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
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
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