleblowers not only protect taxpayer dollars but also ensure that healthcare decisions remain focused on patient care. As the Acting Special Agent in Charge of the Department of Defense Office of Inspector General, Defense Criminal Investigative Services, Southwest Field Office said about the case, “Our nation’s uniformed military service members and their families should never have to question the integrity of their healthcare providers. Medical decisions influenced by greed destroy the fundamental element of trust in patient care.” Healthcare fraud whistleblowers reporting unlawful kickback schemes under the False Claims Act can help restore that trust.

© 2024 by Tycko & Zavareei LLP
For more news on Kickback Fraud Settlements, visit the NLR Criminal Law & Business Crimes section.

TCPA Rules on Revoking Consent for Unwanted Robocalls and Robotexts Effective April 2025

On October 11, 2024, the Federal Communications Commission announced that the effective date for Telephone Consumer Protection Act (TCPA) rules on revoking consent for unwanted robocalls and robotexts is set for April 11, 2025.

On February 15, 2024, the FCC adopted the TCPA Consent Order in the above-captioned proceeding. In that rulemaking, the FCC adopted rules making it simpler for consumers to revoke consent to receive unwanted robocalls and robotexts. Callers and texters must honor these opt-out requests in a timely manner.

The TCPA Consent Order established that these rules would become effective six months following publication in the Federal Register that the Office of Management and Budget has completed its review of the modified information collection requirements under the Paperwork Reduction Act of 1995. OMB approved these modified information collection requirements on September 26, 2024.

On October 11, 2024, the FCC announced in the Federal Register that compliance with the amendments and new rules set forth in the TCPA Consent Order as contained in 47 CFR §§ 64.1200(a)(9)(i)(F), (10), (11) and (d)(3) is required as of April 11, 2025.

Background of the TCPA Rules on Revoking Consent for Unwanted Robocalls and Robotexts

The TCPA restricts robocalls and robotexts absent the prior express consent of the called party or a recognized exemption. The FCC has made clear that consumers have a right to decide which robocalls and robotexts they wish to receive by exercising their ability to grant or revoke consent to receive such calls and texts.

The FCC has now adopted new rules to strengthen the ability of consumers to decide which robocalls and robotexts they wish to receive, codified the FCC’s past guidance on consent to make these requirements easily accessible and apparent to callers and consumers, and closed purported loopholes that allow wireless providers to make robocalls and robotexts without the ability for the subscriber to opt out.

What is the Practical Impact of the TCPA Revocation Rules?

As previously discussed by FTC defense and telemarketing compliance attorney Richard B. Newman, in March 2024 the Federal Communications Commission announced that it adopted new rules and codified previously adopted protections that make it simpler for consumers to revoke consent to unwanted robocalls and robotexts (specifically, autodialed and/or artificial/ prerecorded voice calls and texts) while requiring that callers and texters honor these requests in a timely manner.

In pertinent part:

  • Revocation of prior express consent for autodialed, prerecorded or artificial voice calls (and autodialed texts) can be made in any reasonable manner (callers may not infringe on that right by designating an exclusive means to revoke consent that precludes the use of any other reasonable method).
  • Callers are required to honor do-not-call and consent revocation requests within a reasonable time not to exceed ten (10) business days of receipt.
  • Text senders are limited to a prompt one-time text message confirming a consumer’s request that no further text messages be sent under the TCPA (the longer the delay, the more difficult it will be to demonstrate that such a message falls within the original prior consent).
  • Revocation of consent applies only to those autodialed and/or artificial/prerecorded voice calls and texts for which consent is required.
  • A revocation to marketing messages precludes all further telephone calls or text messages unless an enumerated exemption exists.

Telemarketers and lead generators should consult with an experienced FTC defense lawyer to discuss the scope of the new rules and protections, including, but not limited to, the scope and applicability of a revocation for one purpose to other communication purposes.

© 2024 Hinch Newman LLP

by: Richard B. Newman of Hinch Newman LLP

For more news on FCC TCPA Regulations, visit the NLR Communications, Media, & Internet section.

Common Mistakes When Applying for the Diversity Immigrant Visa Program

The Diversity Immigrant Visa Program, commonly referred to as the green card lottery, was established by the U.S. government to provide individuals from countries with low immigration rates a chance to live and work in the U.S.

Each year, the U.S. Department of State conducts a random lottery drawing to select 55,000 applicants who will be given the opportunity to apply for a Diversity Visa (DV). This selection process is based on a computer-generated random lottery system, ensuring fairness and equal opportunities for all participants.

To qualify, applicants must be a citizen of a country deemed eligible by the U.S. government and have either a high school education or its equivalent or possess two years of work experience in a qualifying occupation.

Applying for the DV Program is an exciting opportunity for those looking to immigrate to the United States. However, even a minor mistake when filling out the entry form can lead to a major complication in the registration process.

By understanding the most common mistakes and learning how to avoid them, applicants can improve their chances of submitting a successful entry to the green card lottery.

The seven “deadly sins” of the Diversity Visa application process

Green card lottery entries are submitted electronically via the Electronic Diversity Visa (E-DV) website during the specified registration period. Although the DV instructions provide detailed guidance for completing the online entry form, there are seven common mistakes — aka “deadly sins” — that could result in delays or even rejection of the application.

1. Submitting multiple entries

The law allows only one entry by or for each person during each registration period. The Department of State uses advanced technology to detect multiple entries. Submissions of more than one entry will be disqualified. Applicants should take the time to review and double-check their information before submitting it.

2. Missing the deadline

No late entries or paper entries are accepted. Applicants must use the E-DV website for submission and must submit their application by the specified deadline.

The online registration period for the 2026 DV Program is open now through Nov. 5, 2024, at 12 p.m. Eastern Standard Time (EST) (GMT-5).

3. Inputting inaccurate personal information

Applicants should ensure their name and surname are entered exactly as they appear on their passport or other identification documents. They should avoid using nicknames or name variations to prevent discrepancies that could raise concerns during the review process. Applicants should also double-check the date of birth and make sure the correct day, month and year are entered. Inaccuracies in this section can lead to delays or even rejection of the entry form.

4. Omitting family members

Applicants should make sure to include all immediate family members in the entry, including a spouse and any unmarried children under the age of 21. Failure to list any eligible family members can result in their exclusion from the program.

5. Using third-party websites for assistance

Be cautious of third-party websites claiming to assist with the entry process. These sites often charge unnecessary fees and may provide inaccurate information. It is recommended to visit the official Department of State website or trusted government portal for the application.

6. Leaving entry fields blank

As we outlined above, to avoid rejection or delays applicants should ensure that all required fields are filled out. Missing information or leaving any mandatory fields blank can result in disqualification. It’s important to take the time to carefully review the form and provide accurate and complete responses.

7. Not meeting mandatory requirements

To qualify, an applicant must either have a high school education or equivalent, defined as the successful completion of a 12-year course of formal elementary and secondary education. Alternatively, an applicant must have at least two years of work experience within the past five years in an occupation that requires a minimum of two years of training or experience.

Avoid leaving it all to luck with BAL

Being aware of these common reasons for disqualification and learning how to avoid them can help ensure the Diversity Immigrant Visa Program entry is filled out correctly, providing applicants the chance of selection in the green card lottery.

While this is one route to a green card, there are more paths that don’t rely on luck. For example, a National Interest Waiver (NIW) is an immigrant visa that creates a path to a green card without a job offer or labor certification. The NIW is an alternative to the traditional PERM process and is available to those whose work is deemed to be in the national interest of the United States.

There are many ways to get a green card in the United States and the process generally involves a petition, an application, a biometrics appointment, interviews with immigration officials and decisions that potentially come with requests for more information and documents. The processing time for a green card can also vary from one to six years, depending on demand.

©2024 Berry Appleman & Leiden. All Rights Reserved.
For more news on Diversity Immigrant Visa, visit the NLR Immigration section.

Department of Defense Issues Final CMMC Rule

On October 11, 2024, the Department of Defense (“DoD”) issued the first part of its final rule establishing the Cybersecurity Maturity Model Certification (“CMMC”) program. As expected, the final rule requires companies entrusted with national security information to implement cybersecurity standards at progressively advanced levels, (CMMC level 1, CMMC level 2, and CMMC level 3) depending on the type and sensitivity of the information. While the final rule largely tracks the proposed rule issued in December 2023, we outline below several notable updates DoD included in the final rule and their potential impacts on DoD contractors.

Updated Implementation Timeline

DoD extended the timeline for CMMC implementation. DoD will now roll out the CMMC program in a four-phased approach:

  • Phase 1 will begin in early to mid-2025 when DoD finalizes the second part of its CMMC rule under 48 C.F.R. Part 204. Once that rule is finalized, DoD will begin including CMMC level 1 and CMMC level 2 self-assessment requirements in new solicitations. That is, while DoD contractors will not need to obtain a CMMC certification by Phase 1, they will need to self-assess and affirm compliance with CMMC level 1 and/or level 2 security requirements when competing for new DoD contracts.
  • Phase 2 will begin one year after the start of Phase 1 (~early to mid-2026). During Phase 2, DoD will begin including CMMC level 2 certification requirements in applicable solicitations. Contractors who expect to bid on solicitations requiring a CMMC level 2 certification should plan to obtain that certification by early 2026 to avoid losing out on DoD opportunities.
  • Phase 3 will begin one year after the start of Phase 2 (~early to mid-2027). During Phase 3, DoD will begin requiring contractors to meet the CMMC level 2 certification requirements as a condition to exercise option periods on applicable contracts awarded after the effective date of the CMMC rule. DoD will also begin including CMMC Level 3 requirement in applicable solicitations.
  • Phase 4 will begin one year after the start of Phase 3 (~early to mid-2028). During Phase 4, DoD will include CMMC program requirements in all applicable CMMC solicitations and as a condition to exercise option periods on applicable contracts regardless of when they were awarded.

Narrower Assessment Scope for Security Protection Assets

The final rule narrows the assessment scope for contractors’ Security Protection Assets (“SPA”). Under the proposed rule, certain contractor assets that provide security functions or capabilities (i.e., SPAs) for the protection of controlled unclassified information (“CUI”) had to meet all security requirements of CMMC level 2. The final rule reduces that assessment scope so now SPAs only need to be assessed against “relevant” security requirements. This change should reduce the regulatory burden on contractors because they will no longer need to show how SPAs meet CMMC security requirements that are not applicable to the SPAs being assessed.

External Service and Cloud Service Providers

The final rule provides greater clarity as to when External Service Providers (“ESPs”) are within the scope of a contractor’s CMMC assessment. Under the final rule, if an ESP deals with CUI, then it must be assessed against all CMMC level 2 security requirements and must obtain a CMMC level 2 assessment or certification. By contrast, ESPs that only deal with security protection data (“SPD”)—data used to protect a contractor’s assessed environment—are subject to a more limited assessment and do not require a full CMMC level 2 assessment or certification. A service provider that does not deal with CUI or SPD does not meet the CMMC definition of ESP and presumably is outside the scope of any CMMC assessment.

For Cloud Service Providers (“CSPs”) dealing with CUI, the final rule tracks current DoD security requirements, which require CSPs to meet security requirements equivalent to the FedRAMP moderate baseline. Like with ESPs, CSPs that only deal with SPD are subject to a more limited assessment and CSPs that do not deal with CUI or SPD are outside of the CMMC scope.

© 2024 Blank Rome LLP

Rytr or Wrong: Is the FTC’s Operation AI Comply a Prudent Defense Against Deception or an Assault on Innovation and Constitutional Free Speech?

In today’s rapidly evolving digital economy, new artificial intelligence tools promise to transform every industry. Sometimes, those promises are overblown or outright deceptive. So, as the AI hype cycle continues, regulators are left with the unenviable role of determining their duties to shape the impact of these developing tools on businesses and the public. Although the EEOC, SEC, DOJ and several State Attorneys General are issuing warnings and increasingly investigating the risks of AI, this tension is on full display with the Federal Trade Commission’s recent enforcement actions announced as part of its “Operation AI Comply,” which marks the beginning of its “new law enforcement sweep” against companies that are relying on AI “as a way to supercharge deceptive or unfair conduct that harms consumers.”1

Although many of the initial targets of Operation AI Comply were accused of conduct that plausibly violated Section 5, the FTC’s charges against an AI writing assistant, Rytr, drew strong dissents from two of the FTC Commissioners who accused their fellow commissioners of effectively strangling AI innovation in the crib. There are several important takeaways from Operation AI Comply, particularly if the dissenting commissioners have correctly identified that the FTC is pushing the boundaries of its authority in pursuit of AI.

The FTC and its Role in AI Regulation.

The FTC plays a critical role in protecting consumers from unfair or deceptive practices, and it has long been warning developers about how their algorithms and AI tools might violate one of its broadest sources of statutory authority: Section 5 of the FTC Act.2

In many respects, the FTC’s September 25, 2024, announcement of its “Crackdown on Deceptive AI Claims and Schemes” should not have come as a surprise, as most of the enforcement actions related to overhyping AI.3 For example, the FTC’s Complaint and proposed settlement with DoNotPay – which made bold claims about being “the world’s first robot lawyer” and that it could “generate perfectly valid legal documents in no time,” replacing “the $200-billion-dollar legal industry with artificial intelligence”4– turned on relatively straightforward false or unsubstantiated performance claims in violation of Section 5 of the FTC Act.5 Similarly, the FTC’s charges against Ascend Ecom,6 Ecommerce Empire Builders,7 and FBA Machine8 all relate to allegations of e-commerce business opportunity schemes that generally engaged in AI-washing – i.e., a tactic of exaggerating or falsely representing that a product uses AI in an effort to make the product or company appear more cutting edge than it actually is.9 Each of these four cases was unanimously supported by the Commission, receiving 5-0 votes, and is consistent with other actions brought by the FTC to combat unfair, deceptive, or discriminatory impacts of AI.10

However, with a 3-2 split among its commissioners, the FTC’s complaint against Rytr is a different story.11 Historically, unanimous decisions were more typical; however, split decisions are becoming more common as the FTC pursues more aggressive enforcement actions and reflect a broader ideological conflict about the role of regulation and market intervention.

Rytr: Creative Assistant or Assistant to Fraud?

Rytr is a generative AI writing assistant that produces unlimited written content for subscribers for over 43 use cases.12 At the core of the FTC’s complaint against Rytr is the risk that one of its use cases – a “Testimonial & Review” feature – can be used to create customer reviews that may be false or misleading.13

Based on limited user input, users can generate “genuine-sounding, detailed reviews quickly and with little user effort,” which the FTC believes “would almost certainly be false for users who copy the generated content and publish it online.”14 The FTC gives one example where a user provided minimal inputs of “this product” and “dog shampoo” to generate a detailed paragraph boasting how the dog shampoo smelled great, reduced shedding, improved the shine of their dog’s coat, and recommended the product.15 Based on example inputs and outputs like this, the FTC concluded that Rytr’s services “causes or is likely to cause substantial harm to consumers” and “its likely only use is to facilitate subscribers posting fake reviews with which to deceive consumers.”16 As such, the FTC’s complaint argues that Rytr – by offering a tool that could be readily used to generate false reviews — provided the “means and instrumentalities for deception” and engaged in unfair acts or practices in violation of Section 5 of the FTC Act.17

In other words, the majority of the FTC Commissioners were concerned about an infinite potential for inaccurate or deceptive product reviews by Rytr’s subscribers and did not recognize countervailing reasons to allow this use of technology. Without admitting or denying the allegations in the Complaint, Rytr agreed to a proposed settlement with the FTC by which Rytr would stop offering the Testimonial & Review use case at issue in this case18 – a pragmatic solution to avoid litigation with the government.

Dissents from the FTC’s Direction.

Commissioners Melissa Holyoak and Andrew Ferguson submitted two dissenting statements, criticizing the complaint against Rytr as an aggressive expansion of the FTC’s authority under Section 5 and cautioned against its chilling effect on a nascent industry.19

Commissioner Ferguson framed the internal conflict well: “Treating as categorically illegal a generative AI tool merely because of the possibility that someone might use it for fraud is inconsistent with our precedents and common sense. And it threatens to turn honest innovators into lawbreakers and risks strangling a potentially revolutionary technology in its cradle.”20 The dissenting statements identified three broad objections to the Rytr complaint.

First, as a threshold matter, the complaint failed to identify any evidence of actual harmful or deceptive acts stemming from Rytr’s product – a clear requirement under Section 5 of the FTC Act.21 Both dissents criticized the complaint for effectively treating draft outputs from Rytr as the final reviews published by users; however, “the Commission does not allege a single example of a Rytr-generated review being used to deceive consumers in violation of Section 5 [.]22 Both dissents criticized the complaint for ignoring the obvious benefits of generative AI in this context. Namely, that “much of the promise of AI stems from its remarkable ability to provide such benefits to consumers using AI tools. . . . If Rytr’s tool helped users draft reviews about their experiences that they would not have posted without the benefit of a drafting aid, consumers seeing their reviews benefitted, too.”23

Second, the dissenters rejected the complaint as “a dramatic extension of means-and-instrumentalities liability,”24 particularly in a case “where there is no allegation that Rytr itself made misrepresentations.”25 The complaint focused on the fact that Rytr “has furnished its users and subscribers with the means to generate written content for consumer reviews that is false and deceptive[,]” thus providing “the means and instrumentalities for the commissions of deceptive acts and practices.”26 However, the dissenters note that the “critical element for primary liability is the existence of a representation, either by statement or omission, made by the defendant.”27 The theory advanced against Rytr could be “true of an almost unlimited number of products and services: pencils, paper, printers, computers, smartphones, word processors, . . . etc.”28 Accordingly, both dissenting commissioners rejected this expansion of means-and-instrumentalities liability because a “knowledge requirement avoids treating innocent and productive conduct as illegal merely because of the subsequent acts of independent third parties.”29

Finally, the dissenters offered several reasons why the FTC’s complaint was not in the public’s interest. Both dissenters expressed concerns that this case was too aggressive and would undermine innovation in the AI industry.30 Commissioner Ferguson went further to note that the complaint could violate important First Amendment interests, noting that the complaint “holds a company liable under Section 5 for a product that helps people speak, quite literally.”31 He criticized the theory behind the complaint; “[y]et because the technology in question is new and unfamiliar, I fear we are giving short shrift to common sense and to fundamental constitutional values.”32

Conclusion

It bears repeating that the FTC Commissioners unanimously approved almost every case listed in Operation AI Comply; “[w]hen people use generative AI technology to lie, cheat, and steal, the law should punish them no differently than if they use quill and parchment.”33 So, the FTC’s warnings about marketing AI systems for professional services, using AI to engage in misleading marketing, or overstating a product’s AI integration should be heeded, especially with the FTC’s statements that this is only the beginning of its enforcement activity.34 In prepared remarks, Chair Lina Khan has stated that the FTC is “making clear that there is no AI exemption from the laws on the books[,]35 so companies should take care to protect against whether their AI and other automated tools are being used for unfair or deceptive purposes or have biased or discriminatory impacts. Just because a technology is new does not mean that it can ignore existing laws – and we’ve seen similar sentiments and disputes in other areas of emerging technology enforcement, such as the SEC’s view that, with respect to U.S. securities laws, “[t]here’s no reason to treat the crypto market differently just because different technology is used.”36

However, the Rytr case could be an indicator that the majority intends to pursue a broader theory of liability under Section 5 of the FTC Act to include tools that merely could be misused – without proof of actual harm or intent. If that continues to be the case, developers should be vigilant in identifying how their products and platforms could be misused for fraudulent purposes, as well-intentioned developers may become the target of investigations or other inquiries by the FTC. The FTC is accepting public comments on the proposed consent agreement with Rytr through November 4, 2024,37 which could develop the FTC’s position further.

1) FTC Announces Crackdown on Deceptive AI Claims and Schemes, Press Release, Federal Trade Commission (Sept. 25, 2024), available at https://www.ftc.gov/news-events/news/press-releases/2024/09/ftc-announces-crackdown-deceptive-ai-claims-schemes.

2) See, e.g., Aiming for truth, fairness, and equity in your company’s use of AI, Elisa Johnson, Federal Trade Commission (April 19, 2021), available at https://www.ftc.gov/business-guidance/blog/2021/04/aiming-truth-fairness-equity-your-companys-use-ai.

3) Operation AI Comply: Detecting AI-infused frauds and deceptions, Alvaro Puig, Federal Trade Commission (Sept. 25, 2024), available at https://consumer.ftc.gov/consumer-alerts/2024/09/operation-ai-comply-detecting-ai-infused-frauds-and-deceptions.

4) See, e.g., id.

5) In re DoNotPay, Inc., FTC Matter No. 2323042, Complaint available at https://www.ftc.gov/system/files/ftc_gov/pdf/DoNotPayInc-Complaint.pdf.

6) FTC v. Ascend Capventures, Inc., et al., C.D. Ca. Case No. 2:24-CV-07660-SPG-JPR (Filed Sept. 9, 2024).

7) FTC v. Empire Holdings Group LLC, et al., E.D. Pa. Case No. 2:24-CV-04949 (Filed Sept. 18, 2024).

8) FTC v. TheFBAMachine Inc., et al., D. N.J. Case No. 2:24-CV-06635-JXN-LDW (Filed June 3, 2024).

9) See generally, FTC Announces Crackdown on Deceptive AI Claims and Schemes, supra.

10) The FTC aggregated several summaries for its recent cases related to AI and other automated tools, which can be found here: https://www.ftc.gov/business-guidance/blog/2024/09/operation-ai-comply-continuing-crackdown-overpromises-ai-related-lies#:~:text=These%20cases%20are,CRI%20Genetics.

11) See generally Cases and Proceedings: Rytr, FTC Matter No. 2323052 (last updated Sept. 25, 2024), available at https://www.ftc.gov/legal-library/browse/cases-proceedings/rytr.

12) See, e.g., In re Rytr LLC, FTC Matter No. 2323052, Complaint ¶ 2, available at https://www.ftc.gov/system/files/ftc_gov/pdf/2323052rytrcomplaint.pdf.

13) Id. ¶ 6.

14) Id. ¶¶ 6-8.

15)  Id. ¶ 10.

16) Id. ¶ 14.

17) Id. ¶¶ 15-18.

18)  See In re Rytr LLC, Agreement Containing Consent Order, available at https://www.ftc.gov/system/files/ftc_gov/pdf/2323052rytracco.pdf.

19) See, e.g., Dissenting Statement of Commissioner Melissa Holyoak, Joined by Commissioner Andrew N. Ferguson, In re Rytr LLC, FTC Matter No. 2323052 at p.1 (cautioning against settlements to “advance claims or obtain orders that a court is highly unlikely to credit or grant in litigation,” as it may encourage the use of “questionable or misguided theories or cases.”) [hereinafter, “Holyoak Dissent”].

20) Dissenting Statement of Commissioner Andrew N. Ferguson, Joined by Commissioner Melissa Holyoak, In re Rytr LLC, FTC Matter No. 2323052 at p.1 [hereinafter, “Ferguson Dissent”].

21) See 15 U.S.C. § 45(n) (prohibiting the FTC from declaring an act or practice unfair unless it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”).

22) Ferguson Dissent at p.6; see also Holyoak Dissent at p.2.

23) Holyoak Dissent at p.3; see also Ferguson Dissent at p.7 (noting the challenges of writing a thoughtful review and that “a tool that produces a well-written first draft of a review based on some keyword inputs can make the task more accessible.”).

24) Ferguson Dissent at p.5.

25) Holyoak Dissent at p.4 (emphasis original).

26) Complaint ¶¶ 15-16.

27) Holyoak Dissent at p.4 (emphasis original) (cleaned up with citations omitted); see also Ferguson Dissent at pp.3-5 (discussing the circumstances in which means-and-instrumentalities liability arises).

28) Ferguson Dissent at p.5.

29) Ferguson Dissent at p.7; see also Holyoak Dissent at p.5 (“Section 5 does not categorically prohibit a product or service merely because someone might use it to deceive someone else.”).

30)  Holyoak Dissent at p.5 (“Today’s misguided complaint and its erroneous application of Section 5 will likely undermine innovation in the AI space.”); Ferguson Dissent at p.10 (“But we should not bend the law to get at AI. And we certainly should not chill innovation by threatening to hold AI companies liable for whatever illegal use some clever fraudster might find for their technology.”).

31) Ferguson Dissent at p.10.

32) Id.

33) Id. at p.9 (citing Concurring and Dissenting Statement of Commissioner Andrew N. Ferguson, A Look Behind the Screens: Examining the Data Practices of Social Media and Video Streaming Services, at pp.10-11 (Sept. 19, 2024)).

34) Operation AI Comply: Detecting AI-infused frauds and deceptions, supra.

35) A few key principles: An excerpt from Chair Khan’s Remarks at the January Tech Summit on AI, FTC (Feb. 8, 2024), available at https://www.ftc.gov/policy/advocacy-research/tech-at-ftc/2024/02/few-key-principles-excerpt-chair-khans-remarks-january-tech-summit-ai.

36) Prepared Remarks of Gary Gensler on Crypto Markets at Penn Law Capital Markets Association Annual Conference, Chair Gary Gensler, SEC (April 4, 2022), available at https://www.sec.gov/newsroom/speeches-statements/gensler-remarks-crypto-markets-040422.

37) Rytr LLC; Analysis of Proposed Consent Order To Aid Public Comment, Federal Register, available at https://www.federalregister.gov/documents/2024/10/03/2024-22767/rytr-llc-analysis-of-proposed-consent-order-to-aid-public-comment.

Copyright ©2024 Nelson Mullins Riley & Scarborough LLP

APPARENTLY NOT AN INDEPENDENT CONTRACTOR: Summary Judgment Denied Because Third Party Vendor May Have Had Apparent Authority To Make Calls Without Consent

Hi TCPAWorld! The Baroness here and I have a good case today.

Dickson, v. Direct Energy, LP, et al., No. 5:18-CV-00182-JRA, 2024 WL 4416856 (N.D. Ohio Oct. 4, 2024).

Let’s dive in.

Background

In this case, the plaintiff Dickson alleges the defendant Direct Energy sent him ringless voicemails (RVMs) in 2017 without consent.

Direct Energy filed a motion for summary judgment arguing that it cannot be held liable under the TCPA because it did not directly make the calls to Dickson (a third-party vendor did) and it cannot be held vicariously liable for the calls under agency principals.

More specifically, Direct Energy argues that Total Marketing Concepts (TMC) was an independent agent and was not acting with actual or apparent authority when it violated the TCPA and Direct Energy did not ratify the illegal acts of TMC.

Law

For those of you not familiar, a motion for summary judgment is granted when there is no genuine dispute as to any material facts and the movant is entitled to judgment as a matter of law.

Under the TCPA, a seller can be held either directly or vicariously liable for violations of the TCPA.

As noted above, Direct Energy did not directly deliver any RVMs to Dickson. So it cannot be directly liable for the calls. Dickson instead seeks to hold Direct Energy vicariously liable for the acts of TMC and TMC’s subvendors.

Let’s first look at the principal/agent relationship.

Direct Energy primarily argued that TMC was NOT its agent because of the terms of their agreement. Specifically, Direct Energy identified TMC as an “independent contractor.” Moreover, TMC was “expressly instructed to send RVMs only with TCPA-compliant opt-in consent.”

Importantly, however, whether an agency relationship exists is based on an assessment of the facts of the relationship and not on how the parties define their relationship.

Listen up folks—contractual terms disclaiming agency will not cut it!

While Direct Energy and TMC did have a provision in their contract which expressly disclaimed any agency relationship, the Court highlighted that the parties entered into an amended agreement which expressly authorized TMC to (among other things) close sales on Direct Energy’s behalf and thereby bind Direct Energy in contracts with customers. In other words, Direct Energy authorized TMC to enter into agreements on its behalf.

The Court also found Direct Energy exerted a high level of control over TMC:

  • Direct Energy had the ability to audit TMC’s records to ensure compliance with its contractual obligations
  • Direct Energy could audit TMC’s subcontractors in the same manner
  • Direct Energy had access to TMC facilities to ensure compliance
  • Direct Energy had the ability to terminate the contract with or without cause
  • Direct Energy authorized TMC to telemarket on its behalf using the Direct Energy trade name as if Direct Energy was making the telemarketing call

Therefore, the Court found Dickson produced evidence which a reasonable jury could find that Direct Energy exerted such a level of control over TMC such that there was a principle/agent relationship, despite their contract expressly providing otherwise.

ACTUAL AUTHORITY

Actual authority exists when a principal explicitly grants permission to an agent to act on their behalf, whether through express or implied means.

Express authority

Pursuant to the Teleservices Agreement, TMC was responsible for complying with the TCPA. Thus, there was no evidence that TMC had express actual authority to contract individuals who had not given consent.

Implied authority

Dickson argued that Direct Energy nonetheless led TMC to reasonably believe it should make telemarketing calls that violate the TCPA. However, the Court found that TMC’s authority was expressly limited to opt-in leads. So, Dickson failed to demonstrate a genuine issue of material facts showing that TMC acted actual authority—either express or implied—when it contracted potential customers who had not opted in to receiving such calls.

APPARENT AUTHORITY

Apparent authority arises when a principal’s conduct leads a third party to reasonably believe that an agent has the authority to act on the principal’s behalf, even if such authority has not been explicitly granted.

Here’s where it gets interesting.

Dickson presented evidence that Direct Energy received several thousand complaints regarding the RVMs but did not stop the conduct.

That’s a lot of complaints..

Moreover, Direct Energy authorized TMC to use its trade name and approved the scripts. Thus, Dickson argued Direct Energy allowed third-party recipients of the RVMs to reasonably believe the RVMs were from Direct Energy.

And even though TMC used other third-party telephony services, this was expressly authorized by the agreement between Direct Energy and TMC.

Therefore, the Court found that Dickson demonstrated that Direct Energy authorized and instructed TMC to use its tradename in its RVMs, approved the scripts used by TMC, and knew or should have known of TMC’s improper conduct and that did not take action to prevent that conduct from continuing.

As such, the Court found a genuine issue of material fact existed that TMC acted with apparent authority when it contracted potential customers who had not opted in to receiving such calls.

RATIFICATION

Ratification occurs when an agent acts for the principal’s benefit and the principal does not repudiate the agent’s actions.

A plaintiff must present some evidence that a principal benefitted from the alleged unlawful conduct of its purported agent to hold the principal liable for the acts of the agent under the theory of ratification.

Here, Dickson failed to produce evidence that Direct Energy received any benefit from TMC’s unlawful telemarketing acts. For example, Dickson produced no evidence of any contracts that Direct Energy secured as a result of TMC contacting potential consumers who had not given opt-in consent. Importantly, the Court stated “[p]ure conjecture that Direct Energy must have benefitted in some way because of the volume of calls made by TMC on its behalf is simply not enough to survive summary judgment.”

Therefore, the Court found Dickson failed to demonstrate the existence of a material fact as to whether Direct Energy ratified TMC’s violations of the TCPA.

In light of the above, the Court recommended denying Direct Energy’s motion for summary judgment. Although there was no genuine issue of material fact related to actual authority and ratification, the Court determined that a genuine issue of material fact does exist concerning whether TMC acted with apparent authority.

This case highlights the complexities of agency relationships in TCPA cases and serves as a reminder for companies: mere contractual disclaimers of agency will not suffice. Courts can still hold you vicariously liable for the actions of third parties acting on your behalf! Choose the companies you are working with wisely.

© 2024 Troutman Amin, LLP
For more news on Independent Contractor TCPA Liability, visit the NLR Communications, Media, & Internet section.

A Guidebook to Lawsuits Over PFAS, or Forever Chemicals

Lawsuits over the effects of per and polyfluoroalkyl substances (PFAS) have become some of the most momentous legal battles since the Big Tobacco lawsuits. PFAS compounds, also known as “forever chemicals,” are used in so many different products that you are almost guaranteed to have one in your home. Since 2000, it has been discovered that these chemicals do not break down, have contaminated numerous water sources in America, that virtually everyone has been exposed to them, and that they carry serious health risks, including several types of cancer.

Already, PFAS manufacturers and other companies that use PFAS in the course of their daily business have paid over $11 billion in PFAS lawsuits, and that is just to mitigate the damage of PFAS exposure by cleaning up contaminated soils and waters. The lawsuits to compensate victims of PFAS exposure are just beginning, and may eclipse this massive total.

What are PFAS Chemicals?

PFAS chemicals are synthetic compounds that have multiple fluorine atoms attached to a chain of alkyl, which includes carbon atoms. There are thousands of different compounds that fall into the category of PFAS chemicals. Importantly, though, the fluorine-carbon bond that is present in all of them is one of the strongest in organic chemistry, with no natural processes for breaking it down. As a result, once a PFAS compound is created, it will continue to be a PFAS compound until something is done to it to break down its chemical structure, like superheating it when it is in water.

What are They Used For?

PFAS chemicals have been used by several major corporations for a variety of applications since they were first used to invent Teflon in 1938. Broadly speaking, PFAS chemicals are extremely useful at resisting, cleaning, or preventing:

  • Heat
  • Water
  • Stains
  • Grease
  • Oil

These broad applications, however, have meant that they have been used in a huge number of specific ways. For example, PFAS chemicals are included in the following products to resist water:

  • Paint
  • Clothing
  • Raincoats
  • Tents
  • Shoes
  • Personal care products, like mascara and sunscreen

As a heat resistant chemical, PFAS compounds are frequently used in:

  • Non-stick cookware
  • Electrical wire insulation
  • Firefighting foam
  • Building materials, including adhesives and insulation

As a stain resistant material, PFAS chemicals have been used in:

  • Carpeting
  • Stain-resistant clothing
  • Window curtains
  • Furniture and varnishing
  • Dental floss
  • Food packaging

PFAS chemicals have also been used as oil- and grease-resistant products, like:

  • Lubricants
  • Hydraulic fluids
  • Pizza boxes and microwave popcorn bags

The practical effect of all of this is that PFAS chemicals are everywhere. There are very few days that you do not interact with one. Worse, because the chemical structure of PFAS compounds do not break down, when they are used or discarded they can contaminate the area around them.

What Have PFAS Chemicals Contaminated?

Virtually everything.

In the early days after PFAS chemicals started to get used for a variety of consumer products, the public and the companies behind the compounds disposed of them with no regard or understanding for the dangers that they were causing.

That lack of understanding by the corporations behind PFAS chemicals, however, began to disintegrate in the 1970s. It was around then that 3M, one of the leading PFAS manufacturing companies, discovered its PFAS chemicals inside fish in local waterways.

Rather than sound the alarm, though, 3M and its competitors continued to dispose of used or unwanted PFAS materials in whatever means they wanted or were most convenient at the time. They burned them, buried them, or dumped them into the water. Some PFAS manufacturers even developed a new firefighting foam, aqueous film forming foams (AFFFs), that relied heavily on PFAS chemicals to put out fires involving airplane jet fuel. Firefighters used this PFAS containing firefighting foam on actual fires at airports and trained with it on controlled fires at airports across the country.

The PFAS chemicals in the foam leeched into the soil and waterways near these airports for decades.

The problem was not discovered, at least not by regulators from the federal government, until 1998. That was when the U.S. Environmental Protection Agency (EPA) learned of an internal study by 3M. In that study, researchers exposed pregnant rats to PFAS materials. Inevitably, the newborn rats died within a few days. Alarmed by the news, the EPA began to investigate in an effort to regulate PFAS.

It was also at this time that a cattle farmer in West Virginia lost his animals to a mysterious health condition. Suspecting that the culprit was a major chemical plant upriver that was owned by PFAS manufacturer DuPont, the farmer sued. Over the next couple of years, the PFAS litigation expanded into a class action of over 3,500 plaintiffs and multiple water districts in the West Virginia region. A temporary settlement was reached in which DuPont would provide $30 million of funding for an independent health and environmental study to address PFAS contamination in the soil and water, the C8 Science Panel.

The findings of this Panel and subsequent studies were dire: There was PFAS contamination virtually everywhere. It was in the soil. It was in the water. It was in the animals that ate plants from the soil and that drank the water. Fish from contaminated waterways had especially high levels of PFAS chemicals in them. And PFAS chemicals were in human beings.

Who Has Been Exposed to Them?

According to one study, 95 percent of Americans had a detectable amount of PFAS chemicals in their blood.

Anyone who is exposed to PFAS chemicals has a risk of ingesting it or it getting into their body some other way – PFAS chemicals are readily absorbed through the skin, and can even get inside your body through your tear ducts. The most common way for your PFAS exposure to become PFAS contamination are:

  • Eating contaminated food or drinking contaminated water
  • Touching anything with PFAS chemicals in it, including clothing and soil
  • Inhaling contaminated dust or air
  • Swallowing anything that has PFAS chemicals in it, like makeup or lipstick
  • Being in contaminated air, which can get into your body through your skin pores and sweat

This means different people are at higher risk of PFAS exposure and contamination than others.

For example, people who live in or near communities that have PFAS industries that emit the chemical into the air are likely to get exposed to the dangerous chemical every single day. Firefighters who use or train with PFAS-heavy AFFF are likely to get severe exposure to the chemical whenever they use the foam, but especially when they use it on a real fire, which burns the chemical and releases it into the air where it is more easily inhaled or absorbed through the skin.

Once they are in your body, PFAS chemicals work their way into your bloodstream. Once there, they pass through your body as your blood circulates. This takes them through all of the organs that handle your blood, including your kidneys and liver. While these organs are responsible for breaking down toxins in your blood, they cannot handle PFAS chemicals. Unless PFAS chemicals are excreted somehow, they will continue to pass through your organs, causing harm to them each time they go by.

Excreting PFAS chemicals seems to be difficult. Studies have found that many people do not excrete PFAS chemicals in their urine very well, though others can do it better. These variations in excretion mean that similar people with similar exposures to PFAS chemicals may have different levels of contamination.

Aside from urinating, the only ways to get PFAS chemicals out of your body are to bleed out contaminated blood and to breastfeed, though breastfeeding just gives the contamination to the newborn child who drinks the milk.

What Health Risks Come With PFAS Contamination?

It is important to know that there is still a lot that researchers have to learn about the health conditions caused by PFAS contamination. Collecting more data may connect new health conditions to high levels of exposure to the chemical, or may even undermine what we think we know at this point.

Right now, though, medical research has found that exposure to toxic PFAS chemicals and high levels of PFAS contamination are associated with higher risks of:

  • Liver damage and cancer
  • Kidney cancer
  • Prostate cancer
  • Testicular cancer
  • Thyroid Disease
  • Fertility problems
  • Pregnancy issues, including:
    • Fetal death
    • Low birth weight
    • Developmental delays in newborns
    • Preeclampsia
    • Hypertension
  • Obesity
  • Hormonal disruption and irregularities
  • Dysfunction in the immune system
  • High cholesterol

Some of these conditions are debilitating. Others may prove to be fatal.

Have There Been Any Settlements?

At this point, the only lawsuits that have been settled by PFAS manufacturers have been those brought by public municipalities and water districts. These class actions and multidistrict litigation (MDL) cases demanded compensation from these companies for the costs of decontaminating soil and upgrading water filtration system to eliminate PFAS from the drinking water.

Already, though, these lawsuits have recovered over $11 billion in settlements.

The first settlement is probably the most telling. This was the West Virginia case that led to the creation of the C8 Science Panel. In 2005, the Panel was created as a part of a temporary settlement that also required DuPont and its spin-off company, Chemours, to pay $71 million and cover the costs of fixing local water treatment facilities.

After the C8 Science Panel began publishing its findings, though, DuPont and Chemours reached a final settlement agreement of $671 million.

Both the settlement and the Panel’s findings led to numerous other studies, as well as to lawsuits by water districts against PFAS manufacturers.

The biggest of these has proven to be the MDL consisting of claims of over 300 water municipalities against the company 3M. This one nearly went to a bellwether trial, settling at the last moment in June, 2023, for between $10.3 billion and $12.5 billion, with the final amount depending on the amount of PFAS contamination that is found in the water. A similar lawsuit against DuPont and its subsidiaries and spin-offs settled soon thereafter for $1.185 billion. More recently, the MDL against Tyco Fire Products, one of the companies behind the firefighting foam AFFF, settled in April, 2024, for $750 million, and the one against BASF settled in May for $316.5 million.

What About Mass Tort Claims?

These massive settlements, totaling over $11 billion, are just to cover the costs of cleaning up the soil and water of the plaintiff municipalities. We have not even begun to recover compensation for the individual victims who have suffered the healthcare issues connected to PFAS exposure and contamination.

Several of these cases are ongoing, though.

Some are being pursued by small groups of plaintiffs against smaller PFAS businesses, like this Connecticut community that is suing a local paper company for contaminating local waterways with PFAS chemicals.

Many more, however, have been consolidated into an MDL in South Carolina. As of July, 2024, it had more than 9,000 claims in it. This MDL, though, is strictly concerned with PFAS exposure from AFFF firefighting foam. However, it does include individual plaintiffs who have suffered actual harm from PFAS exposure, rather than public municipalities. These individual plaintiffs are demanding compensation for their adverse health conditions, medical monitoring, and even for the costs of cleaning up contaminated private property or for the reduction in property values caused by the contamination.

According to PFAS mass tort lawyer Dr. Nick Oberheiden, founding partner of the national law firm Oberheiden P.C., “It seems safe to say that these individual claims for compensation related to PFAS exposure and contamination are going to continue to get filed for decades into the future. One likely outcome is that an MDL will form for non-AFFF specific claims related to medical conditions and property value loss due to PFAS contamination. Victims who have been exposed to PFAS chemicals could then join the MDL and benefit from the expedited process that it entails. If PFAS manufacturers and defendants go bankrupt, we will likely see a trust fund being created, similar to how asbestos manufacturers handled the thousands of cases against them.”

Oberheiden P.C. © 2024
by: Dr. Nick Oberheiden of Oberheiden P.C.
For more news on PFAS Litigation, visit the NLR Environmental, Energy, & Resources section

Mass. Appeals Court Declares Winner in Longstanding Land-Use Dispute Between Northeastern University and Town of Nahant

The Nahant Preservation Trust, the town of Nahant, and certain Nahant residents have suffered another loss in their years-long legal battle to stop Northeastern University from expanding its Marine Science Center, located on East Point in Nahant. The Massachusetts Appeals Court recently affirmed the dismissal of the legal actions, finding that the plaintiffs had no reasonable expectation of proving that Northeastern dedicated the 12 acres of land at issue to the public for use as an ecological preserve.

The dispute – and the Appeals Court decision – required an analysis of the “public dedication doctrine” to determine whether the land was subject to Article 97 of the Amendments to the Massachusetts Constitution. Art. 97 provides, in part, that property “taken or acquired” for conservation purposes “shall not be used for other purposes” without approval by a two-thirds vote of each branch of the state legislature. In Nahant Preservation Trust v. Northeastern University (pdf), the Appeals Court concluded that the land at issue is not subject to Art. 97.

Land is dedicated to a public purpose when the landowner’s intent to do so is clear and unequivocal, and when the public accepts the dedication by actually using the land for the public purpose. In 2017, the Supreme Judicial Court (SJC), in Smith v. City of Westfield, expanded the reach of Art. 97 by concluding that municipal parkland may be protected even if not officially taken or acquired, as long as it was “designated” for an Art. 97 purpose.

The Nahant dispute arose when Northeastern announced plans to expand its Marine Science Center located on a peninsula known as East Point. The plaintiffs contended that Northeastern had permanently dedicated the 12 undeveloped acres of its land to the public for use as an ecological preserve and for passive recreation. Therefore, they argued, the land was subject to Art. 97 and the project could not proceed without legislative approval. The plaintiffs compiled and presented to the superior court judge a substantial record, including historical documents concerning Northeastern’s acquisition of the land, which had been used for military purposes by the United States Army and Navy in the 1940s and 1050s. The evidence also included documents that reflected the Town of Nahant’s decision in 1964 not to acquire the property, despite the conservation commission’s desire to have at least a scenic pathway along the shoreline of the property.

Although the summary judgment record contained conflicting evidence regarding the extent of public access and use of Northeastern’s property by town residents, the courts accepted that some town residents had used the area for general recreation over the years. There was evidence that Northeastern had permitted some recreational use of the land. The Appeals Court noted in its decision, however, that the plaintiffs must prove that the disputed land was actually dedicated to the public.

In rejecting the plaintiffs’ arguments, the Appeals Court stated that the public dedication doctrine requires a property owner’s acts and declarations to be “deliberate, unequivocal and decisive, manifesting a clear intention permanently to abandon his property to the specific public use.” The Court noted that the SJC’s finding in Smith that there had been a dedication was based on an acceptance of Federal funds to rehabilitate a playground with the proviso that the city was surrendering its ability to convert the playground to a use other than public outdoor recreation.

The Appeals Court parsed the evidence on which the plaintiffs relied to demonstrate that Northeastern had “clearly and unequivocally” intended to dedicate the disputed land to the public. The plaintiffs pointed to the public’s use of the land as evidence of Northeastern’s intent to dedicate the property. Citing precedent from 1873 to Smith, the Appeals Court stated that “public use, alone, is not enough to prove a public dedication, particularly in circumstances like those present [in Nahant].”

Based on its review of the extensive summary judgment record, in the light most favorable to the plaintiffs, the Appeals Court concluded that the plaintiffs had no reasonable expectation of proving that Northeastern dedicated the 12 acres at issue to the public for use as an ecological preserve. It appears that Northeastern may finally proceed with its plans announced in 2018 to build a new research facility at its Marine Science Center in Nahant.

©2024 Pierce Atwood LLP. All rights reserved.

by: Michelle N. O’Brien of Pierce Atwood LLP

For more news on Environmental Land Dedication Disputes , visit the NLR Environmental, Energy, & Resources section.