Today the Supreme Court granted certiorari in twelve cases, five of which are of potential interest to the business community. Amicus briefs in support of the petitioners are due on Monday, November 13, 2000, and amicus briefs in support of the respondent are due on Wednesday, December 13, 2000. Any questions about these cases should be directed to Donald Falk (202-263-3245), Eileen Penner (202-263-3242), or Miriam Nemetz (202-263-3253) in our Washington office.
1. Seventh Amendment — Appellate Review of New Trial Order. The Seventh Amendment prohibits federal courts from re-examining any "fact tried by a jury" except to the extent permitted by "the rules of the common law." In Gasperini v. Center for Humanities, Inc., 518 U.S. 415 (1996), the Supreme Court rejected a Seventh Amendment challenge to the application in a diversity case of a state-law substantive standard permitting the grant of a new trial where damages were excessive. The Court made clear, however, that "the review standard" must be "applied by the federal trial court judge, with appellate control of the trial court's ruling limited to review for ‘abuse of discretion.'" Id. at 419 (emphasis added). The Supreme Court granted certiorari in District of Columbia v. Tri-County Industries, Inc., No. 99-1953, to decide whether the Seventh Amendment right to a jury trial requires closer appellate scrutiny of orders granting new trials than of orders denying them.
Tri-County Industries obtained a building permit from the District of Columbia to convert an empty warehouse into a soil decontamination facility. The District's Department of Consumer and Regulatory Affairs ("DCRA") summarily suspended the permit in response to public opposition to the project. Two days later, an inspector issued a stop work order based on unlawful storage of soil in the building. The DCRA separately suspended the permit when Tri-County did not respond to the notice of violation. Rather than pursuing an administrative appeal of the suspensions, Tri-County abandoned the project because it believed political forces would keep it from receiving a fair hearing before the DCRA.
Tri-County then sued the District under 42 U.S.C. § 1983, alleging that the summary suspension had violated Tri-County's Fifth Amendment right to procedural due process and had caused Tri-County to lose profits. The district court granted summary judgment to the District, but the D.C. Circuit reversed, ordering summary judgment for Tri-County on liability and remanding for a trial limited to the issue of damages. See 104 F.3d 455 (1997). A jury then awarded $5 million to Tri-County. On the District's motion for a new trial, the district court found fault with some of its evidentiary rulings, rulings that it believed contributed to a damages verdict that was grossly excessive, speculative, and further unjustified in light of Tri-County's failure to mitigate its damages by administratively challenging either suspension. The district court ordered a new trial unless Tri-County agreed to a remittitur to $1 million. Tri-County refused the remittitur, and the jury at the second trial awarded Tri-County only $100.
The D.C. Circuit reversed the new trial order and reinstated the original $5 million verdict. 200 F.3d 836 (2000). Although the court of appeals stated that it "review[ed] the district court's grant of a new trial for abuse of discretion," it relied on pre-Gasperini precedent mandating "[a] more searching inquiry * * * if the new trial is granted than if denied * * * because of the concern that a judge's nullification of the jury's verdict may encroach on the jury's important fact-finding function." Id. at 840 (internal quotation marks omitted). Using this standard, the D.C. Circuit held that (1) Tri-County's evidence created a jury issue regarding its alleged failure to mitigate (id. at 840-841); (2) the award was neither remote nor speculative in light of the "largely unchallenged" evidence of damages presented by Tri-County (id. at 841-842); and (3) the award was not grossly excessive because it was "less than half of the future profits estimate" (id. at 842). The court of appeals also disagreed with the district court's conclusion that it had abused its discretion in making evidentiary rulings at trial. Ibid. Rather, the D.C. Circuit concluded that "the district court, in granting a new trial based on a revised view of its original rulings, did abuse its discretion." Ibid.
By contrast with the D.C. Circuit, the Seventh Circuit has overruled pre-Gasperini precedent requiring especially close appellate scrutiny of orders granting new trials. See Medcom Holding Co. v. Baxter Travenol Laboratories, Inc., 106 F.3d 1388, 1397 (7th Cir. 1997). Several other courts of appeals have cited Gasperini in applying traditional review for abuse of discretion. Still other circuits, like the D.C. Circuit, have adhered to pre-Gasperini precedent requiring heightened scrutiny of new trial orders. See, e.g., Wilburn v. Maritrans GP, Inc., 139 F.3d 350, 363 (3d Cir. 1998).
In an era of runaway jury verdicts, this case is of substantial importance to all businesses. Corporate defendants are frequently subjected to extravagant awards of damages. As a consequence, businesses have much to lose if the Supreme Court approves severe limitations on the power of a district court to grant a new trial where thin or questionable evidence supports a verdict or where the trial court reconsiders its own discretionary rulings.
2. Attorney's Fees — "Catalyst Theory" in Civil Rights Cases. Most federal civil rights statutes, and many other federal statutes that create private rights of action, authorize a court to award reasonable attorney's fees and costs to a "prevailing party," e.g., 42 U.S.C. § 3613(c)(2); id. §122205; id. § 1988(b), id. § 1365(d). Before 1992, it was "settled law * * * that relief need not be judicially decreed in order to justify a fee award under [these provisions]. A lawsuit sometimes produces voluntary action by the defendant that affords the plaintiff all or some of the relief he sought through a judgment — e.g., * * * a change in conduct that addresses the plaintiff's grievances. When that occurs, the plaintiff is deemed to have prevailed despite the absence of a formal judgment in his favor." Hewitt v. Helms, 482 U.S. 755, 760-61 (1986). The Supreme Court's opinion in Farrar v. Hobby, 506 U.S. 103 (1992), however, cast doubt on this "catalyst theory" of attorney's fees: "to qualify as a prevailing party, a civil rights plaintiff * * * must obtain an enforceable judgment against the defendant from whom fees are sought, or comparable relief through a consent decree or settlement." Id. at 111. The Court granted certiorari in Buckhannon Board & Care Home, Inc. v. West Virginia Department of Health & Human Resources, No. 99-1848, to decide whether plaintiffs may continue to recover attorney's fees in civil rights cases under the "catalyst theory."
Residential board and care homes are senior living facilities that aim to provide a more "home-like" setting to residents who do not require the constant assistance afforded by institutional care. West Virginia regulations that were in effect in 1996 required all residents of residential board and care homes to be capable of "self-preservation" in the event of a fire — that is, to be able to evacuate the premises without assistance. A board and care home, a trade association, and a home resident brought suit challenging those regulations under the Fair Housing Amendments Act of 1988 ("FHAA"), 42 U.S.C. §§ 3601 et seq., and the Americans with Disabilities Act of 1990 ("ADA"), 42 U.S.C. §§ 12132 et seq.
While the litigation was pending, the legislature repealed the self-preservation regulations, mooting the case. Petitioners then moved for attorney's fees under the FHAA and the ADA, both of which provide that a "prevailing party" may recover reasonable attorney's fee from the opposing party. 42 U.S.C. §§ 3613(c)(2), 12205. Invoking the catalyst theory, petitioners argued that the chronology of events strongly indicated that the legislature had repealed the regulations in response to the lawsuit, and that they therefore should be considered to have prevailed within the meaning of the attorney's fees provisions.
The district court denied fees in an unpublished decision, relying on Fourth Circuit precedent holding that the catalyst theory did not survive Farrar. See S-1 and S-2 v. State Board of Education, 21 F.3d 49 (4th Cir. 1994) (en banc). The court did observe that, "[w]ere [the catalyst] argument viable, plaintiffs might well prevail on this theory."
The Fourth Circuit affirmed, also in an unpublished decision that followed S-1 and S-2..
Most courts of appeals have continued to recognize the catalyst theory after Farrar, and many of those courts have expressly rejected the Fourth Circuit's reasoning in S-1 and S-2. See, e.g., New Hampshire v. Adams, 159 F.3d 680, 685 (1st Cir. 1998); Marbley v. Bane, 57 F.3d 224, 234 (2d Cir. 1995); Baumgartner v. Harrisburg Housing Auth., 21 F.3d 541, 545-550 (3d Cir. 1991); Payne v. Board of Educ., 88 F.3d 392, 397 (6th Cir. 1996); Cady v. City of Chicago, 43 F.3d 326 (7th Cir. 1994); Little Rock Sch. Dist. v. Pulaski County Special Sch. Dist. 1, 17 F.3d 260, 262-263 (8th Cir. 1994); Kilgore v. City of Pasadena, 53 F.3d 1007, 1010 (9th Cir. 1995); Beard v. Teska, 31 F.3d 942, 951 (10th Cir. 1994); Morris v. City of West Palm Beach, 194 F.3d 1203, 1207 (11th Cir. 1999). Last Term, in Friends of the Earth, Inc. v. Laidlaw Environmental Servs., Inc., 120 S. Ct. 693, 711 (2000), the Supreme Court noted this conflict among the circuits, but explained that the case before it was not the appropriate vehicle for resolving it.
This case is of significant interest to the business community. The decision will control attorney's fee awards under federal civil rights statutes, including Title VII and the Age Discrimination in Employment Act, and may well affect other federal fee-shifting provisions that contain similar language. Any business that faces discrimination lawsuits or suits under federal laws that contain similar fee-shifting provisions thus has an interest in the outcome of this case.
3. Federally Insured Depository Institutions — FIRREA — D'Oench, Duhme Doctrine. In D'Oench, Duhme & Co., Inc. v. Federal Deposit Insurance Corp., 315 U.S. 447 (1942), the Supreme Court held, as a matter of federal common law, that a private party cannot enforce a purported obligation of a federally insured depository institution against the federal insurer unless the obligation is in writing. The D'Oench, Duhme doctrine now bars a variety of claims and defenses that rely on facts or agreements that are not memorialized in a bank's official records. The Federal Deposit Insurance Act long ago codified the D'Oench, Duhme doctrine in part, barring the assertion against the FDIC of any agreement unless the agreement is written and meets other formal requirements. However, the statutory bar applies only to the extent that the agreement "tends to diminish or defeat the interest of the [FDIC] in any asset acquired by it * * * as security for a loan or by purchase or as receiver of any insured depository institution." 12 U.S.C. § 1823(e)(1). Congress amended this provision slightly in the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). See ibid.; see also id. § 1821(d)(9). The Supreme Court granted certiorari in Murphy v. Beck, No. 00-46, to determine whether the common law D'Oench, Duhme doctrine survives the broadening of the federal regulatory scheme with the enactment of FIRREA in 1989.
Bruce Murphy invested in a real estate development partnership that defaulted on approximately $50 million in loans from Southeast Bank. After foreclosing on the property, the bank became insolvent and was placed into FDIC receivership.
Murphy sued the FDIC as receiver for the bank, claiming that the bank had been a joint venturer with the partnership and that the bank's wrongful actions in that capacity had caused the partnership to default. There was no written agreement in the bank's records memorializing the asserted joint venture. The district court granted summary judgment to the FDIC, finding that D'Oench, Duhme barred Murphy's claims. The D.C. Circuit reversed. Murphy v. FDIC, 61 F.3d 34 (1995). The court of appeals observed (id. at 39) that the Supreme Court had held that the "extensive framework of FIRREA" foreclosed the application of federal common law to matters within the scope of the statute. O'Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994). Accordingly, the D.C. Circuit held that the D'Oench, Duhme doctrine had "disappeared" with the enactment of FIRREA in 1989. 61 F.3d at 40. Because the FDIC had not shown that a specific asset would be diminished if Murphy prevailed, the D.C. Circuit held that Section 1823(e) also did not bar Murphy's claim.
On remand, the FDIC moved to dismiss the complaint for failure to state a claim. The district court transferred the case, sua sponte, to the Southern District of Florida, where the original transactions occurred. The Florida court substituted Jeffrey Beck for the FDIC in his capacity as successor agent for Southeast Bank, and granted the motion to dismiss in reliance on Eleventh Circuit decisions rejecting the D.C. Circuit's holding in Murphy v. FDIC.
The Eleventh Circuit affirmed. 208 F.3d 959 (2000). The Eleventh Circuit observed that Section 1823(e) originally had been enacted in 1950, and adhered to its view that FIRREA was not intended to displace "the harmonious, forty-year coexistence of the statute and the D'Oench doctrine." Id. at 964 (quoting Motorcity of Jacksonville, Ltd. v. Southeast Bank, 120 F.3d 1140, 1144 (11th Cir. 1997) (en banc)).
The conflict among the circuits is unusually plain: the Eleventh Circuit rejected the D.C. Circuit's resolution of the same issue in the same case. The Fourth Circuit, like the Eleventh Circuit, has held that the D'Oench, Duhme doctrine remains valid. See Young v. FDIC, 103 F.3d 1180, 1187 (4th Cir. 1997). The Third, Eighth, and Ninth Circuits have agreed with the D.C. Circuit. See FDIC v. Deglau, 207 F.3d 153, 171 (3rd Cir. 2000); DiVall Insured Income Fund Ltd. Partnership v. Boatmen's First Nat'l Bank, 69 F.3d 1398, 1402 (8th Cir. 1995); Lido Financial Corp. v. Summers, 122 F.3d 825, 828-829 (9th Cir. 1997). In addition, a non-binding FDIC policy statement asserts that the FDIC generally will not invoke D'Oench, Duhme as to transactions postdating the enactment of FIRREA. See 62 Fed. Reg. 5984 (1997). This case is of substantial importance to businesses that deal with banks and federally insured depository institutions, particularly if the relationships may undergo changes based on oral agreements. Moreover, because private successors-in-interest to the FDIC have successfully asserted the D'Oench, Duhme doctrine — as Beck did here — the bar may operate long after the FDIC has ceased to be the receiver for an institution.
4. National Labor Relations Act — Definition of "Supervisors. "The National Labor Relations Act excludes from its protections "any individual employed as a supervisor." 29 U.S.C. § 152(3). The Act defines "supervisors" as persons who, "in the interest of the employer," exercise over other employees authority that "is not merely of a routine or clerical nature, but requires the use of independent judgment." Id. § 152(11). In National Labor Relations Board v. Health Care & Retirement Corp., 511 U.S. 571 (1994), the Supreme Court ruled that the NLRB, in holding that a nurse who directed less-skilled employees in connection with the treatment of patients was not exercising authority "in the interest of the employer," had strayed from the plain language of the Act in improperly creating a special test of supervisory status for the health care industry. The Court granted certiorari in National Labor Relations Board v. Kentucky River Community Care, Inc., No. 99-1815, to decide whether the NLRB's new approach to evaluating the supervisory status of nurses comports with the statute. The Court also will decide whether the NLRB permissibly assigns employers the burden of proving supervisory status.
Respondent Kentucky River Community Care (KRCC) operates the Caney Creek Rehabilitation Center. Caney Creek is staffed around the clock by registered nurses ("RNs") and licensed practical nurses ("LPNs") who are responsible for implementing medical treatment plans for the facility's residents. The RNs' duties include providing medical care directly to residents, ensuring that the LPNs provide the correct medication to residents, and working with rehabilitation assistants. In the evenings, the RNs are the highest-ranking staff members at the Center; at those times, they are designated as "building supervisors" and are in charge of the facility and rehabilitation staff.
In 1997, a union petitioned the NLRB for certification as the collective bargaining representative for Caney Creek's 110 employees. KRCC objected to union certification, claiming, among other things, that its registered nurses could not be included in any proposed bargaining unit because those employees were supervisors. The NLRB concluded that the RNs were not supervisors, and ordered KRCC to bargain with the union. In so ruling, the NLRB cited its "well-settled rule" that the party claiming that a particular position is supervisory, and hence excluded from the Act, has the burden of proof.
The Sixth Circuit reversed. See 193 F.3d 444 (1999). Under the NLRB's interpretation, a nurse's direction of a less-skilled employee administering patient care does not involve "independent judgment," but is instead "routine," because the nurses "have the ability to direct patient care by virtue of their training and expertise, not because of their connection to ‘management.'" Id. at 453. Rejecting that view, the Sixth Circuit found that the Caney Creek RNs did exercise "independent judgment" when they directed LPNs to perform patient care, arranged for staff coverage, and acted as building supervisors. Id. Suggesting that the NLRB was not applying its usual definition of "independent judgment" to nurses, the court concluded that the NLRB's decision was not entitled to deference in this case "because the rule announced differed from the NLRB's actual application of this rule." Id. The court also chastised the NLRB for ignoring its "repeated admonition that ‘[t]he [NLRB] has the burden of proving that employees are not supervisors.'" Id. (quoting Grancare, Inc. v. NLRB, 137 F.3d 372, 375 (6th Cir. 1998)) (emphasis added).
The Third and Fourth Circuits, like the Sixth Circuit, have rejected NLRB's interpretation of "independent judgment" to exclude judgment exercised by health care providers. NLRB v. Attelboro Assocs., 176 F.3d 154 (3d Cir. 1999); NLRB v. Grancare, Inc., 170 F.3d 662 (7th Cir. 1999) (en banc); Beverly Enterprises, Virginia, Inc. v. NLRB, 165 F.3d 290 (4th Cir. 1998). By contrast, the District of Columbia, First, Seventh, Eighth, and Ninth Circuits have accepted the NLRB's construction. Northern Montana Health Care Center v. N.L.R.B., 178 F.3d 1089 (9th Cir. 1999); NLRB v. Hilliard Devel. Corp., 187 F.3d 133 (1st Cir. 1999); Beverly Enterprises, Minnesota, Inc. v. NLRB, 148 F.3d 1042 (8th Cir. 1998); Beverly Enterprises-Pennsylvania, Inc. v. NLRB, 129 F.3d 1269 (D.C. Cir. 1997) (per curiam). The Sixth Circuit's rejection of the NLRB's allocation of the burden of proof conflicts with the decisions of several other circuits. See Beverly Enterprises, Mass., Inc. v. NLRB, 165 F.3d 960 (D.C. Cir. 1999); New York Univ. Med. Ctr. v. NLRB, 156 F.3d 405 (2d Cir. 1998); Schnuck Markets, Inc. v. NLRB, 961 F.2d 703 (8th Cir. 1992); NLRB v. Bakers of Paris, Inc., 929 F.2d 1427 (9th Cir. 1991).
This case is of obvious importance to health care providers, but the assignment of the burden of proof of an employee's supervisory status is significant to all businesses subject to the National Labor Relations Act. In addition, the Court's interpretation of the statutory phrase "independent judgment" may determine when highly trained workers in other industries are classified as supervisors.
5. Americans with Disabilities Act — Accommodations in Professional Athletic Competitions. The Supreme Court granted certiorari in PGA Tour, Inc. v. Martin, No. 00-24, to decide, first, whether the "public accommodations" provisions in Title III of the Americans with Disabilities Act ("ADA"), 42 U.S.C. §§ 12181 et seq., apply to the playing areas of professional athletic competitions, and, if so, whether Title III requires the sponsors of those competitions to grant selective waivers of their substantive rules to accommodate disabled competitors.
The PGA Tour sponsors professional golf competitions. Casey Martin is a disabled professional golfer. Martin suffers from a congenital vascular condition that impedes circulation in his right leg. Martin's condition limits his ability to walk, and causes him pain. In 1997, Martin entered the PGA Tour's National Qualifying Tournament, and requested a waiver of the rule requiring all competitors to walk the course during the competition. The PGA Tour declined Martin's request on the grounds that (i) walking the course injects stress and fatigue into the competition, which the Tour contended are fundamental elements of championship-level golf, and (ii) all competitors must compete under the same rules to ensure the integrity of the competition.
Martin sued under the ADA to enjoin the PGA Tour from enforcing the "walking rule." The district court granted the injunction. 994 F. Supp. 1242 (D. Or. 1998).
The Ninth Circuit affirmed. 204 F.3d 994 (2000). The court of appeals declined to compartmentalize golf courses used in championship-level tournaments into (i) competition areas that are off limits to the general public and (ii) spectator areas that are places of public accommodation. Rather, the Ninth Circuit ruled that "golf courses are public accommodations." Id. at 997. The court concluded that allowing Martin to use a golf cart would not fundamentally alter the nature of the competitions. Id. at 999-1002. The Ninth Circuit believed that, in light of the level of stress and fatigue Martin experienced, "providing Martin with a golf cart would not give him an unfair advantage." Id. at 1002.
The day after the Ninth Circuit issued its decision in Martin, the Seventh Circuit reached the opposite conclusion in a case that involved essentially the same facts. See Olinger v. United States Golf Association, 205 F.3d 1001 (7th Cir. 2000), pet. for cert. pending, No. 00-434 (filed Sept. 20, 2000). In Olinger, the court of appeals rejected a disabled golfer's claim that Title III of the ADA required the United States Golf Association (USGA) to allow him to use a golf cart in the U.S. Open and its qualifying tournaments. The petition for certiorari in Olinger, in which the USGA acquiesced, remains pending. Mayer, Brown and Platt has represented the USGA at every stage of that case.
Martin is of substantial interest to professional sports competitions and other businesses that operate places of public accommodation within the meaning of Title III. The Ninth Circuit's decision appears to extend Title III (relating to "Public Accommodations") to encompass job requirements for persons engaged in producing goods and services for the public (i.e., participants and workers). That reasoning could import Title III standards into areas that Congress purposefully excluded from Title I (relating to "Employment"), permitting workplace discrimination suits by non-employees (like Martin and Olinger) who may not sue under Title I, and by employees of small businesses that fall below the threshold number of employees for coverage under Title I, but operate places of public accommodation covered by Title III.
Copyright 1995 Mayer, Brown & Platt. This Mayer, Brown & Platt publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.