Today, the Supreme Court issued two decisions, described below, of interest to the business community.

  • Due Process—Civil Sanctions
  • Federal Employees Health Benefits Act—Preemption of State Law

Due Process—Civil Sanctions

Goodyear Tire & Rubber Co. v. Haeger, No. 15-1406

After Goodyear Tire & Rubber Co. conceded withholding damaging information that was responsive to discovery requests, a federal district court entered sanctions, requiring Goodyear to pay the plaintiffs' attorneys' fees from the time of the first misrepresentation to the end of the case.  The district court acknowledged that not all of those fees had been caused by Goodyear's misconduct but deemed the sanction appropriate, as an exercise of the court's inherent powers, given the egregiousness of the violation.  The court of appeals affirmed.  Today, the Supreme Court vacated the discovery sanction, holding that a party sanctioned for bad-faith conduct can be taxed only for fees that the aggrieved party would not have incurred but for the bad faith.  The decision, authored by Justice Kagan, was unanimous (save for the newly confirmed Justice Gorsuch, who did not participate in the case).

Federal Employees Health Benefits Act—Preemption of State Law

Coventry Health Care of Missouri, Inc. v. Nevils, No. 16-149

To provide health benefits to federal employees, the Federal Employees Health Benefits Act (FEHBA) authorizes the Office of Personnel Management to contract with private insurers. Those contracts require insurers to seek subrogation or reimbursement when covered employees injured by third parties receive payments from those third parties. The Missouri Supreme Court held that these contracts are invalid under Missouri law, notwithstanding an express preemption provision in the FEHBA, which specifies that "[t]he terms of any [such] contract . . . which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation thereunder, which relates to health insurance or plans." 5 U.S.C. § 8902(m)(1).

Today, the U.S. Supreme Court held that the FEHBA preempts Missouri law, finding that contractual subrogation and reimbursement prescriptions plainly "relate to ... payments with respect to benefits."  The Court also rejected the Missouri Supreme Court's determination that the FEHBA's preemption provision violates the Supremacy Clause, because the FEHBA (and not the contracts) is what triggers the federal preemption.

The decision, authored by Justice Ginsburg, was unanimous (save for the newly confirmed Justice Gorsuch, who did not participate in the case).  Justice Thomas joined the Court's opinion but wrote separately to suggest that, by permitting the Executive to enter into contracts that preempt state law, the FEHBA might be understood as an unlawful delegation of legislative power.  As he acknowledged, however, that question was not presented to the Court.

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