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MAYER, BROWN & PLATT

SUPREME COURT DOCKET REPORT


1998 Term, Number 12 / April 26, 1999

Today the Supreme Court granted certiorari in two cases, both of which are of tential interest to the business community. Amicus briefs in support of the petitioners are due on June 10, 1999, and amicus briefs in support of the respondent are due on July 12 (because July 10 is a Saturday). Any questions about this case should be directed to Alan Untereiner (202-263-3241) or Donald Falk (202-263-3245) in our Washington office.

With this issue of the Docket Report, we unveil a new, final section that from time to time will discuss noteworthy victories by Mayer, Brown & Platt lawyers and other firm news and developments.

1. Food and Drug Law Tobacco Products. The Court granted certiorari today in Food & Drug Administration v. Brown & Williamson Tobacco Corp., 120 S. Ct. __ (2000), to decide whether the FDA has the authority to regulate cigarettes and smokeless tobacco ("tobacco products") as "drugs" and "devices" under the Federal Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C. 301 et seq.

The FDCA was enacted in 1938. The FDA did not attempt to regulate tobacco products until 1996, when the agency for the first time classified tobacco products as "drugs" and "devices" subject to the FDCA and issued regulations governing the labeling and marketing of tobacco products as well as the sale or distribution of tobacco products to minors. 61 Fed. Reg. 44,396. The FDA asserted jurisdiction under the FDCA's literal definitions of "drug" and "device," arguing that tobacco products are combinations of drugs and devices that are "intended to affect the structure or any function of the body." 21 U.S.C. 321(g)(1)(C) (defining "drug"); id. 321(h)(3) (defining "device"); id. 353(g) (defining combination products).

Several major tobacco manufacturers, growers, distributors, and advertisers sued to challenge the FDA's authority to regulate tobacco products. The district court held that the FDCA authorized the FDA to regulate tobacco products. 966 F. Supp. 1374 (M.D.N.C. 1997). The court upheld the labeling and access regulations, but struck down the FDA's advertising restrictions as inconsistent with its statutory authority. The district court then certified the case for interlocutory appeal.

A divided panel of the Fourth Circuit reversed, holding that the FDA had no authority to regulate tobacco products at all. 153 F.3d 155 (1998). The court of appeals recognized that "[a] mechanical reading" of the FDCA's definitions "may appear to support the government's position that tobacco products fit within the Act's definitions of drugs or devices." Id. at 163. In the Fourth Circuit's view, however, the FDA's assumption of jurisdiction over tobacco products was inconsistent with the language and structure of the FDCA. Id. at 163-167. In particular, the court held, the FDA's effort to define tobacco products as drug/device combinations created tensions that "demonstrate[] that Congress did not intend that the Act regulate tobacco products." Id. at 167. The court observed that the FDA decided to allow the marketing of tobacco products even though the agency has determined that the products have no health benefits; the FDCA, however, requires the FDA to prohibit the marketing and distribution of drugs without health benefits and unsafe devices. Id. at 166. Thus, "[a] faithful application of the statutory language would lead to a ban on tobacco products," which the court believed was "a result not intended by Congress." Id. at 167.

The Fourth Circuit also relied on extrinsic evidence to confirm that Congress did not intend to delegate authority to the FDA to regulate tobacco products. See 153 F.3d at 167-176. The FDA had repeatedly disclaimed jurisdiction to regulate nontherapeutic tobacco products. Congress was aware of the FDA's position, but had not passed several bills that would have given the FDA that jurisdiction. Instead, the later legislation that did regulate tobacco did not involve the FDA.

Judge K.K. Hall dissented on the ground that "[t]obacco products fit comfortably into the FDCA's definitions of 'drug' and 'device,'" 153 F.3d at 176, and would have reinstated the advertising restrictions as well as the other regulations, see id. at 183-184. Rejecting the majority's analysis of the structure of the FDCA, Judge Hall maintained that "[h]ow the FDA has chosen to regulate tobacco has no bearing on the question of whether that agency has the authority to regulate it at all." Id. at 179. In his view, the agency's change in policy towards tobacco was permissible in light of new data and was not foreclosed either by subsequent legislation or by congressional inaction in the face of the FDA's prior pronouncements.

This case is of obvious importance to tobacco manufacturers, growers, advertisers, distributors, and retailers. In addition, the case presents broader issues of statutory construction and regulatory authority that may be significant for businesses in a wide range of industries that are or may be subject to comprehensive federal regulation.

2. Civil Rights 42 U.S.C. 1981 Discrimination on the Basis of Alienage. The Court granted certiorari in United Brotherhood of Carpenters v. Anderson, No. 98-958, to decide whether 42 U.S.C. 1981 prohibits discrimination on the basis of alienage (that is, against non-citizens) in private contracts.

Section 1981 provides that "[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts * * * as is enjoyed by white citizens." It is settled that this statute prohibits discrimination on the basis of race in the making and enforcement of contracts, including employment contracts, see Johnson v. Railway Express Agency, 421 U.S. 454, 459 (1975), and it extends to private as well as state actors in that regard, see Patterson v. McLean Credit Union, 491 U.S. 164, 172 (1989). The Civil Rights Act of 1991 amended the statute to provide specifically that "[t]he rights protected by this section are protected against impairment by nongovernmental discrimination." 42 U.S.C. 1981(c). Before that amendment, the circuits had agreed that Section 1981 prohibited discrimination against non-citizens by public actors, but had disagreed on the question whether Section 1981 prohibited private discrimination on the basis of alienage as well as race. The Supreme Court had granted certiorari to resolve the conflict, but dismissed the case before decision after the parties settled their dispute. See Duane v. GEICO, 37 F.3d 1036 (4th Cir. 1994) (private discrimination against non-citizens prohibited), cert. granted, 513 U.S. 1189, cert. dismissed, 515 U.S. 1101 (1995). But see Bhandari v. First National Bank of Commerce, 829 F.2d 1343 (5th Cir. 1987) (en banc) (private discrimination against non-citizens not prohibited), cert. granted, vacated, and remanded, 492 U.S. 901, reinstated, 887 F.2d 609 (5th Cir. 1989), cert. denied, 494 U.S. 1061 (1990).

In 1992, Linden Anderson, a citizen of Jamaica who was working legally in the United States, became the business representative of Local 17 of the United Brotherhood of Carpenters ("UBC"). The UBC Constitution provides that "[n]o member shall be eligible to be a * * * business representative * * * unless such member is a citizen of the United States or Canada." Upon learning that Anderson did not meet this criterion, the UBC removed him from his post. Anderson sued, claiming that the union had discriminated against him on the basis of alienage in violation of 42 U.S.C. 1981. In an unreported decision, the United States District Court for the Southern District of New York dismissed the action, concluding that even after the 1991 amendments, Section 1981 does not bar alienage-based discrimination in private contracts. The Second Circuit reversed. 156 F.3d 167 (1998). The court of appeals held that Section 1981 has always prohibited public discrimination against non-citizens, and that the Civil Rights Act of 1991 makes clear that this prohibition extends to private discrimination as well.

In granting review (after taking the extraordinary step of relisting the case for discussion at eight consecutive Court conferences), the Supreme Court reformulated the question presented, adding the italicized language: "Taking into account the constitutional powers pursuant to which it was enacted, does 42 U.S.C. 1981 prohibit discrimination against non-citizens on the basis of alienage in private contracts?" The parties did not discuss the source of Congress's power in their certiorari papers, and the Second Circuit noted only that the statute "was at least in part based on the Fourteenth Amendment." 156 F.3d at 167 & n.13.

Section 1981 has its roots in two Reconstruction-era federal civil rights statutes. Because the first of those statutes, Section 1 of the Civil Rights Act of 1866, was enacted pursuant to the Thirteenth Amendment (which prohibits slavery), it bars discrimination by both public and private actors, but only on the basis of race. See Runyon v. McCrary, 427 U.S. 160, 170-172 (1976). Section 1981 thus could prohibit private discrimination on the basis of alienage only through the second predecessor statute, Section 16 of the Voting Rights Act of 1870. Cf. id. at 168 n.8. The Supreme Court occasionally has suggested that the 1870 statute was enacted pursuant to Congress's plenary power over immigration and naturalization (U.S. Const. Art. I, 8, cl. 4). See, e.g., Takahashi v. Fish & Game Comm'n, 334 U.S. 410, 419-420 (1948). More frequently, however, the Court has described the 1870 statute as a product of Section 5 of the Fourteenth Amendment, which permits Congress to enact laws to secure the guarantee of equal protection. See, e.g., Tillman v. Wheaton-Haven Recreation Ass'n, 410 U.S. 431, 439 n.11 (1973); Gibson v. Mississippi, 162 U.S. 565, 580 (1896).

As a consequence, in deciding the Carpenters case the Court may revisit the long-disputed question whether Section 5 of the Fourteenth Amendment empowers Congress to enact laws prohibiting discrimination by private parties. In the landmark Civil Rights Cases, 109 U.S. 3 (1883), the Court held that Section 5 provided no such power. In United States v. Guest, 383 U.S. 745 (1966), however, six Justices expressly rejected that answer albeit not in a majority opinion and concluded instead that Section 5 permits Congress to legislate against private discrimination. See id. at 762 (Clark, J., concurring); id. at 781-784 (Brennan, J., dissenting). The Court later relied on those opinions in a dictum maintaining that Congress can "proscribe purely private conduct under 5 of the Fourteenth Amendment." District of Columbia v. Carter, 409 U.S. 418, 424 n.8 (1973).

As a result of the Civil Rights Cases, the Civil Rights Act of 1964 the principal federal statute prohibiting private discrimination was sustained pursuant to the Commerce Clause, not Section 5. See Heart of Atlanta Motel v. United States, 379 U.S. 241 (1964). The Supreme Court's recent decision in United States v. Lopez, 514 U.S. 549 (1995), however, may signal a retreat from the Court's prior expansive view of the Commerce power. The resolution of the Fourteenth Amendment issue in Carpenters thus may significantly affect how the Court defines the scope of congressional power in the next millennium.

This case is of clear importance to businesses that are vulnerable to lawsuits charging discrimination on the basis of alienage in employment or other contract settings. If the Court reaches broader questions of congressional power under the Fourteenth Amendment, the case may substantially affect the permissible limits on federal regulation of private conduct.

Lexecon Wins $50 Million Settlement From Milberg Weiss

Recently, Mayer, Brown & Platt and its co-counsel, Kellogg, Huber, Hansen, Todd & Evans, won a $45 million abuse-of-process verdict on behalf of our client, Lexecon Inc., against the law firm of Milberg Weiss Bershad Hynes & Lerach and a number of individual Milberg Weiss partners. The day after the verdict, just before the punitive damages phase of the trial was about to begin, the case was settled for $50 million. Given Milberg Weiss' role over the last decade as the leading plaintiffs' class action law firm in the country and the importance of the case to the legal system in general, we thought the following brief review of the evidence presented would be of interest to the business community.

The six-week jury trial in federal court in the Northern District of Illinois featured a long list of prominent lawyers as witnesses, as well as "smoking gun" evidence and an eleventh-hour videotaped deposition. The gist of Lexecon's claim was that Milberg Weiss partners set out to destroy Lexecon and Dan Fischel, Lexecon's star expert witness in securities fraud cases (and now the Dean of the University of Chicago Law School), after Bill Lerach suffered a devastating loss in 1988 in the high-profile Nucorp trial, where Professor Fischel testified as an expert for the defense. The Wall Street Journal and Barron's gave Professor Fischel credit for winning the case with economics. Lerach feared that Professor Fischel, who was slated to appear as the defense expert in a number of other big class action cases brought by Milberg Weiss, would repeat his Nucorp performance. A few months after the verdict in Nucorp, Melvyn Weiss overtly threatened Dan Fischel, telling him: "I will destroy you." A little over a year later, in March 1990, Milberg Weiss lawyers saw the opportunity to make good on that threat by suing Lexecon and Dan Fischel in the billion-dollar class action securities fraud case they had filed following the collapse of Lincoln Savings. Milberg Weiss discovered that Lexecon had written a report for Lincoln Savings to respond to certain criticisms made by federal regulators. Milberg Weiss immediately decided to sue Lexecon and Dan Fischel in Lincoln Savings without regard to the merits of such a claim and to use their own lawsuit against Fischel and other Lexecon experts to drag them through the mud when they appeared as witnesses in other cases. Milberg Weiss' battle plan was set forth in a written memorandum that was distributed to all of the lawyers in the firm a memo that was not produced in discovery until we obtained it from a former Milberg Weiss associate who had taken a copy with him when he left the firm.

Milberg Weiss' plan to use their own lawsuit to force Dan Fischel out of securities fraud cases was confirmed by the deposition testimony of one of Milberg Weiss' co-counsel in the Lincoln Savings case. He testified that Bill Lerach was asked at a meeting of plaintiffs' counsel why he wanted to add Lexecon and Professor Fischel as defendants in Lincoln Savings. Lerach's answer: he wanted to "put the little f----r out of business." As the evidence showed at trial, Milberg Weiss came very close to achieving its goal of putting Lexecon out of the business of testifying in major securities fraud cases.

In 1991, after Lexecon had been sued in Lincoln Savings, Professor Fischel was once again the expert for the defense in a high-profile securities fraud trial (the Apple Computer trial) where Milberg Weiss was lead counsel for plaintiffs. The Milberg Weiss partners in that case used their own complaint in Lincoln Savings to taint Fischel, calling him a "crook" in a hearing before the judge, creating an inference of guilt-by-association by repeatedly referring to Lincoln Savings and Charles Keating in their cross-examination of Fischel, and in closing argument, claiming that Fischel was personally responsible for the billion-dollar collapse of Lincoln Savings. Milberg Weiss won the trial, obtaining a $100 million verdict (later set aside) against two Apple executives. In our case-in-chief, we presented evidence that after the Apple Computer verdict, prominent defense attorneys publicly asked whether Dan Fischel could ever testify as an expert again and many attorneys who liked and respected Dan Fischel thought it was much too risky to use him. Milberg Weiss partners fostered that impression, once even going so far as to tell opposing counsel in a securities fraud case that she shouldn't hire Lexecon because it had "too much baggage." The effect on Lexecon's business was devastating: while the rest of its business doubled over the course of eight years, its securities business dropped about 65 percent.

At the trial, several Milberg Weiss partners testified. All denied any animus toward Lexecon or Professor Fischel. They testified they had done a careful investigation before suing Lexecon in Lincoln Savings. But they could not point to any documents evidencing such an investigation. And they were impeached by depositions taken in 1994, when they testified they were unable to recall any details of their investigation. After the verdict, one juror was quoted in the press as saying that the "Milberg Weiss lawyers were not truthful."

One of the biggest breaks in the case, however, did not come until the trial was nearly over. Our lead trial lawyer, Alan Salpeter, received a call from an acquaintance in Los Angeles about a potential witness who had seen a story about the case in the National Law Journal and had heard Milberg Weiss lawyers make statements reminiscent of the "little f----r" quote. The witness, a California lawyer who had once shared office space with Milberg Weiss in San Diego, refused to come to trial. So we subpoenaed him and Caryn Jacobs took a videotaped deposition in California the night before the last day of evidence. In that deposition, the witness testified that he had attended a Milberg Weiss party after the Apple Computer case and that at that party and later in their offices a number of Milberg Weiss lawyers, including Bill Lerach, had said of Fischel: "That little f----r is dead and he'll never testify again." In one of the most dramatic moments of the trial, this videotaped testimony was played in a darkened courtroom just before the closing arguments.

The jury deliberated only six hours before returning a verdict on April 12th in favor of Lexecon for $45 million. The punitive damages phase of the trial was scheduled to begin the next morning April 13th. However, overnight the parties negotiated a settlement under which Milberg Weiss agreed to pay Lexecon $50 million in cash, to be wire-transferred immediately, in return for a complete release. There are no confidentiality restrictions on the settlement and, although the Milberg Weiss defendants denied that their payment was a concession that the jury's verdict was correct, Lexecon specifically reserved the right to claim otherwise.

The verdict was the end of a long and difficult road. We filed the lawsuit in the fall of 1992 in federal court in the Northern District of Illinois. It was transferred to Arizona approximately six months later, at the Milberg Weiss defendants' request, for "coordinated pretrial proceedings" with the tag-ends of the Lincoln Savings case. By 1995, the Arizona district court had either dismissed or granted summary judgment in favor of the defendants on all but one of Lexecon's claims. Lexecon argued that it was entitled to have that one claim (a defamation claim that was ultimately dropped) tried in Chicago, where the case was originally filed. But the Arizona district court denied Lexecon's motion to remand the case to Chicago and instead transferred the case to itself for trial. Lexecon tried its defamation claim and lost. It then appealed to the Ninth Circuit and lost once again, by a 2-1 vote. The Supreme Court, however, granted certiorari and reversed, 9-0, holding that the case should have been returned to Chicago for trial. Once the case came back to Chicago, Lexecon successfully moved to reopen its abuse of process claim before the judge originally assigned to the case (Judge James B. Zagel) and fended off a petition for mandamus to the Seventh Circuit. From there the case proceeded rapidly to trial.

The Lexecon case was a good example of Mayer, Brown's integrated approach to litigation, where the Appellate Group works closely with our experienced trial lawyers to produce the best result for the client. Our trial team was led by Alan Salpeter and Caryn Jacobs, with partner Terri Mazur and associates Christina Egan and Tom Nachbar providing support. Appellate partner Michele Odorizzi was responsible for most of the written work in the case, from the original complaint to the jury instructions. Appellate partner Steve Shapiro also was a long-standing member of the team, lending his expertise to numerous briefs filed throughout the six years the case was pending and advising the trial team on strategic issues. The Washington firm of Kellogg, Huber, Hansen, Todd & Evans served as our co-counsel in the case, with Mark Hansen and Courtney Elwood rounding out the trial team.


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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