Greetings, Court Fans!
The Court had a busy and congenial Monday, as it issued five largely unanimous opinions in a smorgasbord of cases.
In the first case, Watson v. Philip Morris Cos. (05-1284), the Court held that private companies cannot claim the benefit of the federal officer removal statute (28 U.S.C. § 1442), which applies to suits against a federal officer “or any person acting under that officer,” simply because they are heavily regulated. Watson sued Philip Morris in Arkansas state court for deceptive trade practices concerning the “light” label on its cigarettes. Philip Morris then tried to remove the case to federal court, arguing that it undertook its allegedly unlawful conduct in accordance with the FTC’s method of testing the nicotine content of cigarettes and that it therefore was “acting under” the FTC for purposes of the lawsuit. The district court and Eighth Circuit agreed, but the Court reversed. Justice Breyer’s opinion marched through a somewhat lengthy (but interesting, really) history of the law, which dates to the War of 1812 – the upshot is that the federal officer removal statute was enacted to counteract state courts’ hostility to federal officials (e.g., officers enforcing the war-era shipping embargo, revenue collectors, etc.). These considerations can apply to private persons who truly “act under” and assist federal officials, but they do not apply to Philip Morris, which was simply complying (or not) with relevant FTC regulations. Allowing removal here would expand the scope of the removal statute well beyond the intent of Congress. The Court distinguished government contractors, who sometimes can claim the benefit of the statute, on the ground that they perform a function in lieu of the government and are not merely following regulations. It also rejected Philip Morris’s contention that the FTC had delegated legal testing authority to the cigarette industry.
The second decision of the day, United States v. Atlantic Research Corp. (06-562), involves some tricky statutory parsing, but it will be of particular interest to environmental-law practitioners. It is a follow-up to the Court’s decision in Cooper Industries, Inc. v. Aviall Services, Inc., which we summarized in our December 13, 2004 update . Two provisions of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) – sections 107(a) and 113(f) – deal with “potentially responsible parties,” or “PRPs,” who may be on the hook for expenses associated with environmental cleanups. Under section 107(a), PRPs may be responsible for remediation costs incurred by the United States or “any other person.” Section 113(f) then provides for a contribution action by one PRP against another that can be brought “during or following” a suit against the first PRP – usually an enforcement or collection action by the U.S. government (that is, the government sues you for costs associated in cleaning up your Superfund site, and you then go after previous owners or others to contribute their fair share of the costs). Courts began “directing traffic” between the provisions by forcing PRPs to litigate exclusively under section 113(f)’s contribution action, and barring suits under the more general section 107(a). At the same time, they began ignoring section 113(f)’s “during or following” requirement, allowing PRP contribution actions even before the PRP itself had been sued. In Cooper Industries, the Court put an end to that practice, holding that section 113(f) allowed for contribution actions only by PRPs who themselves had already been sued for clean-up costs. But the Court left open whether a PRP still could sue under section 107(a) free from the requirement of a previous lawsuit, and the circuits had split on this issue. Here, the Eighth Circuit found that a PRP that had not yet been sued could bring an action under section 107(a) to recover the actual costs incurred due to remediation (a win for the proactive).
The Court, led by Justice Thomas, unanimously agreed. First, PRPs clearly fell within the meaning of “any other person” in section 107(a); since the definition of PRP was itself so broad, excluding PRPs might exclude almost any private party, a “textually dubious construction” that threatened to render the provision a nullity. The government had argued that allowing actions under both provisions would create “tension” within CERCLA because section 113 has a much shorter limitations period as well as a settlement bar. The Court disagreed, noting that the two provisions are clearly distinct remedies that do not swallow each other. Section 113(f) provides for contribution, a right to recovery contingent on an inequitable distribution of common liability to a third party, such as the United States. Section 107(a), by contrast, allows for cost recovery and exists independent of liability to any third party. So the provisions complement each other by providing remedies to PRPs in different procedural circumstances. A PRP found liable in a 107(a) action could seek contribution from others under 113(f), but a PRP forced to reimburse under 113(f) has not incurred its own costs of recovery and could not turn back around and sue under 107(a). Finally, the Court was not concerned that allowing 107(a) actions would impede the bar on 113(f) actions against PRPs that have settled with the government. If sued under 107(a), the party that had settled previously could file another 113(f) counterclaim for contribution, where its settlement would be taken into account. (In the footnotes, the Court noted that there was potentially some overlap for PRPs that sustain expenses under consent decrees. It also did not address the Eight Circuit’s ruling that 107(a) has an implied right of contribution available to those who cannot use 113(f). It left these issues for yet another day – interested practitioners should read the footnotes closely).
Next, in Long Island Care at Home Ltd. v. Coke (06-593), the Court upheld a Labor Department regulation exempting home care “companionship” workers from minimum-wage and maximum-hour rules under the Fair Labor Standards Act (FLSA), even if they are employed by a third-party agency rather than by the household itself. FLSA exempts “domestic service employees” who provide “companionship services” for the infirm, and delegated authority to the Secretary of Labor to work out the details. Labor subsequently (and controversially) interpreted the statute to exempt not only home care workers employed by a household directly but also those employed by agencies. Coke, a Long Island Care at Home employee, sued in hopes of being paid the minimum wage and overtime, and she managed to convince the Second Circuit that Labor’s interpretation was unenforceable. The Court reversed, again led by Justice Breyer. The Court viewed the case as a straightforward question of agency deference. FLSA does not define who meets the companionship worker exception, and expressly leaves it to Labor to fill in the gaps – and it rejected Coke’s arguments that Labor’s interpretation was unreasonable or otherwise unlawful. First, “domestic service employment” is not, by its very terms, limited to those employed only by households rather than companies, and there was no clear evidence of Congress’s intent as to the scope of the exemption. There indeed was a gap in the law, and Labor’s attempt to fill it was reasonable. Second, while Labor’s interpretation arguably conflicted with another, more general regulation limiting “domestic service employees” to those employed by families, the third-party regulation was more specific and was specifically promulgated to control this kind of case. Third, Labor followed standard notice and comment procedures when promulgating the regulation, so the regulation was not legally defective.
In Beck v. PACE International Credit Union (05-1448), the Court managed to turn an Employee Retirement Income Security Act (ERISA) case on pension plan termination into another decision about agency deference (meaning that those of you who did not tune out after the first half of the sentence likely will do so now). Crown Paper Company managed a number of single-employer defined benefit pension plans, and when it went into bankruptcy it sought to terminate the plans with sufficient assets to cover its pension obligations. ERISA provides that one option is for a company to purchase annuities to cover the pensions, and this was the option Crown ultimately chose. PACE, which represented a group of Crown employees, had wanted Crown instead to merge the plans with PACE’s own multi-employer plan, and it sued in bankruptcy court arguing that Crown had breached a fiduciary obligation to study the merger proposal seriously. (PACE was not exactly being altruistic here. The real issue, it appears, was that Crown had overfunded some of the pensions and lots of folks wanted the $5 million surplus. Purchasing annuities would allow Crown – in reality, its creditors – to keep it, while a merger would give it to the new plan sponsor – i.e., PACE.) The case got to the Ninth Circuit, which held that while the decision to terminate a pension plan was a plan sponsor or “settlor” function not subject to ERISA’s fiduciary obligations, implementing a termination was a plan administrator function that was a fiduciary act. It then found that Crown had failed to fulfill its fiduciary obligations.
Justice Scalia wrote for the unanimous Court, which reversed. The Court noted that the settlor-versus-administrator question was tricky, and PACE’s position was somewhat plausible. But it resolved the case on a different issue: whether merger was even permissible under ERISA. The relevant statute, 29 U.S.C. § 1341(b)(3)(A), lists two termination options – annuity purchases or lump-sum present-value payments – and both say nothing about mergers. The Pension Benefit Guaranty Corporation (PBGC), the agency charged with implementing these provisions, has interpreted them not to permit merger, which it viewed as an alternative to plan termination rather than a means to that end. The Court noted that it traditionally defers to PGBC when interpreting ERISA, for fear of “embark[ing] on a voyage without a compass,” and it found the agency’s reading to be reasonable: Termination effectively ends the ERISA regime, whereas merger continues it, and the structure of ERISA demonstrates that merger and termination are different animals with different procedures and levels of PGBC oversight. Since merger was never an option, Crown breached no fiduciary obligation by failing to consider it. (The Court concluded with some harsh words for PACE, which did not dispute that Crown’s annuities were sufficient to cover its obligations to its employees: “[B]y diligently funding its pension plans, Crown became the bait for a union bent on obtaining a surplus that was rightfully Crown’s.”)
Lastly, in Fry v. Pliler (06-5247), the Court unanimously held that a federal habeas court must review constitutional errors in state-court criminal trials under the deferential “substantial and injurious effect” standard, even when the state appellate courts have failed to review them under the more stringent “harmless beyond a reasonable doubt” standard. Fry was convicted in a California court of double homicide, but he argued that the exclusion of witness testimony implicating another man amounted to a due-process violation under the Court’s 1973 decision in Chambers v. Mississippi. The state appellate court upheld the conviction, reasoning that the testimony was cumulative and that Fry suffered “no possible prejudice,” but it did not address the Chambers due-process argument or specify that it found the errors to be harmless beyond a reasonable doubt. On habeas review, the district court held that the state court was wrong to find no error or possible prejudice, but it still denied relief because Fry had not shown that the error had a “substantial and injurious effect” on his trial, the standard the Court announced in Brecht v. Abramson (1993) for federal habeas review of state-court criminal judgments. The Ninth Circuit affirmed . . .
. . . as did the Court (again led by Justice Scalia). When reviewing a state-court conviction directly, a federal court must determine whether an error was harmlessness beyond a reasonable doubt, but it must apply Brecht’s more lenient “substantial and injurious effect” standard on collateral habeas review. This deference is necessary to respect state sovereignty and the finality of criminal judgments, as habeas relief should be limited to those who have been “grievously wronged.” These considerations apply regardless of whether the state appellate courts have first scrubbed a criminal trial under the stronger reasonable-doubt standard, so the Brecht rule applies to Fry (i.e., the Court actually agreed with the Ninth Circuit this time). The Court declined, however, to review whether the errors at Fry’s trial were substantial and injurious, because the issue before the Court was only which standard to apply, not its ultimate application, which would require delving into all sorts of “tangential and fact-bound” questions the Court would rather leave to the lower federal courts. (Yet another practitioners’ lesson: frame your questions carefully, as they are often taken literally.)
Justice Stevens dissented from this part of the ruling, along with Justices Souter, Ginsburg and Breyer (in part). In their view, the Brecht standard applies but still imposes a substantial burden on state courts. Chambers-style constitutional errors are by nature prejudicial as they deal with evidence exclusion that undermines fundamental elements of the defense, and it would be impossible to conclude that a Chambers error had no effect on a trial. Brecht, therefore, requires “fair assurance, after pondering all that happened without striping the erroneous action from the whole, that the judgment was not substantially swayed by the error.” Using that standard, the dissenters thought Fry’s conviction might well have been affected by the error, and would have reversed the Ninth Circuit. Breyer, writing on his own, agreed with all of the above, but, rather than reverse, he would have remanded the case for the Ninth Circuit to decide whether there indeed was Chambers error in the first place.
The Court also issued an order list yesterday with three cert grants:
Sprint/United Management Co. v. Mendelson (06-1221): From the petition itself: “This case presents a recurring question of proof in employment discrimination cases: whether a district court must admit ‘me, too’ evidence – testimony, by nonparties, alleging discrimination at the hands of persons who played no role in the adverse employment decision challenged by the plaintiff.”
Kimbrough v. United States (06-6330): This is an in forma pauperis case for which the precise question presented is not yet available, but in substance it concerns whether federal judges, in sentencing drug crimes, can consider the impact of the disparity between sentences for crack offenses versus those for cocaine powder offenses. Depending on who is measuring, crack crimes are often said to get sentences up to 100 times harsher than those for comparable cocaine offenses.
Gall v. United States (06-7949): This case raises a similar issue to that in Claiborne v. United States, which the Court DIG’d as moot last week after Claiborne’s death. The issue is whether it is ever reasonable for a federal judge to depart below federal sentencing guideline ranges absent special circumstances. (Note: Claiborne’s counsel and the SG had suggested that the Court take another case, Beal v. United States, and decide it this Term without argument; instead, Gall will get full briefing and argument next Term).
And finally, the Court asked the SG for his views on the petition in Sprint Nextel Corp. v. National Ass’n of State utility Consumer Advocates (06-1184), which concerns the FCC’s ruling that state taxes and fees on wireless subscribers are preempted by 47 U.S.C. § 332, which prohibits states from regulating wireless rates but not other terms of service. There are two questions presented: (1) Whether the Eleventh Circuit erred by relying on the presumption against preemption to guide its analysis of section 332(c)(3)(A) under Chevron U.S.A. Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837 (1984); and (2) Whether the Eleventh Circuit erred by overturning the FCC’s preemption decision under the first step of the Chevron analysis on the ground that Congress unambiguously preserved state and local laws prohibiting line item charges on wireless bills.
That’s it until tomorrow, when the Court will release more opinions in an effort to get everything done by the end of the month. Until then, thanks for reading!
Ken & Kim
From the Appellate Practice Group at Wiggin and Dana
For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400
For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400