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Greetings, Court fans!

We have a few decisions to catch you up on since our last Update, bringing us to a “whopping” 23 opinions for the Term. This sluggish start is consistent with last year’s 22 opinions by this date, but is significantly off the Court’s 2005 pace of 38. So, once again, we’re in for a big next three months.

In Sprint/United Management Co. v. Mendelsohn (06-1221), the Court unanimously ruled that so-called “me too” evidence of discrimination in a disparate treatment case under the Age Discrimination in Employment Act (“ADEA”) is neither “per se” admissible nor inadmissible. Mendelsohn was terminated as part of Sprint’s company-wide reduction in force but claimed that she was really terminated based on age. She sought to offer the testimony of five other employees (none of whom had the same supervisors as Mendelsohn), who claimed they also suffered age discrimination. Sprint argued that the evidence was irrelevant under FRE 401 and the Tenth Circuit’s decision in Aramburu v. Boeing, Co., which held that in disparate treatment employee discipline cases, individuals were only similarly situated if they had the same supervisor and the same standards for performance and discipline. Sprint also argued that the evidence should be excluded as more prejudicial than probative under FRE 403. The district court ruled that, to support her claim of disparate treatment, Mendelsohn could only use the testimony of “similarly situated” workers – and defined that term as those with the same supervisor who experienced adverse actions in close temporal proximity to Mendelsohn. (The court appeared to leave the door open to offering broader testimony to demonstrate that Sprint’s stated non-discriminatory reason was pretextual.) The Tenth Circuit reversed, holding that the district court should not have applied Aramburu’s per se rule barring “me too” testimony by employees with different supervisors since this was not a discipline case, but a claim of a company-wide policy of discrimination in its workforce reduction. The Tenth Circuit then found that the evidence was more probative than prejudicial under FRE 403 and thus should have been admitted.

Led by Justice Thomas, the Court concluded that it was not clear whether the district court’s decision was predicated on Aramburu’s per se rule or on its conclusions that the evidence simply was irrelevant or more prejudicial than probative under Rules 401 and 403 in this case. Thus, the Tenth Circuit should have remanded for clarification, not engaged in its own analysis. In the course of reaching this unremarkable procedural result, however, the Court “noted” that applying a per se rule to bar the introduction of such “me too” evidence would be error as “relevance and prejudice under Rules 401 and 403 are determined in the context of the facts and arguments in a particular case, and thus are generally not amenable to broad per se rules.” So, a remand for clarification actually resulted in some real clarification of the law.

In a second ADEA decision, Federal Express Corp. v. Holowecki (06-1322), the Court held 7-2 that a “charge” of discrimination with the EEOC, which is a prerequisite to filing suit under the ADEA, is any filing that alleges age discrimination, names the charged party, and can reasonably be construed as asking the EEOC to take remedial action. In a purported class action against FedEx, one of the plaintiffs filed an “Intake Questionnaire” with the EEOC claiming that certain performance incentives were really aimed at forcing out older workers, then filed suit. FedEx claimed that her suit was barred because she had not filed a true “charge” of discrimination, which establishes a 60-day window before a suit can be filed. The ADEA does not define “charge,” nor do the EEOC’s own regulations provide much clarity. In Holowecki, the plaintiff argued that any Intake Questionnaire qualified as a charge, while FedEx countered that it only qualified if the EEOC actually acted upon it. The government, and the Second Circuit, took the position that the questionnaire was a charge if it expressed the filer’s intent for the EEOC to seek to vindicate her rights.

In an opinion by Justice Kennedy, the Court essentially agreed with the EEOC. Treating the EEOC’s interpretation as based on “a body of experience” entitled to Skidmore deference – i.e., a “measure of respect” – the Court noted that requiring an intent that the EEOC enforce a filer’s rights was a reasonable rule. The EEOC needs to have some way to distinguish between information requests about employee rights – which go no further than to seek answers from the EEOC – and enforcement requests that require informing the employer of the filer’s allegations. If all Intake Questionnaires automatically counted as charges, some filers might never come forward for fear of retaliation once their employers discovered the charge. Finding no better alternative, the Court held that for a filing to be a charge it must, from the standpoint of a reasonable observer, appear to ask the EEOC to activate its remedial processes. The EEOC need not act on the charge, however, as that would make the definition of “charge” contingent on something beyond a filer’s control. Here, the plaintiff’s affidavit passed this test; while the questionnaire itself contained no request to act, she attached a six-page affidavit in which she asked the EEOC to “force” FedEx to end their allegedly discriminatory practices.

Justice Thomas dissented, along with Justice Scalia, on the ground that Kennedy’s opinion ignored the natural meaning of “charge” and reduced it to “whatever the [EEOC] says it is,” effectively absolving the EEOC of its obligation to administer ADEA according to discernible standards. In particular, Thomas noted that the questionnaire expressly stated that it was for the purpose of “pre-charge” counseling, and that the EEOC itself did not even treat it as a charge. As to the plaintiff’s affidavit, Thomas wrote that a mere request for help from an uninformed filer does not equate to an intent to file a formal charge. The Court’s rule, which would allow the EEOC to do whatever it likes given its ability to infer intent from circumstances, provides no real assistance to employees or employers.

Moving on from the ADEA, the Court turned to criminal tax evasion in its unanimous decision in Boulware v. United States (06-1509). Boulware was convicted of tax evasion after failing to report distributions from a closely held corporation, HIE, of which he was the president, founder and controlling stock holder. (These “distributions” came in the form of, among other things, lavish gifts to Boulware’s wife and girlfriend. He had HIE’s customer’s write checks directly to him, submitted fraudulent invoices to HIE, etc. All in all, not a particularly sympathetic guy.) At trial, Boulware sought to introduce evidence that there was no “tax deficiency,” as required to establish tax evasion under 26 U.S.C. § 7201, because the distributions were nontaxable returns of capital since HIE made no earnings or profits in the relevant period. The district court disagreed and excluded the evidence, relying on the Ninth Circuit’s 1976 decision in United States v. Miller that a defendant may only contend that a distribution is a return of capital if he can demonstrate that he and the corporation intended it as such when the distribution occurred.

The Court reversed in an opinion by Justice Souter, who explained that the characterization of any distribution must be governed by sections 301 and 316(a) of the Internal Revenue Code. Under those sections, if a distribution is a “dividend,” it is included in the gross taxable income of the recipient; a distribution that is not a dividend will be either a nontaxable return of capital or a gain on the sale or exchange of stock, taxable as a capital gain. (So, you really don’t want it to be classified as a dividend if you are arguing for your freedom in criminal court.) A “dividend” is defined as a distribution by a corporation made out of its accumulated or taxable year earnings and profits. The district court and Ninth Circuit got it wrong when they required Boulware to demonstrate a current intent to treat the distributions as returns of capital because tax classification is based on “objective economic realities,” not subjective intent (even if Boulware’s intent appeared quite “devious” at the time). The government must, of course, still prove willfulness because intent is an element of the crime – but it is a separate and distinct element. Without both a “tax deficiency” and “willful” intent to evade, no crime has occurred. The Ninth Circuit’s Miller rule was premised in part on the seeming unfairness of treating a taxpayer who diverts funds from a company in distress differently than one who diverts funds from a successful company (the latter being subject to criminal punishment while the former may not be). As the Court pointed out, however, whether the Ninth Circuit’s rule “would improve things” is “neither here nor there” since it is Congress’s province to create law, not the courts.

In the last of the outstanding rulings, the Court split 4-4 in Warner-Lambert Co. v. Kent (06-1498), resulting in the affirmance of the Second Circuit by an equally divided Court. The case asked whether the Food, Drug, and Cosmetics Act preempted a Michigan products liability law that granted a safe harbor to FDA-approved drugs but created an exception for drugs for which approval came through fraud. In Buckman v. Plaintiffs’ Legal Committee (2002), the Court held that the Act preempted state-law claims alleging that a medical device manufacturer had made fraudulent claims to the FDA. In Kent, Warner-Lambert tried to argue that Buckman similarly barred a suit against it by Michigan citizens who took its diabetes drug Rezulin, which was later withdrawn from the market. The district court agreed with Warner-Lambert, but the Second Circuit reversed. It distinguished Buckman on the ground that that case involved an actual cause of action for fraud, thereby making the fraudulent representations to the FDA an element of the claim. Here, however, the alleged fraud was only part of an exception to a general product liability scheme, which carved out a safe harbor for FDA-approved drugs and thus did not run afoul of federal preemption law. The Court granted cert, but the Chief recused himself from the case and the remaining Justices split 4-4. As a result, the Court “affirmed” the decision below, but the ruling has no precedential value. So, for now, the Second Circuit ruling stands as though the Court never heard the case at all.

The Court also granted cert in three cases . . .

Carcieri v. Kempthorne (07-526), where the Court granted cert on only the first two questions presented: (1) “Whether the [Indian Reorganization Act of 1934] empowers the Secretary to take land into trust for Indian tribes that were not recognized and under federal jurisdiction in 1934?”; and (2) “When an act of Congress that extinguishes aboriginal title and all claims based on Indian rights and interest in land precludes the Secretary from creating Indian country there?”

Arizona v. Gant (07-542), where the Court rewrote the question presented: “Does the Fourth Amendment require law enforcement officers to demonstrate a threat to their safety or a need to preserve evidence related to the crime of arrest in order to justify a warrantless vehicular search incident to arrest conducted after the vehicle’s recent occupants have been arrested and secured?”

Chrones v. Pulido (07-544), which asks: “Whether the Ninth Circuit failed to conform to ‘clearly established’ Supreme Court law, as required by 28 U.S.C. 2254(d), when it granted habeas corpus relief by deeming an erroneous instruction on one of two alternative theories of guilt to be ‘structural error’ requiring reversal because the jury might have relied on it?”

. . . and asked the SG to weigh in on two more cert petitions . . .

Amschwand v. Spherion Corp. (07-841), where the Court will determine whether equitable relief under section 502(a)(3) of ERISA “does not include make-whole relief equal to the insurance benefits to which a plan beneficiary would have been entitled but for a plan fiduciary’s breach of fiduciary duty”

Harbison v. Bell (07-8521), which asks: (1) “Does 18 U.S.C. 3599(a)(2) and (e) . . . permit federally-funded habeas counsel to represent a condemned inmate in state clemency proceedings when the state has denied state-funded counsel for that purpose?” (2) “Is a certificate of appealability required to appeal an order denying a request for federally-funded counsel under 18 U.S.C. §3599(a)(2) and (e)?”

The Court is now on recess, so we don’t expect more opinions until the week of March 17th. Until then, thanks for reading!

Kim & Ken

From the Appellate Practice Group at Wiggin and Dana
For more information, contact Kim Rinehart, Ken Heath or any other member of the Appellate Practice Group at 203-498-4400