Supreme Court Update: Association for Molecular Pathology v. Myriad Genetics, Inc. (12-398), United States v. Davila (12-167), American Trucking Associations, Inc. v. City of Los Angeles (11-798) and Tarrant Regional Water District v. Hermann (11-889)

June 14, 2013 Supreme Court Update

Greetings, Court fans!

Thursday saw the calm before the storm, as the Court kicked out four more-or-less unanimous decisions ahead of the more contentious decisions we expect in the coming two weeks. First up is the highly anticipated gene-patent decision in Association for Molecular Pathology v. Myriad Genetics, Inc. (12-398), where the Court confirmed that human DNA is not patentable. We'll follow that with United States v. Davila (12-167), in which the Court held that judicial participation in Rule 11 plea discussions is subject to harmless-error review; American Trucking Associations, Inc. v. City of Los Angeles (11-798), finding that the Federal Aviation Administration Authorization Act preempts certain provisions of a "concession agreement" the Port of Los Angeles requires trucking companies to sign; and Tarrant Regional Water District v. Hermann (11-889), holding that certain protectionist Oklahoma water statutes are neither preempted by a congressionally-approved compact allocating among the states surrounding the Red River Basin, nor violative of the dormant commerce clause

The Court handed down a major patent decision in Association for Molecular Pathology v. Myriad Genetics, Inc. (12-398), holding that companies cannot patent isolated segments of DNA, but can patent synthetic DNA. Myriad made a major discovery when it pinpointed the precise location and sequence of the BRCA1 and BRCA2 genes, which, if mutated, enormously increase in a woman's risk for breast and ovarian cancer. (Indeed, Angelina Jolie made headlines when she opted for a double mastectomy after testing positive for the mutation.) Myriad sought and received patent protection on both the isolated sequence of DNA comprising the BRCA1 and BRCA2 genes as well as on the synthetic versions of the two genes, referred to as complementary DNA or "cDNA." We'll forego the science tutorial on how cDNA is created, other than to note that the cDNA contains only "exons" (nucleotides responsible for coding amino acids, which are the building blocks of proteins) and not "introns" (nucleotides that are often interspersed between the exons, which are edited out in the natural protein-making process, and whose purpose remains unclear).

The bulk of the Court's ruling addressed the first issue – the patentability of isolated segments of DNA. Leading the Court, Justice Thomas explained that under § 101 of the Patent Act, "laws of nature, natural phenomena, and abstract ideas" are simply beyond the domain of patent protection. The level of effort involved, and the brilliance of Myriad's discovery are ultimately irrelevant. The Patent Act only covers a "new and useful composition of matter" or a "new and useful improvement thereof." Myriad, by contrast, "did not create anything." It simply identified a DNA sequence that existed in nature. The fact that Myriad isolated the segment, severing covalent bonds from a longer DNA sequence to do so, was beside the point. While isolating the sequence may have changed its chemical composition, Myriad's patent claims did not rely on any chemical changes that resulted from the isolation, but instead focused on the information contained in the genetic sequence. The Court also declined to defer to the PTO's past practice of awarding gene patents in light of the fact that there was no implicit Congressional endorsement of the PTO's practice and the United States argued against such patents in the Federal Circuit and before the Court.

Turning next to cDNA, the Court concluded (in 2 short pages), that it did not fall within the laws of nature exception and thus could be patented, so long as the other statutory factors were met. The Court's analysis was not complicated. In sum, the Court reasoned that while the order of nucleotides in cDNA is determined by nature, the synthesizing process removes the introns such that the resulting product is "something new." End of story.

Justice Scalia concurred in large part and in the judgment, but declined to join those portions that dealt with the "fine details of molecular biology" since, ever modest, he was "unable to affirm those details to my own knowledge or even my own belief."

In the next decision, United States v. Davila (12-167), the Court confirmed that it's not okay for a federal judge to urge a defendant to "go to the cross" and "tell it all Brother," but that such improper judicial participation is subject to harmless error review. Anthony Davila was indicted in the Southern District of Georgia on 34 counts for falsifying tax returns. A few months after the indictment, he wrote a letter to the court complaining that his court-appointed attorney had offered no defensive strategy, only the advice that he plead guilty. A Magistrate Judge held an in camera hearing with just Davila and his attorney. The Magistrate Judge told Davila he could represent himself, but would not get another court-appointed attorney. The Magistrate Judge went on to say that pleading guilty is "oftentimes … the best advice a lawyer can give his client," that "it might be a good idea for the Defendant to accept responsibility," and that "there may not be a viable defense" to the charges against Davila. Even more to the point, the Magistrate Judge told Davila that the Government had "all the marbles" in moving for a downward departure at sentencing, and that to get a reduction for acceptance of responsibility, Davila would have to "go to the cross" and "tell it all Brother, and convince the probation officer that you are being as open and honest with him as you can possibly be." A few months after the hearing, Davila did indeed plead guilty, before a District Court Judge. Before he was sentenced, though, Davila moved to vacate his plea and dismiss the indictment. Davila explained that he had only pled guilty for "strategic" reasons, namely to force the Government to disclose information that would reveal errors and demonstrate that its prosecution was vindictive. Davila did not mention the Magistrate Judge's earlier statements. The District Court denied the motion.

On appeal (after being pointed in the right direction by the Eleventh Circuit), Davila argued that his plea should be set aside due to the Magistrate Judge's participation in plea discussions, in violation of Federal Rule of Criminal Procedure 11(c)(1). The Government conceded that the Magistrate Judge's comments violated Rule 11(c)(1), but argued that Davila had failed to show prejudice, given the several-month gap between the hearing and the plea, and the fact that a different judge accepted the plea. The Eleventh Circuit sided with Davila, holding under Circuit precedent that the Rule 11(c)(1) violation required automatic vacatur of the plea, with no need to consider prejudice.

The Court reversed, more or less unanimously. Rule 11(c)(1) states that a court "must not participate in [plea] discussions." Rule 11(h), however, provides that a "variance from the requirements of th[e] rule is harmless error if it does not affect substantial rights." All the Justices agreed that Rule 11(h) controlled, such that a plea should be vacated only if the defendant can show that the Rule 11(c)(1) violation actually prejudiced his decision to plead guilty. Justice Ginsburg wrote for the majority, joined by all except Scalia and Thomas. Ginsburg wrote that there was "no room for doubt" that the Magistrate Judge's exhortations were "beyond the pale." Nonetheless, nothing in the text of Rule 11 indicates that a breach of Rule 11(c)(1) triggers an automatic vacatur. Turning to the Advisory Committee's notes, the majority observed that judicial involvement in pleas was once a common practice, and that Rule 11(c)(1) was added out of concern that a defendant might be induced to plead guilty rather than risk displeasing the judge who would preside at his trial. Rule 11(h) was later added to reinforce the applicability of Rule 52(a), regarding trial errors generally, to Rule 11 proceedings. Rule 52(a), in turn, instructs that "[a]ny error, defect, irregularity, or variance that does not affect substantial rights must be disregarded." Here, Rule 11(c)(1) was merely "adopted as a prophylactic measure … not one impelled by the Due Process Clause or any other constitutional requirement." Thus, rather than automatically vacating Davila's guilty plea, the Eleventh Circuit should have reviewed the entire record to determine whether Davila was actually prejudiced by the Magistrate Judge's comments. The Court remanded the case with instructions for the Eleventh Circuit to do so.

Justice Scalia, joined by Thomas, concurred in part and concurred in the judgment, but wrote separately to express disapproval of the majority's reliance the Advisory Committee notes, as the text of Rule 11(h) conclusively resolved the question, and "[t]he Committee's view is not authoritative" in any event.

Truck placards, stevedores, and Tommy Tutone all made an appearance in Justice Kagan's unanimous opinion in American Trucking Associations v. City of Los Angeles (11-798), where the Court held that the Federal Aviation Administration Authorization Act ("FAAAA") preempted certain provisions of an agreement that trucking companies must sign before they can transport cargo at the Port of Los Angeles.

The Port of Los Angeles, the largest in the country, leases marine terminals to terminal operators—such as shipping lines and stevedoring companies. The operators unload shipments onto short-haul "drayage trucks," which then transport the cargo in and out of the Port. To address community concerns over a proposed port expansion, the Port implemented a "Clean Truck Program," which required trucking companies to sign a "Concession Agreement." The Agreement required companies to affix placards to each truck with a phone number to report concerns. "You've seen the type," Justice Kagan wrote, "‘How am I driving? 213-867-5309'"). In addition, trucking companies had to submit an off-site parking plan. If a trucking company operated at the Port without signing the Concession Agreement, the Port imposed a criminal prohibition on terminal operators: a fine of $500 or six months' imprisonment. The Port also included certain penalties directly against the trucking companies.

A unanimous Court, led by Justice Kagan, held that the FAAAA preempted the placard and parking requirements of the Concession Agreement. The FAAAA preempts a state "law, regulation, or other provision having the force and effect of law related to the price, route, or service of any motor carrier . . . with respect to the transportation of property." 49 U.S.C. § 14501(c)(1). The parties conceded that the requirements "related to" a motor carrier's "price, route or service with respect to transportation of property." The only issue, therefore, was whether the Concession Agreement had "the force and effect of law." The Court acknowledged that ordinary commercial contracts—such as those between the State and a company to transport goods—would not be subject to FAAAA. The Concession Agreement, however, was a classic exercise of regulatory authority. The Port, the Court reasoned, was not contracting in a way that the owner of an ordinary commercial enterprise could mimic. Instead, it forced trucking companies and terminal operators to alter conduct based on the threat of criminal punishment. Justice Kagan noted that "[c]ontractual commitments resulting not from ordinary bargaining, but instead from the threat of criminal sanctions manifest the government qua government, performing its prototypical regulatory role."

The Port's primary argument focused on its motive, rather than its means. It emphasized that private companies have similar business incentives to adopt "green growth" plans. The Court acknowledged that the Port may have been acting to enhance goodwill, but its motives did not matter—the Port had chosen a regulatory tool to realize its goals, "the hammer of the criminal law." The Court also rejected the Port's argument that the criminal penalties fell on terminal operators and not on truckers, noting that "[w]e have often rejected efforts by States to avoid preemption by shifting their regulatory focus from one company to another in the supply chain. . . . Slice it or dice it any which way, the Port thus acted with the force of law."

Justice Thomas concurred in full, but wrote separately to voice his concern over the constitutionality of the FAAAA, a statute he believes impermissibly regulates intrastate commerce.

Finally, in Tarrant Regional Water District v. Hermann (11-889), the Court took sides in a "Red River Rivalry" of a non-pigskin variety. The primary issue in the case was whether certain protectionist Oklahoma water statutes are preempted by the Red River Compact—a congressionally sanctioned agreement allocating water rights between Oklahoma, Texas, Arkansas, and Louisiana within the Red River Basin. Writing for a unanimous court, Justice Sotomayor answered "no."

In this iteration of the Red River Shootout, the Longhorns (that is, Petitioner Tarrant Regional Water District, the TX state agency responsible for providing water to the rapidly growing Dallas–Ft. Worth metro area) sought a permit from the Sooners (Respondent Oklahoma Water Resources Board) to take surface water from a Red River tributary located in Oklahoma. Knowing the permit request would be denied due to Oklahoma statutes preventing out-of-state applicants from diverting water outside the state, the Longhorns filed suit against the Sooners seeking to enjoin enforcement of the Oklahoma water statutes, as pre-empted by the Red River Compact, which as a congressionally approved Compact has the effect of federal law. At issue was the meaning of the following language from the Compact, which addresses rights to a portion of the Basin known as "subbasin 5": "The Signatory States shall have equal rights to the use of runoff originating in subbasin 5 and designated water flowing into subbasin 5, so long as the flow of the Red River at the Arkansas-Louisiana state boundary is 3,000 cubic feet per second or more, provided no state is entitled to more than 25 percent of the water in excess of 3,000 cubic feet per second." The Longhorns argued that this provision created what Justice Sotomayor described as a "borderless common" in subbasin 5, in which all states may cross each other's boundaries to access the shared pool. The Sooners argued that the "equal rights" promised in the Compact only allowed the States to make equal use of excess water within each States' own borders. All agreed that if the Longhorn position was correct, the Oklahoma water statutes would be preempted as conflicting with federal law in the form of the Compact.

Both the District Court and the Tenth Circuit ruled for the Sooners, and the Court affirmed. Construing the Compact under ordinary contract principles, the Court found that the relevant language was ambiguous but that three factors showed that the Compact was not intended to authorize cross-border rights. First, states just don't typically cede their sovereign rights through silence. Second, other interstate water compacts that allow for cross-border rights almost always do so explicitly. Finally, the prior course of dealing between the five states (none of which had sought a cross-border diversion before the Longhorns' attempt in) suggested that cross-border rights were not contemplated in the Compact. Accordingly, the Court held that the Compact creates no cross-border rights in signatory states and therefore the Oklahoma water statutes were not preempted.

The Court swiftly dispatched the Water District's alternative argument that Oklahoma's laws violate the dormant commerce clause because they discriminate against interstate commerce and impermissibly favor local interests in the distribution of water left unallocated by the Compact. The Court simply disagreed that the Compact left any water "unallocated." Rather, all water located in, say, Oklahoma is allocated to Oklahoma unless and until another State calls for an accounting requesting that Oklahoma refrain from utilizing more than its entitled share. That didn't happen here. Thus, according to the Court, there can be no discrimination with respect to unallocated waters "because the Compact leaves no waters unallocated."

So once again, by a score of 9-0, the "Golden Hat" goes to Oklahoma.

We've still got 19 cases to go. Stay tuned…

Kim, Jenny & Julie

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