eBay Inc. v. MercExchange, LLC (05-130); DaimlerChrysler Corp. v. Cuno (04-1704); S.D. Warren Co. v. Maine Board of Environmental Protection (04-1527); Sereboff v. Mid Atlantic Medical Services, Inc. (05-260)

May 16, 2006 Supreme Court Update

Greetings, Court Fans!

Expect things to speed up as the Court attempts to get all its opinions out by July 1. Yesterday brought us four opinions, so we'll get right to it (only 31 left to go for the Term!).

eBay Inc. v. MercExchange, LLC (05-130) is a biggie for intellectual property buffs. In a short, unanimous opinion by Justice Thomas, the Court rejected the Federal Circuit's conclusion that in patent cases a permanent injunction generally should issue upon a finding of patent validity and infringement, and instead held that trial courts should apply the traditional four-factor test for permanent injunctive relief. The Court found nothing in the text or history of the Patent Act to suggest that Congress intended to supplant the venerable equitable test developed by courts, which requires a plaintiff seeking injunctive relief to demonstrate: (1) irreparable injury; (2) that remedies at law (i.e., money) are inadequate; (3) that the balance of hardships supports equitable relief; and (4) that the public interest would not be disserved by a permanent injunction. While all the Justices agreed on the test to be used, they disagreed on how to apply the four factors. In a concurring opinion joined by Scalia and Ginsburg, the Chief noted that the long tradition of granting injunctive relief in patent cases is not surprising given "the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention" and suggested that courts should not disregard this history. These justices seem to believe that applying the test would lead very frequently to the issuance of an injunction. On the other hand, Justice Kennedy, joined by Stevens, Souter and Breyer, concurred to stress that the historical near-uniformity of decisions granting injunctive relief must be viewed in light of the facts of those cases. With changes in the technology and the times come potential changes in the evaluation of the four factors. For example, a rising number of patent-holders have no intention of developing their inventions and sometimes use the threat of injunctive relief to extort inappropriately high licensing fees. In addition, the types of patents issued are changing, with increasing numbers of business method patents. Bottom line: Trial courts should not feel wedded to past decisions granting injunctive relief. So, trial courts now know what test to apply – but they will have to unscramble divided guidance in applying it.

Next, if you're looking for a lesson in standing, this is your lucky day. In DaimlerChrysler Corp. v. Cuno (04-1704) and Wilkins v. Cuno (04-1724), the Court unanimously held that state taxpayers cannot challenge state tax or spending decisions simply because they are taxpayers. After the city of Toledo and the state of Ohio gave DaimlerChrysler a break on its local property and state franchise taxes for a Jeep assembly plant, some Toledo residents sued, claiming that lower tax revenues would impose a disproportionate burden on them as taxpayers. The Sixth Circuit struck down the state tax break on Commerce Clause grounds, but the Court vacated that ruling on the ground that the plaintiffs lacked standing. The Chief's opinion noted that the Court long has denied federal taxpayers standing to object to particular expenditures. These alleged injuries are not concrete or particularized but rather shared with many others, and they are not "actual or imminent" but rather "conjectural or hypothetical." The Court saw no need for a different rule at the state level: Since the purpose of the tax break was to spur economic activity, there might be an increase in revenue, and in any event there was no guarantee that the legislature, in its "broad and legitimate discretion" on such matters, would react to any revenue shortfall to the plaintiffs' detriment. Affording standing in cases like this would turn federal courts into "continuing monitors" of state legislative judgments – a no-no under Article III. (Although the Court has conferred standing to taxpayers challenging spending decisions under the Establishment Clause, this is a narrow exception to the rule stemming from the Establishment Clause's specific limitations on legislative spending power.) Also, while the plaintiffs may have had "municipal taxpayer standing" to challenge Toledo's property tax breaks (because of the "peculiar relation of the corporate taxpayer to the [municipal] corporation"), the state franchise tax involved no municipal action. The Court closed by shooting down the plaintiffs' novel argument that, just as a federal court can exercise "supplemental jurisdiction" over state law claims that share the same nucleus of facts as a federal question in a case, it also could confer "supplemental standing" on all claims so long as there was standing for at least one claim. Such a rule would rewrite Article III, and "standing is not dispensed in gross." Justice Ginsburg concurred to note that while she agreed with the Court in this case, she disagreed with just about all the other recent Court decisions that have limited standing in other contexts.

In S.D. Warren Co. v. Maine Board of Environmental Protection (04-1527), the Court unanimously affirmed a Maine Supreme Court ruling that certain hydroelectric dams created the potential for "discharge" into navigable waters and therefore required state certification under the federal Clean Water Act (CWA). The CWA requires state certification before a federal license can be issued for an activity that may cause "discharge," but the Act does not define that term. S.D. Warren argued that its dams did not cause "discharge" because they only took water out of a Maine river, rerouted it through turbines, and returned it to the river without adding pollutants. The Court disagreed, in an opinion by Justice Souter (who clearly drew the short straw by getting this case). In past water cases, the Court had adopted the common dictionary understanding of "discharge" as "flowing or issuing out," which clearly encompassed the operation of the dams. While other CWA provisions note that "discharge" includes "discharge of a pollutant," that express inclusion did not restrict the meaning of "discharge" to require the addition of substances to the water in all cases. The Court also found no basis for S.D. Warren's argument in the CWA's legislative history (a portion of the opinion that Justice Scalia declined to join, as usual). Finally, S.D. Warren had admitted that its dams could alter the circulation, flow, and oxygen-absorbing capacity of the water, which several amici noted could impact aquatic organisms (yes, someone really does read the amicus briefs); these changes in water quality fell under the CWA.

In yesterday's last decision, Sereboff v. Mid Atlantic Medical Services, Inc. (05-260), the Court found that an ERISA plan administrator's claim against a plan beneficiary for restitution of funds received in a tort suit was an equitable remedy available under ERISA § 502(a)(3), which permits a civil suit by a plan fiduciary for "appropriate equitable relief." The Court had previously held that § 502(a)(3) did not permit a suit for mere compensatory damages, so the characterization of the relief sought – equitable vs. legal – was critical. Here are the facts: Marlene Sereboff's employer sponsored a self-insured health plan administered by Mid Atlantic. When Marlene and her husband were in an auto accident, Mid Atlantic paid for their medical expenses. The Sereboffs sued those responsible for the accident and settled for $750,000, at which point Mid Atlantic sued the Sereboffs seeking reimbursement of approximately $75,000. Mid Atlantic's suit sounded in breach of contract, but the remedy it sought was restitution, a traditional equitable remedy. The plan documents required that the Sereboffs reimburse the plan from "all recoveries from a third party" and that the plan's share of the recovery would not be reduced because the beneficiary did not received the full damages it sought from the third party. Thus, even if the Sereboffs were not made whole by the party causing the accident (i.e ., they only received enough settlement to cover the medical expenses, despite the fact that they also had claims for pain and suffering and loss of income), they were required to pay the plan back in full if sufficient funds were available from the settlement. (Note to self and appellate attorneys out there: this is a bad test case to take to the Supreme Court since the ratio of medical expenses to total recovery is only about 10 – which will not a sympathetic Court make.) Rejecting all of the Sereboff's arguments that Mid Atlantic's chosen remedy was not a "traditional" equitable remedy (you'll have to read about these on your own time), the Court, led by the Chief, found that Mid Atlantic's contract claim seeking restitution was indeed equitable in nature and fell snugly within the confines of § 502(a)(3). Importantly, however, because the claim did not rest on a claim for subrogation based on an equitable lien (one implied due to the circumstances) but on a contract term specifically requiring reimbursement, the Sereboffs could not assert typical defenses to equitable subrogation – such as the defense that subrogation may be pursued only after the individual is made whole.

The Court also issued an order list in which it granted cert in four cases. They are:

Osborn v. Haley (05-593) : (1) Whether the Westfall Act authorizes the Attorney General [when seeking to remove a state-court lawsuit against a federal employee to federal court and substitute the United States as the defendant] to certify that the employee was acting within the scope of his office or employment at the time of the incident solely by denying that such incident occurred at all. (2) Whether the Westfall Act forbids a district court to remand an action to state court upon concluding that the Attorney General's purported certification was not authorized by the Act. (3) Whether the court of appeals had jurisdiction to review the district court's remand order, notwithstanding 28 U.S.C. § 1447(d).

Whorton v. Bockting (05-595): (1) Whether, in direct conflict with the published opinions of the Second, Sixth, Seventh, and Tenth Circuits, the Ninth Circuit erred in holding that this Court's decision in Crawford v. Washington, 541 U.S. 36 (2004), regarding the admissibility of testimonial hearsay evidence under the Sixth Amendment, applies retroactively to cases on collateral review. (2) Whether the Ninth Circuit's ruling that Crawford applies retroactively to cases on collateral review violates this Court's ruling in Teague v. Lane, 489 U.S. 288 (1989). (3) Whether, in direct conflict with the published decisions of the Fourth and Seventh circuits, the Ninth Circuit erred in holding that 28 U.S.C. § 2254 (d)(1) and (2) adopted the Teague exceptions for private conduct which is beyond criminal proscription and watershed rules.

Norfolk Southern Railway Co. v. Sorrell (05-746) : Whether the court below erred in determining – in conflict with this Court and multiple courts of appeals – that the causation standard for employee contributory negligence under the Federal Employers Liability Act ("FELA") differs from the causation standard for railroad negligence.

Environmental Defense v. Duke Energy Corp. (05-848) : (1) Whether the Fourth Circuit's decision violated Section 307(b) of the [Clean Air] Act, which provides that national Clean Air Act regulations are subject to challenge "only" in the D.C. Circuit by petition for review filed within 60 days of their promulgation, and "shall not be subject to judicial review" in enforcement proceedings, 42 U.S.C. 7607(b); and (2) Whether the Act's definition of "modification," which turns on whether there is an "increase" in emissions and which applies to both the NSPS and PSD programs, rendered unlawful EPA's longstanding regulatory test defining PSD "increases" by reference to actual, annual emissions.

Finally, the Court also invited the SG to weigh in on whether to grant cert in two other cases presenting the following questions:

Winkelman v. Parma City School District (05-983): Whether, and if so, under what circumstances, non-lawyer parents of a disabled child may prosecute an Individuals with Disabilities in Education Act, 20 U.S.C. § 1400 et seq., case pro se in federal court.

Apotex, Inc. v. Pfizer, Inc. (05-1006) : Whether [a suit by a generic drug manufacturer seeking a declaration that its product will not infringe a patent] states a justiciable controversy when, as in this case, the failure to secure a court judgment prohibits the federal government from approving the generic equivalent and the prospect of massive patent liability deters the generic manufacturer from entering the marketplace.

Whew! That's it for the week, we think. Thanks for reading!

Ken & Kim

From the Appellate Practice Group at Wiggin and Dana.

For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer,

or Jeff Babbin at 203-498-4400