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Mayer Brown's Supreme Court and Appellate Practice Group distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community. We also email the Docket Report to our subscribed members and if you don't already subscribe to the Docket Report and would like to, please click here.

October Term 2007 - No. 3 - October 29, 2007

The Supreme Court granted certiorari today in two cases of interest to the business community:

Maritime Law--Punitive Damages. In 1989, the Exxon Valdez tanker ran aground on Bligh Reef in Prince William Sound, Alaska, spilling 258,000 barrels of oil. Following the disaster, Exxon spent $2.1 billion in cleanup costs, undertook comprehensive remedial measures to reduce the risk of future shipping accidents and spills, paid over $1 billion in remediation costs and fines to the State of Alaska and the federal government, and paid $300 million to settle claims with local fishermen. Nevertheless, a jury awarded a class of Alaska fishermen an additional $20.3 million in compensatory damages and $5 billion in punitive damages against Exxon. Following a series of appeals, the United States Court of Appeals for the Ninth Circuit reduced the punitive damages to $2.5 billion. 490 F.3d 1066 (2007).

The Supreme Court today granted certiorari in Exxon Shipping Co. v. Baker, No. 07-219, to address three questions arising from that award: (1) whether punitive damages may be imposed against a shipowner for the conduct of a ship's master at sea, absent a finding that the owner directed, countenanced, or participated in that conduct; (2) whether the extensive penalties Congress provided under the Clean Water Act ("CWA"), 33 U.S.C. 1311 et seq., preempt a private punitive-damages remedy under federal maritime law; and (3) whether the $2.5 billion punitive award is excessive under federal maritime law.

The first two issues have divided the lower courts and are of considerable significance to businesses engaged in national and international shipping. Since The Amiable Nancy, 16 U.S. 546 (1818), the vast majority of courts have limited the imposition of punitive damages against a shipowner for the misconduct of its captain to situations in which the owner directed, countenanced, or participated in the misconduct. The Ninth Circuit's decision to the contrary squarely conflicts with decisions of the First, Second, Fifth, and Sixth Circuits and other lower courts. The availability of punitive damages in this context also is in significant tension with the CWA, which sets forth "a comprehensive regulatory program" for water pollution, including severe criminal and civil penalties. City of Milwaukee v. Illinois, 451 U.S. 304, 317-26 (1981). The Court has indicated that when Congress has "spoke[n] directly to a question," federal courts may not supplement the remedies Congress has chosen. Id. at 315. These issues are of great importance to businesses everywhere because "[t]he shipping business knows no circuit, or even national boundaries," and "[t]he panel's decision exposes owners of every vessel and port facility within our maritime jurisdiction-a staggeringly huge area-to [billions of dollars of] punitive damages solely for the actions of managerial employees," even if the owner itself "did nothing wrong." 490 F.3d at 1070-71 (Kozinski, J., dissenting from denial of rehearing en banc).

The third issue also is extremely significant to the business community. Although the Court limited its review to whether the $2.5 billion punitive award is excessive under federal maritime law, whatever it says on that question is likely to inform decisions of federal and state courts addressing the state common law and due process limitations on the amount of punitive damages.

Mayer Brown LLP filed an amicus brief supporting certiorari in this case on behalf of the American Petroleum Institute, the American Chemistry Council, the American Tort Reform Association, the National Association of Manufacturers, and the Western States Petroleum Association. Amicus briefs in support of the petitioners are due on December 20, 2007, and amicus briefs in support of the respondents are due on January 21, 2008. Any questions about this case should be directed to Evan Tager (202-263-3240) in our Washington office.

False Claims Act--Liability for Allegedly False Claims Not Presented to the Federal Government. The False Claims Act ("FCA") imposes liability on any person who "knowingly presents, or causes to be presented, to an officer or employee of the United States Government" "a false or fraudulent claim for payment or approval." 31 U.S.C. 3729(a). The Supreme Court granted certiorari in Allison Engine Co. v. United States ex rel. Sanders, No. 07-214, to resolve a deep circuit split over whether this provision requires proof that a false claim was actually submitted to the federal government or instead is satisfied merely by showing that a claim presented to a private party will be paid with government funds.

Petitioners, three government subcontractors involved with the construction of the new Guided Missile Destroyer for the U.S. Navy, were sued by respondents (former employees of one of the subcontractors) under the FCA. Respondents alleged that petitioners defrauded the federal government by submitting false claims for payment to the prime contractor. There was no evidence that these allegedly false claims were ever presented to the federal government, either by petitioners themselves or by the prime contractor. The district court dismissed the case, relying on the D.C. Circuit's decision in United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004) (Roberts, J.), which held that the FCA requires proof that the claims actually were presented to the federal government. A divided Sixth Circuit panel reversed. 471 F.3d 610 (2006). Expressly disagreeing with the D.C. Circuit's interpretation of the FCA, the majority held that the presentment of a claim to the government is not necessary so long as the money paid on the false claim ultimately comes from the federal government.

This case is of enormous significance, especially for the many businesses that work as subcontractors on government projects. Under the Sixth Circuit's rule, government subcontractors would face FCA liability whenever they submit claims to a prime contractor or higher subcontractors. Even more broadly, the Act as interpreted by the Sixth Circuit potentially would cover any claim made to any federally funded entity, such as a university or cultural institution, even if that entity never actually sought reimbursement for the claim from the federal government. The FCA imposes significant fines as well as treble damages. In addition, private parties, even though not directly harmed by the alleged fraud, may bring qui tam lawsuits, allowing them to sue in the name of the government and to share in the recovery. This creates a powerful incentive for litigation, which amplifies the practical business consequences of any expansion of the scope of the Act.

Amicus briefs in support of the petitioners are due on December 20, 2007, and amicus briefs in support of the respondents are due on January 21, 2008. Any questions about this case should be directed to Marcia G. Madsen (202-263-3274) or Cameron S. Hamrick (202-263-3381) in our Washington office.

Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed.

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