Jinks v. Richland County (02-258), Clackamas Gastroenterology Assoc. v. Wells (01-1435), Dole Food v. Patrickson (01-593)

April 22, 2003 Supreme Court Update

Greetings Court fans!
Three new opinions today, all relatively straightforward. After today, Scalia is in the lead with 6 published opinions for the Term. The Chief and Thomas are bringing up the rear with 3 published opinions each.
In honor of Scalia, I'll begin with his latest opinion. In Jinks v. Richland County (02-258), Scalia wrote for a unanimous Court to hold that 28 USC 1367(d) is constitutional as applied to claims brought against a political subdivision of a state. Under Section 1367, federal courts may exercise "supplemental jurisdiction" over state law claims that are part of the same case or controversy as claims properly within federal court jurisdiction. The statute also provides, however, that under certain circumstances, federal courts may (and sometimes must) decline to exercise supplemental jurisdiction over state law claims, and therefore may/must dismiss those claims. If a plaintiff wishes to pursue a newly-dismissed state law claim, he must re-file it in state court. To prevent the limitations period from running, though, Section 1367(d) helpfully provides that the state statute of limitations must be tolled while the claim is in federal court. In this case, the South Carolina Supreme Court held that Section 1367(d) is unconstitutional when applied to claims against a political subdivision of a state.
The Supreme Court reversed, in an opinion primarily about the "Necessary and Proper Clause" of the Constitution. (Now that's a clause you don't see interpreted everyday!) According to Scalia, Section 1367(d) is necessary and proper to execute Congress' power to create inferior federal courts and to assure that federal courts can exercise the judicial power of the United States. "Necessary" does not mean "absolutely necessary" but merely that the statute is "conducive to the administration of justice" in federal courts and "plainly adapted" to that end. Section 1367(d) meets this standard because it promotes the efficient and orderly resolution of claims impacted by the supplemental jurisdiction statute, and eliminates impediments to access to the federal courts. Moreover, although respondent argued that the statute is not "proper" because it violates state sovereignty by regulating state court procedure (i.e., mandating the tolling of state statutes of limitations), Scalia rejected this argument (but not before slipping in a citation to a law review article by a former clerk). Even assuming that there is a principled distinction between substance and procedure for purposes of the necessary and proper clause, Scalia concluded that state-law limitations periods are substantive. After finishing with the necessary-and-proper analysis, Scalia ended the opinion by rejecting the argument that Section 1367(d) -- as applied to claims against a state's subdivisions -- impermissibly abrogates sovereign immunity. Although Article I does not permit Congress to override a state's immunity from suit in its own courts (Alden v. Maine), Congress may subject a municipality to suit in state court. Section 1367(d) is no more an intrusion on sovereign immunity than an Act of Congress that subjects a municipality to suit under a federal cause of action. (Souter penned a one-line concurrence to announce that he still adheres to the position outlined in his dissent in Alden v. Maine.)
Second, in Clackamas Gastroenterology Assoc. v. Wells (01-1435), Stevens announced (for 7 of the 9) the test to be applied in deciding whether shareholder-directors are "employees" for the purposes of the Americans with Disabilities Act. Because the ADA does not apply to small businesses -- i.e., businesses with fewer than 15 employees -- you have to know who to count as an employee. Surprisingly enough, the ADA's definition of the term (an employee is an "individual employed by an employer") doesn't answer all the questions on the topic. In the case before the Court, the question was whether doctor-shareholders who own a professional corporation and constitute the corporation's board of directors are also employees of the corporation. According to the Court, when answering this question, courts should look to the common law for guidance, and specifically, to the common law's definition of the master-servant relationship, which focuses primarily on the master's "control" of the servant. Helpfully, this approach was the approach advocated by the EEOC, an agency with enforcement responsibilities under the Act. Although the Court acknowledged that the EEOC's guidance was not controlling, it found the guidance very helpful, going so far as to quote factors that the agency had identified as relevant to evaluating "control" in the context of a shareholder-director. Having announced the standard, the Court punted on the application (no need for the Supremes to get into the messy business of actually applying the standards they announce), and remanded the case for further proceedings.
Ginsburg and Breyer dissented to note that the physician-shareholders in question embraced "employee" status under various federal and state laws when advantageous to them, and to argue that nothing in the ADA's purposes required exempting these doctors from the coverage of the ADA.
Finally, in Dole Food v. Patrickson (01-593), Kennedy authored an opinion that answered two questions about the Foreign Sovereign Immunities Act (FSIA). The FSIA provides special privileges for foreign states sued in our courts. Some of these privileges, such as the right of removal, are also available to an "instrumentality" of a foreign state, defined as an entity a "majority of whose shares or other ownership interest is owned by a foreign state." In this case, foreign farm workers sued Dole Food alleging injury from exposure to agricultural pesticides, and Dole impleaded a group of companies collectively called the "Dead Sea Companies." The Dead Sea Companies promptly claimed a right to remove as "instrumentalities" of the State of Israel, even though they were only indirect subsidiaries of companies directly owned by Israel. According to Kennedy (and 6 others), this indirect ownership is insufficient to make the companies instrumentalities of a foreign state. The definition of instrumentalities in terms of share "ownership" indicates that Congress was invoking basic principles of corporate law, including the principle that a corporation and its shareholders are distinct entities. Because an individual shareholder does not own corporate assets, a corporate parent (e.g., Israel) which owns shares in a subsidiary does not own the subsidiary's assets. Thus, because Israel had never directly owned a majority of shares in the Dead Sea Companies, but had merely owned shares in other corporations that ultimately owned the Dead Sea Companies, Israel could not be said to "own" the Dead Sea Companies. Kennedy buttressed this conclusion by noting that when Congress intends to include indirect ownership, it knows how to do so (citing statutes) but did not do so here. Kennedy rejected the suggestion that the "other ownership interest" language included a foreign state's interest in its instrumentality's corporate subsidiaries. This language, according to Kennedy, refers to ownership interests other than stock ownership. Finally, Kennedy rejected any suggestion that Israel's control over the Dead Sea Companies had any impact on the "ownership" question. Control is irrelevant.
Breyer (joined by O'Connor) dissented on this question. According to Breyer, the phrase "other ownership interest" covers a foreign state's interest in an indirect corporate subsidiary. Breyer pointed to several cases that had adopted practical, common-sense interpretations of "ownership" even when those interpretations were inconsistent with the formal rules of corporate law. With this background, and noting that "statutory interpretation is not a game of blind man's bluff," Breyer would interpret "ownership" in light of the statute's purposes. Because Breyer found nothing in the purposes of the FSIA that would lead Congress to distinguish between foreign states acting through direct subsidiaries and foreign states acting through indirect subsidiaries, Breyer concluded that the Court's rule makes no sense.
Despite this division on what entities qualify as instrumentalities, a unanimous Court agreed that instrumentality status, like other questions of federal jurisdiction, must be determined at the time the suit is filed and not at the time the alleged tort occurred. In this case, because any relationship between Israel and the Dead Sea Companies had been severed by the time the suit was filed, this holding provided an independent reason for rejecting the Dead Sea Companies' removal attempt.
That's all for now. Thanks for reading. And as always, I welcome any comments, questions, or corrections.
From the Appellate Practice Group at Wiggin & Dana.
For more information, contact Mark Kravitz, Jeff Babbin, or Sandy Glover
at 203-498-4400, or visit our website at www.wiggin.com.