Supreme Court Update: Mission Product Holdings v. Tempnology, Inc. (No. 17-1657), Merck Sharp & Dohme v. Albrecht (No. 17-290), Herrera v. Wyoming (No 17-532)

May 24, 2019 Supreme Court Update

Greetings, Court Fans!

Three more decisions to report this week, adding to the list we’ll be discussing next week at the New Haven Lawn Club. We’re grateful and excited to have Professors Kate Stith and Stephen Gilles on board to help us talk through OT18’s cases and themes, as well as what to expect in the coming June deluge. As a reminder, we’re offering NY and CT CLE credit and an open bar so you really have no excuse not to join us. (If you are, please RSVP by reply email or by clicking the link in the attached invite.) On to cases!

First up, in Mission Product Holdings v. Tempnology, Inc. (No. 17-1657), resolved what the International Trademark Association once called “the most significant unresolved legal issue in trademark licensing”—namely, what happens when a licensor goes bankrupt and exercising its right under section 365 of the Bankruptcy Code to “reject” the license? Settling a pronounced circuit split, a nearly unanimous Court ruled that, when a trademark licensor declares bankruptcy and exercises its statutory right to reject an executory license agreement, the rejection has the same effect as a breach of the contract outside of bankruptcy and therefore does not rescind the rights of the licensee to continue using the marks. (Justice Gorsuch filed a brief dissent arguing that the Court should have dismissed the case as moot because the license agreement had already expired on its own terms.) The Court’s holding (we’re told by folks who know better than us) may have significant implications for how parties approach trademark negotiations, as well as on how debtor licensors approach Chapter 11 proceedings. For much more on the impact and importance of this “landmark decision,” check out the analysis of our IP colleagues Mike Kasdan, Sapna Palla, and Kristyn Hansen here.

Also in the “boring but important” category, in Merck Sharp & Dohme v. Albrecht (No. 17-290) the Court offered some clarification on the “clear evidence” rule in drug preemption cases, holding that preemption is a legal question for the judge, and not a factual question for the jury. A few background principles are necessary to set the scene. State laws generally “require drug manufacturers to warn drug consumers of the risks associated with drugs.” But a complex “federal . . . statutory and regulatory scheme” requires the FDA to “regulate[ ] the information that appears on brand-name prescription drug labels.” In Wyeth v. Levine (2009) that Court held that a state-law failure-to-warn claim is preempted by federal law only where there is “clear evidence” that the FDA would not have approved a change to the warning label. But in the years since, lower courts have struggled to figure out exactly what “clear evidence” means. In Albrecht, over 500 plaintiffs alleged, in a multi-district litigation, that Merck violated state law by failing to provide adequate warnings of the risk that its FDA-approved osteoporosis medication Fosamax carries a risk of increased susceptibility to “atypical femoral fractures.” Merck argued that the state-law claims were preempted because the FDA would have rejected any attempt to change the label to add a warning about femoral fractures. The District Court agreed and found most of the plaintiffs’ claims preempted, but the Third Circuit reversed, concluding that the preemption question is a factual issue that must be sent to a jury, and that Merck must meet a heightened evidentiary standard—akin go “clear and convincing evidence”—to demonstrate that the FDA would have rejected the additional warning. However, the Third Circuit itself suggested that the Supreme Court provide further guidance on the clear-evidence rule.

The Supreme Court took up the Third Circuit’s invitation . . . and reversed its decision. Writing for a motley crew including Thomas, Ginsburg, Sotomayor, Kagan, and Gorsuch, Justice Breyer clarified two points: First, the preemption question is for the judge, not the jury, to decide. In doing so, the judge should “simply ask himself or herself whether the relevant federal and state laws irreconcilably conflict.” Second, “clear evidence” is “evidence that shows the court that the drug manufacturer fully informed the FDA of the justifications for the warning required by state law and that the FDA, in turn, informed the drug manufacturer that the FDA would not approve a change to the drug’s label to include that warning.” Although that standard certainly seems a bit facty, Justice Breyer insisted that the overall inquiry is a legal one and that judges should use their “legal skills” to “evaluate the nature and scope of [the FDA’s] determination.” Whatever “subsidiary factual disputes” may arise are just “part and parcel of the broader legal question.” In the course of making these points, Justice Breyer also noted that “the only agency actions” that are relevant to the preemption inquiry are those “taken pursuant to the FDA’s congressionally delegated authority.” Because the Third Circuit treated the preemption question as one of fact, not law, “and because it did not have an opportunity to consider fully the standards we have described,” the Court remanded the case for application of the newly clarified standard.

Although all nine Justice agreed in the judgment, only five fully joined Breyer’s opinion. The other three—the Chief, Alito, and Kavanaugh—concurred in the judgment only. Writing for the trio, Justice Alito agreed with Breyer’s conclusion that impossibility preemption is a question for judges to resolve. However, he identified several flaws in Breyer’s opinion, including a failure to discuss statutory and regulatory provisions that may be relevant to the analysis. Alito also took aim at the Breyer’s “one-sided account” of the facts, which “omit[ted] any mention of the extensive communication between Merck and the FDA during the relevant time period.” And he strongly suggested that the lower courts should find these claims preempted because “for years the FDA was . . . aware of this issue” but “instruct[ed] healthcare professionals and patients alike to use Fosamax as directed.” Justice Thomas also wrote separately to expound on his idiosyncratic view (first shared in Wyeth) that “physical impossibility” is not a proper test for deciding whether a direct conflict exists between state and federal law. However, even under the Court’s existing drug preemption precedent, Justice Thomas agreed that Merck’s preemption defense fails, and therefore joined Justice Breyer’s opinion in full.

Next up, Herrera v. Wyoming (No 17-532) purports to be a 5-4 decision finding that members of the Crow Indian Tribe have the right to freely hunt on federal land under an 1868 treaty between the Tribe and the United States. The decision is also getting attention as the second case this term where Justice Gorsuch has joined the liberal members of the Court in a broad interpretation of an Indian tribe’s treaty rights. But this is as good an example you’ll see of a case’s outcome turning on something that has little if anything to do with its subject matter: Ultimately, the 5 and the 4 might not even disagree about what the treaty means; their dispute is really about principles of res judicata and (more fundamentally) the scope of the issues before the Court.

We’ll begin with the Treaty. The Crow Tribe historically inhabited the Bighorn Mountains of southern Montana and Wyoming, where they lived a nomadic, hunting-centered lifestyle. In 1868, the Tribe and the United States completed a treaty under which the Tribe ceded over 30 million acres of territory to the U.S. government in exchange for a permanent reservation in what is now Montana. The government also made certain promises to the Tribe in the Treaty, including that members of the Tribe would have “the right to hunt on the unoccupied lands of the United States so long as game may be found thereon, and as long as peace subsists among the whites and Indians on the borders of the hunting districts.” Shortly after the Treaty was signed, Congress established the Wyoming Territory. A few decades later Wyoming was formally admitted to the Union as the 44th State. The portion of the Bighorn mountains ceded by the Tribe to the US were soon set aside as a federal preserve, eventually becoming the Bighorn National Forest.

Fast forwarding to today, Clayvin Herrera is a member of the Crow tribe who resides on the Crow Reservation in Montana. He and other Tribe members pursued a herd of elk over the Reservation’s border and into the neighboring Bighorn National Forest in Wyoming, where they killed several bull elk. Wyoming charged Herrera with illegally taking elk off season and hunting without a state license. He sought to defend himself by arguing that he had the right to hunt in the Bighorn National Forest under the 1868 Treaty. But the Wyoming courts disagreed, relying on a Tenth Circuit case, Crow Tribe of Indians v. Repsis, which held both that Crow Tribe members’ rights to freely hunt under the 1868 Treaty were extinguished when Wyoming became a state and that even if they weren’t, the Bighorn National Forest was not “unoccupied lands” for purposes of the Treaty. With his treaty defense rejected, Herrera was soon convicted by a jury. He sought certiorari.

The majority and dissenting opinions in Herrera approach the case from very different starting points. Justice Sotomayor’s majority opinion, joined by Justices Ginsburg, Breyer, Kagan, and Gorsuch, turned largely on the interpretation of the Treaty. In Ward v. Race Horse (1896), the Court addressed a nearly identical treaty with two other tribes, holding that those tribes’ treaty rights to hunt were implicitly extinguished when Wyoming became a state, because affording tribes a protected right to hunt on Wyoming land free from state regulation would deprive Wyoming of the regulatory powers enjoyed by all other states. But in Mille Lacs Band of Chippewa Indians (1999), the Supreme Court repudiated Race Horse’s basic analysis, holding that Congress must abrogate a tribe’s treaty rights explicitly. Surveying the act by which Wyoming became a state, the majority holding that majority found nothing purporting to abrogate the Tribe’s treaty rights, so those rights remained valid to this day.

Now things get a bit complicated. As you may have guessed from the name of that 1995 Tenth Circuit case, it was an action brought by the Crow Tribe itself on behalf of its members. That decision (which never made it to the Supreme Court) was therefore binding on the Tribe’s members. On that basis, the Wyoming courts had held that whether Repsis was right or wrong, a member of the Crow Tribe like Herrera was precluded from relitigating that issue today. The majority dealt with this pretty significant issue preclusion problem in two ways. First, it noted that one of the established exceptions to res judicata is where a prior decision has been undermined by fundamental changes in the law. That, the majority concluded, aptly described the Tenth Circuit’s primary holding that the Tribe’s Treaty were automatically terminated when Wyoming became a state: That conclusion was indisputably based on Race Horse and Race Horse had been effectively overruled by Mille Lacs.

But what of the Tenth Circuit’s alternative holding that whether or not the Tribe’s rights survived the creation of Wyoming, the Bighorn National Forest was not unoccupied land as that term is used in the Treaty? No post-Repsis authority had called that holding into doubt, so it seemingly remained binding on the Tribe (and its members like Herrera). Dealing with the issue largely in a footnote, the majority concluded that the lower courts had not really considered whether this alternative holding alone barred Herrera from raising his Treaty defense, nor had the Court granted certiorari on how issue preclusion might apply to that holding. With res judicata no longer a bar, the majority then proceeded to answer whether the Bighorn National Forest was per se not “unoccupied land” for purposes of the Treaty. The Court construed that term to mean pretty much what you’d think: unoccupied land is land that nobody lives on, a term that aptly describes a big, empty forest. The majority therefore vacated Herrera’s conviction. But in doing so, it observed that Herrera was not completely out of the woods, because Wyoming’s regulatory authority might be upheld on various alternative grounds that had not been considered below. Those issues could be addressed on remand.

Justice Alito, joined by the Chief and Justices Thomas and Kavanaugh, dissented. They began, and ended, not with the Treaty but with issue preclusion. After all, it is unnecessary to consider what the Treaty means if Herrera is precluded from raising his arguments about what the Treaty means. The dissenters focused much attention on the fact that Repsis had two alternative rationales. While it might be possible to relitigate the question of whether Wyoming’s admission to the Union had abrogated the Crow Tribe’s treaty rights based on intervening changes in the law—the dissenters thought there were “respectable” arguments on each side—Repsis’s alternative holding that the Bighorn National Forest was occupied land proved more troublesome. No one could claim that any post-Repsis change in law had undermined that holding. And that holding alone was enough to bar Herrera’s treaty defense, provided, that is, that you agree with the First Restatement’s position on the res judicata effect of judgments that rest on alternative grounds and reject the contrary position espoused by the Second Restatement. (If you’re enough of a res judicata nerd that you know what that means, you should just read Justice Alito’s dissent for yourself—we won’t spoil it for you—and if you don’t know what that means, we’ll just spare you from further discussion). Justice Alito concluded by worrying that the majority’s interpretation of the Treaty may prove to be meaningless, because in future cases (and maybe even Herrera’s own case on remand), the State will be sure to rely on Repsis’s alternative holding, and no member of the Crow Tribe will ever be able to challenge it because of issue preclusion. It may amount to little more than dicta, since everyone who matters will be bound by the decision in Repsis.

That’ll do it for the week’s opinions. The Court also granted cert in one new case, Ritzen Group Inc. v. Jackson Masonry, LLC (No. 18-938), which askes whether an order denying a motion for relief from an automatic bankruptcy stay is a final order under 28 U.S.C. 158(a)(1).