Safford Unified School District v. Redding (08-479), Horne v. Flores (08-289) and Travelers Indemnity Co. v. Bailey (08-295)

June 29, 2009 Supreme Court Update

Greetings, Court fans!
The Court issued two decisions today and an order list, before going on recess for the summer. Justice Kennedy authored the Court's 5-4 decision in Ricci v. DeStefano (07-1428), where the Court found in favor of the white and Hispanic firefighters that were denied promotions when New Haven threw out the results of an exam that would have promoted no black firefighters. The Court ruled that New Haven needed "a strong basis in evidence" to believe that it would be subject to a viable Title VII claim for disparate impact discrimination before it could discard the results of an exam designed to provide an objective basis for determining firefighter promotions. Here, the only evidence was that black firefighters did less well on the exam than did plaintiffs. There was no showing that the test was not related to the job position and consistent with business necessity. Nor was there a showing that New Haven refused to adopt an alternative that would have served the same purposes as the exam with less disparate impact. Therefore, New Haven's discriminatory treatment of the plaintiffs was unwarranted. The Court also issued its decision in Cuomo v. Clearing House Association, L.L.C. (08-453), holding (again 5-4, but this time with Scalia joining the liberals to form the majority) that the National Bank Act did not preempt states from enforcing fair lending laws through demands for documents or court proceedings. (I'll bring you a complete discussion of Ricci and Cuomo and the Court's cert grants later.) Perhaps the oddest thing about the Court's departure is that we cannot say the October 2008 Term is over. The Court did not issue its decision in Citizens United v. Federal Election Commission (08-205), but instead requested supplemental briefing and will hear additional argument in September. (The case was argued in March. You really didn't know you needed the extra briefing until today?)
That's it for the news of the day, but we've got a lot of catching up to do. The remainder of this Update will discuss: Safford Unified School District v. Redding (08-479), the student strip search case; Horne v. Flores (08-289), addressing litigants' ability to obtain relief from orders that are "no longer equitable"; and Travelers Indemnity Co. v. Bailey (08-295) (together with Common Law Settlement Counsel v. Bailey (08-307)), in which the Court was supposed to address a key bankruptcy issue (the validity of certain types of channeling injunctions), but instead ended up discussing res judicata.
Justice Souter authored the Court's opinion in Safford Unified School District v. Redding, where the Court revisited and refined its 1985 school search decision, New Jersey v. TLO. In TLO, the Court held that the usual requirement of probable cause to support a search and seizure gives way to the lesser standard of "reasonable suspicion" when the search takes place in a school setting. A school search "will be permissible in its scope when the measures adopted are reasonably related to the objectives of the search and not excessively intrusive in light of the age and sex of the student and the nature of the infraction." At issue in Safford was the strip-search of 13-year old sixth grader, Savana Redding, based on information that she was implicated in the possession and transfer of prescription and over-the-counter drugs on school grounds.
The information in possession of school administrators that led to the strip search included: A fellow student told administrators that students were bringing drugs and weapons to school and that he had become ill after taking pills given to him by a classmate. Later, the same student turned over to school administrators a prescription pill he had received from a fellow student. That student was taken out of class and was found to be in possession of both prescription and non-prescription drugs (3 pills equivalent to 2 prescription strength Advil and 1 Aleve) that she said were provided to her by Redding. School administrators were also aware that Redding was a member of a "rowdy" group that was involved in an incident where alcohol and cigarettes were found in a girls bathroom and that a party was held at Redding's home where alcohol was served. The Court held that the confluence of the foregoing information was sufficient (i.e., it constituted "reasonable suspicion") to justify removing Redding from class and conducting a search of her backpack and outer clothing. When these searches yielded no contraband, administrators asked petitioner to strip to her underwear and then pull the elastic of her underwear from her body so that anything inside would fall to the ground. No contraband was found. The Court found that this final search went too far based on the information available, or as Justice Souter put it, "the content of the suspicion failed to match the degree of intrusion." School administrators knew that the drugs involved were common pain relievers in limited quantities unlikely to pose a real danger to students and they had no information that petitioner was hiding contraband in her underwear. "These deficiencies," the Court held, "were fatal to finding the search reasonable." Nevertheless, the Court (this time, minus Stevens and Ginsburg) concluded that the defendants were shielded by qualified immunity in light of the significant disagreement among lower courts as to whether this type of search violated the mandates of the Court's holding in TLO. While the Court noted that such disagreement is not always sufficient to demonstrate that the law is not clearly established for qualified immunity purposes, here, the disagreement was substantial and the decisions on both sides were sufficiently well analyzed to suggest that the Court's decision in TLO was not clear.
Justices Stevens and Ginsburg dissented from the judgment since they did not believe qualified immunity was warranted. As they pointed out, the Court's decision did not alter the governing law in any respect. It simply applied TLO to the facts at hand. For them, this was a case where "clearly established law [met] clearly outrageous facts." On the other end of the spectrum was Justice Thomas, who would have found the search valid. Thomas believed that the Fourth Amendment analysis undertaken by the Court was inappropriate in the school setting, and argued for reinvigorating the doctrine of in loco parentis, under which the school essentially assumes the responsibility (including the disciplinary authority) of parents over the children in its care. Even applying Fourth Amendment jurisprudence, Thomas felt the strip search was valid because if there is reasonable cause to search, that reasonable cause extends to all places in which the contraband could be located.
The Court's next decision, Horne v. Flores, could have significant ramifications for states attempting to obtain relief from orders in institutional reforms case. In a case filed 17 years ago by English Language-Learner (ELL) students in a local school district near the Arizona/Mexico border, the district court entered declaratory and injunctive relief against the State for violating the federal Equal Educational Opportunities Act (EEOA). That Act requires states "to take appropriate action to overcome language barriers" faced by ELL students. The State did not appeal any of the district court's orders over the years, including the extension of the judgment to the entire state and contempt orders resulting in more that $20 million in sanctions. Instead, the State sought relief from the court orders under Fed. R. Civ. P. 60(b)(5).
Justice Alito, writing for a 5-4 majority (with Roberts, Scalia, Kennedy and Thomas), held that the courts below misapplied Rule 60(b)(5), which permits relief from an order if it is "no longer equitable." Relying on the federalism concerns articulated in Rufo v. Inmates of Suffolk County Jail (1992), the Court emphasized the importance of Rule 60(b)(5) in allowing relief to states in "institutional reform litigation" when the legal or factual circumstances have changed significantly. The Ninth Circuit (and the district court) erred by failing to apply Rufo's "flexible standard that seeks to return control to state and local officials as soon as a violation of federal law has been remedied." In particular, the courts below focused too narrowly on the sufficiency of state funding for ELL programs, rather than focusing on other developments that might constitute "appropriate action" under EEOA to overcome language barriers. The Court identified four legal and factual changes that might warrant relief on remand, one of which was Congress' enactment of the No Child Left Behind Act (NCBD), which the Court deemed a relevant changed circumstance (though it rejected the State's argument that its compliance with NCLB by definition meant it had satisfied its obligations under the EEOA). Finally, the Court overturned the district court's entry of statewide relief, even though the State had agreed to it, because there were no factual findings or evidence that any other school district had violated ELL students' rights under the EEOA.
Justice Breyer, in a lengthy dissent, insisted that the lower courts, in fact, did apply Rufo's "flexible standard," and "did ‘fairly consider' every change in circumstances that the parties called to their attention." The lower courts focused on the funding issue because that "has always been the basic contested issue in this case." Breyer also argued that, in the name of federalism concerns in institutional reform litigation, the majority disregarded long-established principles governing Rule 60(b)(5) analysis, including the requirement that a party seeking to set aside, rather than modify, an injunction must show that its purposes have been attained and the enjoined illegal conduct is unlikely to recur – showings not made below by the State.
Travelers Indemnity Co. v. Bailey, arose out of the asbestos litigation that exploded in the 1970's. Back then, Manville, the largest supplier of asbestos, faced devastating litigation, and filed for bankruptcy. The Bankruptcy Court set up a Trust to pay claimants for their asbestos-related injuries, which was funded almost exclusively by Manville's insurers, who contributed $770 million ($80 million of which came from Travelers). In exchange, the insurers got an injunction, channeling future suits predicated on Manville's liability to the Trust, and releasing the insurers from liability against claims "based upon, arising out of or relating to any or all of the Policies." The 1986 bankruptcy plan and settlement were confirmed on appeal. A decade later, however, enterprising plaintiffs' lawyers began bringing state law claims against Travelers, not for its indirect liability for Manville's negligence, but rather for its own purported violations of state law while handling the Manville litigation. Travelers went back to the Bankruptcy Court to enjoin these actions, ultimately offering an additional settlement of $400 million in exchange for an order clarifying that these so-called "Direct Actions" were and remained barred by the 1986 orders. The Bankruptcy Court issued this Clarifying Order, explaining that the new claims centered on Travelers' conduct while defending the Manville actions and the knowledge it obtained as a result of that defense. The Direct Actions therefore "arise out of and are related to" the insurance policies, falling within the scope of the prior injunction. The District Court affirmed, but the Second Circuit reversed, holding that the Direct Actions fell outside the original 1986 orders, erroneously expanding the orders beyond the jurisdiction of the Bankruptcy Court (insofar as the injunction attempted to reach non-derivative claims against the insurers, who were not debtors). The Supreme Court in turn reversed the Second Circuit, upholding the Bankruptcy Court's 2004 decision.
Justice Souter authored the Court's opinion, which essentially followed the District Court's analysis that the 1986 settlement was extremely broad and encompassed the actions at hand. It also had no trouble concluding that the Bankruptcy Court had jurisdiction to interpret and enforce the 1986 orders. While the orders may have been challenged on direct appeal, they were now final and binding. "Almost a quarter century after the 1986 Orders were entered, the time to prune them is over." The Court nevertheless emphasized the narrowness of its holding: it did not decide whether a Bankruptcy Court could properly enjoin claims against non-debtors; nor whether any particular respondent is bound by the 1986 orders (remanding to the Second Circuit to consider the latter issue). Justice Stevens, joined by Justice Ginsburg, dissented. In their view, the 1986 orders were not intended to encompass actions against the insurers for their own misconduct. Thus the Bankruptcy Court's Clarifying Order actually expanded the scope of the 1986 injunction and that expansion was appropriately subject to review. They would address the merits of the issue and hold that bankruptcy courts have no jurisdiction to enjoin non-derivative claims against nondebtors.
I will continue to wade my way through the remaining cases and will be back soon with more summaries. Until then, thanks, as always, for reading.
Kim
From the Appellate Practice Group at Wiggin and Dana
For more information, contact Kim Rinehart or any other member of the Practice Group at 203-498-4400