Supreme Court Update: CTS Corp. v. Waldburger (13-339), Executive Benefits Insurance Agency v. Arkison (12-1200) and Clark v. Rameker (13-299)

June 13, 2014 Supreme Court Update

Greetings, Court fans!

It is June and naturally, the clouds are not the only things raining down on us; the decisions are beginning to pour in as well. The Court handed down five this week. This Update will cover CTS Corp. v. Waldburger (13-339), on whether CERCLA preempts state statutes of repose as well as statutes of limitations; Executive Benefits Insurance Agency v. Arkison (12-1200), on what, if anything, bankruptcy courts may do with certain "Stern claims" they are not permitted to adjudicate as a constitutional matter; and Clark v. Rameker (13-299), on whether inherited IRAs count as "retirement funds" that can be exempted from a bankruptcy estate.

Justice Kennedy took the pen in CTS Corp. v. Waldburger (13-399), striking a blow to those suffering injuries from long-past exposure to toxic substances. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) provides a federal cause of action to recover clean-up costs for hazardous waste sites, but does not provide a federal remedy for personal injuries or damages caused by exposure to hazardous substances. When passed, however, CERCLA directed that a report be prepared on the adequacy of existing state law remedies, including "barriers posed by existing statutes of limitation." The Report, released in 1982, noted that the long latency periods for many injuries caused by toxic substances posed problems in light of state limitations periods on tort actions. The Report recommended that States adopt a discovery rule for accrual of actions and noted that its recommendation also "is intended also to cover the repeal of statutes of repose." Rather than waiting for States to take action, Congress amended CERCLA in 1986 to provide: "if the applicable [State] limitations period for such action (as specified in the State statute of limitations or under common law) provides a commencement date that is earlier than the federally required commencement date, such period shall commence at the federally required commencement date in lieu of the date specified in the State statute." "Commencement date" is defined as the "date specified in a statute of limitations as the beginning of the applicable limitations period," and the "federally required commencement date" is defined as the "date the plaintiff knew (or reasonably should have known) that the personal injury or property damages ... were caused or contributed to by the hazardous substance…." Thus, §9658 effectively provides a discovery rule for limitations periods where a toxic tort is involved. Section 9658 clearly applies to state statutes of limitations. The question for the Court in Waldburger was whether it also applied to state statutes of repose.

The Court found that it did not. Section 9658 expressly refers only to statutes of limitations and not to repose. While the terms were not always used precisely at the time §9658 was passed, it was clear that they were two different doctrines and the Report specifically called out the distinction. Congress, however, chose to mention only statutes of limitation and not repose. Moreover, while the two doctrines are animated by some similar policies, statutes of limitations and statutes of repose serve different objectives and focus on different actors. Statutes of limitations, which are generally triggered by discovery of a plaintiff's injury, are directed to ensuring diligent prosecution of known claims. Statutes of repose, by contrast, run from the date of the defendant's allegedly unlawful conduct. Statutes of repose represent a legislative judgment that beyond a certain point, a defendant should be free from liability, providing certainty, protecting the defendant's due process rights, and allowing a fresh start. Statutes of repose, unlike statutes of limitation, are not subject to equitable tolling, further underscoring the distinction. Moreover, statutes of repose cut off an action (sometimes before it has even accrued); they do not announce its commencement. Thus, the language of §9658, which is all addressed in terms of commencement dates, is just not a good fit for statutes of repose. Accordingly, for those few states with statutes of repose for tort actions (including Connecticut), they are not preempted by CERCLA.

In a portion of the Court's opinion joined only by Justices Sotomayor and Kagan, Kennedy also wrote that, to the extent §9658 was ambiguous, any ambiguity should be read against preemption in light of the need for comity with the States. Justice Scalia, joined by the Chief, Alito and Thomas (all of whom joined the Court's opinion except for this section), wrote separately to indicate their view that the canon requiring narrow construction of express preemption provisions is unfounded, and that these provisions should be read just as any other statute, in accord with their ordinary meaning.

Justice Ginsburg, joined by Breyer, dissented. In their view, CERCLA's plain language required preemption of North Carolina's statute of repose, which was included within North Carolina's statute of limitations provision. The statute at issue prescribed "periods … for the commencement of actions" and stated that a cause of action "shall not accrue" until it "becomes apparent or ought reasonably to have become apparent" "[p]rovided that no [claim] shall accrue more than 10 years from the last act or omission of the defendant…." While the 10 year bar was properly characterized as a statute of repose, the dissenters felt that it was squarely covered by §9658. The only meaningful difference between a statute of repose and statute of limitations is the absence of equitable tolling for the latter. CERCLA made clear that equitable tolling (i.e., a discovery rule) must apply to all state law causes of action for injury from hazardous substances. Here, North Carolina's statute would bar an action from commencing even where it had not been discovered. In the dissent's view, the majority's decision ran contrary to the plain meaning and clear purpose of §9658.

Our second case, Executive Benefits Insurance Agency v. Arkison (12-1200), arose from a Chapter 7 bankruptcy filing in 2006. Bankruptcy trustee Arkison accused the debtor's former owner of fraudulently transferring the debtor's assets to a new company, EBIA. Litigation ensued, with the parties arguing over whether the matter should be heard in the bankruptcy court, or by a jury in federal district court. By way of background, in the Bankruptcy Amendments and Federal Judgeship Act of 1984, Congress categorized claims that could be referred to bankruptcy courts as "core" or "noncore." Bankruptcy courts were authorized to adjudicate "core" claims, and to submit proposed findings of fact and conclusions of law to the district court on "noncore" claims. In Stern v. Marshall (2011) (aka the Anna Nicole Smith case, part II), however, the Court found that Congress had gone too far in authorizing bankruptcy courts to adjudicate certain "core" claims. Specifically, Congress had violated Article III by authorizing bankruptcy judges – non-Article III judges – to adjudicate matters involving private rights (as opposed to "public rights" or mere apportionment of monies in the existing bankruptcy estate).

By the time Stern was decided, the bankruptcy court had already heard the EBIA fraudulent transfer case and granted summary judgment for the trustee, the district court had conducted de novo review and affirmed, and the case was on appeal to the Ninth Circuit. Based on Stern, EBIA argued that the bankruptcy court should not have adjudicated the fraudulent conveyance claim in the first instance. The Ninth Circuit rejected EBIA's argument and proceeded to affirm, finding (for reasons not relevant here) that EBIA had impliedly consented to the bankruptcy court's jurisdiction. The Ninth Circuit observed, alternatively, that the bankruptcy court's judgment could instead be treated as proposed findings of fact and conclusions of law, subject to de novo review by the district court.

The Court unanimously affirmed, on the alternative ground identified by the Ninth Circuit. Two factors made it easy for the Court to reach this conclusion. First, Congress made the provisions of the 1984 Act severable. So while the fraudulent conveyance claim could not be a "core" claim as a constitutional matter, it could be heard by the bankruptcy court as a "noncore" claim. Second, the district court in this case had in fact conducted a de novo review. Thus, the bankruptcy court's findings could be treated as proposed findings of fact and conclusions of law. No harm, no foul.

The Court made quick work of another bankruptcy case in Clark v. Rameker (13-299). Heidi Heffron-Clark inherited an IRA account from her mother in 2001. When Heffron-Clark and her husband filed for bankruptcy in 2010, they tried to claim the remaining value of the IRA as exempt from the bankruptcy estate. The bankruptcy trustee and creditors objected, and the case ping-ponged back and forth, with the bankruptcy court disallowing the exemption, the district court siding with Heffron-Clark, then the Seventh Circuit siding with the trustee and creditors again. The Court came down resolutely on the side of trustee and creditors, 9-0. The Bankruptcy Code permits debtors to keep certain categories of assets out of the reach of creditors, including "retirement funds." "Retirement funds" are properly understood to mean sums of money set aside for the day an individual stops working. Three features of inherited IRAs make them different from ordinary IRAs: the holder of an inherited IRA (1) may never invest additional money in the account, (2) must withdraw certain amounts each year even before retirement age, and (3) may withdraw the entire balance of the account at any time. This third feature was perhaps what most persuaded the Court. The Bankruptcy Code balances the interests of creditors and debtors, giving debtors a "fresh start" but not a "free pass." The fact that the rules for inherited IRAs would not "prevent (or even discourage) the individual from using the entire balance of the account on a vacation home or sports car immediately after her bankruptcy proceedings are complete" convinced the Court that Congress did not intend to protect inherited IRAs as exemptible "retirement funds."

We'll be back with the two remaining cases shortly.

Kim, Jenny & Tadhg