Tag: SCOTUS

Second Circuit Deepens Split with Third Circuit Over Aviation Safety Field Preemption, Awaiting Possible Supreme Court Resolution

There is no greater issue currently facing the aviation bar than whether the Federal Aviation Act (“FAAct”) preempts state law by occupying the entire field of air safety. In other words, do federal standards of care exclusively govern liability in the aviation industry, or are states allowed to govern aspects of aviation safety through a patchwork of unique tort or regulatory liability regimes? This question is the subject of a petition for writ of certiorari pending before the U.S. Supreme Court, seeking review of the Third Circuit’s decision in Sikkelee v. Precision Airmotive (2016). In Sikkelee, the Third Circuit concluded that Abdullah v. American Airlines – in which it previously held in the context of in-air operations that “federal law establishes the applicable standards of care in the field of air safety, generally, thus preempting the entire field from state and territorial regulation” – did not apply to state product liability claims concerning the design of aircraft engines.[1] The Supreme Court has asked the U.S. Solicitor General to weigh in on this important question.

Most recently, while the Sikkelee cert petition is pending, the Second Circuit decided Tweed-New Haven Airport Authority v. Tong (2019). In Tweed, the Court of Appeals doubled down on its prior holding in Goodspeed Airport v. East Haddam Inland Wetlands & Watercourses Commission (2011) that the FAAct occupies the “entire field of aviation safety” to the “exclusion of state law” and consequently preempts state laws that sufficiently interfere with federal regulation of air safety. Though the Third Circuit in Sikkelee tried to distinguish and reconcile such other broad field preemption decisions, the analytical split between them – made even more visible in Tweed – is unmistakable. The resultant uncertainty is antithetical to the very purposes of the FAAact – to create a uniform system of federal regulation for aviation industry participants. Tweed thus underscores the need for the Supreme Court to grant certiorari and resolve the split.

The Second Circuit’s Approach to Field Preemption

In Goodspeed, a small privately owned airport sought a declaratory judgment that local environmental and wetlands laws were preempted by the FAAct. The Second Circuit affirmed a “thorough and well-reasoned” district court decision using a two-step analysis for field preemption. The first step asks whether Congress intended the entire field to be occupied by federal law to the exclusion of state law. If so, the second step considers whether the state law in question sufficiently intrudes upon that field.

Applying the two steps, the Second Circuit had little difficulty concluding first that “the overall statutory and regulatory scheme” under the FAAct is “evidence of ‘a clear congressional intent to occupy the entire field of aviation safety to the exclusion of state law,’” because it “has established a comprehensive regulatory scheme ‘addressing virtually all areas of air safety,’ including the certification of aircraft, most airports, pilots and mechanics, air traffic control systems, air navigation and communication, and airspace classifications.” In so holding, the Court noted that it was joining the First, Third, Sixth, Ninth, and Tenth Circuits.

Turning to the second question, the Goodspeed Court considered whether the state environmental and wetland law at issue, which simply required a permit before cutting down trees in protected wetlands, “sufficiently interferes with federal regulation that it should be deemed preempted.” Examining the purpose and effect of the state law, the Court found that the law did not sufficiently enter into the scope of the preempted field: “Goodspeed Airport is not licensed by the FAA; it is not federally funded, and no federal agency has approved or mandated the removal of the trees from its property. Indeed, in its response to a formal inquiry from the district court, in this case, the federal government disclaimed any authority to order the trees’ removal.” In other words, as the district court had explained below, “Courts have long distinguished between state laws that directly affect aeronautical safety, on the one hand, and facially neutral laws of general application that have merely an incidental impact on aviation safety.”

In Tweed, the Second Circuit applied the same, two-step analysis in considering whether a state law preventing the expansion of an airport runway was impliedly field preempted. Tweed is a small commercial Airport. Its largest runway is currently 5,600 feet long making it one of the shortest commercial airport runways in the country, substantially limiting commercial flights. In 2002, Tweed had prepared a Master Plan with Federal Aviation Administration (“FAA”) involvement for upgrading its airport, including extending the runway. In 2009, however, the Connecticut legislature enacted a statute expressly blocking the expansion of the runway. In response, Tweed filed a declaratory judgment action seeking a determination that the statute was preempted by the FAAct. The district court rejected Tweed’s arguments, finding that Tweed lacked standing to sue, and that, even if it had standing, the FAAct did not preempt the statute. The Second Circuit reversed, finding both standing and preemption.

With regard to preemption, the Court of Appeals first reiterated the Goodspeed holding that the FAAct “was enacted to create a uniform and exclusive system of federal regulation in the field of air safety. . . . It was passed by Congress for the purpose of centralizing in a single authority . . . the power to frame rules for the safe and efficient use of the nation’s airspace.” Consequently, it reasoned, state laws that conflict with the FAAct “or sufficiently interfere with federal regulation of air safety are preempted.”

Thus turning to the second step in the analysis, the Court considered whether the statute fell within the scope of the preempted field. It found that the statute directly impacted air safety by limiting the length of the runway, which in turn limited the number of passengers, amount of baggage, and even the type of planes that could use the airport. The Court also considered the extent of FAA involvement with Tweed overall and with the length of the runway specifically, concluding that the “FAA’s involvement with Tweed and its runway project has been direct and significant.” As the Court explained, Tweed is federally regulated as part of the Tweed-New Haven Airport Layout Plan, which requires approval by the FAA. Additionally, as a primary commercial service airport, Tweed needs to hold an operating certificate pursuant to federal regulations. It is required to submit its Master Plan to the FAA, which, as early as 2002, included a plan for extending the length of the runway. The FAA directly approved the Master Plan, including the extension of the runway. For all these reasons, the Court held that the state law was preempted.

The Third Circuit’s Conflicting Approach

In Abdullah v. American Airlines (1999), the Third Circuit similarly considered whether the FAAct preempted the field of air safety thus barring a tort claim premised on an alleged failure by aircraft crew to warn passengers of expected turbulence. The Plaintiffs alleged negligence by the pilot and flight crew for failing to either avoid the turbulent conditions or warn the passengers so they could protect themselves. The Court of Appeals found implied field preemption based on its conclusion that the FAAct and relevant federal regulations “establish complete and thorough safety standards for interstate and international air transportation that are not subject to supplementation by or variation among, jurisdictions.” Indeed, the Third Circuit expressly distinguished its holding from those in which courts had only found preemption of “discrete aspects of air safety,” explaining that “federal law establishes the applicable standards of care in the field of air safety, generally, thus preempting the entire field from state and territorial regulation.”

Despite the breadth of this express holding in Abdullah, the Third Circuit subsequently held in Sikkelee that the FAAct does not preempt state law aviation product liability claims. The plaintiff had alleged that a design defect in the carburetor of an airplane engine resulted in the aircraft crashing shortly after takeoff. Examining whether that claim was subject to implied field preemption, the Third Circuit did not use the Second Circuit’s two-step analysis, but instead essentially conflated the inquiries, focusing entirely on whether there was pervasive enough federal regulation addressing the particular aviation safety aspect at issue to rebut the general presumption against preemption.

In that regard, the defendants pointed to the extensive certification process required by the FAA in order to receive a type certificate for the engine: “This certification process can be intensive and painstaking, for example, a commercial aircraft manufacturer seeking a new type certificate for wide-body aircraft might submit 300,000 drawings, 2,000 engineering reports, and 200 other reports in addition to completing approximately 80 ground tests and 1,600 hours of flight tests.” As the defendants explained, the type certificate “certifies that a new design for an aircraft or aircraft part performs properly and meets the safety standards defined in the aviation regulations,” and any changes to the design thereafter must be approved by the FAA. A “major” change to the type certificate requires the issuance of an amended or supplemental type certificate. The defendants argued that, because a type certificate applicant goes through such a rigorous regulatory process culminating in the certification of a part as meeting safety standards defined in the aviation regulations, the question of whether a part design was reasonably safe under state law was preempted by the FAAct.

The Third Circuit disagreed. Focused on the general presumption against preemption, the Court of Appeals considered the fact that “aviation torts have been consistently governed by state law” as far back as 1914. It also read the text of the FAAct as “not signal[ing] an intent to preempt state law products liability claims.” The Third Circuit dismissed the extensive regulations addressing the engine design and certification process as merely establishing “a baseline requirement” for “minimum standards.”

In thus holding that the FAAct did not impliedly preempt the field of aviation safety pertaining to engine certification, the Third Circuit tried to distinguish and reconcile its approach to field preemption with that of other Courts of Appeals, including the Second Circuit: “Appellees observe that various Courts of Appeals have described the entire field of aviation safety as preempted, but, on inspection, even those courts have carefully circumscribed the scope of those rulings. The Second, Ninth, and Tenth Circuits all assess the scope of the field of aviation safety by examining the pervasiveness of the regulations in a particular area rather than simply determining whether the area implicated by the lawsuit concerns an aspect of air safety.”

Not so. Again, for example, the Second Circuit has not started its analysis by “examining the pervasiveness of the regulations in a particular area” of aviation. In direct conflict with Sikkelee, the Second Circuit through Tweed has now twice readily found at the outset of its analyses that the FAAct impliedly preempted the “entire” field of aviation safety. Only thereafter has the Second Circuit examined the state law at issue to determine if it sufficiently intruded into the preempted field (Tweed), or, rather, was merely incidental to it (Goodspeed).

This fundamental difference in analyzing field preemption belies the Third Circuit’s attempt to distinguish product liability cases (Sikkelee) from in-air operations (Abdullah). Indeed, the Second Circuit acknowledged no such distinction in Tweed, and in its predecessor, Goodspeed, the Court affirmed the district court’s “thorough and well-reasoned” explanation that, in response to the FAAct’s “congressional mandate, the FAA has established a comprehensive regulatory scheme addressing virtually all areas of air safety, including the certification of aircraft.” Thus, unlike the Third Circuit, the Second Circuit would not start its analysis of a case involving engine product liability by examining whether the pervasiveness of aircraft design and certification regulations sufficiently evinces an intent to overcome a general presumption against preemption, but, rather, by yet again recognizing field preemption over all aspects of aviation safety – including engine design – and would then ask whether the state tort standards of care at issue sufficiently intrude upon the scope of that field. In that regard, we think the Second Circuit would have little difficulty concluding that they do. Like the extent of federal involvement with the physical layout of the airport in Tweed, the level of federal involvement in engine design and certification is indisputably “direct and significant,” such that state tort law standards of care that purport to govern the safety of engine design clearly intrude upon it.

Conclusion

The fundamental and critical circuit split on the proper analysis of implied field preemption in aviation cases, illustrated and emphasized most recently by Tweed, undermines the very purpose of the FAAct of creating uniform and consistent standards of care for safety in the aviation industry. We hope the Supreme Court will grant certiorari and resolve it.

[1] The Third Circuit remanded the case for consideration of conflicts preemption and on subsequent review of the district court’s determination that the product liability claims were conflict preempted, it reversed and remanded for further proceedings. The pending cert petition seeks review of both preemption rulings. This article, however, is focused solely on field preemption.

© 1998-2019 Wiggin and Dana LLP

For more aviation cases, see the National Law Review Utilities & Transport type of law page.

Reading the Supreme Court Tea Leaves in Dex Media Inc. v. Click-to-Call Technologies, LP

On June 24, 2019, the U.S. Supreme Court granted the petition for certiorari in Dex Media Inc. v. Click-to-Call Technologies, LP. Next term, the Court will determine whether 35 U.S.C. § 314(d) permits appeal of the U.S. Patent Trial and Appeal Board’s decision to institute inter partes review upon finding that 35 U.S.C. § 315(b)’s time bar did not apply.

The Dex Media case has traveled a long and tortuous path. Its journey began with the service of a complaint in 2001 which was dismissed without prejudice in 2003, and the filing of a new complaint in 2012. The petition for inter partes review was filed in May 2013, and a final written decision of the Board issued in October 2014 finding that the asserted claims are invalid. From there, the case visited the Federal Circuit twice, the Supreme Court once and is now on its way back for a second time. On appeal, the dispute has focused on whether the petition for inter partes review was time barred by § 315(b), and whether the Federal Circuit has jurisdiction to hear the appeal of that issue.

Facts of the Case

In 2001, Inforocket.com, Inc., an exclusive licensee to the patent-in-suit, filed a district court action against Keen, Inc. The complaint asserting infringement was served on September 14, 2001. While the case was pending, Keen acquired Inforocket as its wholly owned subsidiary and stipulated to a voluntary dismissal of the district court action without prejudice in 2003. Keen later changed its name to Ingenio. Click-to-Call subsequently acquired the patent-in-suit, and on May 29, 2012, filed patent infringement lawsuits against multiple parties, one of which was Ingenio.

On May 28, 2012, just under one year after being served with the complaint in the Click-to-Call action, Ingenio and two other defendants filed a petition for inter partes review (IPR) of the patent-in-suit. In its preliminary response, Click-to-Call contended, among other things, that § 315(b) statutorily barred institution of the IPR proceedings, noting that Ingenio’s predecessor-in-interest was served with a complaint alleging infringement of the patent-in-suit in 2001. Section 315(b) states, “An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real part in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.”

The Board instituted the proceeding, and based on Federal Circuit precedent found that dismissal of an infringement suit without prejudice nullifies the effect of the service of the original complaint against Keen. Therefore, service of the 2001 complaint did not bar the petition. Click-to-Call again argued that the petition was time-barred in its patent owner response; and in its final written decision, the Board reaffirmed its earlier conclusion on that point and found that the challenged claims were invalid.

In the case being reviewed by the Supreme Court, the Federal Circuit first had to decide whether it had jurisdiction to hear an appeal of the § 315(b) time bar in light of § 314(d), which states, “No Appeal. – The determination by the Director whether to institute an inter partes review under this section shall be final and unappealable.” The Federal Circuit, relying upon its en banc ruling in Wi-Fi One, LLC v. Broadcom Corp., 878 F.3d 1364 (Fed. Cir. 2018), held that time-bar determinations under § 315(b) are appealable.

In Wi-Fi One, the Federal Circuit based its finding on the rationale that the time-bar determination “is not akin to either the non-initiation or preliminary-only merits determinations for which unreviewability is common in the law,” and the fact that the time bar “sets limits on the Director’s statutory authority to institute.” Id. at 1373-74. Having decided the question of appealability, the Click-to-Call court then held en banc that the time-bar decision applies to bar institution of an IPR when a petitioner was served with a complaint for patent infringement more than one year before filing its petition, but the action was voluntarily dismissed without prejudice.

Predictions for the Supreme Court

Often, even without the presence of a circuit court split, the Supreme Court takes cases on appeal from the Federal Circuit to reign in and overrule the Appellate Court. In fact, the Supreme Court has reversed 70 percent of the Federal Circuit cases it has heard since 2007. There are two important factors to suggest that the Supreme Court will for a second time reverse the Federal Circuit in this case.

  • First, in a prior appeal of this case to the Federal Circuit in 2015, the Federal Circuit dismissed the appeal for lack of jurisdiction based on its prior precedent in Achates Reference Publishing, Inc. v. Apple Inc., which was subsequently overruled by Wi-Fi One. Click-to-Call petitioned the Supreme Court for review, and in June 2016, the Supreme Court granted cert, and vacated and remanded the case to the Federal Circuit to consider in light of the Supreme Court’s ruling in Cuozzo Speed Technologies, LLC v. Lee. This suggests that, at the time, the Supreme Court thought there was a clear path for the Federal Circuit to hold that § 315(b) rulings are appealable, as the Federal Circuit did in both Wi-Fi One and its ruling that is currently under review. Since then, the composition of the Supreme Court has changed, with Justice Kennedy’s retirement and the confirmation of Justices Gorsuch and Kavanaugh. It seems now that at least four of the justices of the newly constituted Court may believe that the Federal Circuit’s decision is not consistent with § 314(d).
  • This contention also is supported by the fact that the Supreme Court declined to review both of the questions presented by the petition for cert. Dex Media, Inc., the successor-in-interest to Ingenio, also requested that the Supreme Court decide whether § 315(b) bars institution of an inter partes review when the previously served patent infringement complaint, filed more than one year before the IPR petition, had been dismissed without prejudice. The Supreme Court declined to hear that issue. One might suppose that if the Supreme Court believes the time-bar question is appealable, the Court also would want to rule on whether a dismissal without prejudice negates the effect of service of the complaint under the time bar statute. It is entirely possible that the Court declined to make that determination because the question will be moot once the Court determines there is no appellate jurisdiction over the time-bar issue.

Implications of the Ruling

If the Supreme Court affirms the Federal Circuit’s ruling and finds that § 315(b) questions are appealable, the Federal Circuit’s jurisprudence regarding when the one-year period begins will remain binding, at least until the Supreme Court decides to hear that issue anew. This means that entities looking to file IPR petitions must be alert to the fact that a predecessor-in-interest may have been served with a complaint triggering the one-year time limit as well as whether to file a petition with other entities who (directly or through a predecessor-in-interest) may have been served with complaints that could bar the entire petition.

In contrast, what will happen if the Supreme Court reverses the Federal Circuit’s ruling and Orders dismissal of the appeal on the grounds that § 314(d) prohibits appeal of the time bar issue? Prior to the Federal Circuit’s ruling, the Board had consistently found, as they did in this case, that dismissal of a complaint without prejudice constituted a nullity in terms of the time-bar statute. If the Federal Circuit’s opinion in this case is overruled, its opinion would not be precedential and the Board could either interpret the statute as they had previously or alter the interpretation in view of the Federal Circuit’s opinion, though they would be under no obligation to do so. It also is possible that this becomes one of the many issues that are panel-dependent, forcing petitioners who were served with complaints that have been dismissed without prejudice to “roll the dice” on the issue.

PTAB practitioners should be watching the outcome of this case closely and consider all of the implications of the ruling before filing a petition for inter partes review. As the facts of this case highlight, they also should perform a thorough due diligence review of all “real parties in interest” related to the contemplated petitioner.

©2019 Drinker Biddle & Reath LLP. All Rights Reserved

When Your Customer is In Bankruptcy, There Are Two Major No-Nos That You Must Remember.

First, don’t violate the automatic stay, which prevents a creditor from attempting to collect a debt while the debtor is in bankruptcy unless the creditor gets prior court approval.  Second, don’t violate the discharge injunction, which absolves a debtor of liability for those debts covered by the bankruptcy court’s discharge order.  The automatic stay takes effect when the debtor files bankruptcy, while the discharge injunction typically comes at the end of the case.

The United States Supreme Court recently decided a case involving the discharge injunction.  In Taggart v. Lorenzen, the issue was the legal standard for holding a creditor in civil contempt when the creditor violates the bankruptcy discharge order.  In a unanimous decision, the Supreme Court held that a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct. In other words, civil contempt may be appropriate if there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful.

Bradley Taggart was a part owner of an Oregon company called Sherwood Park Business Center.  He got into a dispute with some of the other owners, and they sued him in state court for breach of Sherwood’s operating agreement.  During the lawsuit, Taggart filed a Chapter 7 bankruptcy. In Chapter 7, a debtor discharges his debts by liquidating assets to pay creditors.   Taggart ultimately obtained a discharge.  After the bankruptcy court entered the discharge order, the parties returned to the state court lawsuit.  The parties who had sued Taggart before he filed bankruptcy obtained an order from the state court requiring him to pay post-bankruptcy attorneys’ fees of $45,000.00.  Taggart contended this debt had been discharged and the parties’ actions violated his bankruptcy discharge.

Multiple appellate courts reached different conclusions as to whether – and why or why not – the parties had violated the discharge order.  One issue the courts struggled with was the standard to apply to the parties’ conduct.  Should the courts apply an objective test based solely on their conduct or should they consider their subjective beliefs and motivations?  Should the courts impose strict liability for discharge violations or should they let creditors off the hook if they didn’t realize their conduct was improper?  The Supreme Court agreed to resolve these questions.

In adopting the “no fair ground of doubt” standard, the Supreme Court noted that civil contempt is a severe remedy and basic fairness requires those enjoined know what conduct is outlawed before being held in contempt.  The standard is generally an objective one.  A party’s subjective belief he was complying with an order ordinarily will not insulate him from civil contempt if that belief was objectively unreasonable.  Bad faith conduct, and repeated or persistent violations can warrant civil contempt.  Good faith can mitigate against contempt and factor into the appropriate remedy.

Although a discharge order often has little detail, the Supreme Court pointed out that, under the Bankruptcy Code, all debts are discharged unless they are a debt listed as exempt from discharge under Section 523.  A domestic support obligation, for instance, is exempt from discharge.  (This recent article discusses how debts involving intentional, fraud-like conduct may be exempted from discharge.)  In other words, ignorance of the bankruptcy law is no excuse.

In adopting the “no fair ground of doubt standard,” the Supreme Court rejected two other standards, one more lenient and one more harsh.  First, the Supreme Court rejected a pure “good faith” test – a creditor’s good faith belief that its actions did not violate the discharge would absolve it of contempt. Second, the Supreme Court rejected a strict liability test – if a creditor violated the discharge, he would be in contempt regardless of his subjective beliefs about the scope of the discharge order or whether there was a reasonable basis for concluding that his conduct did not violate the discharge order.

The discharge injunction is no joke, and creditors violate it at their peril.  A debtor can be compensated for damages resulting from a discharge violation.  In this case, the bankruptcy court initially awarded Taggart over $100,000 for attorneys’ fees, emotional distress, and punitive damages.  Creditors with customers in bankruptcy, or who have filed bankruptcy in the past, should consult counsel who can advise them on what debts they can pursue.  And if a creditor finds itself accused of violating the discharge injunction, it should contact counsel to assess its chances of passing or failing the “no fair ground of doubt” test.

© 2019 Ward and Smith, P.A.. All Rights Reserved.

DACA Program Continues as U.S. Supreme Court Declines to Expedite Consideration of Cases

The “Dreamers” have received another reprieve from the U.S. Supreme Court.

DACA litigation has been in the news since September 2017, when then-Attorney General Jeff Sessions announced the DACA program would be terminated. In response to that announcement, multiple lawsuits were filed in federal courts in California, New York, Maryland, Texas, and the District of Columbia, resulting in multiple nationwide injunctions blocking the termination of the program. Indeed, the injunctions have forced USCIS to continue granting DACA renewals.

According to Vice President Mike Pence, the Trump Administration is looking for a way to prevent U.S. District Courts from imposing nationwide injunctions. In a speech in May, he said these injunctions are “judicial obstruction.” Absent relief from these injunctions, the Administration is attempting to expedite review of pending cases that are blocking its policies.

For instance, the Administration attempted to force the Supreme Court’s early consideration of the DACA cases in early-2018, which the Court rejected. At the end of May 2019, the government again sought to expedite the case by filing a brief urging the Court to decide whether to grant review by the end of this term, i.e., by June 24, 2019. The Administration argued, “The very existence of this pending litigation (and lingering uncertainty) continues to impede efforts to enact legislation addressing the legitimate policy concerns underlying the DACA policy.” But that argument did not prevail. On June 3, 2019, the Court rejected the Administration’s request.

The Court probably will not even consider reviewing the DACA cases until the fall and, if it grants review, a decision might not come down until sometime in 2020.

For now, the “Dreamers” can continue to renew their status, but they also will have to continue to live with the uncertainty. There is always the possibility that Congress will pass legislation that might provide a permanent solution for the “Dreamers,” but the legislative route has been bumpy. While numerous deals have been proposed regarding a DACA solution, stumbling blocks continue to appear in the form of unacceptable “quid pro quos.” Indeed, DACA was even a pawn in the most recent government shutdown.

Jackson Lewis P.C. © 2019

This post was written by Forrest G. Read IV of Jackson Lewis P.C.

Get updates on Immigration and the Dreamers on our Immigration type of law page.

US Supreme Court Refines Impossibility Preemption Doctrine, Changes Litigation Dynamics

Following confusion from a 2009 decision, the US Supreme Court on May 20, 2019, decided a significant impossibility preemption case. This new decision will change the dynamics of litigation involving the impossibility defense, and will introduce new litigation uncertainty due to a shift in the decision maker for impossibility preemption.

IN DEPTH

On May 20, 2019, in a unanimous judgment, the US Supreme Court decided Merck Sharp & Dohme Corp. v. Albrecht, No. 17-290, an important impossibility preemption case, and held that the judge, not the jury, must decide whether a state-law failure-to-warn claim is preempted because there is “clear evidence” that the Food and Drug Administration (FDA) would not have approved a change to a drug’s label to include the warning.

The Court’s decision in Albrecht comes on the heels of its decision in Wyeth v. Levine, 555 US 555 (2009), which held that a pharmaceutical manufacturer could escape liability under state-law failure-to-warn claims if the manufacturer could provide “clear evidence that the FDA would not have approved a change to [the drug’s] label.” Confusion blossomed after Wyeth in the lower courts as to how to apply the “clear evidence” standard and, importantly, whether the “clear evidence” decision was for the judge or the jury.

The Fosamax Litigation

Albrecht involved state-law claims for Merck’s alleged failure-to-warn about “atypical” femur fractures in consumers taking Fosamax, a drug that treats osteoporosis in postmenopausal women. In 2008, Merck sought FDA approval through the Prior Approval Supplement (“PAS”) process to add warnings to Fosamax’s label about “atypical” femur fractures in patients. The FDA did not approve Merck’s label change, and stated that there was “inadequate” justification for the new warning. Eventually, in 2011, the FDA did agree to the labeling change. But the interim years provided fertile ground for plaintiffs to sue Merck for failing to warn about the risk of “atypical” femur fractures.

In that litigation, Merck won summary judgment at the district court, arguing that the state-law claims were preempted because the FDA did not permit the label change that was at the heart of the failure-to-warn case. The US Court of Appeals for the Third Circuit reversed and held that the “clear evidence” standard from Wyeth was a factual burden of proof and required that Merck show by “clear and convincing” evidence that the FDA would have rejected the proposed warnings, that this determination is a question of fact for the jury and that there were material facts in dispute as to whether Merck could satisfy that standard.

The Court’s Decision and Concurring Opinions

In an opinion by Justice Stephen Breyer, the Supreme Court vacated and remanded the Third Circuit’s decision. The Court framed the issue as one of federal preemption and whether it was “impossible for a private party to comply with both state and federal requirements.” The state law at issue was the requirement for drug manufacturers to warn about risks of taking a particular drug. The federal law was the FDA’s regulation of the content of drug warning labels.

The Court explained that after a drug’s initial label is approved by the FDA, there are several ways in which a company can change that label if new or different warnings are needed as time passes. One way is called the “changes being effect” or “CBE” process, which allows a company to change a label without pre-approval by the FDA, though the FDA may review that change after it is made and approve or disapprove of it. Another method, the one used by Merck, is the PAS method, which requires the FDA’s pre-approval before the change can be made.

The Court explained that, under Wyeth, to succeed on the defense of impossibility preemption, the manufacturer must demonstrate that federal law—that is, the FDA after being fully informed regarding the justification for a label change—prohibited “the drug manufacturer from adding a warning that would satisfy state law.” The Court went on to explain that because the CBE process allows a manufacturer to make a label change without prior FDA approval, “a drug manufacturer will not ordinarily be able to show that there is an actual conflict between state and federal law such that it was impossible to comply with both.”

After providing that descriptive recitation of Wyeth, the Court proceeded to the normative portion of its decision, stating first that it would not further define Wyeth’s use of “clear evidence” in terms of evidentiary standards because the issue of preemption is one for the judge and not the jury, and the judge must “simply ask himself or herself whether the relevant federal and state laws ‘irreconcilably conflict.’” In coming to that conclusion on the “determinative question,” the Court relied upon its seminal patent litigation decision in Markman v. Westview Instruments, Inc., where it concluded that the construction of claims of a patent are for the judge not the jury to decide, to conclude that “judges, rather than lay juries are better equipped to evaluate the nature and scope of an agency’s determination” and whether the determination conflicts with state law.  The Court acknowledged, as it did in Markman, that the legal question before the courts may contain contested facts, but those factual questions are “subsumed within an already tightly circumscribed legal analysis.”  The Court then vacated the judgment of the Third Circuit because the Third Circuit incorrectly concluded that the preemption issue was one of fact, not law.

Although the judgment of the Court was unanimous, its reasoning was not. Justice Clarence Thomas, although he joined in the Court’s opinion, wrote a concurring opinion to explain his “understanding of the relevant pre-emption principles and how they apply to this case.” Justice Thomas explained that he remained “skeptical” that “physical impossibility” is the correct test. Instead, a logical contradiction test between state and federal law is the correct test under the original meaning of the Supremacy Clause. But even under the “physical impossibility” test, Justice Thomas would have concluded that Merck could not prevail because there was nothing that prevented Merck from using the CBE process to change the Fosamax label. And, even if Merck believed that the FDA would have ultimately disapproved of its label change under the CBE process, that “hypothetical” would not have rendered the earlier change impossible; “hypothetical agency action is not ‘Law.’”

Justice Samuel Alito, joined by Chief Justice John Roberts and Justice Brett Kavanaugh, only concurred in the judgment. Justice Alito explained that he agreed with the Court on the “only question that it actually decides”—namely, whether the preemption question is for the judge or jury. Justice Alito then discussed what he viewed to be critical omissions in both the discussion of the law and facts in the Court’s opinion in an effort to ensure that the Court’s opinion was not “misleading on remand.”

Key Takeaways

Much of the Court’s opinion in Albrecht focused on reiterating the Wyeth decision, with only a small portion devoted to answering the question presented: who decides the impossibility preemption question, the judge or jury. But, as can often be the case, the Court’s dictum provides interesting guidance to future litigants. One interesting issue not definitively answered in Albrecht is whether a manufacturer must use the CBE process now whenever it seeks to make a label change in hopes of preserving the impossibility preemption defense. The Court’s opinion does not go that far, however, only saying that because of the CBE process, manufacturers will not “ordinarily be able to show that there is an actual conflict between state and federal law such that it was impossible to comply with both.” Justice Thomas’s view suggests that the CBE process is required to preserve the preemption defense until such time as the FDA provides a final decision on the label change in accordance with its congressionally granted authority. In view of these statements in the Court’s opinion and Justice Thomas’s concurrence, it seems possible, if not likely, that many lower courts will simply default to a bright-line rule that requires manufacturers to use the CBE process—and for the FDA to thereafter disapprove the label warning alleged to be required by state law—to successfully invoke the impossibility defense.

Also important for litigants to understand is how the shift in the decision maker for impossibility preemption changes the dynamics of litigation involving that defense. Because impossibility preemption is now a question of law, with factual underpinnings, it will be subject to de novo review on appeal, making any decision by a district court on the issue much more susceptible to reversal. In the analogous context of construing patent claims as a matter of law under Markman, district court decisions are routinely reversed by the Federal Circuit. This specter of reversal of any district court decision in impossibility preemption brings litigation uncertainty to all the parties. We will closely be watching how these issues ultimately play out in the lower courts.

 

© 2019 McDermott Will & Emery
This post was written by Ethan H. Townsend of McDermott Will & Emery.
Read more SCOTUS news on the National Law Review’s Litigation page.

Health Care Company Asks U.S. Supreme Court to Find False Claims Act Unconstitutional

If one appellant has its way, the False Claims Act (FCA) would be gutted by way of its qui tam provisions struck down as unconstitutional by the United States Supreme Court. That is the position taken by Intermountain Health Care, Inc. (Intermountain), which found itself on the wrong end of an FCA suit brought by a physician who alleges that one of his colleagues submitted improper requests for reimbursement for unnecessary medical procedures.

The teeth behind the False Claims Act are its qui tam provisions, which enable private individuals (known as “relators”) to pursue FCA actions on a “qui tam” basis. “Qui tam” is shorthand for the Latin phrase, “he who sues on behalf of the King as well as for himself.” These provisions provide a financial incentive to report noncompliance, as successful qui tamplaintiffs are statutorily entitled to share up to 30 percent of the government’s recovery in an FCA case.

Procedural Summary

The underlying details in the matter — Intermountain Health Care, Inc., et al. v. U.S. ex rel. Polukoff et al., Supreme Court petition no. 18-911 — allege that a doctor, Sherman Sorensen, conspired with two hospitals (including Intermountain) to perform unnecessary heart surgeries and receive federal reimbursements by fraudulently certifying that the surgeries were medically necessary. After the district court dismissed the complaint for failure to meet pleading requirements, the relator appealed to the Tenth Circuit. There, Intermountain and its co-defendants raised for the first time that the claims against them could not proceed on the grounds that the qui tam provisions of the FCA violate Article II of the Constitution, among other arguments. The Tenth Circuit did not reach the merits of this argument, finding that defendants had forfeited those challenges by failing to raise them at the district court level. The Tenth Circuit reversed the district court’s order and remanded, holding that the relator’s amended complaint did satisfy pleading requirements.

Intermountain, in response, petitioned the Supreme Court for a writ of certiorari, raising two questions: (1) whether the False Claims Act’s qui tam provisions violate the Appointments Clause of Article II of the Constitution, and (2) whether a court may create an exception to Federal Rule of Civil Procedure 9(b)’s particularity requirement when the plaintiff claims that only the defendant possesses the information needed to satisfy that requirement. This post addresses the constitutional arguments only, i.e., the first question.

Merits of the Arguments Raised: Constitutional Challenge

The Appointments Clause provides that the President “shall nominate, and by and with the advice and consent of the Senate, shall appoint…officers of the United States… [and] that Congress may by Law vest the appointment of…inferior officers…in the President alone, in the Courts of Law, or in the Heads of Departments.” U.S. Const. art. II, § 2, cl. 2. Intermountain asserts that the FCA qui tam provisions violate this Clause because (1) relators are officers (not appointed pursuant to the appointments clause and thus in violation of it), or, alternatively because (2) the FCA impermissibly vests a core function of officers in non-officer relators. According to Intermountain, qui tam relators constitute “officers” or “inferior officers” of the United States when they prosecute FCA actions on behalf of the United States, which is unconstitutional without proper appointment.

In support, Intermountain points to qui tam relators’ prosecutorial duties, that they receive compensation from the government, and that they exercise significant authority under federal law. Accordingly, Intermountain claims, relators are in fact “officers” or “inferior officers.” Intermountain posits alternatively that, even if relators are not officers, the FCA still violates the Appointments Clause because it vests the functions of core officers in un-appointed relators.

The relator, Gerald Polukoff, and the Government (which intervened solely on this constitutional issue) opposed, arguing: (1) there is no circuit split on the constitutional argument raised, (2) every circuit that has considered the argument has rejected it, (3) this case is a poor vehicle to consider the issue raised because Intermountain failed to raise it at the district court level, and the Tenth Circuit did not consider it on the merits, and (4) qui tam relators are merely private plaintiffs pursuing a cause of action under federal law and do not constitute “officers.”

The Government’s Opposition details this last point, offering that Intermountain’s position is inconsistent with the Supreme Court’s analysis in Vermont Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765, 772, 120 S. Ct. 1858, 1862, 146 L. Ed. 2d 836 (2000) (discussing relators’ actions as a “private stake” in a “private suit”). The Government also asserts that qui tam relators neither evince the “practical indicia” of federal officers (i.e., “the ideas of tenure, duration, emolument, and duties”) nor are they akin to “independent counsel,” which the Supreme Court considered to be “inferior officers” in Morrison v. Olson, 487 U.S. 654 (1988). The Government posited that a relator “does not occupy a continuing position established by law.” Lastly, the Government responds to Intermountain’s claim that the FCA impermissibly vests “a core officer function” to un-appointed relators on the grounds that relators bring only private suits and do not administer or enforce public law.

On balance, Intermountain faces a steep climb for the Supreme Court to accept review of its constitutional argument. But, if the Supreme Court accepts review, government attorneys, the defense bar, in-house counsel, and relators’ counsel alike have a lot at stake, and all will be watching closely.

 

© 2019 Foley & Lardner LLP
Read more US Supreme Court news on the National Law Review’s Litigation page.

Supreme Court Agrees to Hear Cases Determining Extent of Title VII Protection for LGBT Workers

The Supreme Court of the United States announced three cases will be argued next term that could determine whether Title VII protects LGBT employees from workplace discrimination.

Title VII prohibits discrimination because of “race, color, religion, sex, or national origin,” but it does not explicitly mention sexual orientation or gender identity.  Federal courts have disagreed on whether discrimination based on sexual orientation or gender identity falls within Title VII’s prohibition against sex-based discrimination.  Differing opinions on this topic exist within the federal government as well:  the Equal Employment Opportunity Commission (“EEOC”) has taken the position that Title VII prohibits discrimination based on sexual orientation and gender identity, while the Department of Justice has argued it does not.  The Supreme Court’s decisions may ultimately decide these conflicts.

Two cases represent a split in federal appellate courts regarding the extent, if any, to which Title VII prohibits sexual orientation discrimination as a subset of sex discrimination.  In Altitude Express v. Zarda, a skydiving company fired Donald Zarda, a skydiving instructor, after Zarda informed a female client he was gay to assuage her concern about close physical contact during skydives.  The trial court dismissed Zarda’s sexual orientation discrimination claim.  In an opinion written by Chief Judge Robert A. Katzmann on behalf of a full panel of the U.S. Court of Appeals for the Second Circuit, the Court reversed the trial court’s dismissal and held that sexual orientation discrimination is properly understood as a subset of discrimination on the basis of sex.  In other words, in the Second Circuit, sexual orientation discrimination is prohibited under Title VII.  The Second Circuit aligned its thinking with the Seventh Circuit’s April 2017 opinion in Hively v. Ivy Tech Community College of Indiana, which held that “discrimination on the basis of sexual orientation is a form of sex discrimination.”

The U.S. Court of Appeals for the Eleventh Circuit reached the opposite conclusion in Gerald Bostock v. Clayton County Georgia.  Gerald Bostock alleged he was terminated from his county job after the county learned of his involvement in a gay recreational softball league and his promotion of involvement in the league to co-workers.  The trial court dismissed and the Eleventh Circuit affirmed, relying on its own precedent that broadly held that Title VII does not prohibit sexual orientation discrimination.  In other words, in the Eleventh Circuit, Title VII does not prohibit sexual orientation discrimination.

The Supreme Court consolidated the cases into a single case to determine whether the prohibition in Title VII against employment discrimination “because of . . . sex” encompasses discrimination based on an individual’s sexual orientation.

The third case, R.G. & G.R. Harris Funeral Homes v. EEOC, focuses on whether Title VII applies to transgender employees.  In 2007, a funeral home hired Aimee Stephens, whose employment records identified her as a man.  Later, Stephens told the funeral home’s owner she identified as a woman and wanted to wear women’s clothing to work.  The owner fired Stephens, believing allowing Stephens to wear women’s clothing violated the funeral home’s dress code and “God’s commands.”  The EEOC filed suit on Stephens’ behalf.  The trial court dismissed a portion of the lawsuit because “transgender . . . status is not currently a protected class under Title VII,” but permitted other portions to proceed based on the claim Stephens was discriminated against because the funeral home objected to her appearance and behavior as departing from sex stereotypes.  The Sixth Circuit agreed that Stephens had viable claims.  The Supreme Court will review “[w]hether Title VII prohibits discrimination against transgender people based on (1) their status as transgender or (2) sex stereotyping” under prior Supreme Court precedent.

All three cases will affect the employment rights of LGBT workers.  Dinsmore & Shohl lawyers will closely monitor the Court’s analysis of these cases.  Dinsmore’s Labor and Employment Practice Group stands ready to assist employers in navigating this developing area of law.  Dinsmore’s experience in this arena includes accomplished labor and employment lawyers, former law clerks to federal judges who have drafted orders on these very issues, former federal government attorneys, litigators and published scholars.

 

© 2019 Dinsmore & Shohl LLP. All rights reserved.
This post was written by Jan E. Hensel and Justin M. Burns of Dinsmore & Shohl LLP.
Read more on the US Supreme Court  decision on the National Law Review’s Labor and Employment page.

Split Over Impact of Bristol-Myers Squibb on Class Actions Deepens

Bakov v. Consolidated World Travel, Inc. is the latest salvo in the conflict over whether the Supreme Court’s personal jurisdiction decision in Bristol-Myers Squibb applies in the class action context. As we have blogged in the past, Bristol-Myers concerned claims in California state court made by non-California residents, claims that were not sufficiently connected to California to qualify for specific personal jurisdiction on their own. The Court held that California state courts could not exercise specific jurisdiction over those claims even if they were packaged with claims by California residents in a mass tort action.

Bristol-Myers left two significant questions undecided: (1) whether the Fifth Amendment’s due process clause imposes the same jurisdictional limits on federal courts that the Fourteenth Amendment’s due process clause imposes on state courts; and (2) whether Bristol-Myers’ jurisdictional limit jurisdictional limit on state court mass actions also applies to federal court class actions.

Bakov is a Northern District of Illinois decision that answers yes to both of those questions. The plaintiffs in Bakovalleged that the defendant cruise line directed another company to place calls to the plaintiffs without their consent in violation of the Telephone Consumer Protection Act. They sought certification of a nationwide class action. The court certified a class of Illinois residents but refused to certify a nationwide class, holding that under Bristol-Myersthe court did not have specific jurisdiction over the claims of non-Illinois residents. Courts have reached sharply different conclusions as to whether the jurisdictional limit set forth in Bristol-Myers applies to class actions. Bakovjoins the minority in concluding it does.

Bakov v. Consolidated World Travel, Inc., No. 15 C 2980, 2019 WL 1294659 .

 Carlton Fields Jorden Burt, P.A.

This post was written by Nathaniel G. Foell and D. Matthew Allen of Carlton Fields Jorden Burt, P.A.

Read more Class Action analysis  on the litigation type of law page.

U.S. Supreme Court to Consider Whether Courts Must Defer to an Agency’s Interpretation of its Regulations – a Judicial Policy That Recently Resulted in Dismissal of Litigation Over ‘No Sugar Added’ Claims on 100% Juices

The U.S. Supreme Court heard arguments on March 27, 2019 about whether to overturn the principle of judicial review of federal agency actions that requires a federal court to yield to an agency’s interpretation of an ambiguous regulation that the agency has promulgated.  Under this policy, known as ‘Auer deference’ from the 1997 case Auer v. Robbins, a court must yield to an agency’s interpretation of its own unclear regulation unless the court finds that the interpretation is “plainly erroneous or inconsistent with the regulation.”

Auer deference was the basis for successful defendant motions to dismiss over the past year in a number of class actions concerning ‘No Sugar Added’ claims on 100% juices.  We reported, for example, on the U.S. District Court for the Central District of California granting a motion for summary judgment in favor of Odwalla, in Wilson v. Odwalla Inc. et al. (Case Number 2:17-cv-02763) based on the Food and Drug Administration’s (FDA) interpretation of paragraph (c)(2)(iv) of 21 CFR 101.60 (“Nutrient content claims for the calorie content of foods”) as permitting juice with no added sugar to be considered a substitute for juice with added sugar and similar sugar-sweetened beverages.

Based on the Justices’ comments in the recent hearing, it is not clear if Auerdeference will be intact at the end of June, by which time a ruling is expected.  Many food product labels could face renewed attacks under state consumer protection and false advertising laws if courts are no longer bound by FDA’s interpretation of ambiguous regulatory requirements, including the use of ‘no sugar added” under the regulation on nutrient content claims.

 

© 2019 Keller and Heckman LLP

U.S. Supreme Court to Decide If Immigration Law Preempts State Law Prosecution

Does the Immigration Reform and Control Act (IRCA) preempt states from using information in Form I-9 to prosecute a person under state law? The U.S. Supreme Court has agreed to review a case involving prosecution for identity theft under Kansas law based on information in the Form I-9 Employment Eligibility Verification. Kansas v. Garcia (No. 17-834).

Background

Ramiro Garcia, Donaldo Morales, and Guadalupe Ochoa-Lara did not have social security cards. They were all convicted of identity theft in Kansas for using other people’s social security numbers to gain employment in various restaurants. In September 2017, the Kansas Supreme Court reversed those convictions on the grounds that the state was prohibited from using information found on the defendants’ I-9 forms to prove its case because such prosecution was preempted by the IRCA. State v. Garcia, 401 P.3d 588 (Kan. 2017).

Questions Presented

The State of Kansas petitioned the U.S. Supreme Court for review and, on March 18, 2019, the Court agreed to review the case. The Court will decide the following:

  • Whether IRCA expressly preempts the states from using any information entered on or appended to a federal Form I-9, including common information such as name, date of birth, and social security number, in a prosecution of any person (citizen or alien) when that same, commonly used information also appears in non-IRCA documents, such as state tax forms, leases, and credit applications; and
  • Whether IRCA impliedly preempts Kansas’ prosecution of the defendants.

Kansas Supreme Court Opinion

IRCA expressly limits the use of information on or attached to I-9 forms. The Kansas Supreme Court held that the state may not use such information even if the information could be found elsewhere. In this case, the defendants’ “fake” social security numbers also had been entered on their tax withholding forms. The Kansas Supreme Court’s opinion would prevent all prosecutions by states based on false employment verification data supplied to employers on I-9 forms. Indeed, the broad effect of this was pointed out by Kansas Supreme Court Justice Daniel Biles in his dissent. Justice Biles noted that the decision would “wipe numerous criminal laws off the books” and that Congress “did not intend to immunize [defendants] from traditional state prosecutions for identity theft” by enacting IRCA.

The State of Kansas echoed the argument that the Kansas Supreme Court’s opinion would prohibit the use of all sorts of identifying data in state criminal prosecutions that happened to also be found on I-9 forms.

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Oral arguments in Kansas v. Garcia will take place during the U.S. Supreme Court’s term starting in October 2019.

Jackson Lewis P.C. © 2019