When Courts Play Public Nuisance

Monday, July 30, 2018
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There is a deep and growing split between the conservative judges who are being appointed to the federal bench and the progressive judges who dominate state courts in places like California. The tension between these rival judicial philosophies is highlighted by the 2017 decision of People of California v. ConAgra and Sherwin-Williams, which on the basis of California law ordered these two companies “to pay $1.15 billion into a fund to be used to abate the public nuisance created by interior residential lead paint” in residential units built before 1951 in ten populous California counties. Of that sum, about $400 million will be used to identify residences that might contain some lead paint.

Yet it was undisputed that the sale of lead paint for interior use was both common and legal at that time and was only banned federally for interior surfaces as of 1978.

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The People’s novel public nuisance theory insists that these defendants are fully liable for their “affirmative promotion of lead paint for interior use, not their mere manufacture and distribution of lead paint or their failure to warn of its hazards,” wholly without regard to whether anyone had ever relied on these promotional materials, none of which made any false or misleading health or safety claims about lead paint. It was sufficient that one Sherwin-Williams advertisement from 1904 insisted, “Put S.W.P. on your house and you will get satisfaction and save money every time.” Similar advertisements noted that Sherwin-Williams paints came in 48 shades. The company made $5,000 in contributions to the lead paint association between 1937-1941.

Recently both ConAgra and Sherwin-Williams filed petitions for certiorari, asking the Supreme Court to overturn this massive judgment as violative of federal constitutional guarantees relating to the First Amendment and procedural Due Process. I am in the process of helping prepare, pro bono, a brief in support of this petition asking the Supreme Court to correct California’s massive misapplication of every known principle of tort law.

The California court’s supposed public nuisance theory was a mishmash of three distinct branches of tort law: public nuisance, product liability and misrepresentation. But each theory has been so distorted that the decision of the California Court represents a naked command that private parties make huge contributions for government abatement actions—actions which, if they should be done at all, should be financed by the public at large. The court held that the defendants’ actions were at least “a very minor force,” not just “infinitesimal” or “theoretical.” But the court lifted these phrases out of context from a case that showed mercy on a garbled toxic tort complaint that alleged that exposure to “defendants’ products cause[s] cancer.” That situation is worlds apart from the plaintiff’s novel public nuisance case that alleges no physical connection at all between the defendant’s activities and the putative harm suffered.

One powerful purpose of the takings clause of the Fifth Amendment—“nor shall private property be taken for public use without just compensation”—is, as was observed in 1960 by Justice Hugo Black in Armstrong v. United States, “to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” The People should be told firmly that any clean-up project should be financed, if at all, out of general revenues when the claims of private responsibility are wholly attenuated.

Let’s start with the improbable public nuisance claim. As I have written elsewhere, the law of public nuisance has been concerned, from the earliest times, with two types of cases: those where private individuals block access to the commons (e.g., public highways and rivers) and those where they pollute or damage the same. Under California Civil Code Section 3479, public nuisances differ from private nuisances only in the fact that the property damaged belongs to the public, so that no private person has the incentive or capability to correct the situation. So the state steps in to fine the offender, ensure the elimination of the public nuisance, or both, while allowing private individuals to sue for their own harms if they suffer some special injury—property damage from colliding with some public obstruction, say, as opposed to delay in movement across a public road.

It is commonly stated that “A public nuisance is a criminal wrong.” Nothing of this sort remotely arises from the truthful and lawful advertisements and circulars done years before the lead paint was applied by someone else. The People have waived their claims for private actions with respect to individual properties because they cannot establish any of the traditional elements of a private nuisance tort—the nontrespassory invasion by poisons, fumes, or odors. The public nuisance claim fails as well because such claims have never been recognized for the “promotion” of anything, anywhere, at any time, in the absence of similar harms to public property. No court can constitutionally impose liability out of whole cloth.

The People’s fanciful product liability claim should be emphatically rejected as well. The California Court makes a flatly incorrect statement when it assumes that “mere manufacture” of some dangerous product is far less important that the supposed affirmative promotion of that product. Historically, all product liability claims have always been brought against the parties who made or distributed dangerous products and never against third parties like trade associations or health experts that might have said something about the product sold. This sensible limitation is put into place to cover cases like this, where the supposed promotion of the product in question is wholly separated, by vast stretches of distance and time, from the concrete sale or application of the supposedly harmful products. If that limitation were lifted, anyone could be held liable for any such endorsement, including California and its counties if they ever used lead paint in any of their own buildings, which on the state’s view should count as an “affirmative promotion” of the product that makes them responsible codefendants in these cases. Well-established California law has “never held that a manufacturer’s duty to warn extends to hazards arising exclusively from other manufacturers’ products.”

The last possible theory involved is one of misrepresentation. In the normal case, the tort of misrepresentation requires that a defendant make a false and material statement of fact to a plaintiff on which the plaintiff then relies to his detriment. A typical illustration is where a defendant decides to invest in worthless stock on the strength of fraudulent statements. Often, there are face-to-face representations that induce the reliance. But in some cases, the statements in question are made to the public at large, and not to any particular individual, either as part of an initial public offering or in private sales over an exchange. Under modern securities law, federal and state governments have the right to stop the publication of misrepresentations or the issuance of shares, in order to protect the integrity of the market against the sale of worthless stock. But no one would ever think that advertisements and circulars of the sort involved in these cases would remotely rise to that level, especially since they contained no false statements at all.

The California court made a huge deal out of the point that the defendants were aware of the extensive public information about the dangers of lead paint when they promoted their paints, without realizing that the point cuts in exactly the opposite direction. The gist of any misrepresentation case is that the defendant has private knowledge on matters on which the various plaintiffs are ignorant. That can never be the case here because the public information about these supposed risks was fully available to the California legislature, as well as everyone else, at the same time that it was available to these defendants. If state legislators sought to do nothing to regulate the use of lead paint at that time, how can California or its counties hold defendants responsible for their statements, which were neither false nor relied on by anyone to their detriment in this case?

To be sure, there are some cases under modern securities law that permit recovery for losses in the absence of any specific proof of reliance. Thus, in the 1988 case of Basic Inc. v. Levinson, the Supreme Court applied a “fraud on the market” theory which posits that the prices of publicly traded securities fully and quickly reflect all material and publicly available information about such securities. But Basic is poles apart from the instant case, where it is conceded that there was no exchange of any kind and that no one had relied on any of the supposedly promotional statements on which this huge amount of liability is based.

The unprecedented decision from the California courts is wholly at odds with the entire tradition of the law of misrepresentation. In his famous 1931 opinion in Ultramares v. Touche, Judge Benjamin Cardozo refused to hold accountants liable for negligent misrepresentation in part because of his fear that parties who received little compensation for their work would be held “to a liability in an indeterminate amount for an indeterminate time to an indeterminate class.” This case goes far beyond those boundaries. The defendants received no money; they committed no negligence; they uttered no falsehood; and no one relied on their supposed falsehoods to their detriment. Yet the California court found this threadbare case sufficient to impose a billion-dollar liability in a judgment which, if replicated across the United States, could bankrupt both firms.

The federal courts must rein in the runaway state court in California. How could there not be a violation of speech and property rights if this lawless effort to fund California’s misguided public health campaign by unsupportable tort judgments is sustained?