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The U.S. Supreme Court Moves Toward Requiring Prospective Intervenors to Demonstrate Standing at the Outset

To intervene as of right in a federal lawsuit, a would-be party must, pursuant to Rule 24(a) of the Federal Rules of Civil Procedure, show that it (1) has an interest, (2) disposition of the case without intervention would, as a practical matter, impair or impede its interest, (3) the interest is inadequately represented by the existing parties, and (4) the motion is timely made. Until recently, prospective intervenors might have sought to take advantage of a circuit split on a question not specifically addressed by the Rule—must a prospective party demonstrate standing, and if so, when? The issue is not merely of academic concern, because if a potential intervenor must demonstrate standing, it will not simply be able to make broad statements of interest, but rather show injury-in-fact, redressability, and traceability. Three circuits, the Seventh, Eighth, and the D.C. Circuit, had previously held that one cannot intervene as of right under Rule 24(a) without a showing of Article III standing. The other Circuits, including the Second, have not imposed such a requirement.

The Supreme Court, in a June 5, 2017 decision, narrowly resolved the split and inched toward requiring that litigants who seek to intervene as of right under Rule 24 must demonstrate standing at the time that they seek to intervene. The Court’s ruling in Town of Chester, New York v. Laroe Estates, Inc., 137 S. Ct. 1645 (2017), illustrates the path the Court will likely take.

The genesis of the lawsuit was in 2001, when land developer Steven Sherman bought 400 acres of land in the town of Chester for $2.7 million. He intended to build a multi-use complex consisting of a housing subdivision, a golf course, a restaurant and shops. He soon became immersed in a “journey through the Town’s ever-changing labyrinth of red tape.” Sherman v. Chester, 752 F. 3d 554, 557 (2d Cir. 2014). To try to keep the project going, Sherman obtained a $6 million investment from Laroe Estates, which was backed by a mortgage and an agreement that Sherman would sell a number of parcels in the subdivision when it received regulatory approval. Although Laroe ended up paying Sherman more than $2.5 million, the investment couldn’t compensate for the repeated delays by the Town, and TD Bank began a foreclosure proceeding in 2013. The agreement between Sherman and Laroe remained in place.

Shortly before the foreclosure proceeding began, Sherman filed suit against the Town in a New York state court, contending that “the decade’s worth of red tape put in place” by the Town and its regulatory bodies had obstructed his plan. Id. at 558. He claimed that he was on the brink of personal bankruptcy. Id. at 560. His lawsuit included nine federal- and state-law claims against the Town, including a regulatory takings claim under the Fifth and Fourteenth Amendments. After the Town removed the case to the Southern District of New York, that court held that the takings claim was not ripe. The Second Circuit reversed and remanded. On remand, Lahoe sought to intervene. It claimed it was the equitable owner of the real property at issue, and that its status as equitable owner gave it an interest in the property. It also asserted that its interest would be impaired if it could not intervene, and asserted that Sherman “ha[d] his own agenda” and could not adequately represent its interest. When it moved to intervene, Laroe submitted a proposed complaint that included a regulatory taking claim that was identical to Sherman’s. It sought, in the draft complaint, a “judgment against [the Town] awarding [Laroe] damages,” namely, “compensation for the taking of Laroe’s interest in the subject real property.”

The district court denied the motion, saying that Laroe lacked standing on its own to bring a takings claim “based on its status as contract vendee to the property.” An equitable interest, the court concluded, was not sufficient. The Second Circuit again reversed. It acknowledged that there was split in the circuits, but concluded that the better view was that a proposed intervenor as of right does not have to demonstrate Article III standing. The Supreme Court began its analysis by noting that:

[o]ur standing decisions make clear that “‘standing is not dispensed in gross.’” Davis v. Federal Election Comm’n, 554 U. S. 724, 734 (2008) (quoting Lewis v. Casey, 518 U. S. 343, 358, n. 6 (1996); alteration omitted). To the contrary, “a plaintiff must demonstrate standing for each claim he seeks to press and for each form of relief that is sought.” Davis, supra, at 734 (internal quotation marks omitted); see, e.g., DaimlerChrysler, supra, at 352 (“[A]plaintiff must demonstrate standing separately for each form of relief sought”); Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U. S. 167, 185 (2000) (same); Los Angeles v. Lyons, 461 U. S. 95, 105–106, and n. 7 (1983) (a plaintiff who has standing to seek damages must also demonstrate standing to pursue injunctive relief). The same principle applies when there are multiple plaintiffs.

Applying that rationale, the Court went on to conclude that:

[t]he same principle applies to intervenors of right. Although the context is different, the rule is the same: For all relief sought, there must be a litigant with standing, whether that litigant joins the lawsuit as a plaintiff, a coplaintiff, or an intervenor of right. Thus, at the least, an intervenor of right must demonstrate Article III standing when it seeks additional relief beyond that which the plaintiff requests. This result follows ineluctably from our Article III case law, so it is not surprising that both parties accept it (as does the United States as amicus curiae). See Brief for Petitioner 13 (arguing that an intervenor must always demonstrate standing); Brief for Respondent 28 (“[A]n intervenor who . . . seeks relief beyond that requested by a party with standing must satisfy Article III”); Brief for United States as Amicus Curiae 16 (An intervenor must demonstrate its own standing if it “seek[s] damages” or “injunctive relief that is broader than or different from the relief sought by the original plaintiff(s)”). In sum, an intervenor of right must have Article III standing in order to pursue relief that is different from that which is sought by a party with standing. That includes cases in which both the plaintiff and the intervenor seek separate money judgments in their own names.

On the record, the Court was unable to determine how to apply its new standard. It noted that it was “unclear whether Laroe seeks the same relief as Sherman or instead seeks different relief, such as a money judgment against the Town in Laroe’s own name. Laroe’s complaint—the best evidence of the relief Laroe seeks—requests a judgment awarding damages to Laroe.” It further noted that “Laroe made statements that arguably indicated that Laroe is not seeking damages different from those sought by Sherman. In particular, Laroe’s counsel stated that he was ‘not saying that Sherman and [Laroe’s] damages are not the same damages,’ and insisted that there is ‘exactly one fund, and the town doesn’t have to do anything except turn over the fund.’” But in the “Court of Appeals briefing, Laroe argued that it—not Sherman—would be entitled to most of the damages from the takings claim…”

Stating that it was “unfortunate” that the Second Circuit didn’t provide greater clarity, the Court said that “[t]aken together, these representations at best leave it ambiguous whether Laroe is seeking damages for itself or is simply seeking the same damages sought by Sherman.” It remanded, stressing that “[t]his confusion needs to be dispelled. If Laroe wants only a money judgment of its own running directly against the Town, then it seeks damages different from those sought by Sherman and must establish its own Article III standing in order to intervene.”

The circuit split has now been resolved, at least with regard to prospective intervenors of right that seek remedies different from the current plaintiff(s). But the United States as an amicus had proposed a more stringent approach, one that the Court did not directly address but may eventually adopt. The United States argued that the Seventh, Eighth, and D.C. Circuits had imposed the right result, not because of a constitutional requirement, but rather because the wording of Rule 24 itself incorporates the injury-in-fact, traceability, and redressability requirements of standing. The government’s amicus brief argued for adoption of a rule that requires the demonstration of standing by every prospective intervenor at the outset of their participation in the litigation:

Construing Rule 24(a)(2) to call for a threshold showing that satisfies the requirements for Article III standing is consistent with the most natural reading of the Rule and with principles of efficient judicial administration. That interpretation also obviates the need to decide whether Article III would require a showing of standing as a prerequisite to intervention. Such a construction is particularly appropriate in light of the Rule’s requirement that an intervenor establish that his interests are not adequately protected by existing parties. A litigant who makes such a showing is particularly likely to alter the contours of the existing litigation in a way that would ultimately require an inquiry into the intervenor’s standing.

Also, in the government’s view, “[r]equiring a showing of standing before requiring parties and the judicial system to accept such burdens is consistent with Article III’s respect for the autonomy of the persons most likely to be affected by a judicial order and largely obviates the need for later inquiries into whether Article III authorizes the intervenor and the court to take particular steps.”

Satisfying Article III is, of course, not the only prerequisite for intervention as of right under Rule 24, but assuming the United States continues to take the position in litigation that would-be intervenors of right must always demonstrate standing at the outset of their participation in the litigation, it is only a matter of time before the Court takes up the issue again. When it does, it would not be surprising if the Court agrees.

False Advertising: Do You Know It When You See It?

Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125, imposes liability on individuals and entities that, “in a commercial advertising or promotion, misrepresent[] the nature, characteristics, qualities, or geographic origin of [their] or another person’s goods, services, or commercial activities.” The principal purpose of the Act is to provide remedies to enterprises damaged by a wide variety of false statements made in such “commercial advertising or promotion.” As the Second Circuit noted in a seminal opinion, the passage of the Lanham Act “marked the creation of a ‘new statutory tort’ intended to secure a market-place free from deceitful marketing practices.” Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 189 (2d Cir. 1980) (citations omitted).

What exactly are these “deceitful marketing practices”? Answering this question—and avoiding Lanham Act liability—is crucial for businesses and individuals that intend to engage in significant marketing activity. For example, consider a business that gives its salespeople wide latitude to engage customers at the point of sale. Could that business be held responsible for the conduct of an errant salesperson who makes inaccurate disparaging statements about competitors’ products or services in an attempt to close the deal? What about a business that has specifically instructed its employees to contrast its product with competing products at the point of sale—could that business find itself facing liability if its employees make false statements to customers about the competition?

The Second Circuit has provided a framework to answer questions like those posed above. In Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 57 (2d Cir. 2002), the court held that the “touchstone of whether a defendant’s actions may be considered ‘commercial advertising or promotion’ under the Lanham Act is that the contested representations [were] part of an organized campaign to penetrate the relevant market.” By so holding, the Second Circuit excluded from the scope of the Act isolated or sporadic misrepresentations made by businesses and their employees. Post-Fendi Lanham Act claimants may only invoke the Act’s protections where they can demonstrate that there was an “organized campaign” of misrepresentations aimed at their products or services.

The “organized campaign” language, however, is imprecise. Whether false statements may be considered part of such a campaign depends how frequently and widely they are disseminated, according to the Second Circuit in Fendi. The fluid nature of the “widespread dissemination” inquiry can often make this question difficult for courts to resolve as a matter of law. Indeed, as one judge in the Southern District of New York noted, “[w]idespread dissemination is a fact-specific question that varies from case to case and industry to industry.” In re Connecticut Mobilecom, Inc., No. 02-1725 REG, 02-02519 WHP, 2003 WL 23021959, at *11 (S.D.N.Y. Dec. 23, 2003).

A recent Lanham Act counterclaim, dismissed at the pleading stage, illustrates the principles underpinning the dissemination inquiry. In Solmetex, LLC v. Dental Recycling of N. Am., Inc., No. 17-CV-860 (JSR), 2017 WL 2840282 (S.D.N.Y. June 26, 2017), the court dismissed a § 43(a) claim on the grounds that the counterclaim plaintiff had failed to adequately allege the existence of “commercial advertising or promotion.” Solmetex and Dental Recycling of North America (“DRNA”) are dental products businesses that “sell competing devices for removing particulate from dental office wastewater.” Id. at *1. In January 2017, Solmetex contacted a dental trade organization to claim that DRNA’s dental recycling device was untested and did not comply with industry safety standards. According to DRNA, these representations were false, as its product underwent testing and did in fact meet industry standards. Around the same time, Solmetex also contacted a representative of a dental products distributor to claim that DNRA’s competing product was not approved by the EPA. Id. at *2. DNRA’s lawsuit against Solmetex claimed that DRNA lost sales due to these misrepresentations. Id.

The court dismissed DRNA’s Lanham Act counterclaim. It held that DNRA failed to plead the “commercial advertising or promotion” required by the statute. Id. at *3. The court noted that although Solmetex may have made misrepresentations, those misrepresentations were “isolated.” DRNA failed to plead that the trade organization had actually repeated the Solmetex misrepresentations to its membership. Similarly, DRNA failed to plead that the misrepresentations to the dental distributor’s representative became widely disseminated, as the pleadings indicated that the representative passed along the falsehoods to only one purchaser.

Although courts in the Second Circuit have long been hesitant to characterize such isolated misrepresentations as “commercial advertising or promotion,” courts have been quick to emphasize that the inquiry is not one-size-fits-all. Businesses concerned about potential liability for false advertising under the Lanham Act should review their advertising policies and consult with counsel in the event that false representations have been disseminated to customers in the relevant market. Addressing and correcting misrepresentations before they become widespread is often the most prudent course of action for business owners concerned about the actions of their employees.

Prejudgment Interest in the Federal Courts—Does Federal or State Law Apply?

Litigants (and federal district courts) that address awards of prejudgment interest must determine whether state or federal law applies to calculate the amount of interest. For example, in a case brought in a federal district court in New York State, when the claims concern purely federal law, should interest be calculated based on a federal statute or on the 9% interest rate set forth in the New York State Civil Procedure Law and Rules Section 5004? The guidelines here, despite some outlier decisions, are straight-forward.  Click on the Following Link to Read Full Article.  Prejudgment Interest in the Federal Courts—Does Federal or State Law Apply?

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