October Term, 2009
May 24, 2010
Today the Supreme Court issued three decisions, described below, of interest to the business community.
Antitrust—“Single Entity” Immunity
American Needle, Inc. v. National Football League, No. 08-661 (previously discussed in the June 29, 2009 Docket Report)
In a decision that could prove significant to all businesses that engage in joint ventures and other cooperative enterprises, the Supreme Court ruled today in American Needle, Inc. v. National Football League, No. 08-661, that the National Football League (NFL) does not constitute a “single enterprise” for antitrust purposes, holding instead that the league’s 32 constituent teams are separate enterprises when it comes to selling branded items like caps.
In 2000, the 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 Section 1 of the Sherman Act, which prohibits contracts, combinations, or conspiracies in restraint of trade. In response, the NFL, relying on Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), argued that the league and its teams, like a parent and its 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, granting summary judgment to the NFL, and the Seventh Circuit affirmed.
In a unanimous opinion by Justice Stevens, the Supreme Court reversed, holding that the NFL’s joint licensing of team trademarks may be challenged under the Sherman Act. The Court explained that in analyzing concerted action under the Act, the “relevant inquiry is whether there is a ‘contract, combination . . . or conspiracy’ amongst ‘separate economic actors pursuing separate economic interests,’ such that the agreement ‘deprives the marketplace of independent centers of decisionmaking and therefore of diversity of entrepreneurial interests.’” Slip op. 10 (internal citations omitted). Applying that test to the NFL, the Court found that each of the league’s constituent teams is “a substantial, independently owned, and independently managed business” and that each competes with the others “not only on the playing field, but . . . in the market for intellectual property.” Id. at 12. Characterizing the various teams as “potentially competing suppliers of valuable trademarks,” the Court found that when licensing their respective trademarks, the teams are “not pursuing the ‘common interests of the whole’ league” but are instead “acting as ‘separate economic actors pursuing separate economic interests.’” Id. Accordingly, the Court concluded, the fact that the league’s teams depend on cooperation among themselves did not make them a single enterprise immune from antitrust liability.
Title VII—Time Limit to File EEOC Charge
Lewis v. City of Chicago, No. 08-974 (previously discussed in the September 30, 2009 docket report)
Under Title VII of the Civil Rights Act of 1964, a plaintiff suing for employment discrimination must have first filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) “within 300 days after the unlawful employment practice occurred.” 42 U.S.C. §2000e-5(e)(1). Today, in Lewis v. City of Chicago, No. 08-974, the Supreme Court held that a plaintiff who does not file a timely EEOC charge challenging the adoption of a practice may nevertheless assert a disparate-impact claim in a timely charge challenging the employer’s later application of that practice, as long as the plaintiff alleges each element of a disparate-impact claim.
Petitioners, plaintiffs below, are a class of African-Americans who applied for positions as firefighters for the City of Chicago. To select firefighters, the City administered an examination in 1995 that sorted applicants into three categories: “not qualified,” “qualified,” and “well qualified.” “Well qualified” and “qualified” applicants were placed on an eligibility list to be drawn from in the future, should the need arise, although first priority was given to “well qualified” applicants. From 1996 until 2002, the City selected nine classes of applicants from the eligibility list; only in the last round did the City extend offers to “qualified” applicants.
Petitioners, who were classified as “qualified,” contended that the exam had a disparate impact and thus violated Title VII. After filing a charge with the EEOC in 1997 and receiving right-to-sue letters, petitioners filed suit in district court, obtained class certification, and ultimately prevailed on the merits. The Seventh Circuit reversed, holding that the suit was untimely because petitioners filed the EEOC charge more than 300 days after their test scores were sorted into categories.
In a unanimous opinion by Justice Scalia, the Supreme Court reversed. The Court reasoned that the real issue in the case was not timeliness, but whether “the City’s practice of picking only those [deemed ‘well qualified’ based] on the 1995 examination when it later chose applicants to advance . . . can be the basis for a disparate-impact claim at all.” Slip op. 4-5. The Court answered that question yes, concluding that petitioners’ claims satisfy the requirements of Title VII’s disparate-impact provision, 42 U.S.C. 2000e-2(k)(1)(A)(i). And because “the acts petitioners challenge—the City’s use of its cutoff score in selecting candidates—occurred within the charging period,” slip op. 6, the Court held that petitioners’ suit was timely.
The Court rejected the City’s argument that, because petitioners did not timely challenge the first act that caused the disparate impact (that is, the 1995 test itself), claims involving subsequent effects of that act are likewise barred. Because a disparate-impact claim does not require proof of discriminatory intent, the Court determined that the hiring decisions within the limitations period constituted new violations that triggered new liability. Accordingly, the Court held, plaintiffs who allege disparate-impact claims under Title VII need not complain of the first act from which subsequent violations flow; each new violation actionable under Title VII renews the 300-day limitation period.
The Court’s decision in Lewis is a significant one for companies covered by Title VII. Under the decision, plaintiffs may be able to proceed with disparate-impact suits challenging well-established and facially neutral practices that employers have used regularly for years, and evidence essential to employers’ defenses (such as business necessity) may be unavailable (or at least unreliable) by the time the later suits are filed. The Court acknowledged these “practical problems” for employers, slip op. 10, but observed that the contrary reading of the statute could cause a different set of problems for plaintiffs and that, in any event, any problems caused by the Court’s interpretation are for Congress to fix.
Hardt v. Reliance Standard Life Ins. Co., No. 09-448 (previously discussed in the January 15, 2010 docket report).
Section 502(g)(1) of the Employee Retirement Income Security Act of 1974 (ERISA) provides that “a reasonable attorney’s fee and costs” are available to “either party” at the discretion of the court. 29 U.S.C. § 1132(g)(1). Today, in Hardt v. Reliance Standard Life Insurance Co., No. 09-448, the Supreme Court held that this provision does not require that the fee claimant be a “prevailing party” and that a district court may award fees and costs as long as the claimant has “achieved some degree of success on the merits.” Slip op. 9, 12. The Court’s decision is important to all businesses that maintain ERISA plans, because it rejects the stricter standard for the award of attorney’s fees that had been applied by some lower courts, including the Fourth Circuit in this case.
The petitioner in Hardt had filed for long-term disability benefits, which the respondent (Reliance) initially denied. After exhausting her administrative remedies, Hardt sued under ERISA. The district court remanded for further review by Reliance, holding that Reliance’s decision did not comply with ERISA because it was based on incomplete information. While expressing an inclination to rule in Hardt’s favor in light of compelling evidence of disability, the district court ordered Reliance to consider all the relevant evidence and act on it within 30 days, or else face judgment in favor of Hardt. After conducting the required review, Reliance approved Hardt’s disability claim and paid her benefits.
Hardt then moved for attorney’s fees and costs under Section 502(g)(1). The district court granted the motion, concluding that Hardt was a “prevailing party,” and thus potentially entitled to attorney’s fees under Fourth Circuit precedent, because, although she had not won a judgment, the court’s remand order materially changed the parties’ legal relationship in Hardt’s favor. The Fourth Circuit reversed, holding that a claimant qualifies as a “prevailing party” only by securing a judgment on the merits or a court-ordered consent decree.
In an opinion by Justice Thomas, the Supreme Court reversed. The court first held that Section 502(g)(1) does not limit the availability of attorney’s fees to “prevailing parties,” a phrase that appears nowhere in the provision. Noting that another ERISA provision governing attorney’s fees (which is not applicable in this case) does expressly limit such awards to plaintiffs who obtain a judgment, the Court concluded that there was no basis for the Fourth Circuit’s imposition of a similar requirement under Section 502(g)(1). The Court went on to hold that, to recover attorney’s fees under Section 502(g)(1), the claimant must show “some degree of success on the merits” that is more than trivial and not purely a procedural victory. Slip op. 12. The Court concluded that this standard was satisfied here, because Hardt persuaded the district court that she was likely to prevail and that Reliance had failed to comply with ERISA. The Court’s opinion was unanimous, except for one part of the opinion that was joined by all members of the Court but Justice Stevens, who wrote a one-paragraph concurrence.
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