Krupski v. Costa Croceire S.p.A. (09-337), Hamilton v. Lanning (08-998), Levin v. Commerce Energy, Inc. (09-223), and Barber v. Thomas (09-5201)

June 14, 2010 Supreme Court Update

Greetings, Court fans!

I have 4 more decisions to bring you (which will bring us current through the end of last week): Krupski v. Costa Croceire S.p.A. (09-337), clarifying the test for determining when a plaintiff's amended complaint adding a new party "relates back" to the original complaint for statute of limitations purposes; Hamilton v. Lanning (08-998), holding that bankruptcy courts can consider future changes in a debtor's income or expenses when calculating a Chapter 13 debtor's "projected disposable income"; Levin v. Commerce Energy, Inc. (09-223), concluding that comity requires claims of discriminatory taxation to proceed first in state court, and Barber v. Thomas (09-5201), affirming the Bureau of Prison's method for calculating prisoners' "good time credit," i.e., credit towards a sentence as a reward for good behavior. All in all, another batch that won't steal any headlines.

Krupski v. Costa Crociere S.p.A. addresses a procedural issue likely to cross just about every litigator's path at some point: whether a plaintiff's amended complaint adding a new party relates back to her original complaint and is therefore timely under the Federal Rules of Civil Procedure ("FRCP" or "Rules"). Where an amendment changes a party or a party's name, the Rules provide that the amendment will relate back if the claim against the newly named defendant (1) arises out of the same transaction or occurrence as the conduct in the original complaint (see FRCP 15(c)(1)(B), (C)); (2) the newly named defendant has "received such notice of the action that it will not be prejudiced in defending on the merits" within the period provided for service under Rule 4(m), which is typically 120 days (see FRCP 15(c)(1)(C)(i)); and (3) the plaintiff establishes that the newly named defendant "knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party's identity" (see FRCP 15(c)(1)(C)(ii)). We're focusing on the third prong here.

Krupski injured her leg on a cruise. Her cruise ticket had been issued by Costa Cruise Lines, but the ticket indicated that Costa Crociere was the carrier. Upon returning to dry land, she obtained counsel and brought suit against Costa Cruise Lines prior to the expiration of the limitations period. Costa Cruise Lines subsequently notified Krupski three times – in its answer, corporate disclosure, and motion for summary judgment (all of which occurred after the limitations period had expired) – that Costa Cruciere was the proper defendant. Krupski eventually sought leave to amend to add Costa Cruciere as a defendant, which request was granted. Upon amending, Krupski voluntarily dismissed Costa Cruise Lines from the case. Costa Cruciere – represented by the same counsel that had represented Costa Cruise Lines – then moved to dismiss, arguing that the amended complaint did not relate back to the timely filed original complaint because Krupski did not make "a mistake" about the proper party's identity because defendant made her aware that Costa Cruciere was the proper party and Krupski nonetheless delayed for months in moving to amend, suggesting that she had made an intentional choice not to sue Costa Cruciere. The Eleventh Circuit affirmed in a per curiam opinion, concluding that Krupski either knew or should have known that Costa Cruciere was the proper defendant in light of the information provided to her on her ticket and alternatively, even if she first learned that Costa Cruciere was the proper party from Costa Cruise Line's answer, her delay in moving to amend provided an additional discretionary basis to deny her motion.

The Court reversed, in a nearly unanimous opinion authored by Justice Sotomayor. The focus of Rule 15(c)(1)(C)(ii) is on the defendant's knowledge, not the plaintiff's. Here, Costa Cruciere knew within 120 days that it was the proper defendant and would have been sued but for some mistake on the Krupski's part. While the Court acknowledged that a fully informed plaintiff could elect to sue only one of two potential defendants and that would not qualify as a "mistake," the mere fact that the plaintiff was aware of two parties and chose to sue only one was not sufficient to show that plaintiff was not mistaken as to the precise roles that each of the parties had in the transaction. Here, it was apparent based on the description of Costa Cruise Line's purported role in Krupski's original complaint, that she did not fully comprehend the situation. And she was not required to take as gospel an unsworn assertion by Costa Cruise Lines that it wasn't the proper defendant. Finally, the plain language of Rule 15(c)(1)(C)(ii) mandates that amendment be allowed if its criteria are met; there is no room for a court to exercise discretion to decline amendment simply because a plaintiff has sat on her hands. Justice Scalia concurred in part and in the judgment, issuing a separate opinion simply to note that he did not agree with relying on the Notes of the Advisory Committee as evidence of the meaning of the Rules since the "Committee's intentions have no effect on the Rule's meaning."

Next, in Hamilton v. Lanning (08-998), the Court found that bankruptcy courts do have some flexibility in calculating a Chapter 13 debtor's "projected disposable income" even after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). Chapter 13 is viewed as a gentler form of bankruptcy in which debtors with "regular income" who meet certain criteria are permitted to keep their property (rather than liquidating it as required under Chapter 7), but must agree to a court approved plan under which they pay their creditors out of their future income. A bankruptcy trustee oversees the filing and execution of the plan. If the trustee or any unsecured creditor objects to a Chapter 13 plan proposed by a debtor, the bankruptcy court cannot confirm the plan unless it provides either that all unsecured creditors will be paid in full or that the debtor will pay all "projected disposable income" for the duration of the plan period. BAPCPA does not define "projected disposable income," but does define the narrower term "disposable income" as "current monthly income received by the debtor" less "amounts reasonably necessary to be expended" for the debtor's "maintenance and support" and for certain qualifying expenditures. "Current monthly income" is to be determined by calculating the average monthly income over a 6-month look back period.

Lanning filed for bankruptcy shortly after her employment circumstances changed. Just prior to filing, Lanning received a on-time buyout from her former employer, which greatly increased her average income during the look back period. Her "disposable income" using BAPCPA's definition was over $1000/month, while her actual monthly disposable income (actual current income minus expenses) was less than $150/month. The question for the Court was whether "projected disposable income" must be calculated mechanically, by simply multiplying "disposable income" (which is based solely on the debtor's past income during the look back period) times the months in the plan period, or whether courts can consider future income changes. Justice Alito, who was joined by all but Justice Scalia, found that BAPCPA was not so inflexible as to require the mechanical approach in cases where there is a "known or virtually certain" change in a debtor's future income that make the 6-month look back period an inaccurate projection of future income. BAPCPA's use of the term "projected" suggested that courts were indeed tasked to take into account future events. Further, under pre-BAPCPA practice, courts generally used the mechanical approach to calculate projected disposable income, but departed from that approach in extraordinary circumstances. Given that BAPCPA did not define the full term "projected disposable income," the Court would not infer an intent to override this long-standing practice. Other language in BAPCPA, such as references to projected disposable income "to be received in the applicable commitment period," reinforced the Court's view that Congress intended "projected disposable income" to be based on the debtor's actual financial circumstances. And the mechanical approach would create absurd results – allowing debtors a windfall where there was a known or virtually certain increase in their income, and disallowing bankruptcy protection for debtors who otherwise meet the requirements for Chapter 13 and do not meet the requirements for Chapter 7 simply because of an income aberration. In sum, while there is still a presumption that the mechanical approach is correct, bankruptcy courts' hands are not tied where a change in income is either "known" or "virtually certain" as of the date the plan is confirmed.

Justice Scalia filed a lone dissent. In his view, the language of the statute was clear and required calculation of "projected disposable income" in a mechanical way. In Scalia's view, the Court's interpretation effectively read-out of the statute the definition of "disposable income," since courts no longer need to follow it in calculating "projected disposable income" if they don't feel like it, while reading into the statute a new requirement that the mechanical approach should be used unless there is a "substantial" income change that is "known or virtually certain." While Scalia acknowledged that both interpretations might yield imperfect results, he argued that it "is in the hard cases, even more than the easy ones, that we should faithfully apply our settled interpretive principles. . . ."

Levin v. Commerce Energy, Inc. required the Court to consider the proper role of federal courts in cases claiming discriminatory state taxation, where the plaintiff's requested relief is an increase in his competitor's tax, not a decrease in his own. The Tax Injunction Act ("TIA"), 28 U.S.C. § 1341, prohibits lower courts from restraining the "assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." The more expansive comity doctrine prohibits federal courts "from entertaining claims for relief that risk disrupting state tax administration." The question for the Court was whether either the TIA or comity required dismissal here. Plaintiffs were two independent marketers ("IMs") of gas. They claimed that Ohio discriminated against them by providing certain tax breaks to local distribution companies ("LDCs"). LDCs provide the bundled products of gas plus delivery via their networks of distribution pipelines whereas IMs sell only gas. The tax breaks for LDCs allegedly placed the IMs at a competitive disadvantage. The IMs filed suit against the Tax Commissioner of Ohio in federal court under the Equal Protection Clause. Rather than seeking an injunction against their own taxes, which would have run smack dab into the TIA, the IMs sought instead to eliminate the tax breaks for LDCs, thus leveling the playing field. The district court granted the Commissioner's motion to dismiss, reasoning that while the TIA did not apply under its terms since plaintiffs were not disrupting the flow of tax revenues to Ohio, comity nonetheless counseled in favor of dismissal since Ohio's legislature had made a policy choice to provide the challenged tax exemptions. It should be for the State to determine in the first instance whether a violation exists and, if so, whether the LDCs exemptions should be removed or the IMs should be given the benefit of the those exemptions – particularly given that the federal courts could not, in view of the TIA, award the latter remedy. The Sixth Circuit reversed, concluding that the Supreme Court's decision in Hibbs v. Winn (2004) permitted a dismissal based on comity considerations only when a plaintiff sought relief that would disrupt state tax collection.

The Court reversed, in an opinion by Justice Ginsburg. Comity considerations are at their height when state taxation is involved given that the states rely on taxation to carry on their governments. Lower federal courts thus should not wade into such territory even if the TIA may be read to permit federal court review. Hibbs is not dispositive here because it involved an Establishment Clause challenge to tax credits used to fund religious education, rather than an Equal Protection Clause claim, and because it rested almost exclusively on the TIA, with only a "spare footnote" dealing with the comity doctrine. A discriminatory taxation claim raises particular concerns in light of the TIA because the federal courts typically remand cases involving a challenge to state taxes to the states for a proper remedy. It is the state, in the first instance, that should determine whether to raise taxes for one person or decreases taxes for another. However, since the TIA would not permit a federal court to authorize a remedy that arrests state taxation, a federal court would lack jurisdiction to remand for such a potential remedy and would instead be left only with the possibility of increasing taxes, even if the state would prefer the opposite remedy and both remedies would fairly address the problem. Lower federal courts therefore should refrain from taking on this type of case as long as state courts can provide an adequate forum. Justice Kennedy penned a concurrence to note that he viewed the rationale of Hibbs as "doubtful," but given that the decision did not expand Hibbs, he joined it. Justice Thomas, joined by Justice Scalia, concurred only in the judgment. In their view, the TIA itself forbids federal courts from exercising jurisdiction over this genre of suit.

Barber v. Thomas presented a dangerous combination of a less-than-clear statute and lawyers doing math, with people's liberty at stake: how to give prisoners credit for good behavior under a statute that provides: "[A] prisoner who is serving a term of imprisonment of more than 1 year[,] other than a term of imprisonment for the duration of the prisoner's life, may receive credit toward the service of the prisoner's sentence, beyond the time served, of up to 54 days at the end of each year of the prisoner's term of imprisonment, beginning at the end of the first year of the term, subject to determination by the Bureau of Prisons that, during that year, the prisoner has displayed exemplary compliance with institutional disciplinary regulations. . . . [C]redit for the last year or portion of a year of the term of imprisonment shall be prorated and credited within the last six weeks of the sentence." The Bureau of Prisons (BOP) has implemented the statute as follows: At the end of each calendar year in which a prisoner exhibits good behavior, a prison official notes the good time days earned. When the difference between the time remaining in the sentence and the time of accumulated good time credit is less than 365 days, the "credit for the last year or portion of the year" provision is triggered, and the prisoner can earn good time credit at a ratio of 54/365. The prisoner petitioners in Barber argued that the phrase "term of imprisonment" refers to the sentence imposed by the judge, such that BOP should give prisoners credit for each year of the sentence, not for each calendar year in prison. A 6-3 majority of the Court sided with the BOP. The dissent did not agree with BOP or the prisoners, and presented a third alternative for calculating good time credit, in which the phrase "term of imprisonment" refers to an administrative period of 365 days, which can be accounted for through a combination of prison time and credits.

As noted above, the Court upheld BOP's method as the most straightforward reading of the statute. Writing for the majority, Justice Breyer noted that the petitioners' interpretation conflicted with the statute's directive that credit be given "at the end of each year," based on the prisoner's behavior "during that year." Notwithstanding the fact that the first two references to "term of imprisonment" in the statute refer to the sentence imposed, and the Court's general "presumption that a given term is used to mean the same thing throughout a statute," the language that credit be given at the end of each year of the "term of imprisonment" undoubtedly refers to time actually served. The Court rejected petitioners' legislative history arguments. Perhaps in a nod to Justice Scalia, who joined the majority with no caveats, Justice Breyer wrote that even "those who consider legislative history significant" would not find that history helpful to petitioners here. The Court also rejected the dissent's proposal to define "term of imprisonment" as a "combination of service and credits," because doing so would render superfluous another part of the statute that called for prisoners to be released at the end of their term "less any time credited." The Court generally criticized the dissent's proposal as confusing and difficult to administer. Finally, the Court rejected appeals to the rule of lenity. The rule of lenity did not come into play because there was no "grievous ambiguity or uncertainty" about the statute here.

Justice Kennedy, joined by Justices Stevens and Ginsburg, dissented. To the dissenters, the Court's decision to give "term of imprisonment" two different meanings in the same sentence indicated that "something is quite wrong here." By contrast, their proposal to define "term of imprisonment" as a combination of actual prison time and credits earned would achieve textual integrity, would not be demonstrably more difficult to administer than the current method, and would comport with the rule of lenity should there be any doubt about the correct methodology. The dissent also took pains to reject the Government's argument that the Court should defer to BOP's interpretation as a permissible exercise of delegated responsibility, where it was not clear that the statute had delegated any authority to BOP, and BOP had not complied with formal rulemaking procedures. (Because the Court found that BOP's interpretation of the statute was correct and there was no question that BOP had authority to implement the statute, the Court had not addressed whether BOP would have been entitled to deference.)

In an unusual move, the Court certified a question to the Montana Supreme Court in United States v. Juvenile Male (09-940), regarding the application of the Sex Offender Registration and Notification Act (SONRA) to individuals adjudicated juvenile delinquents because of sex offenses committed prior to the passage of SONRA. Because the respondent had only challenged registration as a condition of his juvenile supervision, and his juvenile supervision had expired on his 21st birthday, the Court asked the Montana Supreme Court to advise whether the validity of the respondent's now-expired juvenile supervision order affected his duty to remain registered as a sex offender under Montana law, such that the respondent's case was not moot.

The Court also granted cert in one case: Mayo Foundation for Medical Education and Research v. United States (09-837), which asks: "Whether the Treasury Department can categorically exclude all medical residents and other fulltime employees from the definition of ‘student' in 26 U.S.C. 3121(b)(10), which exempts from Social Security taxes ‘service performed in the employ of a school, college, or university' by a ‘student who is enrolled and regularly attending classes at such school, college, or university.'"

Finally, Justice Sotomayor issued a brief opinion "respecting the denial" of cert in Wrotten v. New York (09-9634), a case that would have tested whether witness testimony presented via two way video violated the defendant's Confrontation Clause rights. Given the procedural posture of the case, which came up via interlocutory appeal, Sotomayor agreed that cert should not be granted, but she wrote to note her view that this issue was an important one and that the denial of cert should not be viewed as in any way suggesting the views of the Court on the merits of the issue.

The Court issued 4 more decisions today, so I'll be back in your inboxes soon!


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