It is becoming more dangerous for companies to get deeply involved in industry standard-setting, particularly if a firm is pushing hard for a standard that will help its own sales. In the past decade, four U.S. District courts have ruled that even if companies conspire to affect the contents of industry codes, their actions are immune from antitrust prosecution. But now the first appellate court to rule on the issue has taken the opposite approach and approved damages for companies hurt by standards decisions.
Five years ago, the U.S. Supreme Court held the American Society of Mechanical Engineers liable for sales losses suffered by the maker of a boiler safety device because the chairman of one of its standards subcommittee called the device unsound. But in that case the normal ASME procedures were circumvented; the association itself felt it had been defrauded. In contrast, the ruling handed down April 22 by the U.S. Court of Appeals in New York in Indian Head v. Allied Tube approves damages against a company that was found to have acted within the rules of the standards-setting organization, the National Fire Protection Association.
The case involved efforts by makers of steel conduit to block a revision of the National Electrical Code to approve the use of polyvinyl chloride conduit. Steel conduit makers, led by Allied Tube & Conduit Corp., got together to plan opposition to a bid by Indian Head Inc. to include approval of PVC conduit in the 1981 edition of the code. Allied and other steel conduit makers actively sought to sign up allies as members of NFPA; eventually they spent more than $100,000 for 155 new members to join the group and attend the 1980 meeting where the vote on the Indian Head petition was to take place. In all, the steel companies managed to send 230 supporters to the meeting; they made up the bulk of the 394 votes against including PVC conduit in the code.
Indian Head sued under the antitrust laws, and won damages that would have come to $11.4 million. But the trial judge tossed out the jury verdict. Joint efforts to influence government action are protected by the U.S. Constitution, and therefore cannot be the basis of antitrust claims. The judge ruled that although NFPA is a private organization, its standards are adopted by so many jurisdictions that moves to influence the shape of that code are really bids to shape government policy, and so blocked from antitrust prosecution.
But the appellate judges found that the immunity does not apply and reinstated the award. Just staying within the rules of a standards-setting group isn't enough, the ruling says. The NFPA members rounded up by Allied -- including the wife of the national sales director -- did not have "the knowledge or inclination to make an independent decision on the merits of the issue," Senior Judge J. Edward Lumbard noted. In fact, NFPA was so distressed that it has since rewritten its rules to keep it from happening again; to the appellate judges, that is proof that Allied's plan subverted the code-writing concept.
In other cases, courts ruled that: Costs of complying with the securities laws do not qualify as deductible business expenses. The U.S. Tax Court sided with the Internal Revenue Service in refusing to recognize deductions claimed by a savings and loan association holding company. The $70,000 in costs was run up for filing updates to a registration statement filed with the Securities and Exchange Commission in the years after an initial offering of stock and warrants.
Even though the amendments are required by law, they are not an ordinary and necessary business expense, the ruling says. The later years' legal fees are still part of the cost of raising capital and therefore are not deductible, the ruling says. (Affiliated Capital v. Commissioner, May 4)
Inconvenience is a real loss for which plaintiffs can recover. Many states have changed their tort laws to limit the amount that victims can win for "pain and suffering." But the New Jersey Supreme Court decided that such limits do not affect claimants who went without running water for 20 months after their well water was contaminated.
The curbs on "pain and suffering" awards apply to compensation for "the intangible, subjective feelings of discomfort," the justices said. In contrast, the discomforts of going without running water are concrete and objective. (Ayres v. Jackson Township, May 7)
Union delays in implementing a labor contract may pay off. The National Labor Relations Board agreed with a hotel chain that locals were wrong to refuse to sign a collective bargaining agreement, and ordered the contract put into effect, to run until its original expiration date. But the original deal had been for three years so the hotel thought the NLRB should have pushed the expiration date back to 36 months after the union actually began honoring the contract. The U.S. Court of Appeals in Washington said no, that the board has no power to impose on management or labor a contract beyond the date the two parties originally agreed to. (Hyatt Management v. NLRB, May 1)
Insurance companies cannot be stopped from recommending particular crash repair shops. A Massachusetts regulation barred such referrals, but it was thrown out by the state's Supreme Judicial Court. Under the ruling, the insurance company still cannot insist that the car owner used the specified shop, but it can lend weight to its endorsement by promising to guarantee repairs made at listed shops -- and not those done by others. (Allstate v. Auto Damage Appraisers, May 12) Moskowitz covers legal affairs for McGraw-Hill World News.