Supreme Court Update: Decker v. Northwest Environmental Defense Center (11-338), Wos v. E.M.A. (12-98) and Order List

April 29, 2013 Supreme Court Update

Greetings, Court fans!

We're back, this time to bring you two decisions from last month, as well as the Court's cert grants and other significant orders through last week. This Update covers Decker v. Northwest Environmental Defense Center (11-338), which made more waves with Justice Scalia's separate opinion criticizing the practice of giving deference to administrative agencies' interpretations of their own regulations, than with the majority's analysis of whether the Clean Water Act regulates stormwater runoff from logging roads; and Wos v. E.M.A. (12-98), which struck down a North Carolina law allowing the State to recover up to one-third of a Medicaid beneficiary's tort recovery as preempted by the Medicaid statute's anti-lien provision.

Decker v. Northwest Environmental Defense Center (11-338), together with Georgia-Pacific West, Inc. v. Northwest Environmental Center (11-347) considered whether the Clean Water Act and its implementing regulations require logging companies to obtain permits before channeling stormwater runoff from logging roads into navigable waters, generally nearby rivers and streams. You'll forgive us (and possibly thank us) for passing over the treetops with respect to the Court's detailed analysis of the relevant provisions of the Act, the rules regarding permits, the exceptions to those rules, and the exceptions to those exceptions. Suffice it to say that the Environmental Protection Agency ("EPA") interpreted its own regulations to exclude logging from a list of "industrial activities" for which permits for channeling stormwater runoff were required. The Court deferred to the agency's interpretation, in a 7-1 decision penned by Justice Kennedy (Justice Breyer did not participate). Noting that under Auer v. Robbins (1997) "an agency's interpretation need not be the only possible reading of a regulation – or even the best one – to prevail," the Court found that the EPA's interpretation was a permissible one. The Court also found – notwithstanding the fact that the EPA issued a final rule amendment more clearly excluding general logging from the list of "industrial activities" just three days before the cases were argued before the Court – that there was no indication that the agency's current view was a change from prior practice or a post hoc justification adopted in response to litigation. Rather, the agency had been consistent in its view, and could reasonably have determined that further regulations were unnecessary given the existence of state regulations on the subject.

The Chief, joined by Justice Alito, wrote separately to signal that they might consider a challenge to agency deference under Auer and Bowles v. Seminole Rock & Sand Co. (1945) when properly presented in a future case. This was not that case, as the respondent had only suggested reconsidering Auer in one sentence in a footnote, with no argument. But "[t]he bar is now aware that there is some interest in reconsidering those cases, and has available to it a concise statement of the arguments on one side of the issue."

This brings us to Justice Scalia's dissent. In Justice Scalia's view, there is no good reason to defer to an agency's interpretation of its own regulations. He dismissed the argument that an agency has special insight into its intent in drafting the rule, as you might expect Scalia would: "Whether governing rules are made by the national legislature or an administrative agency, we are bound by what they say, not by the unexpressed intention of those who made them." Scalia also dismissed the argument that it would be odd to defer to agency interpretations of statutes under Chevron, but not agency interpretations of their own regulations. Chevron deference is based on the theory that when Congress gives an agency authority to administer a statute, it also gives the agency some discretion in interpreting the statute, which courts must respect. But allowing an agency to resolve ambiguities in its own regulations, to Scalia, would violate the principle of separation of powers. As for the argument that agencies have special expertise in administering their complex regulatory programs – true enough, and that is why agencies are in charge of making rules, but that can't justify allowing them to interpret the rules. Setting all agency deference aside, Scalia would find that the fairest reading of the agency's regulations in these cases was that stormwater runoff from logging roads was "associated with industrial activity," such that a permit was required.

The Court also touched on issues of agency deference in Wos v. E.M.A. (12-98), concerning what States can and can't do to recover funds they have expended under Medicaid. The federal Medicaid statute requires States to seek reimbursement for medical expenses incurred on behalf of a person who later recovers from a third-party tortfeasor. Specifically, States are required to enact laws under which "the State is considered to have acquired the right of such individual to payment by any other party for such health care items or services." 42 U.S.C. §1396a(a)(25)(H). A separate provision of the Medicaid statute, however, states that "[n]o lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan." §1396p(a)(1). The Court addressed the apparent tension between these two provisions in Arkansas Dept. of Health and Human Servs. v. Ahlborn (2006). In Ahlborn, the Court held that, together, the requirements set "both a floor and a ceiling" on a State's potential share of a Medicaid beneficiary's tort recovery: the State must recover the portion of the beneficiary's tort settlement that represents payments for medical care, but must not seek to recover any other part of the settlement. Because the parties in Ahlborn stipulated to a percentage, the Court did not address the question of how to determine what portion of a settlement represents payments for medical care when the parties do not agree or do not say.

The question was squarely presented in E.M.A.'s case. E.M.A. was born with serious birth injuries that rendered her incapable of normal development or ever being able to care for herself. E.M.A. and her parents sued the doctor and the hospital, and their experts estimated damages in excess of $42 million, including medical expenses and more than $37 million for skilled home care over E.M.A.'s lifetime. E.M.A. and her parents also sought damages for her pain and suffering and their emotional distress. The parties eventually agreed to settle their claims for $2.8 million, apparently due to the limits on the defendants' insurance policies. The settlement did not allocate the money among the different claims E.M.A. and her parents had advanced. Meanwhile, the State had expended $1.9 million for E.M.A.'s medical care. North Carolina law provides for the State to recover from a Medicaid beneficiary's settlement with, or judgment against, a tortfeasor "the amount of the assistance" paid by the State, "not to exceed one-third of the gross amount obtained or recovered." N.C. Gen. Stat. Ann. §108A-57(a). In approving E.M.A.'s settlement with the doctor and hospital, the state court placed one-third of the $2.8 million in escrow pending a judicial determination of the actual amount owed by E.M.A. to the State under the North Carolina statute.

E.M.A. and her parents then filed a §1983 suit in federal District Court, arguing that North Carolina's reimbursement scheme violated the Medicaid statute's anti-lien provision. While E.M.A.'s suit was pending, the North Carolina Supreme Court addressed the same issue in an unrelated case. That Court agreed with the State that the North Carolina statute established an irrebuttable presumption that one-third of a Medicaid beneficiary's recovery represented compensation for medical expenses, and that this presumption was a "reasonable method for determining the State's medical reimbursements." The District Court subsequently agreed with that analysis in E.M.A.'s case. The Court of Appeals vacated and remanded, however, finding that the North Carolina statute could not be reconciled with the anti-lien provision because it allowed the State to recover even when the actual portion representing payment for medical expenses was less than one-third.

The Court sided with E.M.A. and her family as well, 6-3. Writing for the majority, Justice Kennedy faulted the North Carolina statute for picking an "arbitrary number" and designating that portion of a beneficiary's tort recovery as representing payment for medical care by fiat. "If a State may arbitrarily designate one-third of any recovery as payment for medical expenses, there is no logical reason why it could not designate half, three-quarters, or all of a tort recovery in the same way." Instead, the State should provide some process for determining what portion of a beneficiary's tort recover is actually attributable to medical expenses – whether in the form of a jury verdict, court decree, administrative finding, or binding stipulation. North Carolina argued that it would be "wasteful, time-consuming, and costly" to hold "frequent mini-trials" to divide settlements between medical and nonmedical expenses. The Court rejected this argument, noting that courts are often called to separate lump-sum settlements or jury awards into different categories for various purposes, and that sixteen states and the District of Columbia already provided procedures for doing so in Medicaid reimbursement cases with no reported difficulty. The Court also rejected North Carolina's argument that other methods of allocating settlements would be just as arbitrary as its one-third approach. The Court was confident that trial judges and lawyers could find "objective benchmarks" to project the damages a plaintiff likely could have proved had his or her case gone to trial. The Court also left open the possibility for States to adopt ex ante administrative criteria for allocating medical and nonmedical expenses, "provided that these criteria are backed by evidence suggesting that they are likely to yield reasonable results in the mine run of cases." The problem here was that North Carolina had adopted its one-third approach with no support at all. Finally, the Court rejected North Carolina's argument that the federal Centers for Medicare and Medicaid Services ("CMS") had approved of North Carolina's statutory scheme in a 2006 memorandum and a 2009 letter responding to an inquiry from a North Carolina congressman, and that these agency pronouncements were entitled to deference. The Court observed that the 2006 and 2009 documents no longer reflected the agency's position, as stated in its amicus brief in E.M.A.'s case. Moreover, an agency's interpretations of federal statutes in opinion letters are only "‘entitled to respect' in proportion to their ‘power to persuade,'" and the 2006 and 2009 documents lacked persuasive force for the reasons discussed in the Court's opinion.

Although joining the majority, Justice Breyer wrote separately to note that his concurrence rested in part on the fact that CMS, the federal agency charged with administering the Medicaid statute, had reached the same conclusion. In his view, the question before the Court called for expertise that the agency was more likely than a court to possess. Justice Breyer acknowledged that the agency had not engaged in rulemaking procedures here, and that its current position represented a "radical departure" from its previous position. But "the Administrative Procedure Act is not the tax code" and the Court's deference cases "provide rules of thumb, general principles meant to guide interpretation, not rigid rules that narrowly confine it." Thus, "even though this case does not fall directly within a case-defined category, such as ‘Chevron deference,' ‘Skidmore deference,' ‘Beth Israel deference,' ‘Seminole Rock deference,' or deference as defined by some other case," Justice Breyer believed that "the agency, in taking a position, nonetheless retains some small but special ‘power to persuade.'" (We know Justice Breyer didn't mean to coin yet another deference standard, but "small but special" deference sounds pretty catchy to us.) In short, Justice Breyer would have the Court reconsider the question at hand if the agency were to do so.

The Chief, joined by Justices Scalia and Thomas, dissented. In the dissent's view, whether Medicaid's reimbursement requirements are best-served by post hoc individualized determinations (as the majority would have it) or by general rules set out in advance (as North Carolina attempted to do) is ultimately a "basic policy judgment." The Court "can point to nothing that delegated to it the prerogative to make that judgment." Yet, by holding that North Carolina's approach directly conflicts with an unambiguous, clear mandate in the Medicaid statute, the majority wrested that judgment away, not only from the States, but also the agency. Justice Breyer's concurrence notwithstanding, the dissent expressed doubt that the Court's opinion left room for the agency to adopt a contrary view.

The Court has added the following cases to its docket:

Kaley v. United States (12-464) asks: "When a post-indictment, ex parte restraining order freezes assets needed by a criminal defendant to retain counsel of choice, do the Fifth and Sixth Amendments require a pretrial, adversarial hearing at which the defendant may challenge the evidentiary support and legal theory of the underlying charges?"

United States Forest Service v. Pacific Rivers Council (12-623) asks: (1) "Whether respondent Pacific Rivers Council (PRC) has Article III standing to challenge the Forest Service's 2004 programmatic amendments to the forest plans governing management of 11 Sierra Nevada Forests when PRC failed to establish that any of its members was imminently threatened with cognizable harm because he or she would come into contact with any parcel of forest affected by the amendments;" (2) "Whether PRC's challenge to the Forest Service's programmatic amendments is ripe when PRC failed to identify any site-specific project authorized under the amended plan provisions to which PRC objects;" and (3) "Whether the National Environmental Policy Act required the Forest Service, when adopting the programmatic amendments, to analyze every type of environmental effect that any project ultimately authorized under the amendments throughout the 11 affected forests might have if it was reasonably possible to do so when the programmatic amendments were adopted, even though any future site-specific project would require its own appropriate environmental analysis before going forward."

Madigan v. Levin (12-872) asks: "Whether the Seventh Circuit erred in holding . . . that state and local government employees may avoid the Federal Age Discrimination in Employment Act's comprehensive remedial regime by bringing age discrimination claims directly under the Equal Protection Clause and 42 U.S.C. § 1983."

United States v. Woods (12-562) concerns Section 6662 of the Internal Revenue Code, which prescribes a penalty for an underpayment of federal income tax that is "attributable to" an overstatement of basis in property. Petitioner United States asked the Court to address: "Whether the overstatement penalty applies to an underpayment resulting from a determination that a transaction lacks economic substance because the sole purpose of the transaction was to generate a tax loss by artificially inflating the taxpayer's basis in property. The Court directed the parties to brief and argue the additional question: "Whether the district court had jurisdiction in this case under 26 U.S.C. §6226 to consider the substantial valuation misstatement penalty."

Schuette v. Coalition to Defend (12-682) asks "Whether a state violates the Equal Protection Clause by amending its constitution to prohibit race- and sex-based discrimination or preferential treatment in public-university admissions decisions.

The majority of federal circuit courts hold that a valid forum selection clause renders venue "improper" in a forum other than the one designated by contract, and forum-selection clauses are routinely enforced in those circuits through motions to dismiss or transfer venue under Fed. R. Civ. P. 12(b)(3) and 28 U.S.C. § 1406. Atlantic Marine Construction Co. v. USDC WD TX (12-929) asks: (1) "Did the Court's decision in Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988), change the standard for enforcement of clauses that designate an alternative federal forum, limiting review of such clauses to a discretionary, balancing-of-conveniences analysis under 28 U.S.C. § 1404(a)?; and (2) "If so, how should district courts allocate the burdens of proof among parties seeking to enforce or to avoid a forum-selection clause?"

Heimeshoff v. Hartford Life Ins. (12-729) asks: "When should a statute of limitations accrue for judicial review of an ERISA disability adverse benefit determination?"

Sprint Communications Co. v. Jacob (12-815) asks: "Whether the Eighth Circuit erred by concluding … that Younger abstention is warranted not only when there is a related state proceeding that is ‘coercive' but also when there is a related state proceeding that is, instead, ‘remedial.'"

Daimler Chrysler AG v. Bauman (11-965) asks: "Whether it violates due process for a court to exercise general personal jurisdiction over a foreign corporation based solely on the fact that an indirect corporate subsidiary performs services on behalf of the defendant in the forum State."

In addition, the Court asked for the SG's input on the following cert petitions:

Lozano v. Alvarez (12-820), which would address: (1) "Whether a district court considering a petition under the Hague Convention for the return of an abducted child may equitably toll the running of the one-year filing period when the abducting parent has concealed the whereabouts of the child from the left behind parent;" and (2) "Whether an abducted child can be ‘settled' in the United States, within the meaning of Article 12, where it is undisputed that both the abducting parent and the child are residing illegally in the United States, and the abducting parent presents no evidence of a legitimate pending application or basis under existing law for seeking a change in their immigration status."

Fifth Third Bancorp v. Dudenhoeffer (12-751) would address: (1) "Whether the Sixth Circuit erred by holding that Respondents were not required to plausibly allege in their complaint that the fiduciaries of an

employee stock ownership plan (‘ESOP') abused their discretion by remaining invested in employer stock, in order to overcome the presumption that their decision to invest in employer stock was reasonable, as required by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1101, et seq. (‘ERISA');" and "Whether the Sixth Circuit erred by . . . holding that filings with the Securities and Exchange Commission become actionable ERISA fiduciary communications merely by virtue of their incorporation by reference into plan documents."

POM Wonderful LLC v. Coca-Cola Company (12-761) would ask: "Whether the court of appeals erred in holding that a private party cannot bring a Lanham Act claim challenging a product label regulated under the Food, Drug, and Cosmetic Act."

Argentina v. NML Capital, Ltd. (12-842) would ask: "Whether post-judgment discovery in aid of enforcing a judgment against a foreign state can be ordered with respect to all assets of a foreign state regardless of their location or use," or is limited to "property . . . in the United States . . . used for a commercial activity in the United States," as set forth in the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1602 et seq.

Finally, the Court has asked for the SG's views on the Lone Star State's request to invoke the Court's original jurisdiction in Texas v. New Mexico (141, Orig.), to resolve a water rights dispute concerning the Rio Grande.

That's all for now. We'll be back soon with the outstanding recent decisions, including two from today.

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