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October Term, 2006

June 11, 2007

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

United States v. Atlantic Research Corp., No. 06-562 (previously discussed in the January 22, 2007 Docket Report). Two provisions of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA)-- 107(a) and 113(f)--allow private parties to recover expenses associated with cleaning up contaminated sites. Section 107(a)(4) makes so-called potentially responsible parties (PRPs) liable for "(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe" and "(B) any other necessary costs of response incurred by any other person." Section 113(f), added to the CERCLA in 1986, provides that a private party "may seek contribution" from another private party in certain circumstances. In Cooper Industries v. Aviall Services, Inc., 543 U.S. 157 (2004), the Court held that a private party could seek contribution under 113(f) only after having been sued under 106 or 107(a). The Court in Cooper Industries left open the question whether 107(a) provides a cause of action to a private party who had voluntarily incurred cleanup costs and, therefore, could not invoke 113(f). Today, in a unanimous decision written by Justice Thomas, the Court held that 107(a) does create a cause of action in this situation.

This decision is of tremendous importance to businesses facing CERCLA liability. By clarifying that companies need not be sued to recover under 107(a), the decision encourages PRPs to initiate voluntary clean-ups. Prior to this decision, PRPs who did so risked having to bear the costs of clean up alone.

In reaching its decision, the Court considered the relationship between subparagraphs 107(4)(A) and (B). The Court explained that because the phrase "other necessary costs" in subparagraph (B) clearly means those costs not covered in subparagraph (A), the phrase "any other person" in subparagraph (B) has to mean a party other than "the United States Government or a State or an Indian tribe." Under that interpretation, PRPs fall into the category of "any other person" and may recover under 107(a).

The Court also addressed the relationship between 107(a) and 113(f). The Court rejected the Government's contention that the Court's interpretation of 107(a) would render 113(f) superfluous. Instead, the Court explained, the two provisions complement one another by offering two "clearly distinct" remedies; 107(a) provides "a right to cost recovery," while 113(f) provides "rights to contribution." In other words, under 107(a) a private party may recover only costs actually incurred in cleaning up a site, whereas under 113(f) a private party may seek to equitably apportion liability among all responsible parties (even if that party has not yet incurred clean-up costs). When a party pays to satisfy a settlement or court judgment, therefore, it must pursue 113(f) contribution.

Watson v. Philip Morris Cos.
, No. 05-1284 (previously discussed in the January 16, 2007 Docket Report). The federal officer removal statute permits a defendant to remove a state court action to federal court if the defendant is the "United States or any agency thereof or any officer (or any person acting under that officer) of the United States or any agency thereof." 28 U.S.C. 1442(a)(1) (emphasis added). The question in this case was whether tobacco companies were acting under the FTC's authority when they tested "light" cigarettes in accordance with a method prescribed by the FTC. In a unanimous decision by Justice Breyer, the Court held that they were not.

The plaintiffs sued Philip Morris in Arkansas state court, alleging that the company violated Arkansas laws regulating unfair and deceptive business practices by employing techniques to ensure that its cigarettes would register lower levels of tar and nicotine on the "Cambridge Filter Method" test. Under FTC regulations, low tar and nicotine levels on this test authorized Phillip Morris to advertise its cigarettes as "light." Phillip Morris removed the case to the federal district court, alleging that it was a "person acting under" the Federal Trade Commission (FTC), an agency who acts through federal officers.

The Supreme Court reversed the Eighth Circuit's decision upholding removal. According to the Court, the tobacco industry's use of the FTC Method pursuant to detailed FTC regulation does not amount to the type of "officer" relationship that Congress envisioned when enacting the removal statute. The Court noted that the "basic purpose" of the removal statute is to protect the federal government from interference with its operations. For this reason, the Court explained, the removal statute reaches private persons only if they "lawfully assist" a federal officer in the performance of his official duty. See Tennessee v. Davis, 100 U.S. 257, 261 (1880); Davis v. South Carolina, 107 U.S. 597, 600 (1883). The Court held that mere compliance with the FTC's advertising regulations through cigarette testing does not satisfy the standard of "acting under" a federal officer. Instead, to remove the case to federal court, Phillip Morris would have to show that an agency officer lawfully delegated authority to the company to assist in the officer's governmental functions.

More broadly, the Court stated that a "highly regulated firm cannot find a statutory basis for removal in the fact of federal regulation alone." A contrary ruling, the Court noted, would authorize removal whenever a federal agency directs, supervises, or monitors a company's activities in considerable detail. In short, Phillip Morris failed to show that the FTC had delegated authority or created a special relationship with the company to act "under" the FTC and justify removal.

Significantly, the Court seemed to agree that government contractors might still be able to take advantage of federal officer removal, although the Court declined to elaborate on the requirements for removal by a government contractor.

Long Island Care at Home, Ltd. v. Coke, No. 06-593 (previously discussed in the January 8, 2007 Docket Report). The Fair Labor Standards Act (FLSA), 29 U.S.C. 231(a)(15), exempts workers from the minimum wage and maximum hours rules if they are "employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves (as such terms are defined and delimited by regulations of the Secretary [of Labor])." A Department of Labor pronouncement, labeled an "interpretation," extends this exemption to "companionship" workers "employed by an employer or agency other than the family or household using their services." 29 C.F.R. 552.109(a) (2006). The question presented by this case was whether that pronouncement, which was adopted following notice-and-comment procedures, is legally binding even though it is labeled an "interpretation" rather than a "regulation" and seemingly contradicts something that is indisputably a "regulation."

In an opinion by Justice Breyer, a unanimous Court held that the Department's "interpretation" is legally binding (and that home health care workers are therefore exempt from minimum wage and overtime pay laws). According to the Court, the Department's "interpretation" of 231(a)(15) is entitled to deference under Chevron and Mead because it is a reasonable construction of an express statutory gap that was promulgated by the relevant expert agency after full notice-and-comment procedures. The Court further held that the "interpretation" trumps the seemingly contradictory "regulation" both because "the specific governs the general" and because a contrary result in this case would produce results in other cases that would be contrary to what the Court perceives to be congressional intent.

Beyond its obvious implications for the home health care industry, this decision will increase the situations in which agency regulations receive Chevron deference.

Beck v. Pace Int'l Union, No. 05-1448 (previously discussed in the January 22, 2007 Docket Report). In this ERISA case, the Supreme Court, adopting the view of the Pension Benefit Guaranty Corporation (PBGC), held that merger with a multiemployer plan is not a permissible method of terminating a single-employer defined-benefit plan under 29 U.S.C. 1341(b)(3)(A)(ii), and that therefore an employer who failed to consider such a merger when terminating its single-employer defined-benefit plan did not violate any fiduciary duty, whatever its fiduciary duties may be in connection with plan termination. After concluding that 1341(b)(3)(A)(ii) was ambiguous and therefore subject to interpretation by the PBGC, the Court found that the PBGC's position was reasonable and thus entitled to deference because merger with a multiemployer plan would leave the plan in existence rather than terminate the plan, would prevent the employer from recouping surplus funds as is permitted upon plan termination, and would expose plan participants to the danger of plan assets being used to pay other beneficiaries under the multiemployer plan. By foreclosing the possibility of termination through merger, the decision narrows the range of alternatives that an employer must consider--and thus limits the threat of fiduciary duty claims that an employer must fear--when terminating a single-employer plan.

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