Bernstein Shur Monthly – June 2018
A Resounding Win for Ranked Choice Voting
The Committee for Ranked Choice Voting held a press conference at Bernstein Shur after the June 12th people’s veto vote to discuss the resounding win and what comes next.
Client Alert: Public Sector Fair Share Fees Held Unconstitutional by U.S. Supreme Court
In a 5-4 decision the U.S. Supreme Court held today that requiring public sector employees to pay agency or fair share fees for union representation is unconstitutional. As had been widely anticipated, the Court held that compelling the payment of fair share fees is a violation of public workers’ free speech rights.
In the majority opinion, Justice Samuel Alito wrote:
“The First Amendment is violated when money is taken from nonconsenting employees for a public-sector union; employees must choose to support the union before anything is taken from them. Accordingly, neither an agency fee nor any other form of payment to a public-sector union may be deducted from an employee, nor may any other attempt be made to collect such a payment, unless the employee affirmatively consents to pay.”
– Janus v. AFSCME, U.S. Sup. Ct. No. 16–1466 (June 27, 2018)
AFSCME, the union sued by plaintiff Mark Janus, and other unions that submitted supporting briefs to the Court argued that fair share fees do not go to support unions’ political activity and are necessary and appropriate to cover the cost of representing all employees in the bargaining unit, as unions are required to do by current labor law. Without service fees, the unions argued, employees who do not pay dues are “free riders”.
Overturning an earlier Supreme Court case that upheld fair share fees on this basis, the Court held in today’s decision that avoiding “free riders” is not a compelling interest that could justify interfering with public sector employees’ freedom of speech under the First Amendment.
The decision takes effect immediately.
Why This Matters
What are the practical consequences for public sector employers with collective bargaining agreements that contain mandatory fair share or service fee payments from non dues-paying bargaining unit members?
- As soon as possible, employers should stop deducting fair share fees from any and all employees who are subject to them. There is no need to delay a pay roll, but all feasible steps should be taken to stop the deduction of fair share fees now.
- While there is no duty to notify employees (unions may do this), to avoid confusion and questions it would be useful to inform affected employees that:“Complying with the U.S. Supreme Court’s decision issued on June 27, 2018 in the case of Janus v. AFSCME, the [Town, City, County, etc.] will immediately cease deducting the fair share fee that you have been paying under the collective bargaining agreement between the [Town] and [name of Union]. Fair share fees and any agreement to require them have been held to violate the free speech rights of governmental employees.”
- If payroll with deductions for fair share is already in process and fair share fees are or will be sent directly to the union, call the union business agent(s) and confirm that the fees will be escrowed or segregated and will be returned to the payer by the union. Our understanding is that, anticipating the result of Janus, unions have set up escrow accounts and will return fees that have been remitted to them.
- If deductions are already in process and are not remitted to the union simultaneously, do not send such fees to the union. Return the fees to employees directly.
- While the decision on its face deals with fair share fees and not dues (which presumably have been paid voluntarily), employers may get questions or even objections from dues payers concerning their right to cancel their authorization for dues deductions. If this happens, it is essential to consult with counsel about the possible scope of the Janus decision in light of the language of the particular bargaining agreement before responding or taking action.
While the holding of Janus was anticipated and is not surprising, in the short term it will likely generate questions from employees and pay roll administrators. As the full impact of Janus is realized, other issues may arise, such as (for example) requests by unions to bargain a fee for service in place of fair share fees. We will be issuing further guidance as these additional issues develop.
Contractor’s Failure to Strictly Perform Contract May Not Bar Recovery from Owner under Quantum Meruit
By: Mike Hodgins
In a June 2018 decision, the Supreme Judicial Court for the Commonwealth of Massachusetts modified well established holdings that a building contractor cannot recover on a contract without showing complete and strict performance with all terms, limiting “strict performance” to design and construction, but reversed a summary judgment adverse to the contractor’s quantum meruit claims, reviving a $10 million claim. G4S Technology, LLC v. Mass. Technology Park Corporation.
The case involves a contract between G4S Technology, LLC (G4S) and the Massachusetts Technology Park Corporation (MTPC) to design and build a fiber optic network. The contract was delayed, but eventually completed according to its specifications, and MTPC, a state development agency created by statute, withheld approximately $4 million from G4S as liquidated damages. G4S sued, claiming $10 million for additional time and costs to complete the project.
Critical factual issues were revealed during discovery, including clear evidence that G4S made multiple misrepresentations to MTPC during the payment process that it had timely paid its subcontractors. In fact, evidence revealed that G4S had withheld substantial payments for the purpose of bolstering its quarterly financial reports to enhance its value as a publically traded company. The trial court held on summary judgment that the false certifications barred the claims of G4S for additional compensation on both contract and quantum meruit claims.
The Supreme Court held that the trial court was correct to grant summary judgment because G4S was in breach of the contract, but not before clarifying the “strict performance” doctrine. The Court reversed, however, a grant of summary judgment on the quantum meruit claims based upon bad faith, and sent that part of the case back to the trial court for further factual findings, and perhaps trial.
Regarding the contract claim, the Court concluded that strict performance is still required for all construction contract terms relating to design and construction, as has long been the law in Massachusetts. However, although the payment issues and misrepresentations made by G4S did not relate to the actual design and construction, the Court addressed those contractual breaches under a “materiality standard,” and held that the misrepresentations, particularly in light of the strong public policy relating to assurances that subcontractors are paid promptly on public works projects, constituted a breach of the contract that would have permitted MTPC to walk away from the contract. Therefore, although the subcontractor payment representations did not relate to design or construction, those breaches were so material to the contract G4S was prevented from pursuing its claim for damages under contract theories.
The Court took a different approach on the quantum meruit claim which requires proof of substantial performance of the work and good faith. The Court noted that substantial performance was not disputed, although the work had been delayed. When interpreting whether the misrepresentations about subcontractor payments constituted a violation of the good faith requirements, the Court held there was no causal connection between the misrepresented payments to subcontractors, and the damages sustained by G4S in completing the work. The trial judge had relied upon a long line of cases that suggest an intentional violation of the contract terms would be inconsistent with the necessary good faith to recover under quantum meruit. The Court expressly overruled that line of cases as not dispositive if the breach does not relate to completion and the value of the work provided. The Court noted that there were factual disputes as to whether G4S or MTPC was responsible for the extensive delays which had resulted in G4S’s claim, and the loss of any possible remedy after satisfactory, albeit late completion, would have been an unfair hardship to the contractor.
Bernstein Shur Business & Commercial Litigation Update
By: Daniel Murphy
The U.S. Supreme Court has overturned the rule that prohibits states from requiring online retailers to collect sales tax unless they have a physical presence in the state. In the case, South Dakota v. Wayfair, the Supreme Court overruled Quill v. North Dakota, 504 U.S. 298 (1992), which held that the Commerce Clause of the U.S. Constitution prohibited compelled collection of sales tax by retailers unless they maintained an in-state physical presence. The Commerce Clause, which grants Congress the power to “regulate Commerce … among the several States[,]” has been construed as prohibiting state regulations that inappropriately discriminate against or place undue burdens on interstate commerce.
To that end, state tax laws that affect interstate burden will be permitted so long as they:
- Apply to an activity with a substantial nexus with the taxing State,
- Are fairly apportioned,
- Do not discriminate against interstate commerce and,
- Are fairly related to the services the State provides.
In Wayfair, the Supreme Court concluded that the physical presence rule announced in Quill was “unsound” and “unworkable” in the modern age of online sales. Among other things, the majority, led by Justice Anthony Kennedy, noted that, despite a lack of a physical presence, a substantial nexus with South Dakota existed by way of economic and virtual contacts. It also noted that smaller retailers were protected because the South Dakota law applied only to online retailers with sales above $100,000 or sellers with 200 in-state transactions. In 2017, ME enacted a statute that is substantially similar to the South Dakota law.
Recent Survey of Federal Judges Reveals E-Discovery Concerns
Exterro, an e-discovery and legal software vendor, recently released its “4th Annual Federal Judges Survey: Judicial Perspectives on the State of E-Discovery Law and Practice.” (The full report is available through Exterro’s website, at https://www.exterro.com.) The survey compiled responses from 30 federal judges to questions about a variety of e-discovery issues. Here are eight highlights from Exterro’s insightful survey:
1. 47% of the judges surveyed “somewhat disagreed” that “the typical attorney possesses the legal and technical subject matter knowledge required to effectively counsel clients on e-discovery matters.” Only 3% of the judges “strongly agreed” with that statement.
2. 60% of the judges surveyed cited “poor cooperation” as the leading cause of e-discovery problems, and in response to a related question, 44% of the judges cited “cooperating with opposing counsel” as the preferred means for improving e-discovery outcomes, while 33% cited active participation at Rule 26(f) conferences as a solution.
3. The judges surveyed responded that the most common times for e-discovery mistakes were the identification (30%), collection (30%), and analysis (17%) phases.
4. When asked about new data types, the judges surveyed highlighted social media communications (44%), instant messages (33%), mobile data (30%), and text messages (30%) as the data requiring better preservation.
5. When asked how to improve e-discovery outcomes, 37% of the judges surveyed selected as their top choice that counsel should have a better understanding of their clients’ IT and ESI structures and policies, while another 19% recommended implementing cohesive internal ESI policies and procedures.
6. Asked to assess attorney preparedness for e-discovery on a scale of 1 (unprepared) to 100 (extremely well prepared), the judges’ average grade was a 52 for Rule 16 conferences and a 45 for the exchange of information and documents under Rule 26(a)(1).
7. 37.5% of judges surveyed thought it was malpractice for parties not to enter into an order under Federal Rule of Evidence 502(d) regarding the inadvertent disclosure of privileged materials.
8. Finally, an ominous warning from Hon. John Facciola, a retired former magistrate judge for the U.S. District Court for the District of Columbia, regarding the current state of lawyers and e-discovery:
“Perhaps a day of reckoning is coming. The amendment to the comments to Model Rule 1, which obliges a lawyer to be competent, requires a lawyer to keep abreast of the dangers and benefits of technology. Will 2018 be the year when a judge refers a lawyer to disciplinary authorities because the lawyer was demonstrably incompetent during a discovery conference involving e-discovery?”
Overall, the results paint a picture of a judiciary increasingly frustrated with several recurring issues in e-discovery practices, including a particular displeasure with counsel who are unprepared to discuss e-discovery topics, refuse to cooperate with each other to resolve e-discovery disputes, or are unfamiliar with the amended Federal Rules of Civil Procedure. All counsel would be well served to keep these lessons in mind as they litigate in federal court.