Category: Supreme Court

U.S. Supreme Court Upholds D.C. Circuit Decision in Noel Canning

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In a lengthy opinion authored by Justice Stephen Breyer, and drawing heavily on historical practice of Presidents and the Senate, the United States Supreme Court has upheld the decision of the U.S. Court of Appeals for the D.C. Circuit in Noel Canning v. NLRB, concluding that President Obama’s three recess appointments to the National Labor Relations Board in January 2012 (Sharon Block, Richard Griffin, and Terence Flynn) were invalid. The Court upheld the right of the President to make recess appointments both inter- and intra-session, but held that it is the Senate that decides when it is in session by retaining the power to conduct business pursuant to its own rules. The Court also found that a recess of less than ten days “is presumptively too short” to permit the President to make a recess appointment, except in “unusual circumstances”, such as a “national catastrophe”. (The recess here was three days.) The Court also decided that the recess appointment power applies to appointments that first come into existence during a recess and to those that initially occur before a recess but continue to exist during a recess.

As a result of the decision, over 1,000 Board decisions likely are now invalid. According to the National Right to Work Foundation, 999 unpublished decisions and 719 published decisions (totaling 1,718) could be affected. The Chamber of Commerce estimates 1,302 decisions from August 27, 2011 through July 17, 2013 to be suspect.

Article By:

Howard M. Bloom
Of:
Jackson Lewis P.C

Halliburton II: Supreme Court Upholds Basic Presumption

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On June 23, the U.S. Supreme Court issued its long-anticipated decision in Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II).[1] Chief Justice Roberts delivered the opinion of the Court, in which Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan joined. Justice Ginsburg filed a concurring opinion, in which Justices Breyer and Sotomayor joined. Justice Thomas filed an opinion concurring in the judgment, in which Justices Scalia and Alito joined.

The Halliburton II case generated significant publicity because it presented the Supreme Court with the opportunity to reexamine the fraud-on-the-market presumption created in Basic v. Levinson.[2] The Court in Basic held that, in a securities fraud class action, the plaintiff is entitled to a rebuttable presumption of reliance and, therefore, does not have to prove that each investor in the class relied on any alleged material misrepresentation. The foundation for the fraud-on-the market theory is the efficient-market theory, which presumes that, in an efficient market, all material, public information about a company is absorbed by the marketplace and reflected in the price of the security. The efficient-market theory has been under increasing attack in recent years, leading many to believe that the time may have come to overturn Basic.

In Halliburton II, the Supreme Court addressed whether to continue the fraud-on-the-market presumption unchanged, to cease the applicability of the fraud-on-the-market presumption altogether, or to alter the presumption. In the Court’s opinion, the majority declined to overrule or modify Basic’s presumption of classwide reliance, but it did hold that defendants may rebut the presumption at the class certification stage by introducing evidence that the alleged misrepresentation did not impact the market price. The majority determined that Halliburton had not demonstrated the “special justification” necessary to overturn “a long-settled precedent.”[3] The majority also rejected Halliburton’s request that the plaintiffs be required to show a price impact to invoke the presumption because “this proposal would radically alter the required showing for the reliance element.”[4] The majority did hold that defendants can rebut the presumption by showing lack of price impact at the class certification stage because “[t]his restriction makes no sense, and can readily lead to bizarre results.”[5] The majority therefore vacated the U.S. Court of Appeals for the Fifth Circuit’s judgment and remanded for further proceedings.

In a concurring opinion, Justice Ginsburg, joined by Justices Breyer and Sotomayor, noted that, although the decision would “broaden the scope of discovery available at certification,” the increased burden would be on defendants to show the absence of price impact, not on plaintiffs whose burden to raise the presumption of reliance had not changed.[6]

In a separate opinion concurring only in the judgment, Justice Thomas, joined by Justices Scalia and Alito, argued that Basic should be overturned for three reasons. First, the fraud-on-the–market theory has “lost its luster”[7] in light of recent developments in economic theory.[8] Second, the presumption permits plaintiffs to bypass the requirement—as set forth in some of the Court’s most recent decisions on class certification—that plaintiffs affirmatively demonstrate compliance with Rule 23. Third, the Basic presumption of reliance is “largely irrebuttable” because “[a]fter class certification, courts have refused to allow defendants to challenge any plaintiff’s reliance on the integrity of the market price prior to a determination on classwide liability,”[9] therefore effectively eliminating the reliance requirement.

The Supreme Court’s decision has significant implications for securities fraud litigation, particularly at the class certification stage. Although plaintiffs need not prove direct price impact and may instead still raise the presumption of reliance by showing an efficient market and that the information was material and public, defendants may now rebut this presumption before class certification by showing a lack of price impact. We believe that defendants’ ability to rebut the presumption by showing no price impact effectively swallows the rule that plaintiffs need not prove a price impact. This will undoubtedly lead to a battle of the experts at the class certification stage. Although the Court’s decision does not explicitly affect other proceedings, such as a motion to dismiss, the scope of the decision will certainly be tested in the coming months and years.

Article By:

John M. Vassos
Karen Pieslak Pohlmann
Laura E. Hughes
Of:
Morgan, Lewis & Bockius LLP

[1]. No. 13-317 (U.S. June 23, 2014), available here.

[2]. 485 U.S. 224 (1988).

[3]. Halliburton II, No. 13-317, slip op. at 4; see generally id. at 4–16.

[4]. Id. at 17.

[5]. Id. at 19.

[6]. Id. at 1 (Ginsburg, J., concurring).

[7]. Id. at 7 (Thomas, J., concurring).

[8]. Id. at 8–9.

[9]. Id. at 13.

The Supreme Court’s Greenhouse Gas Permitting Decision – What Does It Mean?

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The U.S. Supreme Court today partly upheld and partly rejected the U.S. Environmental Protection Agency’s federal Clean Air Act permitting regulations governing greenhouse gas (GHG) emissions from stationary sources.  The decision is mostly a victory for EPA, and its narrow scope means that it will almost certainly not disrupt, let alone invalidate, EPA’s ongoing Section 111(d) rulemaking to set GHG emission limits for existing power plants.  At the same time, the decision does not necessarily mean that EPA’s 111(d) proposal is free from legal challenge.  That is because the decision does not address 111(d).

Today’s decision concerns the Clean Air Act’s two stationary source permitting programs – the prevention of significant deterioration (PSD) program and the Title V program.  In 2010, EPA announced that it was including GHG emissions within the scope of both programs.  Various states and industry groups challenged that announcement, and today, the Supreme Court partly agreed and partly disagreed with the challengers.

First, five justices (Scalia, Roberts, Kennedy, Alito and Thomas) held that a source’s GHG emissions, standing alone, cannot trigger the obligation to undergo PSD and Title V permitting.  That part of the decision is a loss for EPA.  But the second part of the decision is a victory for the agency.  Seven justices (Scalia, Roberts, Kennedy, Ginsburg, Beyer, Sotomayor and Kagan) held that EPA canrequire sources that are subject to PSD “anyway,” because they emit other types of pollutants in significantly large quantities, to control their GHG emissions.  In sum, GHG emissions cannot trigger the obligation to undergo PSD permitting, but EPA can use the PSD permitting process to impose source-specific GHG emission limits on facilities that trigger the process for other reasons.

The decision does not address EPA’s authority to impose substantive limits on GHG emissions using other statutory provisions such as Clean Air Act Section 111(d).

Article By:

Jacob Hollinger
Of:
McDermott Will & Emery

Alice v. CLS Bank: Supreme Court Continues to Grope in Dark for Contours of Abstract Idea Exception

Schwegman Lundberg Woessner

In Alice Corp. v. CLS Bank Int’l (2014), the Supreme Court unanimously affirmed the one-paragraph per curium opinion of the en banc Federal Circuit, which found all claims of U.S. Patent Nos. 5,970,479, 6,912,510, 7,149,720, and 7,725,375 invalid under 35 U.S.C. § 101 for being directed to an abstract idea.

The Court based its affirmance on an application of a two-step process outlined in Mayo Collaborative Services v. Prometheus Labs, 566 U.S. ___ (2012). The first step is the determination of whether the claims are directed to a patent-ineligible concept such as a law of nature, natural phenomenon, or abstract idea. This step implicitly includes the identification of the concept at issue. The second step is to determine if the claims recite “an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.”

The Court avoided providing “the precise contours of the ‘abstract ideas’ category” by relying on the similarity between Alice’s claims for intermediated settlement and Bilski’s claims for hedging. The Court characterized the Bilski claims as “a method of organizing human activity.” Accordingly, while only three justices signed Justice Sotomayor’s concurrence, stating that “any claim that merely describes a method of doing business does not qualify as a ‘process’ under §101,” the unanimous decision does implicate business methods as likely directed to abstract ideas.

At the Federal Circuit, the splintered opinion included a four-judge dissent that argued that the system claims should be patent-eligible even though the method claims were not. The Supreme Court disagreed with this view, finding that if the system claims were treated differently under §101, “an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept” which would “make the determination of patent eligibility depend simply on the draftsman’s art.” To convey patent-eligibility, the claims at issue must be “significantly more than an instruction to apply the abstract idea … using some unspecified, generic computer.”

In my previous post regarding the oral argument before the Supreme Court, I noted that the Court seemed to be looking for reasonable and clear rules regarding the limits of the abstract idea exception to patentable subject matter, but did not get such a rule from any party. Perhaps as a result, this case was decided purely on its similarity to Bilski, and without providing much guidance as to the scope of the exception.

My thanks to Domenico Ippolito for this posting.

© 2014 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

Article By:

Steven Lundberg
Of:
Schwegman, Lundberg & Woessner, P.A.

Supreme Court Decides CTS Corp. v. Waldburger Evaluating Whether CERCLA Precludes State-Law Statutes of Repose

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On June 9, 2014, the Supreme Court decided CTS Corp. v. Waldburger, holding that a North Carolina statute of repose was not preempted by Section 9658 of theComprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

From 1959 until 1985, CTS Corporation manufactured electronics on a piece of property in North Carolina.  CTS sold the property in 1987.  Owners of both the former CTS property and adjacent property filed state-law nuisance claims in 2011, alleging that they had learned from the United States Environmental Protection Agency (USEPA) in 2009 that their groundwater was contaminated.  A district court relied on N. C. Gen. Stat. §1-52(16), a North Carolina statute which bars property damage claims made “more than 10 years from the last act or omission of the defendant giving rise to the cause of action,” to dismiss the claims, finding that CTS’s last act occurred in 1987, when the property was sold.  Relying on CERCLA Section 9658, the Fourth Circuit re-instated the nuisance claims because it concluded that CERCLA pre-empted the North Carolina statute.

The Supreme Court reversed the Fourth Circuit, holding that the North Carolina statute was not pre-empted and that CERCLA Section 9658 was limited to “statutes of limitations.”  While noting that there is common ground between “statutes of limitations,” which create “time limit[s] for suing in a civil case, based on the date when the claim accrued,” and “statutes of repose,” which “put[] an outer limit on the right to bring a civil action,” “each has a distinct purpose and each is targeted at a different actor.”  The Court found that, when Congress passed Section 9658, the language it chose limited the provision to statutes of limitations.  Additionally, the Court found that CERCLA expressed neither any intent to provide “a general cause of action for all harm caused by toxic contamination” nor a clear intent to supersede traditional police powers of the states.

Two points are worth mention:

First, the CTS decision is not the “usual” CERCLA decision.  The decision does not alter the mechanism under which federal or state agencies investigate, characterize, and remediate properties.  Indeed, based on the case history, the groundwater contamination alleged in the CTS litigation was discovered by EPA in 2009, two years before CTS suit was filed.  In 2012, the involved property was added to EPA’s National Priorities List, a designation reserved for sites EPA has identified as being among its priorities.  Similarly, it does not alter the federal causes of action parties may use to recover costs related to their remediation activities.

Second, the CTS decision appears to be based on a straightforward reading of CERCLA.  The Court held that CERCLA does not preclude a state’s choice to have legislative statutes of repose which apply to certain categories of tort cases.  While a few states have these, the majority of states do not.[1]  Each of the federal environmental statutes – to a degree – seeks to shape state action.  There is no indication in CERCLA that it intended to “trump” state ability to form independent tort-related law for any situation related to contamination.  Had it been Congress’s intent to supersede all state statutes of repose related to actions related to contamination, Congress could have done so.  In the Court’s view anyway, the language Congress chose did not do so here.

Article By:

J. Michael Showalter
Of:
Schiff Hardin LLP

[1] States with statutes of repose which were identified in the course of the CTS litigation include Connecticut, see Conn. Gen. Stat. § 52-584; Kansas, see Kan. Stat. § 60-513(b); North Carolinia, see N.C. Gen. Stat. § 1-52(16); and Oregon, see Or. Rev. Stat. § 12.115(1).  Alabama has a 20-year common-law statute of repose.  See, e.g., Abrams v. Ciba Specialty Chems. Corp., 659 F. Supp. 2d 1225) (S.D. Ala. 2009).

Supreme Court Finds that CERCLA Does Not Preempt Statutes of Repose – Comprehensive Environmental Response, Compensation, and Liability Act

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On June 9th, the Supreme Court issued its opinion in CTS Corp. v. Waldburger et al., No.13-339 (June 9, 2014) (slip op.) [link], in which it held that CERCLA section 309, 42 U.S.C. § 9658, does not preempt statutes of repose, reversing the Fourth Circuit.  Section 9658(a) preempts state law statutes of limitation for personal injury and property damage claims related to the release of a hazardous substance.  Justice Kennedy, writing for the majority, reaffirmed the oft-repeated “presumption against preemption” in reasoning that Section 9658 does not preempt state statutes of repose.  Statutes of limitations bar claims after a specified period of time based on when the claim accrued, whereas statutes of repose bar suits brought after a specified time since the defendant acted, regardless of whether the plaintiff has discovered the resulting injury.

CTS Corporation (“CTS”) operated an electronics plant in Asheville, North Carolina from 1959 to 1985.  CTS, which manufactured and disposed of electronics and electronic parts, contaminated its property with chlorinated solvents.  CTS sold the facility in 1987, and portions of the property were sold off.  Owners of those parcels, and adjacent landowners, brought suit against CTS in 2011, alleging that they discovered contamination on their properties in 2009.

The District Court found that N.C. Gen. Stat. § 1-52(16), North Carolina’s statute of repose, barred the suit.  That section prohibits a “cause of action [from] . . . accru[ing] more than 10 years from the last act or omission of the defendant giving rise to the cause of action.”  The Fourth Circuit reversed on the basis of CERCLA preemption, finding that section 9658 was ambiguous because it did not explicitly list “statutes of repose.”

The main issue at oral argument before the Supreme Court was whether the distinction between statutes of repose and statutes of limitation actually existed when Congress enacted Section 9658.  As Justice Scalia said, “. . . I used to consider them when I was in law school and even as late as 1986 [when section 1958 was added by Congress], I would have considered that a statutes of limitations.  Now, you think Congress is smarter.  They know the law better.”  Although other justices seemed to agree—and the distinction had only begun to be made in the 1980s—a 1982 Senate Superfund Study Group Report made that distinction and recommended that the few states that have statutes of repose repeal them.  Despite the overlap between statutes of repose and statutes of limitation, the Court found the distinctions important—statutes of repose are not related to the accrual of any cause of action and  cannot be tolled.  Because the Study Report made the distinction between the two, and because section 9658 fails to mention “statute of repose” and is not written in a way to suggest that it is intended to include both, the Court reversed.

The Court cited, as additional support for its conclusion the “well-established ‘presumptions about the nature of pre-emption.’”  The presumption against preemption counsels courts, when interpreting the text of a preemption clause susceptible of more than one possible reading, to “ordinarily accept the reading that disfavors pre-emption.”   The Fourth Circuit failed to mention this presumption (although the dissent relied on it).

This opinion follows recent Superfund cases in the Supreme Court in two respects.  First, the Supreme Court attempts to apply the “natural reading” of the statutory text rather than to reach out to interpret the statute broadly to effectuate its “remedial purpose.”  Indeed, Justice Kennedy explicitly derides that rationale for interstitial lawmaking.  Second, the Supreme Court attempts to preserve ordinary state law principles to the greatest extent possible.  So, for example, United States v. Bestfoods, 524 U.S. 51 (1998), was very respectful of state corporation law, and so too Waldburger is respectful of state tort law.  In this way, one might consider today’s decision to be fairly unremarkable.

The majority does not even address Justice Ginsburg’s dissent in which she and Justice Breyer worry that personal injuries with long latencies—like cancers—will go uncompensated.  But some of the long latencies arise not from the progress of some disease but of slow migration of a hazardous substance, in a groundwater plume for example.  Indeed, to the extent that many environmental toxic tort claims rest on allegations of property damage or diminution in value, the cancer model may be misplaced.

U.S. Supreme Court Makes It Easier To Avoid Method Patents Requiring Multiple Actors

Neal Gerber

On June 2, 2014, the United States Supreme Court unanimously held that a defendant was not liable for inducing infringement of a patented method where there is no direct infringement because the method steps are “divided” between the defendant and its customers. See Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12–786. The Court was reviewing a 6-5 en banc decision from the Court of Appeals for the Federal Circuit that held a party might be liable for inducing infringement under 35 USC 271(b) where a defendant carried out some steps and encouraged others (such as its customers) to carry out the remaining steps. In other words, the performance of the method steps was divided between a party and its customers, so the party could be liable for inducing the performance of the remaining steps it did not perform itself.  The Supreme Court reversed and remanded the judgment against Limelight, reasoning that there could be no liability for inducing infringement if no party directly infringed.

The Supreme Court relied on a prior decision by the Federal Circuit that there is no direct infringement of a method claim unless a single party performs every step of a claimed method or exercises “control or direction” over the entire process such that every step is attributable to that party. See Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1329 (Fed. Cir. 2013). Muniauction held that there was no direct infringement of a patented method when its distinct steps were performed by “mere arms-length cooperation” between parties. In Limelight, the Supreme Court “assumed” that Muniauction’s holding was correct but observed that the Federal Circuit could revisit it when the Limelight decision was remanded.

Both Limelight and Muniauction involved client-server scenarios for web-based businesses and cloud-based application services, but this decision has broad implications across a variety of fields, such as personalized or precision medicine.  For example, a patented method directed to diagnosing and treating a disease would not be infringed where a laboratory provides the diagnosis and the treating physician does not exercise “control or direction” over the steps performed by the laboratory.

Until Muniauction is further defined, the Court has returned the law to its state prior to the Federal Circuit’s Akamai holding, where liability turned on whether a single infringer exhibited sufficient “control or direction” over steps performed by others; if not, no one is liable for patent infringement.  For would-be infringers, this potentially provides a useful defense.  For patent applicants, it is a reminder to draft method claims in a manner such that all actions can be taken by a single entity.

Article By:

Michael B. Harlin
James P. Muraff
Kevin A. O’Connor Ph.D.
Mike R. Turner
Of:
Neal, Gerber & Eisenberg LLP

Supreme Court Nixes "Amorphous" Federal Circuit Indefiniteness Standard

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The U.S. Supreme Court yesterday reversed long-standing Federal Circuit precedent, replacing the test used to determine whether a patent is indefinite with a new reasonable certainty standard (NAUTILUS, INC. v. BIOSIG INSTRUMENTS, INC., No. 13–369 (S. Ct. June 2, 2014).

The new reasonable certainty test raises the bar on the “clarity and precision” with whichpatents must be written. As a consequence, the burden on accused infringers attempting to invalidate patents based on ambiguous language is lowered. This new standard will prove especially helpful in the ongoing battle against patent trolls, who often wield portfolios of ambiguous or overly broad patents in an attempt to extract licensing fees. Tech companies, including Google, Inc. and Amazon.com, Inc., which are frequent targets of patent trolls, urged the Supreme Court to adopt the “reasonable certainty” standard.

The new standard will also require more precision in drafting and prosecuting patent applications. Exactly how precise language will need to be remains to be seen, but the Court explained that the old standard incentivized patent applicants and practitioners to “inject ambiguity” into their claims. The new standard was established, in part, to eliminate this incentive. The Court commented that patent practitioners are in the best position to resolve ambiguity in patent claims. In light of the Supreme Court’s admonition, patent applicants and practitioners seeking broad coverage of their inventions should use language no broader than necessary to adequately cover their inventions.

The Supreme Court’s decision stemmed from a dispute between Biosig Instruments and Nautilus, Inc. Biosig sued Nautilus for infringement of a patented heart monitor for exercise machines, which registered electrical waves to estimate a user’s heart rate. Nautilus convinced the trial court that Biosig’s patent was invalid as indefinite. Applying its “insolubly ambiguous” test, the Federal Circuit found the patent valid. Biosig sought review by the Supreme Court.

Justice Ginsberg delivered the opinion for a unanimous Court. As embodied in the Patent Act, a patent must include “one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant claims as his invention.”

This notice requirement is satisfied, the Court held, where the claims of the patent, read in light of the specification and prosecution history, informs with reasonable certainty those skilled in the art about the scope of the invention. Like any property right, the boundaries of the patent monopoly should be clear. The failure to afford the public clear notice of what is claimed, “thereby appris[ing] the public of what is still open to them,” chills innovation by creating a risk of infringement in “zones of uncertainty.”

The High Court remanded the case with instructions that the Federal Circuit should no longer employ the “insolubly ambiguous” or “amenable to construction” tests of patent claim indefiniteness under 35 USC § 112, ¶ 2. These words can “leave courts and the patent bar at sea without a reliable compass.” While noting that the Supreme Court does not “micromanage the Federal Circuit’s particular word choice” in applying patent-law doctrines, Justice Ginsberg wrote, “we must ensure that the Federal Circuit’s test is at least ‘probative of the essential inquiry.’”

The Federal Circuit test, according to the High Court, “invoked a standard more amorphous than the statutory definiteness requirement allows.” In addition to breeding lower court confusion, the discredited “insolubly ambiguous” standard tolerated “some ambiguous claims but not others….” The Court’s new reasonable certainty standard requires more definite claim language.

Article By:

David W. Harlan
Jessica M. Mendez
Patrick Coyle
Samir R. Mehta
Of:
Armstrong Teasdale

The Supreme Court Decides Bay Mills Case, Leaves Tribal Sovereign Immunity Intact

Godfrey Kahn

In its long-awaited decision in Michigan v. Bay Mills Indian Community, the U.S. Supreme Court today re-affirmed its 1998 holding in Kiowa Tribe v. Manufacturing Technologies, Inc. 523 U.S. 751 (1998) that tribal sovereign immunity extends to tribes’ governmental and commercial activities, both on reservation and off. In a 5-4 decision, the Court affirmed the Sixth Circuit’s decision that the Indian Gaming Regulatory Act waiver of tribal sovereign immunity for suits to enjoin gaming on Indian lands in violation of a tribe’s gaming compact with a state did not apply to tribal gaming on non-Indian lands and that the State was barred by the doctrine of sovereign immunity from suing the Tribe directly for damages.

The Court rejected Michigan’s arguments that Kiowa was wrongly decided and that tribes should enjoy no immunity with respect to their commercial, off-reservation activities. The majority opinion, authored by Justice Kagan and joined by Justices Roberts, Kennedy, Breyer and Sotomayor, emphasized the doctrine that the court should not overrule its previous decisions without special justification (stare decisis), pointing out that (1) the Court had explicitly invited Congress to consider limitations on tribal sovereign immunity its Kiowa decision, (2) Congress had, in fact, considered several bills that would have imposed broad limits but had not enacted any of them (“Having held in Kiowa that this issue is up to Congress, we cannot reverse ourselves because some may think its conclusion wrong” Slip. Op. 20), and (3) Michigan had other means of enforcing state law against Bay Mills, including denial of required licenses, suits against employees and officials of the tribe to enjoin violations of state law and criminal prosecution of tribal officials and employees and for violations of state criminal laws.

The Court concluded:

As “domestic dependent nations,” Indian tribes exercise sovereignty subject to the will of the Federal Government. …Sovereignty implies immunity from lawsuits. Subjection means (among much else) that Congress can abrogate that immunity as and to the extent it wishes. If Congress had authorized this suit, Bay Mills would have no valid grounds to object. But Congress has not done so: The abrogation of immunity in IGRA applies to gaming on, but not off, Indian lands. We will not rewrite Congress’s handiwork. Nor will we create a freestanding exception to tribal immunity for all off reservation commercial conduct. This Court has declined that course once before. To choose it now would entail both overthrowing our precedent and usurping Congress’s current policy judgment.

In her concurring opinion, Justice Sotomayor asserted that the historical basis for tribal sovereign immunity is stronger than the dissent recognized and that the result reached by the majority is consistent with comity in view of the fact that State sovereign immunity prevents states from being sued by tribes. Justice Sotomayor also pointed out the special challenges that tribes face with respect to raising revenue and the role that their commercial enterprises play in funding government.

The unmistakable premise of the dissenting opinion, authored by Justice Thomas and joined by Justices Scalia, Ginsburg and Alito, is that sovereign immunity as currently exercised by tribes under the rule of Kiowa has led to widespread, grave and intolerable injustices. These injustices, according to the dissenters, warrant departing from the rule of stare decisis to correct the Court’s “mistake” in the Kiowa decision:

In Kiowa, this Court adopted a rule without a reason: a sweeping immunity from suit untethered from commercial realities and the usual justifications for immunity, premised on the misguided notion that only Congress can place sensible limits on a doctrine we created. The decision was mistaken then, and the Court’s decision to reaffirm it in the face of the unfairness and conflict it has engendered is doubly so.

Dissent, slip Op. 18.

Justice Thomas’ opinion highlights areas, including taxation, tobacco commerce, payday lending and campaign finance, in which tribes have “exploited” immunity to avoid state regulation. In a separate dissenting opinion, Justice Ginsburg expressed her view that the Court had gone too far not only in expanding the scope of tribal sovereign immunity in Kiowabut also in expanding state sovereign immunity from suits by tribes to enforce federal laws in Seminole Tribe v. Florida, 517 U.S. 44 (1996). Justice Ginsburg would impose greater limits on the immunity of both sovereigns.

The Court’s decision leaves unclear two areas of tribal sovereign immunity jurisprudence. First, the Court expressly acknowledged that it has never “specifically addressed” whether immunity “should apply in the ordinary way if a tort victim, or other plaintiff who has not chosen to deal with a tribe, has no alternative way to obtain relief for off-reservation commercial conduct. The argument that such cases would present a ‘special justification’ for abandoning precedent is not before us” Slip. Op. 16, n.8. The Court’s comment will be viewed as an invitation for a plaintiff to make the argument that this situation does indeed present a “special justification” for an exception to immunity.

The Court’s opinion also leaves unaddressed the extent to which tribal sovereign immunity applies to subsidiary entities. In a footnote, the dissent observed, without comment, that “[l]ower courts have held that tribal immunity shields not only Indian tribes themselves, but also entities deemed ‘arms of the tribe.’ … In addition, tribal immunity has been interpreted to cover tribal employees and officials acting within the scope of their employment.”

The consequences of the Court’s decision are likely to be (1) arguments by state lobbyists that Congress should take action to limit tribal immunity for the reasons set forth in the dissenting opinion and (2) suits based on the assertion that there should be an exception to tribal sovereign immunity for a “tort victim or other plaintiff who has not chosen to deal with a tribe” who has “no alternative way to obtain relief for off-reservation commercial conduct.”

Article By:

Brian L. Pierson
Of:
Godfrey & Kahn S.C.

Which Way is the Wind Blowing? U.S. Supreme Court Upholds EPA’s Cross-State Air Pollution Rule

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On April 29, 2014, the U.S. Supreme Court issued a decision upholding EPA’s Cross-State Air Pollution Rule (also known as the Transport Rule). The Transport Rule restricts air emissions from upwind states that in EPA’s judgment contribute significantly to nonattainment of the National Ambient Air Quality Standards(NAAQS) in downwind states. According to EPA’s regulatory impact analysis, the Rule is expected to have significant cost implications for electric generating utilities, and much of the costs could occur in Midwestern and Southern states that were identified in the Transport Rule as contributing to nonattainment of the NAAQS for states along the East Coast.

The Transport Rule was promulgated pursuant to what is often called the “Good Neighbor” provision of the Clean Air Act. In the Rule, EPA established a two-step approach for restricting emissions in upwind states. First, EPA used air modeling to determine which upwind states contributed more than one percent to the NAAQS for 8-hour ozone and PM2.5 in downwind states. Second, EPA determined the level of emission reductions that could be achieved in downwind states based on cost estimates for reducing emissions. For example, EPA concluded that significant emission reductions could be obtained for a cost of $500 per ton of NOx reduced, but that at greater than $500 per ton the emission reductions were minimal. The Agency then translated those cost estimates into the amount of emissions that upwind states would be required to eliminate. Lastly, EPA developed a Federal Implementation Plan (FIP) detailing how states were to comply with the emission budgets assigned under the Transport Rule.

As we previously reported in August 2012, the Transport Rule had been struck down by the U.S. Court of Appeals for the District of Columbia on Aug. 21, 2012. The Court of Appeals struck down the rule primarily for two reasons. First, the court found the cost estimates that EPA used as a basis to justify emission reductions would in some cases result in requirements for upwind states to reduce their emissions more than necessary to eliminate “significant” contributions to nonattainment in downwind states. The court held that EPA could only require reductions proportionate to a specific upwind state’s contribution to a downwind state’s nonattainment status. Second, the court held that states should have been given an opportunity to develop their own implementation plans before EPA required states to follow the FIP in the Transport Rule.

In reversing the Court of Appeals, the U.S. Supreme Court concluded that the Clean Air Act does not require EPA to mandate only proportionate reductions in emissions from upwind states. The court argued that the “proportionality approach could scarcely be satisfied in practice” because there are multiple upwind states that each affect multiple downwind states. The Court concluded that the proportionality approach would mean that “each upwind State will be required to reduce emissions by the amount necessary to eliminate that State’s largest downwind contribution,” but that would result in cumulative emission reductions and “costly overregulation.” The court also concluded that it was appropriate for EPA to use cost as a means of allocating emissions, instead of the proportionality approach favored by the D.C. Circuit.

Regarding the FIP approach, the court held that after EPA issues a NAAQS, each state is required to propose a State Implementation Plan (SIP), including requirements to satisfy the Good Neighbor provision of the Clean Air Act. Therefore, the Court held it was appropriate for EPA to establish a FIP because the statutory deadline to propose SIPs that complied with the Good Neighbor provision had passed. The court rejected the D.C. Circuit’s conclusion that it was premature to establish a FIP before EPA had made a determination regarding each upwind state’s contribution to downwind states’ nonattainment.

Supreme Court Justice Antonin Scalia, joined by Justice Clarence Thomas, authored a dissent in the case agreeing with the D.C. Circuit that costs are not contemplated as a basis for reducing emissions under the Good Neighbor provision. Further, the dissent addressed the majority opinion’s assertion that the proportionality approach would result in “costly overregulation.” The dissent stated, “over-control is no more likely to occur when the required reductions are apportioned among upwind States on the basis of amounts of pollutants contributed than when they are apportioned on the basis of cost.” The dissent went on to note, “the solution to over-control under a proportional-reduction system is not difficult to discern. In calculating good-neighbor responsibilities, EPA . . . would set upwind States’ obligations at levels that, after taking into account those reductions, suffice to produce attainment in all downwind States. Doubtless, there are multiple ways for the Agency to accomplish that task in accordance with the statute’s amounts-based, proportional focus.”

At this juncture, it is unclear whether EPA will need to promulgate additional rules to implement the Transport Rule as many of the Transport Rules’ deadlines have already expired. Additionally, it is unclear whether other legal challenges to the Transport Rule, including challenges to whether the Rule satisfies regional haze emission requirements, will delay final implementation of the Rule. Those challenges have been stayed since the D.C. Circuit Court of Appeals vacated the rule in 2012 but appear to be able to proceed now that the vacatur has been overturned by the U.S. Supreme Court. There are also questions as to whether the Transport Rule, which was designed to help meet the 1997 ozone NAAQs of 80 ppb, will need to be reworked by EPA to meet the stricter 2008 ozone NAAQs of 75 ppb. It is also possible that estimates of emission cuts expected from the original the Transport Rule will change given the move by several power plants to convert from coal to natural gas in recent years.

A copy of the U.S. Supreme Court’s decision is available here.

Article By:

Michael H. Elam
Hae Park-Suk
Of:
Barnes & Thornburg LLP