Today the Supreme Court granted certiorari in four cases of interest to the business community:
ERISA—Deference to Plan Administrator’s Interpretation—Standard of Review
Employee retirement programs are governed by written plans that are regulated by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 et seq. The default rule is that a plan administrator’s interpretation of an ERISA benefit plan, including benefit determinations under such a plan, is subject to de novo review in court. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), however, the Supreme Court held that if a plan grants the administrator discretionary authority to determine benefits, the administrator’s benefits determinations are entitled to judicial deference. The Supreme Court has granted certiorari in Conkright v. Frommer, No. 08-810, to decide whether, if a plan affords the administrator discretion to interpret the plan document outside the context of benefits determinations, judicial deference is owed to such interpretations. The Court also granted certiorari to address whether a district court’s determination of the appropriate remedy for a violation of an ERISA plan is subject to de novo review or more limited abuse-of-discretion review.
This case is of considerable interest to all companies that maintain ERISA plans. The degree of deference, if any, given to a plan administrator’s interpretation of the plan can mean the difference between multi-million dollar liability and no liability at all.
Conkright concerns the computation of pension benefits for employees who had received lump-sum benefits upon leaving Xerox Corporation but who were later rehired. Ordinarily, defined-benefit pension payments are computed by considering factors such as an employee’s salary and time-in-service. For employees who were rehired after taking a lump-sum distribution, however, the typical formula would result in overcompensation. Xerox devised a method for reducing benefits paid to returning employees to account for prior lump-sum distributions and amended the plan accordingly.
The U.S. Court of Appeals for the Second Circuit, in an earlier appeal, concluded that plan participants had not received adequate notice of the amendment until a certain date, and directed the district court to determine how to compute benefits granted prior to that date. On remand, the district court evaluated how benefits granted prior to the effective amendment date should be determined. In so doing, the court rejected the plan administrator’s computational interpretation, and declined to accord it deference under Firestone. On appeal, the Second Circuit affirmed, agreeing with the district court’s refusal to accord deference to the plan administrator and reviewing the district court’s own remedy for abuse of discretion.
Absent extensions, which are likely, amicus briefs in support of the petitioners (or of neither party) will be due on August 20, 2009, and amicus briefs in support of the respondents will be due on September 21, 2009. Any questions about this case should be directed to firstname.lastname@example.org.
Antitrust—“Single Entity” Immunity
In Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), the Supreme Court held that a parent corporation and its wholly owned subsidiary are a single enterprise, and therefore incapable of conspiring with each other, under Section 1 of the Sherman Act, 15 U.S.C. § 1, which prohibits combinations or conspiracies in restraint of trade. Today the Supreme Court granted certiorari in American Needle, Inc. v. National Football League, No. 08-661, to decide whether a professional sports league and its member teams constitute a single entity immune from liability under Section 1.
The case is important to all businesses engaged in joint ventures and other cooperative enterprises, as the Court appears ready to clarify what kinds of ventures are eligible for single-entity treatment.
In 2000, the National Football League (“NFL”) entered into an exclusive licensing agreement with Reebok International Ltd. to produce caps and other headwear bearing the trademarks or logos of NFL teams. As a result, other vendors, including American Needle, lost their licenses. American Needle sued, claiming that, because each NFL team owns its own logos and marks, the exclusive agreement was a conspiracy to restrain competition in violation of the Sherman Act. In response, the NFL argued that the collective agreement could not “deprive the market of any independent sources of economic power” because the league and its teams, like parent and subsidiary corporations, constitute a “single entity for antitrust purposes.” American Needle, Inc. v. NFL, 538 F.3d 736, 738 (7th Cir. 2008).
The district court agreed, and granted summary judgment to the NFL. The Seventh Circuit affirmed. Reasoning that the NFL competes in a marketplace of entertainment providers, the court of appeals held that the teams “can function only as one source of economic power when collectively producing NFL football” and that they “have acted as one source of economic power * * * to license their intellectual property collectively to promote NFL football.” 538 F.3d at 743–44.
In response to American Needle’s petition for certiorari, the NFL took the unusual step of agreeing that Supreme Court review was appropriate “to secure a uniform rule that * * * recognizes the single-entity nature of highly integrated joint ventures.” NFL Br. 4. In separate amicus briefs, the National Basketball Association and the National Hockey League also urged the Court to grant review. The Court did so despite an amicus brief from the Solicitor General recommending that certiorari be denied.
Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on August 20, 2009, and amicus briefs in support of the respondents will be due on September 21, 2009. Any questions about this case should be directed to Dan Himmelfarb (+1 202 263 3035) in our Washington, DC office.
Arbitration Agreements—Labor Management Relations Act—Tortious Interference
The Supreme Court agreed today to resolve questions of both labor relations and arbitration law in a case involving a dispute over whether the parties entered into a collective bargaining agreement and a subsequent strike. Three years ago, in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), the Court held that when a party challenges the validity of an entire contract that contains an arbitration provision, the Federal Arbitration Act, 9 U.S.C. § 1 et seq., requires the party to present those arguments to an arbitrator rather than a court. Buckeye’s holding has been applied to labor arbitration agreements as well. The Court granted certiorari in Granite Rock Co. v. International Brotherhood of Teamsters, No. 08-1214, to decide a question that Buckeye left open: whether a party to a purported collective bargaining agreement who challenges the very existence of that agreement (including its arbitration clause) rather than its legal validity must similarly challenge the agreement’s formation before an arbitrator. The Court also agreed to decide whether Section 301(a) of the Labor Management Relations Act (“LMRA”), 29 U.S.C. § 185(a), permits a company to sue a parent union for tortious interference with a labor contract when the parent union had not itself signed the collective bargaining agreement but allegedly caused a strike in violation of that agreement.
In the action giving rise to Granite Rock, an employer and one of its local unions had signed a tentative collective bargaining agreement that contained both an arbitration clause and a no-strike clause. The union engaged in a strike, however, contending that its members had never ratified the tentative agreement and that the no-strike clause was therefore inapplicable. Relying on the no-strike clause, the employer sought to enjoin the strike, but the district court denied the requested injunction and allowed the strike to continue. The employer pursued claims for damages against both the local union and its international parent union. In the course of defending against the employer’s lawsuit, the union sought to compel arbitration.
The district court dismissed the suit against the international union, concluding that Section 301 of the LMRA did not authorize suits for tortious interference. As for the employer’s claims against the local union, the district court concluded that, in light of the local union’s denial that ratification of the collective bargaining agreement had occurred, there was a disputed question of fact over whether an arbitration agreement had been formed, and the court referred the contract formation question to the jury. Subsequently, the jury verdict found that a collective bargaining agreement existed. The district court then held that the employer’s claims against the local union were subject to arbitration.
On appeal, the Ninth Circuit vacated the jury’s verdict, holding that, under Buckeye, the question whether the tentative collective bargaining agreement was ever ratified was reserved for an arbitrator to determine. The court reasoned that, by suing on the contract, the employer had consented to arbitrate the question of the contract’s existence. The court also upheld the dismissal of the Section 301 claim against the international union.
The Supreme Court’s resolution of the first question—who decides whether parties consented to a contract containing an arbitration provision—will be of significant interest to any business that uses arbitration agreements both inside and outside the labor context. Businesses may approach the use and drafting of contracts containing arbitration agreements differently depending upon whether a court or an arbitrator resolves challenges to a contract’s existence. On the second question—whether Section 301 of the LMRA was intended to provide a cause of action against parties other than those who have actually signed a collective bargaining agreement—any party to a collective bargaining agreement will find the Court’s answer of interest to the extent that it defines what entities, including parent unions or companies, are potentially subject to liability under Section 301.
Absent extensions, which are likely, amicus briefs in support of the petitioner or in support of neither party will be due on August 20, 2009, and amicus briefs in support of the respondents will be due on September 21, 2009. Any questions about this case should be directed to Archis A. Parasharami (+1 202 263 3328) in our Washington, DC office.
Fair Debt Collection Practices Act—Bona Fide Error Defense
The Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, prohibits the making of a false statement during an initial communication to a debtor regarding a debt collection. But the FDCPA also provides an affirmative defense under which a false statement is not actionable if the debt collector shows that “the violation was not intentional and resulted from bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” The Supreme Court today granted certiorari in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, No. 08-1200, to decide whether the bona fide error defense applies to legal errors, or only to clerical errors.
This case is important to debt collectors, and by extension to the businesses they serve. If the Supreme Court finds that the safe harbor created by the bona fide error defense does not apply to mistakes of law, attorneys and other debt collectors will face the threat of liability for even reasonable mistakes of law.
In Jerman, the debtor was served with a notice informing her that the debt at issue would be assumed valid unless within 30 days she disputed it “in writing.” The debtor sued the law firm that issued the notice, alleging that it contained a false statement of fact because the FDCPA does not require a written disputation. The defendants argued that even if they had violated the FDCPA they were shielded by the bona fide error defense. The Sixth Circuit agreed, and joined the Tenth Circuit in holding that the bona fide error defense applies to errors of law as well as clerical errors. 538 F.3d 469. In so holding, the Sixth Circuit acknowledged that three other circuits have reached the opposite conclusion.
Absent extensions, which are likely, amicus briefs in support of the petitioner are due August 20, 2009, and amicus briefs in support of the respondent are due September 21, 2009. Any questions about this case should be directed to Andrew Tauber (+1 202 263 3324) in our Washington, DC office
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