Environmentalists for Foreign Energy Dependence Strike Again

california_expensive_gas_200That special-interest activism has negative consequences is a message Washington Legal Foundation has been communicating for 35 years.

The consequences are sometimes subtle or only become clear over time. In other instances like the outcome we write about here, the consequences are immediately obvious. On January 29, Royal Dutch Shell PLC, citing a January 22 U.S. Court of Appeals for the Ninth Circuit decision as a last straw, announced it would indefinitely put on hold plans to drill for oil beneath Alaska’s Chukchi Sea.

Shell has reportedly invested over $6 billion in its quest to become the first company to extract some of the possibly 27 billion barrels of oil from that offshore location. The leases it obtained from the federal government cost $2.6 billion alone. Over the last eight years, Shell has had to endure delay after delay as a cadre of activist groups—let’s call them collectively Environmentalists for Foreign Energy Dependence—filed lawsuit after lawsuit to slow final approval. A Legal Pulse post from July 2012 details several of these actions, which attacked, among other things, EPA’s emissions permits, Shell’s oil spill plan, and the Bureau of Ocean Energy Management’s (BOEM) environmental impact assessment supporting the lease sale. Continue reading

CVS Action Brings Call for a Food Fight

CVS aisle, CVS/Pharmacy, Bethesda, MD

CVS aisle, CVS/Pharmacy, Bethesda, MD
Photo by Glenn G. Lammi

Well, that didn’t take long.

Just hours after CVS announced last Wednesday that it would halt sales of tobacco, public health activists and their media allies seized the opportunity to advance a notion championed by such anti-”Big Food” luminaries as The New York Times’ Mark Bittman and the Dean of Duke University’s Sanford School of Public Health, Kelly Brownell: food is the next tobacco.

For instance, the Texas Medical Association sent out the following tweet:

The commentary referenced in the tweet stated baldly, “Wander the aisles of CVS and see how their nutritional offerings fit within the framework of an organization pitching health.”

Next, this from Slate business and economics correspondent Matthew Yglesias:

But the cigarettes issue seems to me to mostly raise the question of how far CVS can really go down this road. After all, I was in CVS just yesterday to buy myself some Diet Coke. The Diet Coke sits next to the sugary sodas. And they’re across the aisle from the potato chips. Up front where you cash out there are lots of M&M’s and Snickers bars.

A Saturday op-ed in The Boston Globe called on CVS to put soda, energy drinks, and other “sugary beverages” behind the counter. In support of its absurd viewpoint, the piece quoted health researcher Deborah Cohen from the (normally cerebral) think tank RAND Corporation, who proclaimed, “The food industry is just shoving food in to us.” Nice imagery.

Speaking of imagery, the food=tobacco messaging wouldn’t be complete without a political cartoon.  One by nationally syndicated cartoonist Jimmy Margulies appeared Saturday on the Washington Post op-ed page.

Food companies obviously chafe at the comparison of these two highly dissimilar product categories, as should any person who doesn’t have an axe to grind. But now that opportunities for paternalistic power and money through tobacco control are waning, anti-Big Food activists and their erstwhile allies in the plaintiffs’ bar see food as a logical and vulnerable next target. And they have at the ready an effective strategic activism plan, battle-tested from the “tobacco wars.” Continue reading

Proxy Advisory Services: Making Glass (Lewis) Transparent—and ISS Too

nasdaqCross-posted at WLF’s Forbes.com contributor page

With 2014 and many corporations’ annual meetings just around the corner, more and more publicly-traded companies find themselves girding for costly proxy fights over corporate governance issues.  The small cadre of firms that provide proxy advisory services increasingly hamper management’s ability to prevent proxy battles, and to win those it can’t forestall.  Entities like Glass Lewis & Co. and Institutional Shareholder Services (ISS) provide advice to their institutional money manager and investment adviser clients that increase the percentage of shareholders voting against management’s recommendations.

But it is not at all clear that this proxy voting trend serves shareholder interests.  The Securities and Exchange Commission (SEC) has been studying these firms (which together control some 97% of the proxy services market )and their grip over proxies.  As Edward Knight, General Counsel of NASDAQ OMX (the public company that owns NASDAQ) points out: “[T]here is evidence that the Firms not only increase the costs of being a public company, but also create disincentives for companies to become public in the first place.”  Perhaps, as an October petition filed with SEC by NASDAQ OMX urges, it’s time the SEC stopped studying and started acting to make the methodology behind such influential proxy voting advice more transparent.

A Creature of Regulation.  The current problem began when, in an effort to curtail potential conflicts of interest, SEC imposed a new rule in 2003—the “Proxy Voting by Investment Advisers” rule—that required entities such as institutional investors and investment advisers to disclose “the policies and procedures that [they use] to determine how to vote proxies.”  To satisfy this new requirement, investment advisers began turning to third-party firms that offer advice on proxy voting.  When a 2004 SEC no-action letter clarified that relying on such firms creates a veritable safe harbor, the reliance on these firms grew and their impact blossomed.

Thanks to a second 2004 no-action letter, SEC has also instructed proxy advisory firms that they can provide advice to public companies on corporate governance issues—including how to win proxy votes—at the same time that they make proxy voting recommendations to investment advisers.  As James Glassman and J.W. Verret wrote in a Mercatus Center analysis last April, “Instead of eliminating conflicts of interest, the rule simply shifted their source.  Instead of encouraging funds to assume more responsibility for their proxy votes, the rule pushes them to assume less.”  Such concerns, voiced both by public companies and SEC Commissioners, led SEC to publish a “Concept Release on the U.S. Proxy System” that elicited over 300 comments. Continue reading

Ninth Circuit: Citizen Group Cannot Sue to Force State Greenhouse Gas Regulation

svendbeGuest Commentary

by Svend Brandt-Erichsen, Marten Law PLLC*

A U.S. Court of Appeals for the Ninth Circuit panel ruled last month in Washington Environmental Council v. Bellon that environmental plaintiffs do not have standing to bring a citizen suit under the federal Clean Air Act to force state agencies to regulate greenhouse gas (GHG) emissions from five oil refineries in the State of Washington.  The district court had granted summary judgment to the environmental groups, holding that air agencies were required to regulate GHG emissions under a Washington regulation that requires existing sources to employ reasonably available control technology (RACT).

On appeal, the Ninth Circuit concluded that the environmental groups had not established standing to pursue their claims.  Applying the federal three-part standing test, the court assumed (without deciding) that the environmental groups had shown injury-in-fact from GHG emissions due to climate change, but concluded that they had failed to establish a causal link between GHG emissions from the five refineries and the claimed climate change injuries, or that a court order requiring regulation of the refineries’ GHG emissions would redress their claimed injuries.  A Ninth Circuit vote on whether the panel’s decision should be reviewed en banc is pending.

To establish the first standing element (injury-in-fact), members of the environmental groups had submitted declarations attesting to recreational, aesthetic, and economic injuries that they have experienced and attribute to climate change impacts in Washington.  The Ninth Circuit panel stated that it would assume, without deciding, that the declarations provided the sort of evidence of immediate and concrete injuries necessary to satisfy the first standing element of injury-in-fact. Continue reading

Class Actions Challenging Use of “Natural” on Food Labels Begin to Founder

all naturalCross-posted at WLF’s Forbes.com contributor page

For the past two years, plaintiffs’ lawyers have nourished The Legal Pulse with a steady diet of all-natural lawsuits. And by that we mean class actions alleging that the use of “natural” or “all natural” on a food product label is false or misleading under state law (normally, California law). Other than the occasional decision to put a lawsuit on hold so the Food & Drug Administration (FDA) can provide a formal definition for “natural” (which it has yet to do), these claims have mostly survived defendants’ efforts to dismiss them.

However, with four courts issuing decisions favorable to defendants in the past three months, these “all natural” claims may have become less appetizing.

Claims Rejected at Motion to Dismiss Stage. In order to prevail on claims that defendants’ use of “natural” violated California law, plaintiffs must prove that “reasonable consumers” relied on the claim and were deceived by it. Whether a business practice is deceptive normally presents a question of fact for a jury. But under California case law, judges in some instances can determine that as a matter of law, consumers are unlikely to be deceived. One area where judges have taken such action at the motion to dismiss stage is product packaging claims.

We’ve previously discussed Northern District of California Judge Koh’s opinion in Kane v. Chobani, the first of two recent rulings to dismiss a “natural” claim. Judge Koh ruled that because yogurt labels clearly disclosed the use of fruit or vegetable juice concentrate, the plaintiffs could not plausibly have been misled by Chobani’s “all natural” representation. Continue reading

The Federal Government is Coming For Your Magnets

Magnetic regulation?

Magnetic regulation?

Cross-posted at WLF’s Forbes.com contributor page

The U.S. Consumer Product Safety Commission held a public hearing Tuesday on its proposed safety standard for magnet sets.  Although the proposed standard originally issued last year, the agency failed to do the required oral hearing at that time and is now making up for that oversight.  In the interim, however, the agency filed a lawsuit against a manufacturer of magnet sets and its CEO, a lawsuit that is still pending in front of an Administrative Law Judge.  The Commissioners will sit in judgment as an appellate body if any party appeals the ALJ’s ruling in that case.  If any Commissioner thinks it inappropriate to nonetheless proceed with a ban on the product in question, it went unremarked at the hearing.  Does anyone believe that the Commission could impartially oversee such an appeal having already banned the product about which the ALJ is ruling?

The ostensible purpose of a public hearing is to ensure that all views are heard, yet not a single opponent of the regulations appeared to testify.  Not one.  Given that the written comments submitted to the agency last year included many comments opposing the agency’s action, it seems unlikely that no one wanted to testify in person against the agency’s proposal.  The agency apparently did a much better job of inviting supporters of the regulation from the medical and advocacy communities than from, say, the companies whose employees will lose their jobs when this product ban goes into effect.  One founder of a company directly affected by the agency’s action complained that he did not receive any notice of the event prior to the cutoff for submitting testimony.  One need not go very far out on a limb to speculate that the doctors who testified in front of the CPSC did not learn about the hearing from reading the Federal Register notice themselves.  Shame on the biased CPSC for not doing more to seek out the views from the affected industry at this hearing.  The agency did at least leave the hearing record open until Oct. 29, in case any latecomers want to file additional written comments. Continue reading

Regulatory Federalism Eroded: Senior West Virginia Officials Upbraid EPA in New WLF Paper

west vaOn September 13, Washington Legal Foundation released a Legal Backgrounder authored by three senior officials from the state of West Virginia: Patrick Morrisey, Attorney General; Randy Huffman, Cabinet Secretary of the West Virginia Department of Environmental Protection; and Elbert Lin, the state’s Solicitor General.

The paper, Last Call For Cooperative Federalism? Why EPA Must Withdraw SIP Call Proposal On Startup, Shutdown & Maintenance, focuses on a proposed Environmental Protection Agency rule which impacts 36 states’ implementation of the federal Clean Air Act. This proposed rule, as the authors explain, reflects two troubling EPA practices: 1) the agency’s retreat from working cooperatively with state environmental regulators and 2) the revision of existing rules or the imposition of new requirements through the settlement of lawsuits brought by private activist groups (aka, “sue and settle”).

The proposed rule involves state regulations that impact emissions occurring during power plant startup, shutdown, and maintenance (“SSM”). Even though EPA formally acknowledges that during SSM, conditions arise that are beyond the plant operators’ control, the proposed rule claims that those 36 states’ rules inadequately address these “excess emissions.” The rule issues what’s known as a “SIP call” (SIP=State Implementation Plan) even though, General Morrisey and his co-authors write, “EPA has not identified any [air quality] violation resulting from an SSM provision in West Virginia’s or any state’s SIP.” The paper goes on to make a compelling legal case why the proposed rule is an unlawful exercise of EPA authority.

The proposal attracted a substantial number of comments, some of which were from state attorneys general and environmental regulators criticizing EPA’s departure from cooperative federalism and its embrace of rulemaking through litigation settlement. West Virginia’s comment can be seen here.

EPA’s sue and settle tactics have been the subject of a recent WLF publication as well as Legal Pulse commentary. In addition, thirteen state attorneys general filed suit against EPA in the Western District of Oklahoma on July 16 seeking information on agency settlements of activist groups’ lawsuits. EPA rejected a February 6 Freedom of Information Act request the attorneys general filed for information on contacts EPA has had with specific activist groups on a specific state-implemented regulation.

Food Court Update: Suit Vs. 7-Eleven Dismissed Due to Ambiguity

food-courtIn a post last month we referenced the 30+ lawsuits filed in the U.S. District Court for the Northern District of California by the same consortium of plaintiffs’ lawyers against processed food and beverage makers alleging very similar violations of state and federal laws. We’ve been doing our best to keep up with developments in those cases, a task that can be daunting to say the least. Thanks to an attentive Legal Pulse reader, we learned recently of a decision in Bishop v. 7-Eleven, Inc.

7-Eleven asked Judge Edward Davila to dismiss the plaintiff’s amended complaint for failure to plead his fraud claims with specificity as Rule 9 of the Federal Rules of Civil Procedure requires. Mr. Bishop alleged he was misled into filling his overflowing 7-Eleven cornucopia with house brand potato chips, ice cream, cheese jalapenos, a parfait, and what he termed other “Misbranded Food Products.”

Judge Davila did not take well to the plaintiff’s throw a bunch of food against the wall and see what sticks approach to pleading. He wrote:

The Amended Complaint fails to unambiguously specify the particular products that have violated particular labeling requirements, the allegedly unlawful representations that were on the products, and the particular statements Plaintiff allegedly relied on when making his purchase.

This heightened pleading standard—under which the plaintiff must clearly state the “who, what, when, where, and how” of the alleged fraudulent conduct—not only protects defendants’ rights, but also helps to preserve dwindling judicial resources by deterring frivolous claims. While Judge Davila honored the purpose of Rule 9 in dismissing Bishop’s mislabeling claims, he  regretfully allowed Bishop and his consortium of lawyers to amend the complaint a second time.

So unfortunately for the defendant, which will have to divert more valuable time and financial resources, and for the taxpayer-funded Northern District of California, Mr. Bishop will likely be back in court again soon with his 7-Eleven cornucopia complaint.

Post-”Kiobel” Human Rights Suits Vs. Corporations: A New Reliance On Common Law?

DC CircuitCross-posted at WLF’s Forbes.com contributor page

For several decades, human rights activists have relied on the Alien Tort Statute (ATS) as their vehicle of choice for suing multinational corporations for alleged overseas human rights violations.  The Supreme Court’s April 2013 Kiobel decision called into question the viability of many such suits.  Several weeks ago, the U.S. Court of Appeals for the District of Columbia Circuit became the latest federal court to respond to Kiobel by retracting a prior, expansive interpretation of ATS jurisdiction.  That suit provides a good case study, however, of just how hard it will be, despite Kiobel, for corporate defendants to make these cases go away.  Although human rights activists may no longer be able to rely on the ATS, some federal courts are permitting these suits to go forward based on common law claims.

In 2011, the D.C. Circuit had rejected claims by Exxon that the ATS—which grants federal courts jurisdiction to hear tort claims alleging violations of “the law of nations” —does not apply extraterritorially.  Doe v. Exxon Mobil Corp.  It reversed the district court’s dismissal of ATS claims that Exxon aided and abetted human rights violations by Indonesian soldiers assigned to guard Exxon facilities during a civil war in that nation’s Aceh region.  The case was arguably distinguishable from Kiobel, which barred extraterritorial application of the ATS, because the U.S. connections to the case were greater:  Exxon is headquartered in the U.S., while the defendant in Kiobel was a foreign corporation. The D.C. Circuit nonetheless last month vacated its 2011 ATS decision in light of Kiobel and remanded the case to the district court. Continue reading

Update: Oklahoma Governor Orders Special Session to Revive Judicially Nullified Tort Reform

OKIn our June post Oklahoma High Court Nullifies State Tort Reform Law, we criticized the Oklahoma Supreme Court’s decision in Douglas v. Cox Retirement, which struck down the state’s tort reform law for failing to follow its constitution’s “single subject” rule. In the post, we asked:

So what’s a state legislature to do under the non-guidance offered by the majority opinion in Douglas? Should it spend its limited time in session trying to pass 90 separate bills or smaller groups of bills, with, as the dissent wrote, “no greater assurance the legislation will pass the single-subject test”?

As of today, it’s likely that we will find out what the legislature will do sooner than its next formal legislative session in 2014. Governor Mary Fallin issued an executive order calling the legislature into a special session commencing Tuesday, September 3.

For more on the Douglas decision and its impact, see this Federalist Society State Court Docket Watch article authored by the Chief Counsel of WLF’s Legal Studies Division.