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1997 Term, Number 9 / January 26, 1998

On Friday, January 23, the Supreme Court granted certiorari in two cases of interest to the business community and issued a slightly expedited briefing schedule in those cases. Amicus briefs in support of the petitioners are due on March 4, 1998, and amicus briefs in support of the respondents are due on March 30. In addition, on its regular January 26 order list, the Court granted and consolidated a total of eight petitions and cross-petitions arising out of a single case. Amicus briefs in support of the petitioners are due on March 12, and amicus briefs in support of the respondents are due on April 13 (because April 11 is a Saturday). Any questions about these cases should be directed to Evan Tager (202-778-0618) or Alan Untereiner (202-778-0656) in our Washington office. The Court will be in recess until February 23, 1998.

1.  Telecommunications — FCC Regulations Implementing Local Competition Provisions. The Telecommunications Act of 1996 represents the most comprehensive revision of the regulatory system for telephone service in more than 60 years. Among other things, it abolishes restrictions on competitive entry into local telephone service and compels incumbent carriers to open their networks to competitors in certain defined ways. In its first major rulemaking concerning the 1996 Act's local competition provisions, the Federal Communications Commission (FCC) issued a 700-page order. In two decisions, the Eighth Circuit vacated several regulations imposed in that order. 120 F.3d 753, 124 F.3d 934 (1997).

The Supreme Court granted the petition for certiorari in AT&T Corp. v. Iowa Utilities Board, No. 97-826, and seven related petitions and cross-petitions, to resolve several questions relating to the local competition provisions of the Act. See 47 U.S.C. §§ 251-252. In particular, the Court will address the obligations of incumbent local telephone companies (1) to interconnect their networks with those of competitors ("interconnection"), (2) to resell their services to new competitors ("resale"), and (3) to allow those competitors to purchase the incumbents' "network elements on an unbundled basis" (47 U.S.C. § 251(c)(3)) ("unbundled network elements"). The Court consolidated four petitions, including one submitted by the FCC and the United States, and four conditional cross-petitions, and assigned a total of one hour of argument. Barring additional action by the Court, the case will be heard in October.

In resolving the most-publicized question, the Court will decide whether the FCC has statutory authority to set detailed nationwide standards with respect to certain local competition obligations set forth in the 1996 Act, including precise formulas for the prices that an incumbent carrier may charge for interconnection, resale, and unbundled network elements. The Eighth Circuit held that, in light of the presumption against FCC jurisdiction over intrastate communications services (47 U.S.C. § 152(b)), state commissions, and not the FCC, have jurisdiction to implement those local competition provisions where the Act does not expressly assign responsibility to the FCC. The court of appeals relied on Louisiana Public Service Comm'n v. FCC, 476 U.S. 355 (1986), as well as provisions of the 1996 Act that appeared to assign pricing matters, among other responsibilities, explicitly to "State commission[s]." See, e.g., 47 U.S.C. § 252(d)(1)-(3).

The Court will also consider the validity of several FCC regulations interpreting narrower provisions of the Act. It will review the Eighth Circuit's invalidation of a regulation interpreting the statutory requirement that incumbent carriers "make available any interconnection, service, or network element provided under an agreement" with a competing carrier "to any other requesting telecommunications carrier upon the same terms and conditions as those provided in the agreement." 47 U.S.C. § 252(i). The FCC derived from this one-way ratcheting provision an additional obligation to permit requesting carriers to cherry-pick more favorable aspects of an incumbent's agreement with another carrier without having to accept the remaining "terms and conditions" in the agreement. The Eighth Circuit held that this "pick and choose" regulation was unreasonable because it would discourage the trade-offs of negotiation when future parties could enjoy the benefits of an agreement without providing the consideration that motivated the agreement.

The remaining questions involve the unbundled network element obligation, which allows competitors to lease parts of the incumbent's network rather than constructing entire competing networks or purchasing finished telecommunications services for resale. See 47 U.S.C. § 251(c)(3). The statutory pricing standard for unbundled network elements (cost-based plus, at the regulator's option, a reasonable profit) in practice has produced prices much lower than the standard for resale (retail price less avoided costs).

The Court will decide whether new entrants may obviate the need to purchase services for resale by gaining access to all network elements needed to provide a particular retail service using the cost-based unbundled network element regime, and whether the incumbent must provide combinations of "unbundled" elements on a preassembled basis. The Eighth Circuit upheld an FCC rule allowing entrants to lease all elements without providing any part of the network independently, but vacated a rule that required incumbents to offer purportedly "unbundled" network elements already combined into a finished service.

Finally, the Court will decide whether the Eighth Circuit correctly sustained FCC rules broadly defining the network elements that must be offered on an unbundled basis. The Act requires the Commission, in deciding what elements are subject to that obligation, to consider (1) whether any elements that are proprietary are also "necessary" to provide competing service, and (2) whether failing to provide access to a particular element would "impair" the ability of a competitor to provide service. The FCC's response, upheld by the Eighth Circuit, was to conclude that all network elements met this standard whether or not the same elements could be economically purchased from other sources. The FCC also identified as "network elements" several network and telecommunications services, including caller ID, call waiting, operator services, directory assistance, and operational support systems.

This case may determine the shape of telecommunications competition and is accordingly of broad interest. Mayer, Brown & Platt is counsel to Ameritech Corporation, a respondent and cross-petitioner.

2.  Title VII — Sexual Harassment — Standard for Quid Pro Quo Claim.
The Court granted certiorari in Burlington Industries, Inc. v. Ellerth, No. 97-569, to decide whether a claim of quid pro quo sexual harassment is actionable under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-2(a)(1), when the plaintiff employee has neither submitted to the sexual advances of the alleged harasser nor suffered any tangible effects on compensation, terms, conditions or privileges of employment as a consequence of refusing to submit to those advances.

Kimberly Ellerth brought suit against her former employer, Burlington Industries, alleging employment discrimination and constructive discharge. Specifically, Ellerth charged, inter alia, that a male supervisor had made sexual advances to her over a period of approximately one year and from time to time intimated that she would not be promoted or otherwise do well at the company unless she submitted to his advances. The U.S. District Court for the Northern District of Illinois granted summary judgment to Burlington Industries, reasoning that, absent any evidence in the record that her supervisor actually had withheld tangible employment benefits in connection with Ellerth's refusal to submit to his sexual advances, Ellerth was unable to prevail on a theory of quid pro quo sexual harassment under Title VII. 912 F. Supp. 1101 (1996). A panel of the Seventh Circuit reversed, holding that Ellerth had presented sufficient evidence of quid pro quo sexual harassment to raise a genuine issue of material fact.

On rehearing en banc, the full Seventh Circuit issued a per curiam opinion reversing the district court. 123 F.3d 490 (1997). Unable to agree on a single rationale, the various members of the majority issued a "welter" of opinions explaining their reasons for concurring in the result. They nevertheless agreed that "liability for quid pro quo harassment is strict even if the supervisor's threat does not result in a company act," i.e., an adverse employment consequence. Id. at 495. Based on this principle, the Seventh Circuit found the allegations of the supervisor's sexual propositions to be sufficient to defeat summary judgment on Ellerth's quid pro quo claim.

The Seventh Circuit's decision conflicts with decisions of eight other Circuits holding that a claim for quid pro quo sexual harassment under Title VII requires proof that the harassment tangibly affected aspects of the terms and conditions of employment. See, e.g., Gary v. Long, 59 F.3d 1391 (D.C. Cir.), cert. denied, 116 S. Ct. 569 (1995); Ellert v. University of Texas at Dallas, 52 F.3d 543, 545 (5th Cir. 1995); Cram v. Lamson & Sessions Co., 49 F.3d 466 (8th Cir. 1995); Sauers v. Salt Lake County, 1 F.3d 1122 (10th Cir. 1993); Kaufman v. Allied Signal, Inc., 970 F.2d 178 (6th Cir.), cert. denied, 506 U.S. 1041 (1992); Spencer v. General Electric Co., 894 F.2d 651 (4th Cir. 1990); Lipsett v. University of Puerto Rico, 864 F.2d 881 (1st Cir. 1988); Sparks v. Pilot Freight Carriers, Inc., 830 F.2d 1554 (11th Cir. 1987). Consistent with the Seventh Circuit's approach, however, two Circuits have stated in dicta that a supervisor's threat of retaliation linked to sexual advances is sufficient to state a quid pro quo claim under Title VII. See Robinson v. City of Pittsburgh, 120 F.3d 1286 (3d Cir. 1997); Nichols v. Frank, 42 F.3d 503 (9th Cir. 1994).

Burlington Industries is the fourth sexual harassment case accepted for briefing, argument, and decision in the 1997 Term. The other cases involve whether there is a cause of action under Title VII for same-sex sexual harassment (Oncale v. Sundowner Offshore Services, Inc., No. 96-568), the standard for an employer's liability for the harassing acts of its supervisory employees (Faragher v. City of Boca Raton, No. 97-282), and the standard for holding a school system liable for acts of sexual harassment perpetrated by a teacher against a student (Doe v. Lago Vista Independent School District, No. 96-1866). In addition, on today's Order List the Court requested the views of the Solicitor General as to whether to grant certiorari in a fifth sexual harassment case, Davis v. Monroe County Board of Education, No. 97-843, which presents the question whether a school board can be held liable under Title IX for student-on-student sexual harassment.

Given the increasing frequency of claims of sexual harassment in the workplace, this fourth case in the series should be of interest to all employers.

3.  COBRA — Cancellation of Continuing Health Insurance Coverage.
The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA), 29 U.S.C. §§ 1161-1162, requires group health plans to offer temporary continuation of coverage to individuals who lose insurance coverage due to events such as termination of employment. A plan may cancel coverage, however, on "[t]he date on which the qualified beneficiary first becomes, after the date of the election" of continuation benefits, covered under another group health plan that does not exclude or limit coverage for pre-existing conditions. Id. § 1162(2)(D). The Supreme Court granted certiorari in Geissal v. Moore Medical Corp., No. 97-689, to determine whether cancellation is permissible if, at the time the beneficiary elects continuation benefits, the beneficiary is already entitled to benefits under an alternate group health plan offering substantially equivalent benefits.

James Geissal was employed by the Moore Medical Corporation and covered under its group health care plan. Geissal was also a beneficiary under a group health care plan offered by his wife's employer. Geissal's employment was terminated, and he elected continuation coverage under Moore's plan. After accepting six months of premiums, Moore informed Geissal that he was ineligible for benefits because of his dual coverage at the time of election. Geissal filed suit against Moore and the plan seeking continuation benefits; his wife was substituted as plaintiff after his death.

The district court granted partial summary judgment in favor of the defendants. 927 F. Supp. 352 (E.D. Mo. 1996). The Eighth Circuit affirmed, holding that under the plain language of Section 1162(2)(D) Moore was entitled to cancel Geissal's continuation coverage because Geissal was eligible for coverage under another group health plan at the time of election. 114 F.3d 1458 (1997). The court held that a beneficiary in these circumstances could receive continuation coverage only if there was a "significant gap" in coverage between the plan sought to be continued and the alternate plan, and concluded that Geissal had not satisfied his burden to show a significant gap. The Eighth Circuit's holding accords with decisions of the Fifth and Eleventh Circuits (see Brock v. Primedica, Inc., 904 F.2d 295 (5th Cir. 1990); National Cos. Health Benefit Plan v. St. Joseph's Hosp., Inc., 929 F.2d 1558 (11th Cir. 1991)), but conflicts with decisions of the Seventh and Tenth Circuits, which have held that an employer may cancel continuation benefits only if a beneficiary first becomes eligible for coverage under an alternate group health plan after he has elected continuation benefits but not if he has dual coverage at the time of election (see Lutheran Hosp., Inc. v. Business Men's Assurance Co. of Am., 51 F.3d 1308 (7th Cir. 1995); Oakley v. City of Longmont, 890 F.2d 1128 (10th Cir. 1989)).

This case is of obvious interest to private and governmental employers with group health plans subject to COBRA.

Copyright 1995 Mayer, Brown & Platt. This Mayer, Brown & Platt publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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