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October Term, 2008

June 18, 2009

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

Gross v. FBL Financial Services, Inc., No. 08-441 (previously discussed in the December 5, 2008 Docket Report ).

The Age Discrimination in Employment Act of 1967 (ADEA) makes it unlawful for an employer to take adverse action against an employee “because of such individual’s age.”   29 U.S.C. § 623(a).  In a 5-4 decision issued today, the Supreme Court held that the ADEA does not authorize so-called mixed-motives claims and that an ADEA plaintiff therefore bears the burden of proving, by a preponderance of the evidence, that age was the “but for” cause of the challenged adverse employment action.

Writing for the majority, Justice Thomas rejected the suggestion that the ADEA should be interpreted in the same manner as Title VII of the Civil Rights Act of 1964.  In Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), a plurality of the Court held that Title VII allows mixed-motives claims, i.e., claims alleging that an adverse employment decision was based on both permissible and impermissible considerations.  Under Price Waterhouse, if a Title VII plaintiff shows that an impermissible consideration was a “motivating factor” for the adverse action, the burden of proof shifts to the defendant, who, to escape liability, must then show that the same action would have been taken regardless of the impermissible consideration.  According to today’s majority opinion in Gross, that framework is inapplicable to claims brought under the ADEA:  Although Congress amended Title VII to codify the plurality’s holding in Price Waterhouse, it did not make similar amendments to the ADEA.  Slip op. 5–6.  Moreover, in contrast to the amended Title VII, which expressly authorizes claims when an impermissible consideration was a “motivating factor,” the ADEA, which is silent as to burden of proof, imposes liability only when an adverse action was taken “because of” age.  Therefore, the Court held, an ADEA plaintiff must prove that age was the “but for” cause of the employer’s adverse decision.  Slip op. 7–9.  Finally, the majority observed, even if the burden-shifting established by Price Waterhouse were doctrinally applicable to ADEA cases, it has proven difficult to implement.

Justice Stevens wrote the principal dissent, which was joined by Justices Souter, Ginsburg, and Breyer.  As an initial matter, according to the dissent, in holding that mixed-motives claims were unavailable under the ADEA, the Court improperly reached a question that had not been presented in the petition for certiorari and was not briefed by the parties or their amici.  Moreover, even if the issue were properly before the Court, Price Waterhouse compelled the opposite result, in the dissent’s view.  When that case was decided, Title VII, like the ADEA today, barred adverse employment actions taken “because of” certain impermissible considerations.  According to the dissenting Justices, the phrase “because of” as used in the ADEA should be construed, as it was in Price Waterhouse, to encompass situations in which an impermissible consideration was a “motivating factor” in an adverse employment action.

Travelers Indemnity Co. v. Bailey, Nos. 08-295 & 08-307 (previously discussed in the December 15, 2008 Docket Report ).

The Supreme Court had consolidated and granted certiorari in Traveler’s Indemnity Co. v. Bailey (No. 08-295) and Common Law Settlement Counsel v. Bailey (No. 08-307) to determine the scope of a bankruptcy court’s authority to enjoin lawsuits seeking recovery against a debtor’s insurance companies.  The issue arose when suits were filed against a bankrupt manufacturer’s insurance company, and the insurance company claimed that the suits were barred by the terms of orders that had been entered in the manufacturer’s bankruptcy proceeding.  But, finding that the jurisdictional question was not properly before it (because the orders at issue had become final on direct review over two decades ago), the Court today released an opinion, authored by Justice Souter and joined by six other Justices, in which it expressly declined to “resolve whether a bankruptcy court . . . could properly enjoin claims against nondebtor insurers that are not derivative of the debtor’s wrongdoing.”  Slip op. 17.

Instead, in what it described as a “narrow” holding, the Court found that by their terms the orders in question, which had been entered in 1986 in connection with the Chapter 11 reorganization plan of the Johns-Manville Corporation, “unambiguously appl[ied]” to the claims against the insurer, Travelers, and that the claims against Travelers were therefore barred.  Slip op. 12.

The orders at issue in this case arose from the 1986 Chapter 11 reorganization plan of the Johns-Manville Corporation, an asbestos supplier and manufacturer.  As part of that reorganization plan, the United States Bankruptcy Court for the Southern District of New York approved a settlement providing that Manville’s insurers, including Travelers, would contribute millions of dollars into the Manville Trust in exchange for an order enjoining “claims” and “allegations” against them “based upon, arising out of or relating to” the Manville insurance policies. The settlement agreement and reorganization plan, embodied in the 1986 Orders, were approved by the Bankruptcy Court and were affirmed by the District Court and the Second Circuit.  Over a decade later, plaintiffs began filing asbestos claims against Travelers itself, alleging that Travelers had known the dangers of asbestos in the 1950s and had influenced Manville's ostensible failure to disclose its knowledge of asbestos hazards.  In response to those claims, the Bankruptcy Court in 2002 issued an order clarifying that the 1986 injunction barred those claims against Travelers.

The decision in this case could have been of tremendous significance to insurers that have contributed to Manville-type trusts in reliance on 11 U.S.C. § 524(g), which was modeled after the 1986 Manville orders.  The Court, however, has left for another day the question whether a bankruptcy court can properly enjoin claims against non-debtor insurers for their alleged independent wrongdoing. 

In dissent, Justice Stevens (with whom Justice Ginsburg joined) disagreed with the majority that the terms of the injunction entered by the Bankruptcy Court as part of the 1986 reorganization barred actions against Manville’s insurers for independent wrongdoing.  Instead, Justice Stevens stated, the injunction barred only those claims seeking to recover against the insurers for Manville’s misconduct. 

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