Mayer Brown's



2001 Term, Number 6 / January 4, 2002

Today the Supreme Court granted certiorari in three cases of potential interest to the business community. Amicus briefs in support of the petitioners are due on Tuesday, February 19, 2002 and amicus briefs in support of the respondents are due on Thursday, March 21, 2002. Any questions about these cases should be directed to Eileen Penner (202-263-3242) or Miriam Nemetz (202-263-3253) in our Washington office.

1. National Labor Relations Act — Liability for Retaliatory Lawsuits. The Supreme Court granted certiorari today in BE&K Construction Company v. National Labor Relations Board, No. 01-518, to decide whether, under the National Labor Relations Act ("NLRA"), an employer may be held liable for filing, with a retaliatory motive, a lawsuit against employees or unions that, although ultimately unsuccessful, was not necessarily objectively baseless.

In 1987, BE&K Construction Company ("BE&K") sued several non-employee unions, alleging various forms of interference with a large construction project in California. Over the next several years, all of BE&K's claims were either dismissed or voluntarily withdrawn. The National Labor Relations Board ("NLRB") then found that BE&K was liable for prosecuting an unsuccessful lawsuit for retaliatory reasons. BE&K Construction Co., 1999 WL 883851 [.pdf] (N.L.R.B. Sept. 30, 1999). The NLRB required BE&K to pay the attorney's fees that the unions had incurred in defending the original lawsuit as a sanction for its violation of the NLRA. Id.

On appeal, the Sixth Circuit upheld the Board's determination. BE&K Construction Co. v. NLRB, 246 F.3d 619 [.pdf] (6th Cir. 2001). The court of appeals invoked the standard of liability announced by the Supreme Court in Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731 (1983). The Sixth Circuit interpreted Bill Johnson's as holding that, once an employer's claims have been dismissed or voluntarily withdrawn, the NLRB need only find that the lawsuit was filed with a retaliatory motive in order to establish liability under the NLRA. See id. at 628-29. The court rejected BE&K's argument that, under Professional Real Estate Inventors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49 (1993), liability for retaliatory lawsuits is restricted to cases in which an employer's claims are "objectively baseless." Id. at 629. The court of appeals held that the "objectively baseless" standard applies to claims of retaliation under the antitrust laws, but not to those under the NLRA. See id.

The Sixth Circuit's decision is at odds with NLRB v. Vanguard Tours, Inc., 981 F.2d 62 (2d Cir. 1992), in which the Second Circuit appeared to adopt the Professional Real Estate Inventors standard in an NLRB retaliatory-lawsuit case. Several other circuits have expressed skepticism about the continuing vitality of Bill Johnson's and a desire for Supreme Court guidance in this area. See Petrochem Insulation, Inc. v. NLRB, 240 F.3d 26 (D.C. Cir. 2001); White v. Lee, 227 F.3d 1214 (9th Cir. 2000).

This case is of interest to all employers and unions. The Court's decision will establish the scope of employers' liability for alleged retaliatory lawsuits under the NLRA.

2. Interstate Commerce Act — Preemption of Municipal Regulation of Motor Carriers. The Interstate Commerce Act ("ICA") states that "a State, political subdivision of a State, or political authority of 2 or more States may not enact or enforce a law * * * related to price, route, or service of any motor carrier." 49 U.S.C. § 14501(c)(1). The ICA further provides that this general prohibition "shall not restrict the safety regulatory authority of a State with respect to motor vehicles." 49 U.S.C. §14501(c)(2)(A). The Supreme Court granted certiorari in City of Columbus v. Ours Garage & Wrecker Service, Inc., No. 01-419, to determine whether municipal ordinances that govern local towing operations fall within that exception to preemption.

Like many other cities in the United States, the City of Columbus, Ohio, has enacted an ordinance that regulates towing operations within the City. The ordinance requires every tow-truck operator to obtain a license; to meet minimum requirements with respect to liability insurance, truck identification, record keeping, and storage; and to pass an annual safety inspection. The regulations also prohibit operators from responding to an accident scene unless summoned by an interested party or the City. Ours Garage and Wrecker Service, Inc., which operates a towing company in Columbus, was cited for failure to obtain a license. Thereafter, it filed suit against the City in federal district court, seeking a declaration that the ICA preempts the City's towing ordinance. The district court granted summary judgment in favor of Ours Garage.

The Sixth Circuit affirmed. 257 F.3d 506 (6th Cir. 2001). In ruling that the Columbus towing ordinance was preempted, the court of appeals relied on its own decision in Petrey v. City of Toledo, 246 F.3d 548 (6th Cir. 2001), which invalidated similar regulations promulgated by the City of Toledo. In Petrey, the Sixth Circuit concluded that municipal towing regulations are preempted except when the municipality acts as a market participant in regulating non-consensual towing. According to the court of appeals, safety regulations enacted by municipalities do not fall within the exception from preemption created by 49 U.S.C. §14501(c)(2)(A); in its view, "while states may regulate the safety of motor carriers, political subdivisions may not." 246 F.3d at 561. 

In holding that the ICA permits only the states themselves to enact safety regulations governing motor carriers, the Sixth Circuit aligned itself with the Fifth, Ninth and Eleventh Circuits. See Stucky v. City of San Antonio, 260 F.3d 424 (5th Cir. 2001); Tochler v. City of Santa Ana, 219 F.3d 1040, 1048 (9th Cir. 2000); R. Mayer of Atlanta, Inc. v. City of Atlanta, 158 F.3d 538 (11th Cir. 1998). The Sixth Circuit's ruling conflicts with the Second Circuit's conclusion that Congress intended to exempt from preemption safety regulations enacted by political subdivisions as well as those enacted by states. Ace Auto Body & Towing, Ltd. v. City of New York, 171 F.3d 765, 774 (2d Cir. 1999). 

This case is significant to all motor carriers that may be subject to safety regulations enacted by municipalities and other political subdivisions.

3. Government Contracts — Statute of Limitations — Takings. The Supreme Court granted certiorari in Franconia Associates v. United States and Grass Valley Terrace v. United States, No. 01-455, to determine when a contract or takings claim accrues for purpose of applying the statute of limitations when Congress enacts a statute alleged to abridge a contractual right to prepay government mortgage loans.

Petitioners in the Franconia Associates case owned low income housing in rural areas financed by mortgage loans from the Farmers Home Administration of the United States Department of Agriculture (FmHA), now known as the Rural Housing Service. Pursuant to the National Housing Act, 42 U.S.C. § 1485, the government provided low interest loans in exchange for various restrictions on the use of the land, including requirements that: 1) tenancy be restricted to persons eligible under the Act, and 2) the rents be no higher than designated by FmHA regulations. 

Originally, petitioners had the right to prepay their loans and then be free of the restrictions. Due to the high number of property owners exercising this right and the subsequent shortage of inexpensive housing, Congress decided to restrict the prepayment option through two sets of legislation, the Emergency Low Income Housing Preservation Act, 42 U.S.C. 1472(c), originally enacted in 1988, and the Housing and Community Development Act, 42 U.S.C. § 1472(c), enacted in 1992. The restrictions required borrowers to negotiate with the government to avoid prepayment, offer the property for sale to qualified non-profit organizations, and maintain the statutorily prescribed rents until the occupying tenants vacated. 

Petitioners filed suit in May 1997, alleging that the 1992 restrictions amounted to an anticipatory repudiation of the loan contract, and that the repudiation was a taking under the Fifth Amendment. The Court of Federal Claims dismissed the contract and takings claims, holding that the relevant breach of the contract occurred with the passage of the 1988 legislation, and therefore that petitioners' claims were barred by the six-year statute of limitations set forth in 28 U.S.C. § 2501. 43 Fed. Cl. 702, 709 (1999). The Grass Valley case involved similar facts and reasoning. 46 Fed. Cl. 629 (2000).

The Court of Appeals for the Federal Circuit unanimously upheld the Franconia ruling. 240 F.3d 1358 (2001). The court reasoned that a claim against the government accrues when the government's liability for the breach becomes fixed. According to the court, the government's duty under these contracts was to allow the borrowers an "unfettered right" to prepay their loans; therefore, the 1988 legislation constituted an actual breach that fixed liability, and the six-year limitations period began running at that time. The court of appeals subsequently affirmed the lower court's decision in the Grass Valley case per curiam without opinion.

Petitioners contend that the courts' statute of limitations analysis improperly exempted the government from normal contract rules. They assert that the 1988 and 1992 bills were only an anticipatory repudiation and that the cause of action did not accrue until the government actually denied a request for prepayment. They further maintain that the 1988 legislation included only temporary provisions, and that the statute of limitations therefore could not start running with its enactment. Finally, petitioners argue that the legislation grants the government discretion over allowing prepayments, making it necessary to conduct an "as applied" analysis of whether a taking has occurred.

This case is important for all property owners with loans from the FmHA. The case also will have repercussions for businesses that contract with the government.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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