Category: Supreme Court

The Supreme Court Closes the Books on Civil False Claims Act Cases and Takes Issue with the First to File Rule

In a unanimous decision, the Supreme Court in Kellogg Brown & Root v. United States ex rel. Carter reversed the Fourth Circuit in part and affirmed in part, holding that the Wartime Suspension of Limitations Act (WSLA) only applies to criminal offenses, and that the popular colloquialism known as the “first to file rule” only prohibits qui tam actions when a similar suit is currently pending. Based on the text of the legislation alone, these holdings are glaringly obvious, but somehow both of these decisions manage to upset generally accepted Government contracts assumptions.

In 2005, a whistleblower filed a qui tam action against Kellogg Brown & Root Services Inc. (KBR) and Halliburton Co. (subsidiaries and the relator’s former employers) alleging that they had submitted a false claim to the Government. The relator alleged that KBR billed the Department of Defense under a water purification services contract for services that were either not performed or not properly performed. Water purification service contracts in Iraq have been a popular area for litigation with the U.S. Army, partly because of the enormity of the operation and expense required to supply deployed soldiers with a steady supply of clean water in an arid environment.  Unique to this case, the allegation of fraud was brought as a qui tam action that allows the relator to recover up to 30% of the Government’s total recovery.

The statute of limitations for qui tam actions is within six years of a violation or within three years of the date by which the United States should have known about a violation, but under no circumstances can it be brought more than 10 years after the date of the violation. The Solicitor General argued that the Wartime Suspension of Limitations Act (WSLA) indefinitely suspends any statute of limitations for “any offense” involving fraud against the Government during “hostilities” and therefore also suspended the statute of limitations for qui tam actions. On its face, the WSLA appears broad enough to encompass both civil and criminal accusations of fraud, especially if the reader has an expansive view of the word “offense.” From a practical perspective, this has been very difficult for defense contractors to stomach. As a nation that has been in uninterrupted war for 14 years, Government contractors could be called to disprove an allegation in a qui tam suit stemming from events that transpired more than a decade ago. These liabilities remain on their books and can factor into insurance coverage for dealing with these types of claims. These risks and liabilities inherent in doing business with the Government are often passed on to the Government in the form of less competitive bid proposals and higher costs. Many Government contracts attorneys understood that the Government’s use of WSLA in civil cases was questionable as the WSLA statute is codified in Title 18 “Crimes and Criminal Procedure.” The Supreme Court focused on this location of the WSLA text and the definition in place at that time defining “offenses” as crimes. In the end, the Supreme Court reversed the Fourth Circuit on this point and held that the WSLA does not apply to civil actions involving fraud. While this would seem to be a straightforward result, as noted in the Solicitor General’s brief, “every court of appeals to consider the questions has held that the WSLA applies in civil fraud cases.” The list includes cases in the Ninth and Sixth Circuits as well as the former Court of Claims, so this decision while reasonably anticipated still constitutes considerable reversal.

The Supreme Court’s second holding in this case was similarly obvious from a textualist perspective, but it manages to awaken long dormant liabilities for those contractors that applauded the first part of the Supreme Court’s opinion. This case took an unusual route to get to the Supreme Court. It was filed four separate times after the each of the previous filings was dismissed because similar qui tam cases were pending in other jurisdictions. The False Claims Act, which provides the rules for filing a qui tam states that “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” This is popularly referred to as the “first to file rule.” Unfortunately, that shorthand is so prevalent within the industry that the term “first to file,” which does not appear in the text, took on a meaning of its own when combined with decisions on notice and original source requirements. It was generally accepted that Congress’s intent was to prohibit copycat filings where a business would have to deal with the same qui tam allegations of fraud over and over from different relators. It was thought that the public disclosure required in unsealing a qui tam action should prohibit a future relator from using some of that same information in his own qui tam suit filed immediately upon the dismissal of the first suit. The National Whistleblower Center argued in its brief that if the “first to file rule” precluded future filings on the same issue a “wholly uninformed whistleblower could file a vexatious, frivolous, overbroad, and all-encompassing lawsuit. The Government would be left uninformed of the fraud as it was prior to the filing of the suit, and other well-informed whistleblowers would have no incentive or ability to come forward.” The Supreme Court agreed that there was no support in the text of the statute to interpret “pending” as anything more than “not yet decided” and affirmed this portion of the Fourth Circuit’s judgment. This means that qui tam filers must merely wait until similar cases are dismissed before filing their claims.

This doesn’t mean that qui tam filers will simply be able to adopt the accusations and evidence from the previous case, but it remains to be seen what advantages this approach might have for secondary filers who have had the benefit of observing the first qui tam. There is another pending petition at the Supreme Court, Purdue Pharma v. United States ex rel. May, that provide additional clarity on “whether the False Claims Act’s pre-2010 ‘public-disclosure bar,’ 31 U.S.C. § 3730(e)(4) (2009), prohibits claims that are ‘substantially similar’ to prior public disclosures, or instead bars a claim only if the plaintiff’s knowledge ‘actually derives’ from prior disclosures.”

For now, Government contractors need to be aware that qui tam filings are not necessarily prohibited just because someone previously filed a qui tam on the same issue. Defense contractors who supported military efforts in Iraq or Afghanistan can rely on the normal statute of limitations for civil claims involving fraud, but need to be aware that criminal acts of fraud are still prosecutable years after the cessation of hostilities.

ARTICLE BY Dana M. Collins of Odin, Feldman & Pittleman, P.C.
© 2015 Odin, Feldman & Pittleman, P.C.

Employers Take Note: The Supreme Court’s Game-Changing Decision in Young v. UPS Requires Review of Pregnancy Accommodation Policies and Practices

Neal, Gerber & Eisenberg LLP

Earlier today, the Supreme Court issued a much-anticipated decision in the closely watched case of Young v. UPS, holding that a plaintiff may be able to prove unlawful failure to accommodate a pregnancy-related condition through evidence that other non-pregnant employees were provided with the requested accommodation.  As further explained in this Alert, theYoung v. UPS decision promises dramatic changes in how pregnancy discrimination and accommodation claims are viewed and handled by courts nationwide, and requires employers to review and, if necessary, change their relevant policies and practices.

Young v. UPS involves former UPS driver Peggy Young, who, upon becoming pregnant, was put on a lifting restriction by her doctor:  no lifting of more than 20 pounds during the first 20 weeks of pregnancy, and no lifting of more than 10 pounds through the remainder of the pregnancy.  At that time, UPS required its drivers to be able to lift a minimum of 70 pounds.  As a result, the company told Young that she could not return to work until the restriction was released.  The lower federal court granted summary judgment in favor of UPS, holding that no pregnancy discrimination had occurred, and the Fourth Circuit Court of Appeals affirmed.  In one of its most important employment discrimination decisions in decades, today the Supreme Court vacated the Fourth Circuit’s decision, allowing Young to proceed in her pregnancy discrimination claim.

The Supreme Court held that an individual may establish a prima facie case of pregnancy discrimination by “showing actions taken by the employer from which one can infer, if such actions remain unexplained, that it is more likely than not that such actions were based on a discriminatory criterion.” Put another way, an employee may establish her prima faciecase of pregnancy discrimination by pointing to some evidence that the employer’s actions were discriminatory.  As the Court explained, the burden of making this showing is “not onerous,” and, significantly, does not require the plaintiff to show that non-pregnant employees who were allegedly treated more favorably were in similarly situated positions.  Rather, the employee needs only to show that: (1) she was pregnant at the relevant time; (2) her employer did not accommodate her; and (3) her employer did accommodate others who are similar only “in their ability or inability to work.”  The Court reasoned that Young could satisfy her prima facie burden by pointing to evidence that UPS had policies accommodating non-pregnant employees’ lifting restrictions – for example, its Americans with Disabilities Act (ADA) and job injury policies provided for light duty-type arrangements – but the same accommodation was not extended to pregnant employees.

The Court went on to explain that once the plaintiff meets the initial burden of establishing her prima facie case, then, as is typical in discrimination cases, the burden shifts to the employer to articulate a legitimate, non-discriminatory reason for denying the requested accommodation.  While this burden traditionally set a comparatively low bar for employers to overcome, the Court cautioned that an employer’s reasoning that “it is more expensive or less convenient” to extend protection to pregnant women will not suffice, though the Court did not elaborate as to what articulated reasoning will, in fact, be deemed to be legitimate and sufficient.  If an employer is able to satisfy its burden of articulating a legitimate, non-discriminatory reason, the final burden shifts back to the plaintiff to show that reason to be pretextual.  While showing “pretext” traditionally has presented a comparatively high bar for plaintiffs to overcome, here again the Court lent a helping hand to plaintiffs in pregnancy discrimination cases by holding that this burden may be met if the employee can point to evidence that the employer’s policies “impose a significant burden on pregnant workers, and that the employer’s ‘legitimate, non-discriminatory’ reasons are not sufficiently strong to justify the burden, but rather – when considered along with the burden imposed – give rise to an inference of intentional discrimination.”  In Young’s case, for example, the Court reasoned that if the facts are as Young says they are, she may be able succeed in her claims by proving “that UPS accommodates most non-pregnant employees with lifting limitations while categorically failing to accommodate pregnant employees with lifting limitations,” thereby giving rise to an inference of intentional discrimination based on pregnancy.

Today’s Supreme Court’s decision in Young v. UPS is a game changer for pregnancy discrimination and accommodation cases.  Setting lower burdens for plaintiffs and a higher burden for employers to overcome than, arguably, ever before seen from the Court in employment discrimination cases, at a minimum employers can expect that going forward it will be substantially easier for plaintiffs to succeed in pregnancy discrimination and accommodation claims, and that policies that tend to negatively impact pregnant employees – particularly where there is evidence that the requested accommodations have been provided to non-pregnant employees – are likely to be scrutinized and may well be deemed to be unlawful.  It is important for employers to review their policies and practices with today’s ruling in mind, and to make whatever changes necessary to ensure appropriate accommodation of, and no adverse effect with respect to, pregnant employees.  Any requests for pregnancy-related accommodations must be taken seriously and evaluated thoughtfully, so as to ensure compliance and help prevent claims.

ARTICLE BY

Sonya Rosenberg
Neal, Gerber & Eisenberg LLP

Supreme Court: DOL Can Flip-flop on its Interpretation of Its Own Regulations

Godfrey & Kahn S.C. Law firm

In 2010, the United States Department of Labor (DOL) issued an “Administrator’s Interpretation” stating that DOL would no longer consider employees who perform duties typical of mortgage loan officers to be exempt from the Fair Labor Standards Act’s overtime pay requirements.  This particular ruling revolved around the FLSA’s exemption for administrative employees.

Supreme court DOL FLSA

The DOL’s 2010 stance represented a change of course, as DOL had previously issued an “Opinion Letter” in 2006 stating that mortgage loan officers were generally exempt from the FLSA’s overtime pay requirements under the administrative exemption.  Litigation ensued following the 2010 Administrator’s Interpretation.  The focus of that litigation was a rather technical issue:  Should DOL have followed the formal rulemaking process before it could flip-flop on its interpretation of its own regulations?  You can read more about the details of the litigation here.

On Monday, March 9, 2015, the United States Supreme Court ruled that DOL was not required to follow the formal rulemaking process whenever it took a position that was contrary to previous guidance issued by DOL.

Why does this ruling matter to employers of mortgage loan officers?  Those businesses should classify those employees as non-exempt and evaluate their compensation structures immediately to comply with DOL’s interpretation of the administrative exemption.  Otherwise, these employers run the risk of DOL enforcement actions and private litigation.  Of course, these employers can disregard the DOL’s interpretation and rely on individual merits of their classifications, but they would do so at their peril.

Why does this ruling matter to employers generally?  Based on the Court’s ruling, DOL can arguably change its tune about any interpretation of its own interpretive regulations without any warning to employers.  An emboldened DOL could revisit regulatory interpretations that currently favor employers and flip those interpretations on their head, without warning.  More importantly, the Court’s ruling was not limited to the DOL, which means that other federal administrative agencies (e.g., OSHA) could follow suit, leaving employers with little recourse to challenge such changes of heart.

ARTICLE BY

M. Scott LeBlanc
Rufino Gaytán
OF
Godfrey & Kahn S.C.

US Supreme Court Holds that Juries Should Decide the Issue of Trademark Tacking

Mintz Levin Law Firm

In the first substantive trademark decision it has issued in a decade, the US Supreme Court, in  Hana Financial, Inc. v. Hana Bank, case number 13-1211 (January 21, 2015), affirmed the Ninth Circuit by holding that whether two marks may be tacked for purposes of determining priority is a question for the jury.

The case involved two organizations providing financial services to individuals in the United States. The Respondent Hana Bank had been operating under that name in Korea since 1991, and first began to advertise its services to Korean expatriates in the US in 1994. Advertisements for those services in the US first appeared in Korean and in English under the name “Hana Overseas Korean Club,” and included the name “Hana Bank” in Korean. In 2000, it changed the name of “Hana Overseas Korean Club” to “Hana World Center,” and in 2002 began operating a bank in the United States under the name “Hana Bank.” This latter enterprise was its first physical presence in the United States.

Petitioner Hana Financial was established in 1994 as a California corporation and began using that name and an associated trademark in 1995. In 1996, it obtained a federal trademark registration for a logo design incorporating the name “Hana Financial” for use in connection with financial services.

In 2007, Hana Financial sued Hana Bank alleging trademark infringement. Hana Bank denied infringement by claiming that under the tacking doctrine it had priority of use of the mark “Hana” for financial services in the United States. The trial jury found in favor of Hana Bank and the Ninth Circuit affirmed that decision on appeal. Since there was a split among the federal circuit courts as to whether tacking should be decided by juries or judges, the Supreme Court granted Hana Financial’s writ of certiorari.

So what is “tacking”? The general rule is that use of two marks may be “tacked together” for purposes of establishing priority of use when the original mark and the revised mark are “legal equivalents.” Marks are “legal equivalents” when they “create the same, continuing commercial impression” so that consumers “consider both as the same mark.” There is no dispute that the commercial impression that a mark conveys must be viewed through the eyes of the consumer. Thus, Justice Sotomayor, writing for a unanimous Court, stated that pursuant to long recognized doctrine, “when the relevant question is how an ordinary person or community would make an assessment, the jury is generally the decisionmaker that ought to provide the fact-intensive answer.” Accordingly, the Court held that when the facts do not warrant entry of summary judgment or judgment as a matter of law on the question of tacking, the question of whether tacking is warranted must be decided by a jury.

The lesson here for trademark owners is to ensure that archival records of your use of your marks over time are diligently maintained. This will help ensure that in the event the mark is changed in any way for purposes of modernization or otherwise, you have sufficient evidence to prove your earliest date of first use of the “legally equivalent” mark to defend against claims of infringement.

ARTICLE BY

Susan Neuberger Weller
OF
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Will The EEOC Get its Wings Clipped? Mach Mining's Challenge to the EEOC Before the Supreme Court

On Jan. 13, during oral argument, U.S. Supreme Court Justice Antonin Scalia echoed businesses’ skepticism about the EEOC’s pre-suit settlement strategy, saying  “there is considerable incentive on the EEOC to fail in conciliation so that it can bring a big­deal lawsuit and get a lot of press and put a lot of pressure on this employer and on other employers. There are real incentives to have conciliation fail.”

Justice Scalia made his comments in the case of Mach Mining L.L.C. v. Equal Employment Opportunity Commission. In the Mach Mining case, the EEOC sued the company for sex discrimination on behalf of a class of women who were denied jobs. The EEOC’s pursuit of high-profile litigation (accelerated during the Obama Administration and intended to “send a message to employers”)  is supposed to come after the EEOC has attempted to conciliate discrimination charges. But that conciliation process, and–in particular, court review of that process—is now before the Supreme Court.

By law, the EEOC is to “conciliate” cases after having found “reasonable cause” that a violation of the law has occurred, andbefore filing a lawsuit against the employer. Importantly, the language of Title VII specifically requires the EEOC to “endeavor to eliminate” alleged discrimination by “informal methods of conference, conciliation, and persuasion.”

But, after the EEOC filed suit against Mach Mining, the company accused the EEOC of failing to conciliate in good faith. The battle over the “good faith” conciliation has derailed the underlying case and for nearly two years, the case has been mired in a mini-battle about whether the EEOC has discretion on conciliation, or its conduct should be reviewed by a court. The EEOC’s position is that it has the discretion and should not be second-guessed; Mach Mining insists that “conference, conciliation, and persuasion” must be done in good faith, and subject to court review.

During the oral argument, Chief Justice Roberts said, “I am very troubled by the idea that the government can do something and we can’t even look at whether they’ve complied with the law.” Justice Kennedy noted that he couldn’t find another situation in which a court “has essentially declined to review a statutory precondition” to filing a lawsuit.

Yet, some justices were sympathetic to the EEOC’s position that companies are turning conciliation tactics into a legal strategy– to fight the EEOC about “good faith” conciliation to avoid and prolong the underlying discrimination case.

In the end, there seemed to be some agreement that judicial review of the conciliation process is appropriate, but, as Justice Breyer queried, “the issue is how much.” The lawyers and justices hinted at several options, even including directing the EEOC to issue regulations. Mach Mining and its supporters hope that the prospect of court review will cause the EEOC to be reasonable in its demands to employers before rushing to the Courthouse.

For more detailed legal analysis, visit the Supreme Court blog.

ARTICLE BY

Jeanine M. Gozdecki
OF
Barnes & Thornburg LLP

The “Top Ten” Intellectual Property Stories of 2014 (Most “Definitely”)

Schwegman Lundberg Woessner

I don’t think I can recall a more action-packed year for intellectual property law in my career, much less during the almost six years that I have been writing this blog. I am trying to write this while in transit, so there will be few footnotes or cites, but they are easy enough to find in my past posts, or online. I am not even sure that I outlined ten stories before I started typing, but here goes — in no particular order.

1,2,3 and 4. Mayo meet Alice meet Myriad – The Tortuous Path of s.101.

Although only Alice was decided in 2014, the excitement really started with the unexpected release of the PTO “Life Sciences” Guidelines in March (No. 1 Story). The draft Guidelines directed Examiners to reject claims to products of nature unless they were significantly different in structure from the products in their natural states, and declared that simple “If A, then B” diagnostic claims were patent-ineligible as attempts to patent natural phenomena.

The Guidelines were continuously criticized as based on a misreading of the earlier Mayo and Myriad S.Ct. decisions and were released in a revised form in December (No. 2 Story) via publication for comment in the Fed. Reg. The revised Guidelines recognized that the standards for claiming diagnostic tests were in flux but permitted consideration of functional differences in resolving the PE of natural products.

However, only a few days later, in U. of Utah Res. Fndn v. Ambry, (No. 3 Story) the Fed. Cir. held that primers could not be patented if not structurally changed from their natural sequence. Judge Dyk, writing for the panel, simply misread Myriad as holding that no isolated product of nature — as opposed to no naturally occurring DNA — could be patented unless it was markedly different than in its natural state. This decision followed the earlier invalidation of the claims to Dolly the cloned sheep in In re Roslin in which Judge Dyk, declared that no naturally-occurring living organism is patentable. The Utah panel also held that claims to comparing a subject’s DNA sequence to a reference sequence, wherein the claim also recited PCR amplification or probing, did not escape the Mayo requirement for an additional inventive concept in additional to the abstract idea of comparing sequences. This decision is ripe for rehearing en banc, if only to correct Judge Dyk’s manifest misreading of Myriad (and to keep the PTO Guidelines under some judicial control).

The title of this “news story” is meant to point up the tsunami-like “abstract idea” judicial exception to s. 101 patent-eligibility (PE). The Mayo v. Prometheus decision only mentions “abstract idea” once, and it is to cite to an earlier decision. The S. Ct. in Mayo reversed the Fed. Cir., holding that a claim reciting a natural phenomenon was required to recite some further inventive concept in order to be “significantly more” than a claim preempting use of the phenomenon. In Bilski, the Fed. Cir. fashioned the “machine or transformation test”. Judge Rader’s dissenting argument that a claim to hedging commodity risk was no more than an attempt to claim an abstract idea. The S. Ct. agreed with Judge Rader.

In Alice Bank, (No. 4 Story) the S. Ct. managed to marry the Mayo “test” for PE to the abstract idea exception of Bilski. The Court applied a two-step test. First, decide if a claim involves an abstract idea and then examine the claim to see if it contains significantly more than elements that are conventional and routine in the relevant art. Now, enter Utah Res. Foundation (Myriad) v. Ambry. While Ambry argued that the diagnostic claims were no more than an attempt to claim a natural phenomenon (mutations in DNA), the Fed. Cir. took a different tack and looked to itsMyriad decision for guidance.

And, lo and behold, at the Fed. Cir. level, Judge Lourie wrote that the DNA comparison claims were not PE, since they were directed to an abstract idea(!) So the Fed. Cir., simply applied the Mayo test as articulated in Alice and invalidated the method claims asserted by Myriad as attempts to claim an abstract idea, albeit with a bit of window dressing (PCR and probing). In the coming year, I can only hope that the PE of a simple “If A, then B” diagnostic claim will be resolved. And I also hope that Judge Breyer is not writing for the majority.

5. Kimble v. Marvel. The S. Ct. granted cert. to revisit the question of whether or not a requirement that a licensee pay post-expiration date royalties for a patent license is per se illegal (as it is presently).

6. Nautilus v. Biosig. While the S. Ct. tried to raise the bar for meeting s. 112(b) by requiring that claim elements be defined with “reasonable certainty,” rather than by the Fed. Cir.’s requirement that the meaning of the element not be “insolubly ambiguous” or “amenable to construction.” It is not at all clear where the new bar has been set.

7. Teva v. Sandoz. The S. Ct. granted cert. to resolve the question of whether or not it is proper for the Fed. Cir. to conduct de novo review of the district courts’ factual findings during claim construction. By the way, what is a mixed question of law and fact and how is a court to review them separately? Appeal to the Fed. Cir. and find out!

8. American Calcar v. American Honda Motors. This convoluted case stands for the observation that the inequitable conduct defense has risen from the grave of legal doctrines, to which it had been consigned by many commentators. Still, to prevail on this defense, a defendant is greatly assisted by the presence of a single (or perhaps two) “bad actors” who do things like try to patent a competitor’s drug — which, remarkably was the factual posture of two cases before the Fed. Cir. last year. You can advocate with vigor; just don’t lie.

9. Commil v. Cisco. Although the question present in the granted petition for cert. seems narrow (To what extent can evidence of a good faith belief in non-infringement negate the element of intent required to induce infringement?), this appeal is evidence that the S. Ct. is not yet tired of the challenges posed by Title 35.

10. Progress in Regulations Affecting Bringing Biosimilars to Market. In August, the FDA released its “Purple Book” listing approved reference products and actually accepted an application for a biosimilar “generic”. While some commentators feel that it will be more effective to re-conduct phase III trials than to try to navigate the hostile regulatory hurdles thrown up by the agency, the availability of biosimilar drugs seems inevitable.

ARTICLE BY

Warren Woessner
OF
Schwegman, Lundberg & Woessner, P.A.

U.S. Supreme Court Clarifies Procedures for Removal to Federal Court under Class Action Fairness Act

Jackson Lewis Law firm

In a divided 5-to-4 opinion, the U.S. Supreme Court has held that defendants seeking to remove a case to federal court under the Class Action Fairness Act (“CAFA”) need only allege in the notice of removal an amount in controversy in excess of the $5 million threshold and need not attach evidence to the notice of removal proving the amount in controversy. Dart Cherokee Basin Operating Co., LLC v. Owens, No. 13-719 (Dec. 15, 2014).

Reversing the Tenth Circuit Court of Appeals’ decision, the majority opinion (authored by Justice Ruth Bader Ginsburg and joined by Chief Justice John Roberts and Justices Stephen Breyer, Samuel Alito, and Sonia Sotomayor) held that a notice of removal need not contain evidentiary submissions because the plain language of the removal statute itself requires only a “short and plain statement of the grounds for removal.”

Background

In the case below, the plaintiff, Brandon Owens, had filed a putative class action in Kansas state court alleging that defendants Dart Cherokee Basin Operating Company, LLC and Cherokee Basin Pipeline, LLC underpaid royalties they owed to Owens and the putative class members under oil and gas leases. The complaint failed to plead a specific amount of damages, seeking only “a fair and reasonable amount” of damages on behalf of Owens and the putative class members.

The defendants removed the case to the U.S. District Court for the District of Kansas under CAFA. In their notice of removal, the defendants alleged that the purported underpayments to the putative class members totaled more than $8.2 million, but defendants did not attach to their notice of removal any evidence to support the alleged amount in controversy. The plaintiff moved to remand the case, alleging that the defendants’ notice of removal was deficient because it failed to include evidence proving the amount in controversy exceeded the $5 million threshold under CAFA. The District Court granted the plaintiff’s motion to remand. A divided Tenth Circuit Court of Appeals subsequently denied defendants’ petition for review and petition for en banc review.

Supreme Court Decision

In the majority opinion, the Supreme Court noted the federal statute setting forth the requirements for a notice of removal (28 U.S.C. § 1446(a)) requires only that the notice contain “a short and plain statement of the grounds for removal.” The majority went on to note that, “[b]y design, § 1446(a) tracks the general pleading requirement stated in Rule 8(a) of the Federal Rules of Civil Procedure” and that the legislative history of § 1446(a) indicates the statute was intended to “simplify the pleading requirements for removal and . . . clarify that courts should apply the same liberal rules [to removal allegations] that are applied to other matters of pleading.”

The majority went on to explain that “when a defendant seeks federal-court adjudication, the defendant’s amount-in-controversy allegation should be accepted when not contested by the plaintiff or questioned by the court.” When the plaintiff does contest the defendant’s amount-in-controversy allegation, the majority held, “both sides submit proof and the court decides, by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied.” The majority concluded by stating that a notice of removal need only include “a plausible allegation” that the amount in controversy is met, and evidence to establish the amount in controversy is required only when the amount in controversy is contested by the plaintiff or questioned by the court.

Dissenting Opinion

 Justice Antonin Scalia’s dissent (which was joined by Justices Anthony Kennedy and Elena Kagan, and joined in part by Justice Clarence Thomas) did not focus on the underlying question regarding the requirements for removal under CAFA. The dissent questioned whether the Supreme Court could even address the substantive issue in light of certain procedural and jurisdictional questions, and does not call into question the reasoning of the majority’s substantive holding.

***

The majority’s opinion resolves a prior split among circuit courts regarding a defendant’s burden when removing a case under CAFA. The law is now settled that a removing defendant need only make a good faith allegation in the notice of removal regarding the amount in controversy in order to meet its burden on removal. Only if the amount in controversy is challenged must a defendant offer evidence. Moreover, the majority made it clear that there is no presumption against removal jurisdiction in cases removed under CAFA, rejecting an argument often made by the plaintiffs contesting removal under CAFA.

ARTICLE BY

William J. Anthony
OF
Jackson Lewis P.C.

Nation’s Highest Court Schedules Oral Arguments in King v. Burwell re: Affordable Care Act

Sheppard Mullin Law Firm

A Supreme Court of the United States (SCOTUS) spokesperson announced on December 22, 2014, that the Court will hear oral arguments in King v. Burwell on March 4, 2015. This means that not only could the highest court soon resolve the circuit split on the case’s key issue, but that the future course of the landmark Affordable Care Act (ACA) could be decided as soon as June 2015.

At issue in King is whether a May 2012 IRS rule should be upheld or stricken.[1] The rule provides that health insurance premium tax credits are available to all U.S. taxpayers, irrespective of whether they obtain coverage through a state or federal exchange. Challengers to the IRS rule contend that the plain language of the ACA restricts the availability of the tax credits to health insurance policies purchased through state exchanges and not through the federal exchange. Reading the ACA statutory language strictly, challengers note that there is no alternative interpretation to the words noting that premium tax credits are available for plans obtained “through an Exchange established by the State under section 1311” of the Act.[2] (italics added).

The government has countered that other provisions of the ACA support the legislative intent of Congress—that the premium tax credits are meant to be made available for all taxpayers nationwide, including those who purchase plans on the federal exchange. It has noted that the IRS rule should not be invalidated because of a simple drafting error.

Earlier this year in July, the U.S. Court of Appeals for the Fourth Circuit had unanimously concluded in King that the ACA was ambiguous on the question of whether the tax credits applied to plans purchased through the federal exchange. Because of this, it allowed for the government to have a “reasonable interpretation” of the ACA via the IRS rule.[3]This decision directly conflicted with the July 2014 U.S. Court of Appeals (District of Columbia) decision in Halbig v. Burwellon the same issue.

The D.C. Court sided with the plain language interpretation and restricted the tax credits to plans purchased through the state exchanges. The Court subsequently vacated the decision and is not expected to render its opinion until Spring 2015.

If SCOTUS resolves the circuit split in favor of the challengers, there are several potential implications that could leave millions of Americans without health insurance:

  • Coverage would be less affordable for those on the federal exchange;

  • Without the tax credit, individuals would be exempt from the individual mandate;[4] and

  • The ACA employer “pay-or-play” provision would not apply to as many employers.

The latter implication is likely due to the fact that pay-or-play penalties are triggered only if a covered employer fails to offer health insurance coverage and an employee takes advantage of a tax subsidy by purchasing an exchange plan.  Without premium tax credits or subsidies available through the federal exchange, fewer employers would be penalized for failure to provide coverage in the first place.

The Supreme Court’s decision in the summer of 2015 may set the tone for the longevity of the ACA in light of the most recent mid-term elections.

ARTICLE BY

Florence T. Wang
OF
Sheppard, Mullin, Richter & Hampton LLP

[1] See 26 C.F.R. § 1.36B–1(k); Health Insurance Premium Tax 7 Credit, 77 Fed.Reg. 30,377, 30,378 (May 23, 2012) (collectively the “IRS Rule”).

[2] See ACA § 1401(a), codified at 26 U.S.C. § 26B(c)(2)(A)(i).

[3] The Fourth Circuit U.S. Court of Appeals opinion can be found here.

[4] As a matter of law, health insurance would be “unaffordable” and the individual mandate would be waived. See 26 U.S.C. § 5000A.

United States Supreme Court Round-Up: Key Opinions from 2013 to 2014 and Upcoming High-Profile Business Disputes

Andrews Kurth

The 2013–2014 term of the United States Supreme Court resulted in a wide range of decisions of importance to business. In this article, we highlight some of the key opinions and explore their likely impacts. We also preview a few of the high-profile business disputes the Supreme Court has agreed to hear next term.

Key Business Cases from the 2013–2014 Term

American Chemistry Council v. Environmental Protection Agency: Holding: The Environmental Protection Agency (EPA) reasonably interpreted the Clean Air Act to require sources that would need permits based on their emission of chemical pollutants to comply with “best available control technology” for greenhouse gases. Effect: The decision reinforces the Supreme Court’s previous recognition that the EPA has the power to regulate greenhouse gases as pollutants. However, portions of the decision strongly cautioned the EPA against overreach, stating that the agency may not “bring about an enormous and transformative expansion in [its] regulatory authority without clear congressional authorization.” These comments suggest that the Supreme Court may take a hard line when the Obama Administration’s other climate regulations eventually go to court.

Daimler AG v. Bauman: Holding: A foreign company doing business in a state cannot be sued in that state for injuries allegedly caused by conduct that took place entirely outside of the United States. Effect: Daimler makes it much harder for plaintiffs to establish general jurisdiction over foreign entities. The opinion re-characterizes general jurisdiction as requiring the defendant to be “at home” in the state, a circumstance that the Supreme Court suggested will generally be limited to the places where the defendant is incorporated or where it has its principal place of business. Moreover, the fact that a domestic subsidiary whose activities are imputed to the foreign parent may be “at home” in the state will not make the foreign parent “at home” in that locale for purposes of general jurisdiction.

Halliburton v. Erica P. John Fund, Inc.: Holding: Plaintiffs in private securities fraud actions must prove that they relied on the defendants’ misrepresentations in choosing to buy stock. Basic v. Levinson’s holding that plaintiffs can satisfy this reliance requirement by invoking a presumption that the price of stock as traded in an efficient market reflects all public, material information, including material misstatements, remains viable. However, after Halliburton, defendants can defeat the presumption at the class certification stage by proving that the misrepresentation did not in fact affect the stock price. Effect: While investors will continue to pursue class actions following large dips in stock prices, the Halliburton decision helps to level the playing field by providing defendants a mechanism to stop such suits at the class certification stage.

Lawson v. FMR LLC: Holding: Employees of privately held contractors or subcontractors of a public company are protected by the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 (SOX). Effect: Following Lawson, there will likely be an increase in SOX litigation against public and non-public companies. Because many of the issues concerning the scope and meaning of SOX have yet to be resolved, lower courts will continue to wrestle with defining the parameters of the law. Questions left unanswered byLawson include whether the whistleblower’s accusation must be related to work he or she performed for the company and whether the contract with the public company must have some relation to public accounting or securities compliance.

Chadbourne & Park LLP v. Troice: Holding: The Securities Litigation Uniform Standards Act of 1988 (SLUSA) does not preclude state-law class actions based on false representations that the uncovered securities that plaintiffs were purchasing were backed by covered securities. Effect: SLUSA bars the bringing of securities class actions “based upon statutory or common law of any state” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with a purchase of sale of covered securities.” The statute defines “covered securities” to include only securities traded on a national securities exchange or those issued by investment companies.

U.S. v. Quality Stores: Holding: Severance payments to employees who are involuntarily terminated are taxable wages for purposes of the Federal Insurance Contributions Act. Effect: Employers should, under most circumstances, treat severance payments to involuntarily terminated employees as wages subject to FICA taxes. There are exceptions, however, and employers should therefore seek legal counsel to assist in determining the tax status of a particular severance arrangement.

Business Cases to Watch in the 2014–2015 Term

Integrity Staffing Solutions v. Busk: Whether time spent in security screenings is compensable under the Fair Labor Standards Act.

Mach Mining v. Equal Employment Opportunity Commission: Whether and to what extent a court may enforce the Equal Employment Opportunity Commission’s mandatory duty to conciliate discrimination claims before filing suit.

Omnicare v. Laborers District Council Construction Industry Pension Fund: Whether, for purposes of a claim under Section 11 of the Securities Act of 1933, a plaintiff may plead that a statement of opinion was untrue merely by alleging that the opinion itself was objectively wrong, or must the plaintiff also allege that the statement was subjectively false through allegations that the speaker’s actual opinion was different from the one expressed.

Young v. UPS: Whether, and in what circumstances, an employer that provides work accommodations to non-pregnant employees with work limitations must provide work accommodations to pregnant employees who are similar in their ability or inability to work.

As in recent years, the Supreme Court continues to grant review on more and more cases involving matters of concern to U.S. businesses. Andrews Kurth attorneys are available to provide further detail and guidance on the decisions highlighted here, and on any other issues of concern to your company that have reached the high court.

ARTICLE BY

Kelly Sandill
OF
Andrews Kurth

U.S. Supreme Court Declines to Hear Wisconsin’s Same-Sex Marriage Case: How Does This Affect the Administration of an Employer’s Employee Benefits?

Michael Best Logo

On Monday, October 6, 2014, the U.S. Supreme Court denied certiorari in Wolfe v. Walker. As employers will recall, in June 2014, U.S. District Court Judge Crabb found that Wisconsin’s 2006 constitutional amendment barring recognition of same-sex marriages violated the equal protection clause of the U.S. Constitution. In September 2014, the Seventh Circuit affirmed that decision. The Supreme Court’s action means that Judge Crabb’s decision stands.

What Is the Effect of the Supreme Court’s Ruling? Hereafter, Wisconsin and its respective governmental subdivisions must issue same-sex marriage licenses and must recognize same-sex marriages, whether formed in Wisconsin or in other jurisdictions. Moreover, the ruling affects employer-provided employee benefits.

Eligibility for Health Plan Coverage. The ruling has different implications depending upon the type of health plan at issue. For ERISA plans, there is some uncertainty regarding how this will play out moving forward because of ERISA preemption. Following the 2013 U.S. Supreme Court decision in United States v. Windsor, the Department of Labor announced in guidance that it would interpret the terms “spouse” and “marriage” to include same-sex marriages valid in the state of celebration. However, since it appears that neither Windsor nor Wolf nor the DOL guidance addresses private discrimination or imposes an obligation on employers to provide same-sex benefits, ERISA may still preempt a state discrimination law.

There is an additional nuance under state insurance laws. The Department of Health and Human Services (HHS) has mandated that health insurance issuers providing policies that cover spouses ensure that same-sex spouse coverage is also available to consumers. The guidance HHS provided, however, does not mandate that employers obtaining that coverage actually offer the benefit. It is unclear how this will play out under state insurance law (which applies to insured ERISA plans) and further guidance from the state is required.

For plans that are not subject to ERISA, the preemption argument disappears. Thus, such non-ERISA plans failing to offer such coverage may now violate Wisconsin’s Fair Employment Act, which prohibits discrimination on the basis of sexual orientation and marital status. Even so, those plans that are exempt from ERISA because they constitute “church plans” may be able to assert a religious exemption from discrimination rules.

Employers contemplating providing only opposite-sex spousal benefits should be in close contact with their legal counsel regarding the risks associated with such a decision. Further, it will be very important to ensure that “spouse” is defined with precision in the plan materials.

Imputed Income. Previously, the Wisconsin Tax Code treated employer-provided coverage for same-sex spouses of employees as taxable income and Wisconsin employers were required to treat such coverage as imputed income for Wisconsin withholding purposes. Now that Judge Crabb’s decision has been permitted to stand, Wisconsin employers must stop imputing income for state tax purposes to employees who receive coverage for same-sex spouses (and certain dependents). Employers will also need to pay attention to how the Wisconsin Department of Revenue addresses the taxation of income that was previously imputed; that is, how employees and employers might recover excess amounts withheld by the state government based upon imputed income in prior months and years.

Note, nothing has changed as it relates to domestic partners benefits – employees are still subject to imputed income where the employee obtains coverage on behalf of his or her domestic partner.

Family and Medical Leave. As we advised in a June client alert, family and medical leave under the state law is largely unaffected by this decision because domestic partner coverage was already contemplated by the state law and same-sex spouses were deemed domestic partners for such purposes.

On a federal level, this decision accelerates the effective date of proposed regulations issued earlier this year by the U.S. Department of Labor in response to Windsor. Earlier this year, the Department of Labor issued proposed regulations to change the FMLA’s definition of spouse from an individual who is recognized as a spouse under the state law in the place of the employee’s residence to an individual who is considered legally married to the employee based upon the laws of the state of celebration. These regulations are not yet finalized. Nevertheless, the Supreme Court’s decision means that even under the current regulations Wisconsin same-sex married couples will be considered spouses for purposes of FMLA administration.

What should employers do now?

  • Account for those same-sex couples who may have been married in a state that permitted same-sex marriage or who are newly married in Wisconsin;

  • Determine if modification of benefit plan materials may be necessary;

  • Determine the appropriateness of a special enrollment opportunity to couples married in other jurisdictions prior to the Supreme Court’s ruling who would not otherwise be eligible for a HIPAA special enrollment opportunity based upon the date of the wedding; and

  • Determine if modification of FMLA policy/forms is warranted based upon the changes.

© MICHAEL BEST & FRIEDRICH LLP
ARTICLE BY

Charles P. Stevens
OF
Michael Best & Friedrich LLP