Supreme Court Update
October 23, 2008
Stoneridge Investment Partners v.
Scientific-Atlanta, Inc.
• Plaintiffs alleged that non-issuers and non-brokers agreed
to arrangements that allowed company to mislead auditor
and issue misleading financial statement inflating its stock
price.
• Issue: Can non-issuer and non-broker, whose statements
and actions were not known to the market, be held liable
under 10b-5?
• Central Bank: No 10b-5 liability for aiding and abetting
securities fraud.
• The Court declined to recognize “scheme liability” for those
who have no duty to disclose and whose allegedly
deceptive acts were not communicated to the public.
• 5-3 split, along lines in constitutional cases.
Breyer recuses.
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Quanta Computer v. LG Electronics
• The authorized sale of a patented component used to make
a separately patented computer system that uses a
patented method “exhausts” the patent holder’s rights in
both the component and the method.
• Holding allows downstream purchasers of a component to
manufacture and sell a system that implements a patented
method without seeking license from the patent holder or
paying royalties – at least when the component
“substantially embodies” the inventive aspects of the
method.
• Court did not necessarily foreclose all licensing
arrangements in which a patent holder seeks to license
patent rights in a component and a system or method
separately, but patent holders need to be careful in crafting
licensing agreements and may need to rely on breach-ofcontract claims to protect patent rights.
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Riegel v. Medtronic
(decided February 20, 2008)
• Factual Background
– Charles Riegel and his wife brought suit after a Medtronic
catheter ruptured in his coronary artery during heart surgery.
– Riegel asserted a series of tort claims under New York
common law.
• Question Presented
– Whether the preemption clause in the Medical Device
Amendments Act of 1976 (MDA) bars common law claims
challenging the safety and effectiveness of a medical device
given premarket approval by the Food and Drug
Administration (FDA)?
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Riegel v. Medtronic
(decided February 20, 2008)
• Ruling
– The Court held (by an 8 to 1 vote) that the express
preemption clause in the MDA preempted the plaintiff’s state
law tort claims.
• Reasons
– Plain language of the express preemption clause
– Common law tort duties constitute “requirements”
under the MDA
– FDA makes cost-benefit determination; concern about juries
effectively overriding that determination based solely on a
focus on costs/risks
– Federal regulation of drugs does not provide analogy
– No reliance on the FDA’s view that the MDA preempts the
state law claims (a view that reflected a change in the FDA’s
position)
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Riegel v. Medtronic
(decided February 20, 2008)
• Justice Ginsburg dissented
– Presumption against preemption
(majority does not mention it)
– Purpose of preemption clause was to address state
premarket approval regimes, not common law protections
against dangerous devices
– Rejected FDA’s new position as “entitled to little weight”
6
Exxon Shipping Co. v. Baker
(decided June 25, 2008)
• Factual Background
– Case arose from the grounding, and resulting oil spill, of the
Exxon Valdez on the Bligh Reef of Alaska on March 24,
1989.
– Accident occurred after the ship’s captain, Joseph
Hazelwood, who had a history of alcohol abuse and whose
blood contained a high alcohol level many hours after the
spill, left the bridge, requiring subordinates to conduct a
difficult maneuver.
– Exxon spent around $2.1 billion in cleanup efforts and
pleaded guilty to violations of several federal criminal laws.
– This case involved a class action seeking compensatory and
punitive damages.
– Jury awarded $507.5 million in compensatory damages and
$5 billion in punitive damages. The Ninth Circuit reduced the
punitive damages award to $2.5 billion.
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Exxon Shipping Co. v. Baker
(decided June 25, 2008)
• First Question Presented
– Whether maritime law permits punitive damages against a
corporation for the reckless acts of its managerial
employees?
– The Court split evenly (4 to 4) on this question, thus leaving
the Ninth Circuit’s decision intact on this score.
(Justice Alito was recused)
• Second Question Presented
– Whether the Clean Water Act (CWA) preempts punitive
damages under maritime law?
– The Court held that the CWA does not. The Court explained
that the statute reflects no clear congressional intent to
occupy the field of pollution remedies and that punitive
awards for private harms will not have a frustrating effect on
the CWA remedial scheme.
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Exxon Shipping Co. v. Baker
(decided June 25, 2008)
• Third Question Presented
– Whether the punitive damages award was excessive
under maritime law?
• Justice Souter wrote the opinion for the majority (by 5 to 3 vote)
fashioning a rule of federal common law in maritime cases that the
ratio of punitive damages to compensatory damages must be 1 to 1.
• Most important factor driving decision: “stark unpredictability”
• Consideration given to approaches taken by the States (including
outright prohibitions; statutory caps; and statutory maximum ratios);
and by foreign countries (not part of the civil-code tradition and strict
limitations in other common-law countries).
• Fixed ratio best way to ensure consistency
• 1 to 1 ratio chosen for cases that do not involve
“exceptional blameworthiness.”
• Studies show that the median ratio was somewhat below 1 to 1,
which made a 1 to 1 ratio a “fair upper limit” on punitive damages.
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Exxon Shipping Co. v. Baker
(decided June 25, 2008)
• Justices Stevens, Ginsburg, and Breyer dissented.
• Justice Ginsburg not convinced there was a problem
in need of a solution; majority opinion raised many
questions, such as the impact of the common law
ratio on the constitutional due process standard and
whether fixed ratio will apply where a defendant
acted maliciously or in pursuit of financial gain.
10
United States v. Eurodif, S.A., No. 07-1059
(to be argued Nov. 4, 2008)
• Background
Section 1673 of Title 19 of the United States Code provides
that when “a class or kind of foreign merchandise is being,
or is likely to be, sold in the United States at less than its fair
value” to the detriment of domestic industry, the Department
of Commerce shall impose antidumping duties on entries of
the foreign merchandise.
– The Commerce Department conducted an antidumping
investigation focusing on Low Enriched Uranium (LEU)
coming from countries in Europe and concluded that contracts
in which domestic utilities agree to deliver a quantity of
unenriched uranium to a foreign enricher and pay the enricher
for the number of separative work units needed to create LEU
(known as SWU contracts) are in fact contracts for the sale of
goods subject to the antidumping laws as opposed to
contracts for services.
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United States v. Eurodif, S.A., No. 07-1059
(to be argued Nov. 4, 2008)
• Background (continued)
– Foreign enrichers, including Eurodif, S.A., challenged
Commerce’s position before the Court of International Trade,
which concluded that the uranium enrichment contracts were
contracts for services and not for goods and thus not subject
to the antidumping statute.
– On appeal, the Federal Circuit agreed. The court concluded
that there was no contract for the “sale” of a good because
title in the unenriched uranium or the LEU never vested in the
enrichers and thus “‘the transfer of ownership’ required for a
sale. . . is not present here.”
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United States v. Eurodif, S.A., No. 07-1059
(to be argued Nov. 4, 2008)
• Question Presented
– Whether the court of appeals erred in rejecting Commerce’s
conclusion that the SWU contracts were effectively contracts
for the sale of goods within the scope of the antidumping
statute.
• Arguments by the United States
– Commerce reasonably concluded that the antidumping
statute applies.
– Commerce’s interpretation entitled to deference under
Chevron.
– Concern about consequences of Federal Circuit’s
interpretation: statute invites evasion; problem particularly
serious here because failure to enforce the antidumping law
could undermine nuclear nonproliferation policy.
13
United States v. Eurodif, S.A., No. 07-1059
(to be argued Nov. 4, 2008)
• Eurodif arguments
– The antidumping statute is unambiguous: it requires “a transfer
of ownership in a tangible good” and does not apply to “the
sale of uranium enrichment services.”
– The manner in which Commerce calculates an antidumping
duty not permitted by the statute; illustrates that Commerce
trying to expand the statute to cover transactions it plainly was
not intended to cover.
– SWU contracts are not shams; substantively different from
EUP (enriched uranium product) transactions, in which utilities
obtain LEU for a price that reflects the full value of the product.
– United States’ policy arguments cannot trump plain language
of statute; in any event, other means of addressing the issue of
Russian LEU imports.
14
Philip Morris USA, Inc. v. Williams, No. 07-1216
(to be argued Dec. 3, 2008)
• Factual Background
– The estate of a lifelong smoker who died of lung cancer
sued Philip Morris for negligence and fraud, claiming that
Philip Morris led campaign to convince smokers that
smoking was not harmful to their health.
– The jury awarded plaintiff more than $800,000 in
compensatory damages and $79.5 million in punitive
damages on the fraud claim. The trial court reduced the
punitive damages to $32 million on the ground that the jury
award was excessive under federal constitutional
standards. The Oregon Court of Appeals reinstated the
$79.5 million jury award.
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Philip Morris USA, Inc. v. Williams, No. 07-1216
(to be argued Dec. 3, 2008)
• Factual Background (continued)
– The United States Supreme Court vacated the court of
appeals’ decision and remanded for reconsideration in light
of State Farm Mutual Automobile Insurance Co. v.
Campbell, 538 U.S. 408 (2003).
– Campbell applied a three-pronged test that the Supreme
Court had established in BMW of North America, Inc. v.
Gore, 517 U.S. 559 (1996), to determine whether a punitive
damages award is constitutionally excessive.
– The three “guideposts” are (1) the degree of reprehensibility
of the defendant’s misconduct; (2) the disparity (or ratio)
between the actual or potential harm suffered by the plaintiff
and the punitive damages award; and (3) the difference
between the punitive damage award and the civil penalties
authorized for comparable cases.
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Philip Morris USA, Inc. v. Williams, No. 07-1216
(to be argued Dec. 3, 2008)
•
Factual Background (continued)
– The Oregon Court of Appeals reaffirmed its earlier judgment, and
the Oregon Supreme Court granted review.
– The Oregon Supreme Court rejected Philip Morris’ claim that
under Campbell the jury should have been instructed (Proposed
Instruction No. 34) that it could not use “punitive damages to
punish a defendant for harm to nonparties.”
– The United States Supreme Court granted review to determine
whether the Due Process Clause permits a jury to base a punitive
damages award in part on a desire to punish the defendant for
harming non-parties. The Court held in a five to four vote that a
jury cannot do so.
– Harm to nonparties is relevant to the jury’s determination whether
a defendant’s conduct was “particularly reprehensible,” but the jury
“may not go further than this. . . to punish defendant directly on
account of harms” to nonparties.
– The Court remands to the Oregon Supreme Court to “apply the
standard we have set forth.”
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Philip Morris USA, Inc. v. Williams, No. 07-1216
(to be argued Dec. 3, 2008)
• Factual Background (continued)
– Justices Stevens, Ginsburg, Scalia, and Thomas dissented.
– Justice Stevens takes issue with the distinction the majority
drew between the permissible use of non-party harm to
determine reprehensibility and the impermissible use of
non-party harm to punish the defendant “directly.”
– Justice Thomas reiterated his view (expressed by Justice
Scalia in earlier opinions) that the Constitution does not
impose substantive due process limits on punitive awards.
– Justice Ginsburg concluded that there was no evidence that
the jury used evidence of non-party harm in an
impermissible manner and viewed Philip Morris’ Proposed
Instruction No. 34, which more or less reflected the
approach adopted by the Court, as one that would confuse
the jury.
18
Philip Morris USA, Inc. v. Williams, No. 07-1216
(to be argued Dec. 3, 2008)
• Factual Background (continued)
– On remand, the Oregon Supreme Court again
rejected Philip Morris’ contention that Proposed
Instruction No. 34 should have been given.
– Certain aspects of the instruction (unrelated to the
issue decided by the U.S. Supreme Court) misstated
Oregon law.
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Philip Morris USA, Inc. v. Williams, No. 07-1216
(to be argued Dec. 3, 2008)
• Question Presented
– Whether the Oregon Supreme Court violated the U.S.
Supreme Court’s mandate by failing to evaluate the jury’s
verdict in light of the constitutional standard announced in
the Philip Morris decision?
– The Court did not grant review of the question whether the
award was constitutionally excessive.
20
Wyeth v. Levine
• Does federal law preempt state-law challenges to the
adequacy of FDA-approved prescription drug labeling
where the expert federal agency considered the risk at
issue and approved a warning about that risk?
• Parallels to PMA device regime in Riegel. But Riegel
involved express preemption; Levine involves implied
conflict preemption. Without express provision, broad
consensus more difficult. Justices may fracture over hot
button issues: agency deference, presumptions against
preemption, federalism, “impossibility” -v- “obstacle”
preemption.
• Strong implied conflict preemption argument: FDA “fully
aware” of relevant risk, approved warning addressing it.
Yet plaintiff wants state law to second guess the agency.
Told jury: “FDA doesn’t make the decision, you do.”
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Wyeth v. Levine (continued)
• Who decides? Justice Breyer last term:
“who would you rather have make the decision as to
whether this drug is, on balance, going to save people
or, on balance, going to hurt people? An expert agency,
on the one hand, or 12 people pulled randomly for a jury
rol[l]?”
• Possible outcome: 5-4: reprise Geier split (with Chief
Justice and Justice Alito now in majority)? Justice
Thomas? Narrow holding: Preemption at least where
agency considered pertinent risk and decided appropriate
warning. Potential open issues: evolving science/risk
information; fit between what agency reviewed and subject
of litigation
• Political change and potential congressional response
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Burlington Northern & Santa Fe v. U.S.
Shell Oil v. U.S.
• These consolidated cases will address two issues
involving the proper interpretation of CERCLA:
whether and under what circumstances damages
awarded under CERCLA may be apportioned
among contributing parties, and the
circumstances under which “arranger liability”
may be imposed under CERCLA.
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