Fourth Circuit Affirms Ashley District Court Decision

In a much anticipated decision, the United States Court of Appeals for the 4^th Circuit finally issued a decision in the PCS Nitrogen v Ashley II of Charleston, 2013 U.S. App. LEXIS 6815 (4^th Cir. 4/4/13) case.

The decision, however, did not provide the clarity that many were hoping for about the controversial decision by the District Court that the purchaser of the property, Ashley II of Charleston, did not qualify as a Bona Fide Prospective Purchaser (BFPP) and receive exemption from liability because it had indemnified a responsible party and, therefore, had an improper “affiliation” with that party.   

Larry Schnapf’s always illuminating blog, Business Environmental Law and Transactional Support, has a full discussion of the ruling and many of the other issues in the case here.

I served as a mediator for the parties to assist them in resolving the allocation issues and settle the case before litigation. I will not comment about the many issues in the case or the 4^th Circuit decision – except to point out that, given the “much ado about nothing” results, as Larry described the decision, the parties could have resolved the case without litigation. Instead, no party “won” much and all parties lost something.

Certainly the cost of litigation could have funded some if not all of the costs of a negotiated settlement. 

Delaware Chancery Court Appeals Decision Striking Arbitration Program

I recently blogged about Delaware statute that allows Chancery Court judges to sit as private arbitrators having been found to be unconstitutional by U.S. District Court Judge Mary McLaughlin of the District of Delaware.

As the DealBook blog in the New York Times wrote, the statute was designed to “permit the Delaware Chancery Court to arbitrate private disputes confidentially without public access.” Which seems to me to be the problem with the program.

As expected, the case has been appealed to the 3^rd Circuit. The lack of transparency in this arbitration program is a significant obstacle for the appellant to overcome.  What do you think are the odds of the District Court’s decision being overturned?

To read an article that disagrees with the District Court decision and supports the private arbitration program, click here. 

Citizens United? Evaluating the 2012 Presidential Election in a "Super PAC" World

The 2012 presidential election has been the most expensive to date. The whopping $2 billion that has been spent by both campaigns can be partially attributed to the Citizens United v. the Federal Election Commission decision by the Supreme Court.

This decision, as many of you know, held that corporations and labor unions have a First Amendment right to make independent expenditures that advocate election or defeat of candidates in certain federal elections.

This has led to the creation of “Super-PACs” that can spend an unlimited about of money in federal elections. This has led to a very large increase in paid media advertising. Many believe our campaign finance system is broken.

The American Bar Association Section on Individual Rights and Responsibility is holding a panel discussion to consider the effects of Citizens United on the 2012 presidential election.  Free-speech proponents, proponents of campaign donation regulation and election law practitioners will meet to discuss the lessons learned from this election and how campaign finance has changed.  The legal ramifications of Citizens United, such as the potential effects of shareholder litigation challenging campaign expenditures, will also be discussed.

Campaign finance is a critical issue. This panel is a timely opportunity for those in the DC area to hear civil discourse about an interesting subject. It is free, unless you are requesting CLE credit, in which case it costs $25.

To register for CLE credit, email the Section at irr@americanbar.org.  For more information, contact Patrice Payne at (202) 662-1030.

California Confidentiality Statute Allows Clients to be Defrauded if Done During Mediation

Does this heading get your attention?  Because it is true, even if the statute allowing this was not designed to produce this outcome.

The strict California mediation confidentiality statute allows this outcome, according to the California Court of Appeals, the second such decision upholding the absolute ban on disclosure of any information if it originated in mediation. 

In two cases with egregious facts the California courts have held that the mediation confidentiality statute means what it states – that no evidence of any statement, act or writing prepared for a mediation is admissible in any subsequent court proceeding. Period. End of story.

I’ve blogged about this before, reporting on a decision by the California Supreme Court in Cassel v.Superior Court,  in which the Court held that private communications between an attorney and client that take place during mediation are confidential – even when the client waives the attorney-client privilege and requests disclosure.

The most recent case is Hadley et al. v. The Cochran Firm Cal. Court of Appeal, 2nd Appellate Dist., 8th Div., 2012  in which the California Court of Appeals held that the statute applied even when an attorney stapled an executed signature page from a confidentiality agreement to a supposed settlement agreement to which the clients had not agreed, thereby settling the case and dismissing their claims without the clients’ authority or knowledge.  Wow, talk about alleged malpractice and fraud.

The trial court dismissed the claims in response to a motion in limine to exclude the evidence of the alleged fraud and malpractice because this all happened during a mediation. The court was apparently following precedent from the Cassel decision by the California Supreme Court and a reading of the plain language of the statute.  The appellate court upheld the decision, holding that the mediation confidentiality statute compelled such a result.

This is no way to encourage mediation or engender client confidence in the mediation process.  These decisions clearly show the dangers of unintended consequences. When the mediation community drafted and supported a statute with an absolute bar, and opposed the Uniform Mediation Act, which takes a far more nuanced approach, I am certain there was no thought given to results such as this.

Supreme Court Case on EPA’s Power to Order Environmental Compliance

On January 9, 2012, the Supreme Court will hear oral argument on a case that may establish the extent, both under law and the Constitution, of the power of the EPA to order compliance with certain environmental laws – and seek judicial enforcement of those orders.

The two questions presented to the Court are 1) whether parties can seek pre-enforcement review of EPA administrative compliance orders under the Administrative Procedure Act, 5 U.S.C. §704 (“APA”); and 2) whether, if not, the inability to seek pre-enforcement review is a violation of the Due Process Clause of the Constitution.

The Court granted certiorari to hear an appeal of Sackett v. U.S. Environmental Protection Agency (Docket No. 10-1062) http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/10-1062.htm. This case comes up from the Ninth Circuit Court of Appeals, the Circuit with the most cases, by far, recently reviewed and overturned by the Supreme Court. In the last term, the Supreme Court reversed the Ninth Circuit in 19 out of 26 cases, an extremely high 79% reversal rate.

The facts of the case are about the actions Chantell and Michael Sackett took on their own 0.63-acre -vacant lot near Priest Lake in Idaho. The Sacketts filled in a portion of the lot with dirt and rock to build a house. EPA issued a compliance order alleging that the filled in area of the property is a wetland subject to regulation under the Clean Water Act, 33 U.S.C. §1251 et seq. (“CWA”), and that the Sacketts were unlawfully discharging pollutants into waters of the United States without a permit, in violation of 33 U.S.C. § 1311(a).

The Sacketts, without first seeking a CWA Section 404 permit, a jurisdictional determination or informal guidance from the Army Corps of Engineers or EPA, sought a hearing with EPA to challenge the finding that their property was subject to the CWA; EPA refused to grant the hearing, so the Sacketts filed suit in the US District Court seeking an injunction and declaration from the Court that EPA did not have jurisdiction, alleging that EPA’s compliance order was (1) arbitrary and capricious under the APA; (2) issued without a hearing in violation of the Sackett’s due process rights under the Constitution; and (3) issued on an unconstitutionally vague standard of “any information available.”

The District Court granted EPA’s motion to dismiss based on lack of subject matter jurisdiction, agreeing with the government that the CWA precludes judicial review of EPA compliance orders before EPA initiates an enforcement action in federal court. The Ninth Circuit agreed (622 F.3d 1139), stating that “We join our sister circuits and hold that the Clean Water Act precludes pre-enforcement judicial review of administrative compliance orders, and that such preclusion does not violate due process.” Id. at 1141.

This case has become a big deal for the environmental law cognoscenti. Amicus briefs in support of the Sacketts were filed by many, including the American Farm Bureau Federation, the U.S. Chamber of Commerce, the Competitive Enterprise Institute, the Mountain States Legal Foundation and the American Petroleum Institute, among many others.

Interestingly, the APA Watch, a nonprofit organization which describes itself as devoting “significant effort to combating federal agencies’ exceeding their authority under the Administrative Procedure Act…” filed a brief supporting neither party but expressing its concerns about issues not raised by the parties to this litigation under the APA to protect future litigants.

While not raised by the Sackett’s in their case, APA Watch points out that parties injured by non-final agency action have an independent right of redress under the APA §10(c), even when that action is not made reviewable by the underlying statute.

This case presents equities on both sides of the question. On the one hand, agencies charged with protecting the environment must have the statutory and judicial tools necessary to enforce against parties who take action – even on their own properties – that violate the environmental laws that were enacted to protect all of us; on the other hand, the Constitution sets forth due process principles intended to restrain unfair and inequitable governmental actions.
I look forward to seeing how the Supreme Court balances these equities; my guess is that whatever the decision, the Court will recognize and protect the APA interests articulated by APA Watch.

Is Delaware’s Court Arbitration System for Business Disputes Unconstitutional?

Delaware, the state with laws designed for businesses, has a statute authorizing the Delaware Chancery Court judges – sitting Court judges – to conduct confidential arbitrations of business disputes.

The law, Arbitration Proceedings for Business Disputes provides that the “Court of Chancery shall have the power to arbitrate business disputes when the parties request a member of the Court of Chancery, or such other person as may be authorized under rules of the Court, to arbitrate a dispute.” (77 Del. Laws, c. 8 §1).

The Delaware Supreme Court has adopted rules governing the arbitration program. The rules provide that arbitrators are sitting Court judges or masters. Further, and the subject of controversy and now litigation, the Rules provide that all proceedings of the arbitration are confidential unless the proceedings are appealed.

There are at least two things wrong with this picture. First, why are these Court proceedings (even if labeled arbitration) confidential? Is this not private law? And second, why is an arbitration award appealable? Is this not evidence that the so-called arbitration proceeding is simply litigation in the Chancery Court – before Chancery Court judges and using the Court’s case management system by another name – to allow parties to cloak their dispute with the one of the benefits of private arbitration – confidentiality?

Recently the Delaware Coalition for Open Government as sued the five judges on the Delaware Chancery Court for operating a private arbitration system. The only difference between civil litigation - which is public - and the arbitration is that the "procedures and rulings occur behind closed doors instead of in open court," according to the complaint filed in Delaware's federal district court. The Coalition argues that the arbitration proceedings violate the right of access to judicial proceedings and records in civil and criminal cases guaranteed by 1st Amendment to the Constitution as applied to the states in the 14th Amendment.

The case is Delaware Coalition for Open Government Inc v The Honorable Leo E Strine Jr et al, U.S. District Court, District of Delaware, No. 11-1015.

This case is more fully discussed in the always interesting ADR Prof Blog by Professor Art Hinshaw. Professor Hindshaw points out that many courts manage arbitration programs; most typically occur in open court without confidentiality protection and the loser can appeal or ask the trial court for a trial de-novo.

"If the parties really want to go to arbitration, why not go to the private market?"