United States: Supreme Court Docket Report - October 8, 2012

Keywords: zoning, environmental law, telecommunications act, patents, exhaustion doctrine, malpractice claims, patent disputes, access, state records, privileges, immunities clause, commerce clause

Last Friday, the Supreme Court granted certiorari in five cases of interest to the business community:

• Takings Whether Government May Deny Permits Based on Property Owner's Refusal to Pay for Unrelated Improvements
• Chevron Deference to Agencies' Jurisdictional Determinations Telecommunications Act
• Patents Exhaustion Doctrine Self-Replicating Technologies
• Federal Jurisdiction Legal-Malpractice Claims Involving Patent Disputes
• Access to State Records Privileges and Immunities Clause Commerce Clause

Takings Whether Government May Deny Permits Based on Property Owner's Refusal to Pay for Unrelated Improvements

A key issue in zoning and environmental law is the ability of state and local land-use authorities to condition the issuance of building permits, zoning variances, and the like on a landowner's provision of a public benefit, such as turning part of the property into a public park or giving a portion of it to the local conservation agency. In Nollan v. California Coastal Commission, 483 U.S. 825 (1987), the Supreme Court held that such "exactions" violate the Fifth Amendment's Takings Clause unless there is an "essential nexus" between the exaction and the development project itself. Then in Dolan v. City of Tigard, 512 U.S. 374 (1994), the Court held that there must also be "rough proportionality. between the exactions and the projected impact of the proposed development." Id. at 386. Thus, a local zoning authority could, for example, condition the issuance of a building permit on, for example, the developer's giving sufficient land to the local conservation authority to offset any environmental effects of the new development, but it could not hold the would-be developer hostage for exactions well beyond the expected consequences of the development.

On Friday, the Supreme Court granted certiorari in Koontz v. St. Johns River Water Management District, No. 11-1447, to clarify two issues that Nollan and Dolan did not resolve. Koontz wanted to develop a piece of property that is subject to oversight by the St. Johns Water Management District, a Florida agency that oversees the state's wetlands. In return for approval of the project, the District required him to mitigate the effects of the development on the local watershed. The District sought to have him not only reserve the unimproved parts of his property for conservation, but also pay to replace culverts and fill ditches on 50 other acres owned by the District. Koontz refused, so the District denied him a permit to develop his land. He then sued in Florida state court, arguing that the exaction was an impermissible "regulatory taking."

The state trial court and intermediate appellate court both ruled for Koontz, holding that the exaction lacked the "essential nexus" and "rough proportionality" required by Nollan and Dolan, and Kootz was awarded his building permit and damages for the "temporary taking" that occurred during the eleven years when he was unable to begin the project. But the Florida Supreme Court reversed, on two grounds. First the court held that Nollan and Dolan forbid only the taking of real property, and do not apply when what is at issue is the payment of money. Second, the court held that Nollan and Dolan apply only when the government grants a permit with an unconstitutional condition, not when it denies a permiteven if the reason for the denial is that the landowner refused to agree to an unconstitutional condition.

The Supreme Court's decision in Koontz could resolve splits in authority on both those issues. A ruling for the District could create huge loopholes under Nollan and Dolan, allowing land-use authorities to avoid running afoul of the Takings Clause by the simple expedients of demanding cash exactions (rather than seeking interests in real property), and by denying permits to anyone who refuses to pay (rather than granting permits with conditions written into them). On the other hand, a ruling by the Court that a proposed exaction can be a regulatory taking could substantially limit the ability of regulatory bodies to negotiate conditions with individual landowners, thus causing the agencies to reject more applications outright.

Absent extensions, amicus briefs in support of the petitioners will be due on November 26, 2012, and amicus briefs in support of the respondents will be due on December 26, 2012.

Chevron Deference to Agencies' Jurisdictional DeterminationsTelecommunications Act

The Supreme Court's well-known Chevron doctrine requires that courts defer to a reasonable agency interpretation of an ambiguous statute that the agency administers. Last Friday, the Supreme Court granted review in City of Arlington v. FCC, No. 11-1545, and Cable, Telecommunications, and Technology Committee of the New Orleans City v. FCC, No. 11-1547, and consolidated the cases, to address the question whether the Chevron doctrine requires a court to defer to an agency's determination about the scope of the agency's own jurisdiction.

The dispute in these cases stems from the FCC's declaratory ruling on a petition from CTIA-The Wireless Association relating to state and local zoning laws for cellular towers. In the 1996 Telecommunications Act, Congress declared that state and local governments "shall act on any request for authorization to place, construct, or modify personal wireless service facilities within a reasonable period of time," and Congress provided that anyone injured by a state or local government's failure to act could bring suit to challenge the inaction. See 47 U.S.C. §332(c)(7)(B). Congress further declared that, other than this and other requirements in §332, nothing in the Telecommunications Act limited or affected a state or local government's authority to make "decisions regarding the placement, construction, and modification of personal wireless service facilities." Id. § 332(c)(7)(A).

Frustrated with significant delays in local governments' decisions regarding zoning request for wireless towers, CTIA petitioned the FCC in 2008 to issue a declaratory ruling defining "a reasonable period of time" for purposes of §332. The FCC solicited public comment on CTIA's petition, and a number of cities submitted comments in response. Among other things, the cities argued that in declaring that nothing other than the requirements of §332 were meant to limit local governments' zoning authority, Congress deprived the FCC of jurisdiction to issue the requested declaratory ruling. The FCC rejected the cities' argument, finding that the agency had general authority to issue regulations interpreting the Telecommunications Act, including the ambiguous phrase "a reasonable period of time." The FCC set forth specific deadlines for cities to act on wireless-tower zoning requests.

The cities challenged the FCC's ruling in the Fifth Circuit. Before the Court of Appeals could decide the merits of the challenge, it needed to decide whether the FCC's determination that it had jurisdiction to issue the rule was entitled to Chevron deference. Noting that the Circuits were already split on the question, the Fifth Circuit reaffirmed its previously stated view that Chevron applies to agencies' jurisdictional determinations. Because the Fifth Circuit found ambiguity in §332(c)(7)(A)'s statement regarding local governments' continued authority, the court deferred to the FCC's reasonable interpretation of the Act's jurisdictional provisions. The court then went on to uphold the FCC's ruling on the merits.

The Supreme Court granted the cities' petition for certiorari in part, agreeing to examine only the question whether Chevron applies to an agency's determination of its own jurisdiction, but declining to review the merits of the FCC's declaratory ruling. The case has broad implications for a diverse range of businesses subject to agency regulation. For instance, the National Water Resources Association filed an amicus brief in support of the cities' petition, noting that identical issues arise in the EPA's regulations of local water-authority boards under the Endangered Species Act.

Absent extensions, amicus briefs in support of the petitioners will be due on November 26, 2012, and amicus briefs in support of the respondents will be due on December 26, 2012.

Patents Exhaustion Doctrine Self-Replicating Technologies

The patent-exhaustion doctrine limits the right of patent holders to control or prohibit the use of their patented invention after an authorized sale occurs. Last Friday, the Supreme Court granted review in Bowman v. Monsanto Co., No. 11-796,to resolve questions about how the doctrine applies to subsequent generations of self-replicating technologies like genetically modified seeds.

Monsanto's patented Roundup Ready soybean seed is resistant to certain herbicides, including Monsanto's own Roundup product. Farmers who use the genetically modified seeds can therefore apply herbicides more liberally than they otherwise could, without damaging their crops.

Because the herbicide-resistant genes are passed down to successive generations of seed, Monsanto requires purchasers to sign a Technology Agreement that allows them to use the Roundup Ready seed to plant a commercial crop in a single season only, and prohibits them from saving any of their crop for use as seed for future plantings, from using the seed for breeding or research, and from giving the seed to anyone else. Monsanto does, however, permit growers to sell second-generation seed to local grain elevators as a commodity, and does not require them to place any restrictions on the grain elevators' subsequent sales of the seed.

Indiana farmer Vernon Bowman purchased Roundup Ready, signed Monsanto's Technology Agreement, and used the seeds for his first planting of the season. But for his second planting, he purchased "commodity seeds" with Monsanto's patented Roundup Ready genes from a local grain elevator; and he then saved the seed harvested from his second crop for replanting in future years.

Monsanto sued Bowman for patent infringement, and both the district court and the Federal Circuit ruled in Monsanto's favor, holding that the patent-exhaustion doctrine did not protect Bowman because the Technology Agreement that he had signed was valid and controlling.

The case has broad implications for businesses in the agribusiness, biotech, and high-tech fields because it will determine the scope of patent protection for self-replicating technologies.

Barring extensions of time, amicus briefs in support of petitioner are due on November 26, 2012, and amicus briefs in support of respondent are due on December 26, 2012.

Federal Jurisdiction Legal-Malpractice Claims Involving Patent Disputes

Pursuant to 28 U.S.C. § 1338(a), federal courts have exclusive jurisdiction over any action "arising under" federal law relating to patents, plant-variety protection, copyrights, and trademarks. In 2007, the Federal Circuit, which hears all patent appeals, held that the jurisdiction conferred by §1338(a) extends to legal-malpractice cases brought under state law when the underlying action involves patents. See Air Measurement Tech., Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P.,504 F.3d 1262 (Fed. Cir. 2007), and Immunocept, L.L.C. v. Fulbright & Jaworski, L.L.P.,504 F.3d 1281 (Fed. Cir. 2007).

On Friday, the Supreme Court granted review in Gunn v. Minton, No. 11-1118, to determine whether the Federal Circuit's §1338(a) jurisprudence is consistent with the standard for "arising under" jurisdiction articulated in Grable & Sons Metal Products, Inc. v. Darue Eng'g & Mfg., 545 U.S. 308 (2005). Under Grable, for a state-law claim to arise under federal law, it must "necessarily raise" a federal issue that is "actually disputed and substantial" and can be heard by a federal court "without disturbing any congressionally approved balance of federal and state judicial responsibilities." Id. at 314.

Gunn v. Minton is significant for the business community because its resolution will affect the scope of federal-court jurisdiction.

Petitioners in Gunn are the defendants in a legal-malpractice action. In 2004, Plaintiff Minton brought a patent-infringement suit against the National Association of Securities Dealers (NASD). The district court granted summary judgment in favor of the NASD on the basis of the "on sale bar," finding that the technology that Minton sought to patent had been the subject of a commercial lease more than a year before Minton filed his application. Minton asked his lawyers to move for reconsideration, and to raise for the first time the argument that the "experimental use" doctrine precluded application of the on-sale bar. The district court denied reconsideration, and the Federal Circuit affirmed the summary-judgment ruling.

Minton then sued his lawyers in Texas state court for failing to argue experimental use in the first place. The trial court granted summary judgment in favor of the lawyers, but while Minton's appeal was pending, the Federal Circuit decided Air Measurement and Immunocept. On the basis of those decisions, Minton asserted that the state courts were without jurisdiction to hear his malpractice claim. The Texas Court of Appeals rejected Minton's argument, but a divided Texas Supreme Court followed the Federal Circuit in holding that the federal courts had exclusive jurisdiction over Minton's action. In dissent, three justices argued that Grable did not permit such an expansive reading of "arising under" jurisdiction.

Absent extensions, amicus briefs in support of the petitioners will be due on November 26, 2012, and amicus briefs in support of the respondents will be due on December 26, 2012.

Access to State Records Privileges and Immunities Clause Commerce Clause

The Privileges and Immunities Clause of Article IV of the U.S. Constitution prevents a state from discriminating in favor of its own citizens, against citizens of other states. And the Commerce Clause prohibits states from discriminating against interstate commerce. Last, Friday, the Supreme Court granted review in McBurney v. Young, No. 12-17, to determine whether a state may preclude citizens of other states from enjoying the same right of access to public records as the state affords its own citizens.

Petitioner Roger Hurlbert operates a business in California that requested property records from the State of Virginia on behalf of a client. Petitioner Mark McBurney is a Rhode Island resident who sought records from a Virginia agency in order to challenge the agency's handling of his petition for child support. Virginia officials denied both requests under the state's Freedom of Information Act because petitioners are not Virginia residents. Petitioners sued the officials in federal district court, alleging that in prohibiting non-Virginians from obtaining public records, the state's open-records law violates both the Privileges and Immunities Clause and the Commerce Clause. The district court granted the officials summary judgment, and the Fourth Circuit affirmed. The court of appeals held that the citizenship provision did not implicate the Privileges and Immunities Clause because the statute imposed only an incidental burden on Hurlbert's method of doing business, and did not bar McBurney from advocating for his own interests in Virginia courts. Nor did the citizenship provision violate the Commerce Clause, the court of appeals held, because the law did not regulate the flow of interstate commerce or bar Hurlbert from doing business in Virginia. The Fourth Circuit's decision conflicts with a decision of the Third Circuit, which had previously held an identical provision in Delaware's open-records law to be unconstitutional. The Fourth Circuit's decision also conflicts with the Supreme Court's decision in Reno v. Condon, 528 U.S. 141 (2000), which held that public drivers' records were "articles of commerce" under the Commerce Clause.

This case is of interest to the business community because state open-records laws are often a crucial source of information for commercial entities. Businesses use information retrieved under these statutes to challenge state and local regulations, to obtain information about state licensing and contracting decisions, and to obtain public information about competitors.

Absent extensions of time, amicus briefs in support of the petitioners will be due on November 26, 2012, and amicus briefs in support of the respondent will be due on December 26, 2012.

Earlier last week the Supreme Court invited the Solicitor General to file briefs expressing the views of the United States in the following cases of interest to the business community:

Arzoumanian v. Munchener Ruckversicherungs-Gesellschaft Aktiengesellschaft AG, No. 12-9: The question presented is whether California Code of Civil Procedure § 354.4, which creates a special cause of action exclusively applicable to insurance claims arising from policies sold in Ottoman Turkey between 1875 and 1923 and can be asserted only by defined "victims" of the statutorily denominated "Armenian Genocide," is preempted by the federal government's exclusive power to conduct foreign affairs. Mayer Brown LLP represents the respondent in this case.

Chadbourne & Parke LLP v. Troice, No. 12-79, Willis of Colorado, Inc. v. Troice, No. 12-86, and Proskauer Rose LLP v. Troice, No. 12-88: The questions presented are (1) whether the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), 15 U.S.C. § 78bb(f)(1), precludes a state-law class action alleging a scheme to defraud that involves misrepresentations about transactions in SLUSA-covered securities and (2) whether SLUSA precludes class actions asserting that defendants aided and abetted SLUSA-covered securities fraud when the defendants themselves did not make misrepresentations about the purchase or sale of SLUSA-covered securities.

Previously published on October 8, 2012.

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