Highlights of the 2007-2008 Supreme Court term
The 2007-2008 U.S. Supreme Court term proved both intriguing
and unusual for followers of the Court and legal scholars alike. For the first time in over 65 years, the Supreme Court
expounded upon the scope of Second Amendment gun rights and the contemporary relevance of the exhaustion doctrine in patent
law. The Court also addressed a number of issues that resulted in unusual justice alignments that deviated from the expected
ideological arrangement. For example, in Greenlaw v. United States, Ginsburg, Scalia, Thomas, Souter, and Roberts
formed the majority with Alito, Stevens, and Breyer dissenting. Kentucky Retirement Systems v. EEOC witnessed Breyer,
Roberts, Stevens, Souter, and Thomas joining in the majority opinion, with Kennedy, Scalia, Ginsburg, and Alito dissenting
together. Such alignments have left commentators wondering whether the academic community overstated its proclamation of
a strictly ideological, conservative Court following the Roberts and Alito appointments. Scholars consider the decisions
in Boumediene v. Bush, the Guantanamo detainee case, and Kennedy v. Louisiana, the execution for child rape
case, to be liberal opinions, which indicate that ideology alone will not determine the Court's jurisprudence in every
case.
The 2006-2007 Supreme Court term left a wake
in which 30% of cases ended with a 5-4 split decision. In 2007-2008, however, the Court witnessed considerably fewer 5-4
splits, as only 17% of cases ended in this manner. Surprisingly, unanimity also decreased. Nine-to-zero decisions dropped
from 25% last term to 18% this term, though the number of dissenting votes per decision stayed nearly steady. SeeSCOTUS Blog.
The following cases highlight the past term:
Second Amendment
The District of Columbia passed
a statute mandating that owners procure licenses for all handguns and that owners keep all firearms within the District
unloaded and disassembled or safety locked. Private gun owners sued to enjoin the District's enforcement. After the
district court dismissed the suit, the D.C. Circuit Court of Appeals reversed, and the Supreme Court granted certiorari to
address the meaning of the Second Amendment for the first time in nearly 70 years in District of Columbia v. Heller (07-290).
In a 5-4 decision split down ideological
lines, Justice Scalia wrote for the majority, holding that the Second Amendment's prefatory language referencing the
militia does not restrict the operative clause regarding the people's right "to keep and bear Arms." Consequently,
the right did not exist only as a collective right, as the dissent asserted, but rather also as an individual constitutional
right. Citing a vast array of historical evidence, the majority argued that the phrase "bear Arms" during the founding
era commonly referred to "carrying weapons for individual self-defense." The majority, however, clarified that
legislatures could constitutionally take certain actions, such as prohibiting criminals and the mentally ill from firearm
possession. Further, legislatures may still forbid possession of machine guns or types of weaponry that a militia during
the founding era would not have possessed.
War Powers
Suspension of Habeas Corpus
Lakhdar Boumediene, an Algerian citizen, sued for habeas corpus
after the U.S. detained him at Guantanamo Bay and classified him as an enemy combatant. The district court dismissed the
claim for two reasons. First, Congress had enacted the Detainee Treatment Act of 2005 (DTA), which provides that "no
court, justice, or judge shall have jurisdiction to hear or consider . . . an application for a writ of habeas corpus filed
by . . . an alien detained . . . at Guantanamo Bay, Cuba." Second, Congress's subsequent modification to the Act
through the Military Commissions Act (MCA) made the DTA apply to habeas petitions pending at the time of the DTA's enactment.
The D.C. Circuit Court of Appeals affirmed for lack of jurisdiction.
In Boumediene v. Bush (06-1195) the Supreme Court reversed 5-4. Justice Kennedy's majority opinion found § 7 of the MCA an "unconstitutional
suspension of the writ" of habeas corpus. The majority focused on the need for a clear, unequivocal suspension of the
writ by Congress but found no such clear statement in either the DTA or the MCA. Merely stripping the federal courts of
jurisdiction, the majority posited, could not accomplish this task. The majority asserted that questions of extraterritoriality
pivot on "objective factors and practical concerns." Inadequate procedural safeguards for the detainees to contest
their detentions concerned the majority greatly because detainees lacked adequate means to find favorable evidence and lacked
the assistance of counsel to ascertain the nature of charges brought against them.
Sharply critical, Justice Scalia warned, "[T]he Nation will live to regret what the
Court has done today."
Federalism
Article 36 of the Vienna Convention on
Consular Relations, a treaty in which the United States participated, permits foreign nationals charged with a crime the
right to contact their consulates. After the treaty the International Court of Justice (ICJ) held in Case Concerning Avena and Other Mexican Nationals, 2004 I.C.J. 12, that the Vienna Convention bound individual states within the United States to the Convention's
provisions. This holding prompted President George W. Bush to issue a memorandum mandating that state courts enforce the
treaty's provisions. In Medellin v. Texas, (06-984) the Supreme Court addressed whether the President possessed the constitutional authority to require such
state enforcement without ratification by the U.S. Senate.
The Court affirmed the Texas Court of Criminal Appeals in a 6-3 opinion by Chief Justice Roberts. The majority opinion
dismissed Medellin's contention that the Avena decision required Texas to show him to his consulate, because
the President lacked constitutional authority to unilaterally enter into a self-executing treaty requiring state compliance.
Such a treaty first demands Senate approval. Also, the majority held that the U.S. had only consented to the ICJ's jurisdiction
over the United States' international legal obligations but that the ICJ lacked jurisdiction to declare federal law
that would bind the states.
Crime and Punishment
Death Penalty
Method of Execution
The Court took up its first method-of-execution case in 117
years in Baze v. Rees (07-5439). Ralph Baze and Thomas C. Bowling, two inmates on Kentucky death row, sued to enjoin Kentucky from carrying
out the death penalty through lethal injection.
Baze
and Bowling argued that a one-drug barbiturate should replace the three-drug combination currently used by Kentucky (and
35 other states). They claimed that the risk of maladministration exposed them to possible cruel and unusual punishment,
in violation of the Eighth Amendment. Further, they noted that sodium pentathol, by rendering the inmate unconscious, prevented
administrators of the injection from discerning whether they had fully anesthetized the inmate: the inmate might feel pain
but not be able to indicate such pain. Chief Justice Roberts' plurality opinion, however, argued that to violate the
Eighth Amendment, the execution method must meet the "objectively intolerable" test. Because maladministration
was merely a possibility and because every jurisdiction imposing the death penalty uses this method, Roberts reasoned that
lethal injection does not meet the level of an "unusual punishment" or a wanton infliction of pain.
Capital Punishment for Child Rape
Louisiana passed a state statute in 1995 making the death penalty available as a sentence
for the rape of a child less than twelve years of age. In 1998 police arrested and charged Patrick Kennedy with the brutal
rape of his eight-year-old stepdaughter. A jury convicted him and sentenced him to death.
The Supreme Court granted certiorari in Kennedy v. Louisiana (07-343) to resolve whether states could use execution as a sentence in cases of child rape. Writing for a five-vote
majority, Justice Kennedy reversed and argued that execution for a crime that leaves the victim alive is not proportional.
Evolving standards of decency, he said, prohibit punishing a criminal with death for a crime that does not result in the
victim's death. The majority reached this conclusion by highlighting that only six states currently allow capital punishment
for child rape, and no one in any state has been executed for child rape since 1964. These facts demonstrated a "national
consensus." Further, if a child rapist can die for the rape alone, then an incentive exists to kill the victim and not
leave a living witness.
Criminal Law
In Begay v. United States (06-11543), the Court interpreted the meaning of "violent felony" under the Armed Career Criminal Act (ACCA).
The ACCA mandates a 15-year prison sentence for a previously convicted felon in possession of a firearm if the felon has
previously committed three or more violent felonies. One provision of the ACCA defines a violent felony as "burglary,
arson, or extortion, involv[ing] use of explosives, or . . . conduct that presents a serious risk of physical injury to
another." U.S. prosecutors charged Larry Begay for illegal possession, and a trial judge sentenced him under this provision
because he possessed more than three prior convictions for felony DWI. Begay appealed with regard to whether a DWI constitutes
a "violent felony" under the ACCA.
Writing
for a 6-3 majority, Justice Breyer held that the mandatory sentence did not apply because DWIs are not violent felonies.
He reasoned that the enumerated crimes of burglary, arson, extortion, and use of explosives differ too substantially from
a DWI because the former imply a future likely resulting in more future "violent, aggressive, and purposeful ‘armed
career criminal' behavior in a way that the latter does not." The disagreement between the majority and dissenters
centered on a textualist-versus-functionalist argument.
Although
Begay received much less attention than did Baze in the popular media, criminal law scholars contend that Begay actually has much more practical relevance for practitioners.
Sentencing
Federal Sentencing Minimums
Gall v. United States (06-7949) presented the question of whether district court judges have the discretion to impose sentences below those
prescribed by the federal sentencing guidelines. Brian Michael Gall distributed ecstasy as part of a drug ring while a student
at the University of Iowa. After quitting the ring voluntarily, he moved to Arizona, opened a business, and remained crime-free
before voluntarily turning himself in and pleading guilty. The prosecutor asked for a sentence of thirty months imprisonment,
the minimum permitted by the federal sentencing guidelines. Because of the abundance of mitigating circumstances, however,
the trial judge imposed a lesser sentence of only three years of probation.
After the Eighth Circuit Court of Appeals found the sentence unreasonable, the Court granted
certiorari. In a 7-2 opinion written by Justice Stevens, the majority reversed and cited their recent opinion in United
States v. Booker , 543 U.S. 220 (2005): "As a result of our decision, the Guidelines are now advisory, and appellate
review of sentencing guidelines is limited to determining whether they were ‘reasonable.'" The majority also
held that any trial judge choosing to depart from the guidelines must provide reasons.
With Gall setting the broad rule, the Court decided Kimbrough v. United States (06-633) on the same day. The Court in KimbroughKimbrough as a practical application of Gall's broader rule. upheld a district court judge's decision not to follow the sentencing guidelines'
100-to-1 sentencing ratio for crack vs. powdered cocaine. Scholars see
Amending a Sentence Sua Sponte on Appeal
Police arrested Michael J. Greenlaw for the sale of drugs and illegal possession of firearms. Subsequently, the
trial court convicted Greenlaw on multiple counts. Federal law requires that a second conviction for firearm possession
during a drug trafficking offense requires a mandatory minimum sentence of twenty-five years in prison, but Greenlaw received
a sentence of only ten years. Regardless, he still appealed his sentence as "unreasonably long." The government
did not file a cross-appeal for the fifteen-year enlargement. The Court of Appeals denied Greenlaw's appeal and added
the fifteen additional years anyway.
In Greenlaw v. United States (07-330) Justice Ginsburg's 7-2 majority opinion highlighted the Court of Appeals' mistaken use of Rule 52(b)
of the Rules of Criminal Procedure, which grants an appellate court on its own initiative the discretion to raise and correct
a trial court's "plain error." Although 52(b) grants such discretion, Justice Ginsburg explained that the rule
does not eliminate the cross-appeal requirement. Thus, because the government had not filed an appeal, the appellate court
lacked the authority to lengthen the sentence. The majority based this argument on the Organized Crime Control Act (OCCA),
a statute in which Congress included an explicit exception to the cross-appeal requirement. The majority thus took Congress's
silence in this statute as evidence that the requirement remained.
Sovereign Immunity
Abdus-Shahid M. S. Ali gave
two bags of possessions to prison officials during his transfer to a new prison. Upon arrival Ali discovered that several
religious items were missing. The Court granted certiorari in Ali v. Federal Bureau of Prisons (06-9130) to determine whether sovereign immunity protects federal law enforcement officials from claims regarding
the mishandling of citizens' property.
In a
5-4 decision, the majority voted to affirm the Eleventh Circuit's dismissal of Ali's claim. The decision hinged
on an interpretation of the Federal Torts Claim Act, which delineates the waiver of sovereign immunity for torts committed
by federal employees. Justice Thomas's majority opinion explained that an exception to the waiver exists for "claims
arising from the detention of property by . . . any other law enforcement officer." The Court found
this language broad enough to encompass prison officials who handle prisoner property.
This decision consequently reduces the rights and remedies possessed by prisoners while
incarcerated. From a statutory interpretation perspective, scholars hail it as a landmark case that law students will study in casebooks for years to come.
Taxation
Trusts
Knight v. Commissioner of Internal Revenue (06-1286) involves the interplay between trusts and the U.S. Tax Code. Under § 67(e) of the Code, trusts may fully
deduct costs unique to trusts-mainly administrative costs-from their tax returns. Trusts may also deduct other "miscellaneous
items" but only if the aggregate sum of these miscellaneous items totals 2% or greater of the adjusted gross income.
Michael J. Knight sought investment-management advice from a firm for a trust to which he served as trustee. The trust deducted
all costs related to procuring the advice from its tax returns, but the IRS objected to the deductions as "not unique
to trusts." The Tax Court found for the IRS, and the Second Circuit Court of Appeals affirmed.
The Supreme Court granted certiorari to determine whether the 2% floor applies to investment
advisory fees when incurred by a trust. Chief Justice Roberts, writing for the majority, affirmed the Court of Appeals's
judgment. Knight argued that his fiduciary duties dictated that he act according to "the prudent investor" rule,
which requires that a trustee manage the trust in a way a prudent investor would. Roberts reasoned that if a prudent investor
would seek investment-management advice, then individuals must commonly seek such advice, and therefore, the costs of outside
consultation would not be "unique to trusts." Thus, the Court unanimously sided with the IRS.
Subsidiary Companies
MeadWestvaco v. Illinois Department of Revenue (06-1413) presented the question of whether a state can constitutionally tax an out-of-state corporation's capital
gain on the sale of one of its business divisions operating in that state. In 1994 MeadWestvaco sold its profitable Lexis/Nexis
Division for a $1 billion profit, and Illinois asserted the right to tax that revenue.
Justice Alito, writing for the seven-justice majority, explained that the Commerce
Clause and Due Process Clause limit a state's power to tax out-of-state activities. Nevertheless, a state may tax an
apportioned share of the value generated by a multistate enterprise's "intrastate and extrastate activities"
if those activities contribute to a "unitary business." The Court reasoned that if MeadWestvaco and Lexis/Nexis
constituted a unitary business, then functional integration, centralized management, and economies of scale must exist between
MeadWestvaco and Lexis/Nexis. Rather than applying this test, however, the Court pointed out that the state courts looked
for and found evidence of an "operational purpose." Because they applied this incorrect test, the Court sent the
case back to the appellate court to look instead for functional integration, centralized management, and economies of scale.
Commerce Clause
Dormant Commerce Clause
Forty-two states have tax schemes that tax income earned by
out-of-state bond holders but do not tax income earned by in-state bond holders. Federal courts, however, have applied the
Dormant Commerce Clause within the U.S. Constitution, which prohibits states from passing legislation that burdens or discriminates
against interstate commerce. In Department of Revenue of Kentucky v. Davis (06-666), the U.S. Supreme Court examined whether the in-state vs. out-of-state tax scheme and the Dormant Commerce
Clause could coexist.
The Court overturned the Court
of Appeals's ruling that the Constitution does not support the tax scheme. Although no single opinion commanded a majority,
the Court recognized that bond proceeds predominantly benefit the public, which indicates that legitimate state objectives,
rather than economic protectionism, likely drive the scheme. Thus, the forty-two states with this tax scheme stand impervious
to constitutional attack via the Dormant Commerce Clause.
Some scholars see Davis, in combination with United Haulers Association v. Oneida-Herkimer Solid Waste Management Authority (05-1345), precedent upon which a number of the opinions in Davis rely, as announcing a broad principle that
the Roberts Court will use the Dormant Commerce Clause to strike down statutes that benefit purely private, local interests
but will except statutes that benefit the government itself.
Election Law
Photo Identification
The Indiana state legislature passed a law in 2005 requiring
all voters to present government photo identification at the time of voting in order to decrease voter fraud. The local
Democratic Party objected that the law placed an undue burden on the fundamental right to vote. The district court upheld
the law, and the Seventh Circuit affirmed.
If in
Crawford v. Marion County Election Bd. (07-21) the Supreme Court had found an undue burden on the right to vote, then Indiana would have had to show that
the law achieved a compelling interest and that the legislature had narrowly tailored the law to achieve that interest.
Instead of finding the law an undue burden, however, the Court voted 6-3 to uphold the law, delivering a splintered plurality
opinion. Justice Stevens, joined by Chief Justice Roberts and Justice Kennedy, applied a balancing test and adopted the view
that the law did not place an excessive burden on the right to vote. Justice Scalia, joined by Justice Thomas and Justice
Alito, argued for a standard highly deferential to the state under the premise that the law served an "important regulatory
interest." Justice Souter, joined by Justice Ginsburg, argued that even if voter fraud prevention was compelling, the
state needed a factual record to show that the interest actually existed, which Indiana failed to provide in this case.
Finally, Justice Breyer took a position that the law disproportionately burdened voters without photo identification.
Election law scholars believe that voter identification
laws disproportionately burden minorities and voters in poverty, both of which are demographics that heavily favor the Democratic Party. As such, the law may provide some electoral benefit to conservative candidates in close elections.
Campaign
Finance
When self-financing candidates for the U.S.
House of Representatives spend personal funds in excess of $350,000 on their own campaign, § 319(a) of the Bi-Partisan Campaign Reform Act (BCRA), known as "The Millionaire's Amendment," permits their opponents to receive triple the amount of personal
contributions typically allowed and to accept coordinated party contributions without limit. Meanwhile, § 319(a) holds
the self-financing candidate to the normal limit. Jack Davis, a former candidate for the House of Representatives in 2004
and 2006, intended personally to finance his own campaign with $1 million. When the Federal Election Commission (FEC) attempted
to enforce § 319(a), Davis sued to enjoin the FEC's enforcement as infringing upon his First Amendment rights.
In Davis v. FEC (07-320), Justice Alito, writing for the majority, cited Buckley v. Valeo, 424 U.S. 1 (1976), which held that the First Amendment permits candidates to campaign "vigorously and tirelessly"
for their own election and struck down a cap on a candidate's use of personal funds. The majority held that § 319(a)
effectively worked as a cap by forcing the candidate to choose between unbound campaign financing and discriminatory fundraising
limits. The Court also refused the argument that "leveling the playing field" between candidates of different wealth
levels served a compelling governmental interest, which the government would need to show to justify burdening First Amendment
rights. As a result, the Court held § 319(a) unconstitutional. The Court also struck down § 319(b), the mandatory
disclosure provision, because compelled disclosure "seriously infringe[s] on privacy of association."
Civil Procedure
Res Judicata: Virtual Representation
Greg Herrick, the owner of two F-45 airplanes, requested
specifications for the aircraft from the Federal Aviation Administration (FAA) under the Freedom of Information Act (FOIA).
The FAA refused to comply, and Herrick sued. The district court found for the FAA that the documents constituted "protected
trade secrets" and therefore fell outside of the scope of the FOIA. At the time, Brent Taylor was Herrick's partner
in restoring the F-45s. Taylor filed suit, on his own behalf, for the records under the FOIA again in district court. The
FAA pleaded res judicata, which prohibits a party from suing on a claim that a court has already adjudicated. Both the district
court and the D.C. Circuit Court of Appeals agreed with the FAA's theory that Herrick had "virtually represented"
Taylor and therefore applied claim preclusion.
In
Taylor v. Sturgell (07-371), Justice Ginsburg, writing for a unanimous Court, reversed, giving three reasons for the decision. First,
a prior judgment does not bind a non-party. Second, allowing an expansive doctrine of virtual representation would create
"a de facto class-action" in which some parties with the right to intervene would not receive notice.
A loss of legal rights without an opportunity to be heard violates the Due Process Clause. Third, a totality of the circumstances
balancing approach would "complicate the task" of the district court. Such complications prove inefficient because
they require wide-ranging, time-consuming, and expensive discovery.
Scholars on procedure largely agree with the Court's decision, in part because of a fear that the D.C. Circuit's fact-intensive totality
of the circumstances test would increase the likelihood that all courts would not adjudicate like-cases in a like-manner.
Employment
Denial of Benefits under the ADEA
Kentucky Retirement Systems v. EEOC (06-1037) addressed whether using age as a factor in determining the allocation of retirement benefits violated the
Age Discrimination in Employment Act's prohibition on age discrimination. Kentucky's retirement disability plan for
state employees provides benefits for workers who become disabled as a result of their work before reaching the age of retirement.
To receive benefits under the plan, an employee has to either work twenty years in the position or reach the age of 55 and
have put in at least five years of service. The EEOC brought a disparate treatment claim.
By a vote of 7-2, the Supreme Court held that the Kentucky plan did not violate the
ADEA. Writing for the majority, Justice Breyer cited Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993), which held that proving disparate treatment requires demonstrating that age discrimination actually
motivated the disparate treatment. Under this standard, the majority found that Kentucky's plan did not rest on the
assumptions of age that the ADEA sought to eradicate. Second, background circumstances demonstrate that Kentucky's plan
does not use pension status as "a proxy for age." The plan only treats disabled workers differently with respect
to the timing of their receipt of benefits, not as to the amount of benefits received. The Court then allocated to the
plaintiff the burden of proving that age alone caused the disparate impact.
Conflict of Interest Review under ERISA
Wanda
Glenn worked for Sears, Roebuck & Co. for fourteen years before a physician diagnosed her with a serious heart condition
and advised her to quit working. Glenn followed her physician's advice and applied to MetLife, Sears's insurance
carrier, for disability benefits. MetLife's responsibilities included both authorization of benefit disbursement and
the payment of benefits. Both MetLife and the Social Security Administration (SSA) certified Glenn as disabled. After two
years, however, MetLife changed her classification to "fit for sedentary work" in spite of her physician's
medical advice and the SSA's assessment. Glenn brought an Employee Retirement Income Security Act (ERISA) action against
MetLife for the wrongful denial of benefits. The district court found for MetLife, but the Court of Appeals reversed.
Justice Breyer's majority opinion in MetLife v. Glenn (06-923) affirmed and argued that MetLife's fiduciary duty counsels in favor of dispensing benefits, but its financial
interest counsels against such dispensation. Also, ERISA demands a "higher-than-marketplace quality" from insurance
services purchased to dole out benefits to participants and employees. For these reasons, Breyer asserted that MetLife's
position constituted a conflict of interest. However, Breyer noted that when reviewing a conflicted administrator's
decision, the court should apply a deferential standard and use the conflict of interest as only a factor in assessing the
propriety of the decision.
Private Suits for Monetary
Damages under ERISA
A defined contribution plan
promises a participant in a disability retirement plan "the value of an individual account at retirement, which is
largely a function of the amounts contributed to that account and the investment performance of those contributions."
James LaRue held one such account, and during his employment, he chose to make certain changes to his investments, a choice
allowed by the plan. DeWolff, the plan manager, failed to act, and LaRue's account lost interest in the amount of $150,000.
Suing under the Employee Retirement Income Security Act (ERISA), LaRue claimed "make whole money" in the amount
of $150,000 as equitable relief for DeWolff's omission under § 505(a)(2), which allows account owners to claim
equitable relief from account managers for fiduciary breach.
In LaRue v. DeWolff, Boberg & Associates (06-656), the Court addressed whether ERISA entitles private litigants to sue for money that remedies only their private
accounts in cases of fiduciary breach under a claim of "equitable relief." Finding in the affirmative, Justice
Stevens's majority opinion looked to § 404(c) of ERISA, which "exempts fiduciaries from liability for losses
caused by participants' exercise of control over assets in their individual accounts." The Court reasoned that this
exemption served no purpose if fiduciaries never faced liability for individual account losses.
Suits under the ADEA for Retaliation
The Age Discrimination in Employment Act waives federal sovereign immunity to allow a private
cause of action for federal employees against the federal government in cases of age discrimination. However, whether the
ADEA permitted federal employees to sue in cases of retaliation for filing an age discrimination complaint remained less
clear until Gomez-Perez v. Potter (06-1321). In Gomez-Perez a clerk for the United States Postal Service (USPS) filed one such complaint against
the USPS for refusing her transfer request. Gomez-Perez alleged that this complaint prompted her supervisors to take a series
of retaliatory measures against her. The district court granted summary judgment for the USPS, and on appeal, the First Circuit
Court of Appeals affirmed, finding that the ADEA did not provide a private cause of action for claims of retaliation.
On behalf of a six-justice majority, Justice Alito reversed.
The majority relied on the language of other federal anti-discrimination statutes with language similar to the ADEA's.
Specifically, the Court looked to Title IX of the Education Amendments of 1972 and to 42 U.S.C. § 1982, both of which the Court had previously interpreted to imply private causes of action. Because the language in the ADEA
did not materially differ, the majority held that Gomez-Perez could bring suit.
Business
Arbitration
Judicial Review of Arbitration Agreements
In Hall Street Assoc. v. Mattel, Inc. (06-989), the Court considered whether the Federal Arbitration Act (FAA) provides the sole basis for federal judicial
review of arbitration agreements. Hall Street Associates sued Mattel, Inc. for allegedly violating a property lease, and
the parties submitted to binding arbitration. The parties agreed, however, to allow federal court judicial review of certain
matters decided in arbitration that the FAA did not characterize as reviewable. In a 6-3 vote, Justice Souter's majority
opinion held that the FAA's provisions excluded judicial review of arbitrated matters not listed in the FAA and disallowed
contractual modification of these provisions by the parties.
The Federal Arbitration Act and the States
Arnold
Preston and Alex Ferrer contracted for Preston to serve as Ferrer's personal manager in exchange for assigning to Preston
a portion of Ferrer's earnings from a television deal. The contract provided that any dispute arising under the contract
be arbitrated. Preston filed for arbitration, claiming unpaid earnings from Ferrer. Ferrer, meanwhile, filed in state court.
In accordance with California state law, the state court stopped the arbitration and sent the case for review by a state administrative
agency, the Labor Commission.
In Preston v. Ferrer (06-1463), the Court reviewed whether the Federal Arbitration Act (FAA) preempts California state law and voids certain
contractual arbitration agreements. In an 8-1 opinion, Justice Ginsburg held that the FAA did preempt the California state
law. Section 2 of the FAA makes a contractually agreed upon arbitration clause valid and irrevocable because of "a national
policy favoring arbitration." The majority asserted that a state, therefore, lacks the power to revoke an arbitration
agreement, even for the purposes of submitting the dispute to an administrative agency because the Supremacy Clause of the
U.S. Constitution renders state law void when incompatible with a federal law. Here, Ginsburg's opinion declared that
the California law and the FAA could not coexist and that federal law must therefore prevail.
Securities
In Stoneridge v. Scientific-Atlanta (06-43), Charter Communications allegedly paid its equipment vendor, Scientific-Atlanta, prices above market value
for T.V. set-top boxes. The alleged scheme then provided that Scientific-Atlanta would return the surplus to Charter, and
Charter would account for these returns as revenue to artificially inflate its own stock prices.
Stoneridge sued Scientific-Atlanta under § 10(b) of the Securities Exchange Act,
but the district court dismissed the claim because an "aiding and abetting" charge did not provide grounds for
liability under § 10(b). The Eight Circuit affirmed. Also affirming 5-3, the Supreme Court applied its decision in
Central Bank v. First International Bank. 511 U.S. 164 (1994). Central Bank held that § 10(b) did not imply a right for securities fraud plaintiffs
to bring a private cause of action against aiders and abettors. Justice Kennedy's majority opinion also focused on Congress's
response to Central Bank, which resulted in passing the Private Securities Litigation Reform Act (PSLRA). The PSLRA
authorizes actions against aiders and abettors by the SEC but not private litigants; thus, adopting Stoneridge's theory
that Congress supported third-party liability "would put an unsupportable interpretation on Congress' specific response
to Central Bank."
Scholars seem to
agree that this case's holding means that third parties must have directly mislead investors and shareholders must have relied upon this fraudulent misdirection. Such stringent requirements, these scholars believe, will broadly impact
U.S. corporations because in many cases the requirements will insulate ex officio members of companies and their legal teams from fraud liability.
Patents
A long-established doctrine of patent law,
the exhaustion doctrine, entitles a patentee to a single royalty per patented device. Quanta Computer, Inc. v. LG Electronics, Inc. (06-937) centered on the scope of the doctrine in contemporary patent law. LG Electronics, Inc. (LGE) patented three
improved components for computer systems and licensed them to Intel, Inc. for Intel's use but required Intel to tell
its customers that the license disallowed them from combining licensed-parts with non-Intel parts. LGE subsequently sued
Quanta Computers, Inc. (Quanta) for ignoring this warning. Quanta asserted the exhaustion doctrine, claiming that LGE had
exhausted its patent by licensing to Intel. The Federal Circuit sided with LGE, which had argued that the sale from Intel
to Quanta was conditional upon complying with the non-combination provision.
Writing for a unanimous Court siding against LGE, Justice Thomas explained, "The authorized
sale of an article that substantially embodies a patent exhausts the patent holder's rights and prevents the patent holder
from invoking patent law to control postsale use of the article." In a footnote Justice Thomas suggested that a breach-of-contract
action might remedy Quanta's alleged violation of the conditional sale, but he reaffirmed that patent law provides no
recourse against third party purchasers once the patentee has received an initial royalty.
Bankruptcy
Florida Department of Revenue v. Piccadilly Cafeterias, Inc. (07-312) presented the Court with a classic circuit split. Section 1146(a) of the Bankruptcy Code exempts any assets transferred "under a plan confirmed" from state taxes. The Third and
Fourth Circuit Courts of Appeals had interpreted this provision to mean that to receive exemption status, the bankruptcy
court must have authorized the plan before the assets' transfer. The Eleventh Circuit, on the other hand, held that the
provision protected assets transferred prior to an approved plan as well.
Justice Thomas, on behalf of the seven-vote majority, reversed the Eleventh Circuit. The
majority, grounded in textualism, concluded that "The most natural reading of § 1146(a)'s text, the provision's
placement within the Code, and substantive canons [of interpretation] all lead to the same conclusion: Section 1146(a)'s
text affords a stamp-tax exemption only to transfers made pursuant to a [confirmed] Chapter 11 plan . . . ." The Court,
typically, has not permitted federal law to interfere with state tax schemes absent a clear Congressional articulation. The
majority asserted that even a favorable finding for Piccadilly only proved ambiguity, not the requisite clear articulation.
This decision incentivizes the debtor to delay the
sale of assets in order to avoid the tax. Such delays, some scholars fear, may hurt the value of some debtors' assets, make it harder for those debtors to emerge from bankruptcy, and thereby
reduce the number of Chapter 11 success stories.
American Indian Law
Jurisdiction over non-Indians
Plains Commerce Bank owned land on the Cheyenne
River Sioux Indian Tribe's reservation. The Long Family Land and Cattle Company, owned by an Indian couple, leased this
property from the Bank but defaulted on making payments. The Bank then sold the property to nonmembers of the Tribe, and
the Longs filed a discrimination claim and sought an injunction from the Tribal Court asserting that the Bank offered the
land to nonmembers on terms more favorable than the offer made to the Longs. The Tribal Court awarded damages in the amount
of $700,000 and enjoined the Bank from transferring the property's title to the nonmember-buyers.
The Bank then filed suit in Federal District Court, but both the district court and
Eight Circuit found for the Tribe. In Plains Commerce Bank v. Long Family Cattle Co. (07-411),Chief Justice Roberts' majority opinion reversed. Roberts invoked a long-held principle that tribes do not have
jurisdiction over non-Indians conducting activity on a non-Indian fee simple, even if on an Indian reservation, unless the
activity threatens the welfare of the tribe. The Court found the Bank to pose no such threat. When tribe members convey land
on their reservation to a third party nonmember, the tribe loses jurisdictional authority. Therefore, the Court voided the
Tribal Court's damages award for lack of jurisdiction.
Torts
Punitive Damages
In litigation that has lasted 19-years, the U.S. Supreme Court has finally put its
own stamp on the issues arising from the Exxon Valdez oil spill in Prince Williams Sound. Following the spill, individuals
who depend on Prince William Sound for their livelihood filed a class action suit against Exxon, and the jury awarded $287
million in compensatory damages and $5 billion in punitive damages. On appeal, the Ninth Circuit reduced the punitive damages
award to $2.5 billion.
The Supreme Court granted
certiorari in Exxon Shipping Company v. Baker (07-219) to determine the federal common law cap for punitive damages under maritime law. The majority opinion, written
by Justice Souter, found that the Exxon Valdez's captain navigated a treacherous course under the influence
of alcohol, which constituted recklessness; however, neither Exxon nor the ship captain profited from the spill. The majority
held that when a tortfeasor does not benefit from the tort created and does not act maliciously, punitive damage awards
cannot exceed an amount equal to the total compensatory damages awarded.
Some scholars believe this 1:1 cap will govern all federal punitive damage claims for tortious conduct that does not benefit the tortfeasor and
that does not occur out of malice, regardless of whether the tort occurs at sea or on land. If so, this decision broadly
impacts the recent developments in Supreme Court punitive damage jurisprudence.
Energy
A spot-market
energy industry permits utilities to purchase energy on the day they need it. California had this system in place during
the summer of 2000 when an exceptionally hot summer struck, which significantly drove up prices. Utilities backed out of
the spot-market and negotiated long-term contracts with wholesale energy suppliers. With energy prices inflated at the
time of the contracts' formation, the utilities asked the government to allow renegotiation of the prices, but the government
refused. Under long-held Supreme Court doctrine, the Federal Energy Regulatory Commission (FERC) must presume "just
and reasonable" the contract rate if the parties freely negotiated the contract and if the contract's terms do
not present a serious harm to the public good.
The Ninth Circuit found that the FERC did need an opportunity to review the contract and held that when a purchaser
challenges a contract, the contract need only exceed a "zone of reasonableness" to overcome the presumption. In
Morgan Stanley Capital Group Inc. v. Public Utility District Number 1 (06-1457), the Supreme Court, in a 5-2 opinion by Justice Scalia, reversed both parts of the Ninth Circuit's holding.
The majority found that the "opportunity for review" portion too readily undermined the sanctity of contracts and
that the latter portion failed for treating the purchaser differently from the seller. Both parties may only overcome the
presumption for "unequivocal public necessity" or in "extraordinary circumstances," neither of which,
the majority said, existed in this case.
