Today the Supreme Court
issued four decisions, described below, of interest to the business community.
Riegel v.
Medtronic, Inc., No. 06-179 (previously discussed in the June
25, 2007 Docket Report). The Medical Device Amendments (MDA) to the
Food, Drug, and Cosmetic Act (FDCA) provide that no State may "establish * * *
any requirement" that "relates to the safety or effectiveness" of a medical
device and "is different from, or in addition to, any requirement applicable
under" the MDA. 21 U.S.C. § 360k(a). The Supreme Court held today that §
360k(a) preempts state-law tort claims challenging the design, manufacture, and
labeling of a medical device that was granted pre-market approval by the Food
and Drug Administration (FDA).
The decision in
Riegel is a major victory for medical device manufacturers and for
patients whose lives depend upon access to their devices. It is also a
significant decision for participants in other federally regulated arenas.
Particularly when read in conjunction with the Court's opinions in Rowe v.
New Hampshire Motor Transport Association, No. 06-457, and Preston v.
Ferrer, No. 06-1463 (both of which are discussed below), the Riegel
decision signals that the Court is prepared to give full force and a broad
reading to statutory preemption provisions.
Subject to certain
exceptions, a medical device that is intended to be used "in supporting or
sustaining human life" or "presents a potential unreasonable risk of illness or
injury" may be marketed only after receiving pre-market approval by the FDA. As
part of the pre-market approval process, the FDA scrutinizes (among other
things) the device's design, the method by which it will be manufactured, and
the label that it will carry. If the FDA grants pre-market approval for the
device, the manufacturer is then, subject to certain limited exceptions,
prohibited by federal law from changing the device's design, manufacturing
process, and label.
The plaintiff in
Riegel alleged that he suffered injuries during an angioplasty when a
balloon catheter that had received pre-market approval purportedly
malfunctioned. Invoking both negligence and strict-liability theories, the
plaintiff asserted various state-law tort claims alleging that the catheter was
defectively designed, labeled, and manufactured. The defendant moved for
summary judgment, arguing that the FDA's grant of pre-market approval
established federal requirements that preempted any state requirements different
from or in addition to the federal requirements, and that the imposition of
state-law tort liability despite the receipt of pre-market approval would
effectively establish state requirements different from or in addition to the
federal requirements. In the decision below, the Second Circuit affirmed the
grant of summary judgment, holding that the FDA's grant of pre-market approval
establishes federal requirements that preempt state-law tort claims such as
those brought by the plaintiff.
Today's decision by the
Supreme Court, in an opinion authored by Justice Scalia, affirms that holding.
Recognizing that "the FDA requires a device that has received premarket approval
to be made with almost no deviations from the specifications in its approval
application" (slip op. 10), the Court readily concluded that FDA premarket
approval imposes preemptive federal requirements on the device. Similarly, the
Court expressly reiterated the view that tort claims are subject to preemption
because they rely on state-law requirements no less than state-law statutory
claims. Indeed, in a statement that breaks new ground, the Court suggested
that, in comparison to state-law statutory claims, state-law tort claims are
even "less deserving of preservation" (slip op. 11) under the FDCA's preemption
provision because they are administered by juries that focus exclusively on the
harm allegedly suffered by an individual plaintiff without regard to the
benefits reaped from the device in question by the many patients not represented
in court. Allowing tort claims to proceed would, the Court found, disregard the
FDA's expert cost-benefit analysis and thus impair the federal regulatory
scheme.
Mayer Brown was co-counsel
to Medtronic.
Rowe v. New
Hampshire Motor Transport Association, No. 06-457 (previously discussed
in the June
25, 2007 docket report). The Federal Aviation Administration Authorization
Act of 1994 (FAAAA) provides that "a State * * * may not enact or enforce a law
* * * related to a price, route, or service of any motor carrier," or of any air
carrier, with respect to the transportation of property. 49 U.S.C. §§
14501(c)(1) & 41713(b)(4)(A). The FAAAA's preemption provisions were
intended to level the playing field in the trucking industry and to prevent a
"patchwork" of inconsistent state regulations. In Rowe, the Supreme
Court held that the FAAAA preempts two provisions of a Maine law regulating the
shipment of tobacco to Maine consumers because they effectively required
carriers to offer services that they would not otherwise offer and imposed
additional package-examination and processing obligations on the
carriers.
The decision in Rowe
adopts a broad view of FAAAA preemption and is therefore of significance to
motor carriers that rely on the FAAAA for protection from burdensome state
regulations. In addition, because Rowe reaffirms that the FAAAA's
preemptive effect parallels that of the Airline Deregulation Act, the decision
is also of significance to the airline industry.
The first of the Maine
statutory provisions at issue in Rowe required shippers of tobacco to use
a carrier offering a special kind of recipient-verification service. The
statute required shippers to use a service that would ensure that the addressee
and purchaser were the same person, that the addressee was of legal age, that
the addressee signed for the package, and that the addressee, if under the age
of 27, presented valid identification. The second provision prohibited the
knowing delivery of tobacco products to any person in Maine unless either the
shipper or the recipient was licensed by the State. The provision stated that a
carrier was "deemed to know that a package contains a tobacco product" if (1)
the package was marked as containing tobacco and displayed the name and license
number of a Maine-licensed tobacco retailer or (2) the shipper's name appeared
on a list of unlicensed tobacco retailers distributed by the State. In this
case, several trade associations, relying on evidence that the provisions caused
UPS to cease delivering tobacco products to Maine consumers, sought to enjoin
the enforcement of the recipient-verification requirement and the "deemed to
know" provision. The district court enjoined their enforcement and the First
Circuit affirmed, holding that the Maine law was preempted by the FAAAA because
it expressly referenced and significantly affected carrier services.
In a unanimous opinion by
Justice Breyer, the Supreme Court affirmed. (Justice Scalia joined all of
Justice Breyer's opinion except for those portions that relied on legislative
history.) Summarizing the preemptive effect of the FAAAA, the Supreme Court
explained that (1) the FAAAA preempts state laws having a connection with, or
reference to, carrier rates, routes, or services; (2) such preemption may occur
even if a state law's effect on rates, routes, or services is only indirect; (3)
with respect to preemption, it makes no difference whether a state law is
consistent or inconsistent with federal regulation; and (4) preemption occurs at
least where state laws have a significant impact related to Congress'
deregulatory and preemption-related objectives. The Court held that Maine's
recipient-verification requirement was preempted both because it focused on
carriers' services and because it would require carriers to offer services that
they do not presently offer. The Court held that the "deemed to know" provision
of Maine law was preempted because it would impose civil liability on a carrier
simply for failing to conduct a sufficient examination of every package and,
among other things, required carriers to cross-check every shipper against the
State's list of "unlicensed retailers." The Court rejected Maine's arguments
that the FAAAA preempts only "economic" regulation and does not apply to "public
health" laws, reasoning that any such rule would be both unworkable in practice
and contrary to the text of the FAAAA. The Court explained that upholding the
Maine requirements on such a theory would allow each state to impose its own
varying requirements on any number of products thought to implicate the "public
health."
Mayer Brown filed an amicus
brief in support of the respondents on behalf of the American Trucking
Associations and the Chamber of Commerce of the United States.
Preston v.
Ferrer, No. 06-1463 (previously discussed in the September
25, 2007 Docket Report). The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1
et seq., provides for the enforceability of arbitration agreements as a
matter of federal law. In a series of decisions over the last 40 years, the
Supreme Court has held that the FAA applies equally in state courts and federal
courts; prevents a state from applying special rules to arbitration agreements
that are not applicable to all contracts; and requires an arbitrator, instead of
a court, to decide allegations that the contract containing the arbitration
agreement is void. The Court also has ruled that a state cannot require parties
to proceed in court when they have agreed to arbitrate. Today, the Supreme
Court applied these holdings to clarify that a state also cannot require parties
to proceed in an administrative forum when they have agreed to arbitrate, and in
so doing, the Court rejected the latest call to roll back its FAA jurisprudence
as applied to state courts.
Today's decision in
Preston is an important reaffirmation of the federal policy that promotes
arbitration. The decision makes clear that a state may not impose an
extra-contractual administrative exhaustion requirement on agreements to
arbitrate. Moreover, it reaffirms that the FAA is not only applicable in state
court, but also preempts contrary provisions of state law.
The Preston decision
arises from a fee dispute between Arnold Preston, a California attorney, and
Alex Ferrer, also known as television's "Judge Alex." The parties had signed a
contract that provided for arbitration before the American Arbitration
Association ("AAA"), and incorporated California law. When the parties
disagreed over the fees due under their contract, Preston filed a demand for
arbitration to resolve the dispute. Ferrer resisted arbitration, and instead
filed a petition before the California Labor Commissioner that invoked the Labor
Commissioner's jurisdiction under the California Talent Agencies Act ("TAA"),
Cal. Lab. Code Ann. § 1700 et seq., and sought to void the contract as
unenforceable. Under the TAA, the Labor Commissioner had exclusive jurisdiction
to determine whether Preston was acting as an unlicensed talent agent when
representing Ferrer, and whether the parties' contract was therefore void.
After the Commissioner's hearing officer held that he lacked the power to halt
the arbitration, Ferrer sought and obtained a state judicial injunction stopping
the arbitration. The California Court of Appeals affirmed the injunction and
the concomitant denial of Preston's motion to compel arbitration, holding that
the FAA had no impact on a state statute that requires administrative, but not
judicial, disposition. 51 Cal. Rptr. 3d 628 (Cal. Ct. App. 2006). The
California Supreme Court denied review.
In an 8-1 decision authored
by Justice Ginsburg, the Supreme Court reversed, holding that the FAA preempted
the TAA's exclusive jurisdiction provision. The Court began by noting that the
question was much simpler than initially presented-namely, "who decides whether
Preston acted as personal manager or as talent agent," not whether the FAA
preempts the entire TAA. (Slip. op. 4.) Refusing to overrule its
previous decision in Southland Corp. v. Keating, 465 U.S. 1 (1984), which
had held the FAA to be applicable in state courts, the Court reaffirmed that
even in state court an arbitrator must decide whether a contract containing an
arbitration clause is invalid, and that the TAA therefore conflicted with the
FAA by granting exclusive jurisdiction to an agency "to decide an issue that the
parties agreed to arbitrate." (Slip op. 5-8.) The Court also held that other
provisions of the TAA, which purported to impose requirements on any agreement
to arbitrate talent agent claims, violated Section 2 of the FAA because they
were not applicable to contracts in general. (Slip op. 8.)
Rejecting the suggestion
that there is a relevant distinction between the two when compared to
arbitration, the Court held that the FAA preempts state statutes that require
either administrative proceedings or judicial proceedings prior to, or instead
of, arbitration. (Slip op. 10-12.) Finally, the Court refused to read the
parties' incorporation of California law into their agreement as also importing
the TAA's exclusive jurisdiction provision. California law would supply the
"prescriptions governing the substantive rights and obligations of the parties,"
but the contract's choice of the AAA's own rules to govern the arbitration
obviated the need to import California's "special rules limiting the authority
of arbitrators." Id. at 14-15 (internal quotation marks
omitted).
Mayer Brown filed an amicus
brief on behalf of CTIA-The Wireless Association in support of the
petitioner.
LaRue v. De
Wolff, Boberg & Assocs., No. 06-856 (previously discussed in the June
18, 2007 Docket Report). The Supreme Court granted certiorari in
LaRue to address two questions under the Employee Retirement Income
Security Act of 1974 (ERISA). The first question was whether ERISA
§ 502(a)(2) authorizes a participant in a defined contribution plan to sue the
plan's fiduciaries to recover losses that affect only the individual
participant. The second question was whether such an action seeks "equitable
relief" as that term is used in ERISA § 502(a)(3). Because the Court concluded
that § 502(a)(2) authorizes recovery, the Court did not reach the second
question.
The Supreme Court's decision
in this case is important to all ERISA fiduciaries, including both plan
administrators and plan sponsors, because the Court has made clear that a
fiduciary breach in a defined contribution plan that results in a loss to an
individual participant is an ERISA plan violation. As a result, participants in
defined contribution plans may recover for fiduciary breaches that result in
losses to the individual's account and are not limited to recovering only for
violations that affect the plan as a whole.
Petitioner James LaRue
participated in a 401(k) plan (a defined contribution plan) that allows an
individual to direct his or her investments by allocating assets among a variety
of investment options. LaRue claimed that his instructions were not executed
and that his account suffered losses of approximately $150,000 as a result. In
his complaint, LaRue asked that the administrator be ordered to reimburse the
plan to make LaRue's interest in the plan whole. The district court granted the
administrator judgment on the pleadings, and the Fourth Circuit affirmed.
Relying on Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134
(1985), the Fourth Circuit concluded that, although LaRue's claim was styled as
a request to reimburse the plan, it was actually a request for individual
recovery. As such, the Fourth Circuit held, the claim was unavailable under
§ 502(a)(2), which provides for recovery only "to the benefit of the plan as
a whole." 450 F.3d at 573 (quoting Russell, 473 U.S. at
140).
The Supreme Court vacated
the Fourth Circuit's decision, finding that Russell did not control. The
Court explained that, while Russell held that recovery under § 502(a)(2)
must inure to the plan as a whole, not to individual participants, the plan at
issue there was a defined benefit plan and any misconduct by plan administrators
would not affect an individual's entitlement to benefits unless the misconduct
created or enhanced the risk to the entire plan. The Court contrasted that
situation with that in a case like Larue, where the plan at issue is a
defined contribution plan. In such a case, the Court explained, a fiduciary
breach that diminishes plan assets need not diminish the assets of all
participants to be the sort of violation contemplated by § 502(a)(2). The Court
was careful to note that, although § 502(a)(2) allows recovery in the
circumstances present in this case, it does not provide a remedy for individual
injuries that are distinct from plan injuries.
Justice Thomas filed an
opinion concurring in the judgment that was joined by Justice Scalia. He
expressed the view that the Court's decision was correct because, although
§ 502(a)(2) only allows recovery for losses to the plan, losses to an
individual's personal account are losses to the plan that are reflected in the
account balances. Chief Justice Roberts filed an opinion concurring in part and
concurring in the judgment that was joined by Justice Kennedy. He suggested
that, while the Fourth Circuit's analysis was incorrect, LaRue's claim might
more appropriately be characterized as a claim for benefits that could be
brought under ERISA § 502(a)(1)(B).
