American Needle Inc. v. National Football League (08-661), Lewis v. City of Chicago (08-974) and Jefferson v. Upton (09-8852)

May 27, 2010 Supreme Court Update

Greetings, Court fans!

The Court issued six opinions on Monday, and DIG'd one case. I'll break things up into bite size pieces, with this Update covering three of the decisions: American Needle Inc. v. National Football League (08-661), addressing the implications of antitrust law to the NFL; Lewis v. City of Chicago (08-974), addressing the period for filing an EEOC charge in a case alleging disparate impact discrimination; and Jefferson v. Upton (09-8852), a pre-AEDPA habeas case considering whether a federal district court must defer to a State court's factual findings where the State court adopted verbatim a decision drafted by the State without input from petitioner.

American Needle Inc. v. National Football League is the rare case of interest to both antitrust lawyers and football fans. In a surprising unanimous decision, the Court held that the NFL's licensing activities constitute concerted action within the meaning of Section 1 of the Sherman Act, and therefore must be judged under the antitrust Rule of Reason. The NFL is an unincorporated association of 32 separately owned professional football teams. In 1963, the teams formed National Football League Properties (NFLP) to develop and market their intellectual property. NFLP granted nonexclusive licenses to a number of vendors (including petitioner American Needle), permitting the vendors to manufacture and sell apparel bearing team insignias. In 2000, NFLP granted an exclusive 10-year license to Reebok International, Inc. to manufacture and sell trademarked headwear for all 32 teams. When its nonexclusive license was not renewed, American Needle sued, asserting that the agreements between the NFL, its teams, NFLP and Reebok violated Sections 1 and 2 of the Sherman Act. In response, the teams, the NFL and NFLP argued that they were incapable of conspiring with each other under Section 1 because they were a "single economic enterprise" as set forth in Copperweld Corp. v. Independence Tube Corp. (1984), which held that a parent corporation was incapable of conspiring with its wholly-owned subsidiary because they are "controlled by a single center of decisionmaking." The district court agreed with the NFL defendants, and granted summary judgment. The Seventh Circuit affirmed.

Writing for the Court, Justice Stevens began by noting that concerted action under Section 1 depends on functional considerations, such as how the parties involved in the alleged anticompetitive conduct actually operate, and not formalistic distinctions such as whether the parties are legally distinct entities. By way of example, Justice Stevens reviewed several cases in which a single entity, such as a trade association, was held capable of conspiring under Section 1 because it was controlled by a group of competitors (e.g., United States v. Sealy, Inc. (1967)), as well as cases where multiple legal entities were found incapable of conspiring because of common control (e.g., Copperweld). Thus, the number of legally distinct entities, and how they organize themselves, is not dispositive to the existence of concerted action. Instead, "[t]he question is whether the agreement joins together independent centers of decisionmaking. . . . If it does, the entities are capable of conspiring under Section 1, and the court must decide whether the restraint of trade is an unreasonable and therefore illegal one."

Turning to the facts, the Court concluded that the NFL teams are indeed "independent centers of decisionmaking," capable of conspiring under Section 1. The teams are independently owned, separately managed businesses that compete with each other to attract fans, gate receipts, contracts with employees and, most relevant to the case, in the market for intellectual property. Decisions by the NFLP regarding the teams' separately owned intellectual property constitutes concerted action because the 32 independent teams collectively control the NFLP. The Court rejected the notion that the NFL teams were acting unilaterally because they had licensed their intellectual property through NFLP since 1963, because "a history of concerted activity does not immunize conduct from Section 1 scrutiny." Acknowledging that there might be procompetitive reasons for marketing and selling NFL products collectively, the Court noted that those arguments are part of the Rule of Reason analysis, and do not transform concerted action into independent action. As Justice Stevens put it, "a nut and a bolt can only operate together, but an agreement between nut and bolt manufacturers is still subject to Section 1 analysis."

Next, in Lewis v. City of Chicago, the Court, once again unanimous, held that a plaintiff that does not file an EEOC charge challenging the adoption of a practice may nonetheless later assert a disparate-impact claim if he files a timely EEOC charge challenging the application of the practice to him. Title VII of the Civil Rights Act of 1964 ("Title VII") prohibits the use of employment practices that cause a "disparate impact" on the basis of (among other things) race. Plaintiffs wishing to bring suit under this provision must first file a timely charge of discrimination with the EEOC. In this case, to be timely, the charge must have been filed within 300 days "after the alleged unlawful employment practice occurred."

In 1995, the City of Chicago administered a written examination to thousands of individuals wishing to join the Chicago Fire Department. The City then grouped the applicants into three tiers based on their exam scores: well qualified, qualified, and not qualified. Those in the not qualified tier were notified that they would not be processed further. Those in the well qualified tier were notified that individuals would be selected at random from that tier for further processing. Individuals in the middle tier – qualified – were notified that they had passed the exam, but were unlikely to be called for further processing in light of the number of well-qualified applicants. Beginning in 1996 and continuing for the next six years, the City continued to select applicants based on the above process, drawing randomly from the applicants who scored in the well-qualified range in each round of selections. In 1997, an African American applicant who scored in the qualified range and had not been hired, filed a charge of discrimination with the EEOC. His complaint was followed by five more and the EEOC provided right-to-sue letters to all of them. They filed suit in district court alleging that the practice of selecting only applicants from the well-qualified tier caused a disparate impact on African Americans. The City stipulated that the exam score cut-off had a severe disparate impact on African Americans, but contended that the cut-off was justified by business necessity. The City also argued that the claims were barred based on plaintiffs failure to file EEOC charges within 300 days after the City announced how it was going select applicants (i.e., the adoption of the practice). The district court rejected both of the City's arguments, ordered the City to hire 132 randomly selected members of the class, and awarded backpay to be divided among the remaining class members. The Seventh Circuit reversed, finding that plaintiffs' suit was untimely because no EEOC charge was filed within 300 days of the discriminatory act – i.e., the sorting of the scores into the three tiers.

Justice Scalia authored the Court's unanimous opinion reversing. Plaintiffs challenged the City's practice of picking from only the well-qualified tier, a practice which – no one disputes – continued to occur within 300 days of their EEOC charges. The real question was whether "the practice thus defined can be a basis for a disparate-impact claim at all." A disparate-impact plaintiff must show that the employer "used" a particular employment practice that causes a disparate impact. The City "used" the practice each time it selected from only the well-qualified applicants. Thus, the City's use of the cut-off score occurred within the charging period. The Court distinguished its cases holding that the present effects of prior discrimination don't begin the charging period anew by explaining that those cases occurred in the context of disparate treatment claims – which require deliberate intent within the limitations period. Disparate impact claims do not.

I would hate to advice a city on how to go about administering a firefighter qualification exam. Just last term, in Ricci v. DeStefano (2009), the Court, by a narrow margin, sided with white fire fighters who claimed that the City was wrong to throw out the results of a qualifying exam that was designed to be race neutral because it did not result in enough minorities qualifying. Now, the Court holds that cities can be found liable years after making a determination how to go about hiring based on an exam if the result cause a disparate impact. Of course, the Court in Lewis does not address the merits of plaintiffs' claim. Nonetheless, cities appear to be in a tough spot.

Last, in Jefferson v. Upton, the Court issued a per curium opinion vacating Jefferson's death sentence and remanding the case back to the Eleventh Circuit for further consideration. Jefferson was sentenced to death for killing his coworker. Prior to trial, his attorneys had Jefferson evaluated by a psychologist, who "concluded that Jefferson's mental deficiencies do not impair ‘his judgment or decision-making capacity,'" but noted that "‘it would be worthwhile to conduct a neuropsychological evaluation" to rule out brain damage (Jefferson had suffered a severe head injury as a child when a car ran over the top of his head). Jefferson's attorneys did not seek further evaluation. After being convicted and sentenced to death, Jefferson filed a state habeas claim, arguing that his trial attorneys were deficient for having failed to obtain further testing. His attorneys responded by testifying that after the psychologist gave them his report, he told them orally that further testing "may be a waste of time." The psychologist submitted an affidavit stating that it was his expert opinion that neuropsychological testing was necessary, that he said so in his report, and never stated otherwise to trial counsel. After a hearing, the State court judge contacted the attorneys for the State ex parte and asked them to draft the opinion of the court, which the court then adopted verbatim (notwithstanding that it referenced statements made by witnesses that did not testify during the hearing). The opinion concluded that the psychologist had led trial counsel to believe that further testing would be a waste of time, and trial counsel therefore was not deficient. The Georgia Supreme Court affirmed.

On federal habeas review, Jefferson argued that there was no reason to defer to the State court's findings of fact since the court had "‘merely signed an order drafted by the State without revision of a single word.'" The district court nevertheless accepted the State court's findings of fact, but ruled for Jefferson, finding that the attorneys still should have pursued additional testing even under the favorable set of facts adopted by the trial court. A divided Eleventh Circuit reversed. The Court reversed right back, but on quite a different ground. Under 28 U.S.C. § 2254(d), as it existed during the relevant time, State court determinations of fact are presumed correct unless one of eight exceptions applies. Among those exceptions are: where the factfinding procedure employed by the State court was not adequate to afford a full and fair hearing (subsection (d)(2)); where the applicant did not receive a full, fair, and adequate hearing in the State court proceeding (subsection (d)(3)); and where the applicant was otherwise denied due process of law in the State court proceeding. Here, the State court's wholesale adoption of a ruling drafted by the State (which appeared to contain obvious flaws) raised issues that might implicate one of these exceptions. Therefore, the Court vacated the judgment and remanded to the Eleventh Circuit to address the application of these exceptions in the first instance.

Justice Scalia dissented (joined by Thomas), continuing his Term-long attack on the what he called the Court's "increasingly unprincipled GVR practice." In Scalia's view, Jefferson never raised the exceptions upon which the Court now relies, either below or in his cert petition. There is no error where a court does not answer a question it is not asked to decide. This "odious" GVR is appropriately referred to by its "own name: Summary Remand to Ponder a Point Raised Neither Here nor Below (SRPPRNHB)." (Agree or disagree with Scalia, he is darned funny.)

I'll be back soon with summaries of the remaining decisions. Until then, thanks for reading!


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