Today the Supreme Court granted certiorari in three cases, two
of which are of potential interest to the business community. Amicus briefs in
support of the petitioner are due on Thursday, December 23, 1999, and amicus
briefs in support of the respondents are due on Monday, January 24, 2000. Any
questions about this case should be directed to Donald Falk (202-263-3245) or
Eileen Penner (202-263-3242) in our Washington office. Attached to this Report
is an interview with our partner, Roy T. Englert, Jr., that recently appeared on
1. Employment Discrimination — Age Discrimination in
Employment Act — Sufficiency of Evidence ("Pretext-Only" or "Pretext-Plus").
The Age Discrimination in Employment Act (ADEA) prohibits employers from taking
adverse employment actions against any employee over the age of 40 "because of
such individual's age." 29 U.S.C. § 623(a)(1). The Supreme Court granted
certiorari in Reeves v. Sanderson Plumbing Products, Inc., No.
99-536, to decide (1) whether, to survive an employer's motion for judgment as a
matter of law ("JMOL") in an age discrimination case, an employee need only show
that the employer's articulated justification is pretextual, or must also
present direct evidence that the employer's motivation was discriminatory; and
(2) whether, in ruling on a motion for JMOL, a district judge should consider
all of the evidence or only the evidence favoring the non-movant. (The petition
also purports to present the settled question whether the standard for deciding
a motion for JMOL is the same as that used for deciding motions for summary
judgment. It is. See Anderson v. Liberty Lobby, 477 U.S. 242,
Reeves, a 57-year-old production line supervisor at Sanderson
Plumbing Products, was terminated after an investigation revealed numerous
errors in time records for which he was responsible. Reeves' own (younger)
supervisor also was discharged; another supervisor responsible for the errors
had resigned some months earlier. In the months preceding Reeves' dismissal, a
senior manager had remarked to Reeves that he was so old he "must have come over
on the Mayflower" and that he was "too damn old to do the job."
Reeves sued Sanderson under the ADEA, and convinced a jury that
his dismissal was based on his age. The district court denied Sanderson's motion
The Fifth Circuit reversed in an unpublished opinion. In accord
with its en banc decision in Rhodes v. Guiberson Oil Tools,
Inc., 75 F.3d 989 (5th Cir. 1996), the court of appeals held that Reeves was
entitled to submit the case to the jury only if he had presented sufficient
evidence both that (1) Sanderson's proffered reason was pretextual, and that (2)
age was Sanderson's true motivation. The Fifth Circuit determined that, although
Reeves may have presented evidence sufficient to show that Sanderson's reason
was pretextual, he had not introduced evidence that Sanderson's true motivation
was discriminatory. In the court's view, the two age-related comments by a
Sanderson manager were mere "stray remarks" that were too far removed from
Reeves' dismissal to establish that the decision itself was discriminatory.
There is a deep and long-standing conflict on the principal
question in this case, involving the application to the full range of employment
discrimination law of the familiar burden-shifting mechanism set forth in
McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). The
conflict reflects two seemingly contradictory statements in St. Mary's Honor
Center v. Hicks, 509 U.S. 502 (1993): (1) the plaintiff must prove
"both that the reason was false, and that discrimination was the real reason"
(id. at 515), and (2) if the jury "disbelie[ves] * * * the reasons put
forward by the defendant" for the challenged action, "'[n]o additional proof of
discrimination is required'" (id. at 511).
Adopting a "pretext-plus" position, the First, Fourth, and
Fifth Circuits have held that, once an employer articulates a nondiscriminatory
justification for its actions, an employee cannot proceed to a jury without
evidence both that the employer's explanation is false and that its true
motivation was discriminatory. See Woods v. Friction Materials,
Inc., 30 F.3d 255 (1st Cir. 1994); Theard v. Glaxo, Inc., 47
F.3d 676 (4th Cir. 1995). By contrast, several circuits use a "pretext-only"
standard, holding that a plaintiff need only present evidence that the
employer's stated reason was false. See, e.g., Gallo v.
Prudential Residential Services, 22 F.3d 1219 (2d Cir. 1994);
Sheridan v. E.I. DuPont de Nemours & Co., 100 F.3d 1061 (3d
Cir. 1996) (en banc); Washington v. Garrett, 10 F.3d 1421
(9th Cir. 1994); Combs v. Plantation Patterns, 106 F.3d 1519 (11th
The Court also will resolve a conflict among the circuits on
the second question. The Fifth Circuit, joined at least by the First, Second,
Seventh, and Ninth Circuits, has held that a district court deciding a motion
for JMOL should consider all of the evidence presented at trial. See
Crane v. Green & Freedman Baking Co., 134 F.3d 17 (1st Cir.
1998); Merrill Lynch Interfunding, Inc. v. Argenti, 155 F.3d 113
(2d Cir. 1998); Allen & O'Hara, Inc. v. Barrett Wrecking,
Inc., 898 F.2d 512 (7th Cir. 1990); Electro Source, Inc. v. United
Parcel Service, Inc., 95 F.3d 837 (9th Cir. 1996). In the Eighth Circuit, by
contrast, a court deciding a motion for JMOL may consider only the evidence that
supports the non-movant. See Rockwood Bank v. Gaia, 170 F.3d 833
(8th Cir. 1999).
This case is of enormous importance for all employers. JMOL is
a critical tool in the defense of employment discrimination claims of all kinds.
Because proof of "pretext" may amount only to evidence that the employer's
proffered reasons were debatable, juries in employment discrimination claims may
award huge damages based on no more than an employee's protected status coupled
with the jury's disagreement with the employer's assessment of the employee's
merit. A more stringent standard would help employers avoid the stigma of
intentional discrimination verdicts where there was no direct evidence of
discriminatory motivation. In resolving the principal question, the Court also
may address the circumstances under which supervisors' stray comments concerning
age or other protected status (such as race or religion) constitute direct
evidence of discrimination; that, in itself, is a frequently litigated issue.
Finally, because of the importance of JMOL in a broad range of litigation,
businesses may wish to be heard on whether a court determining a motion for JMOL
may consider all the undisputed evidence (as well as disputed evidence
favoring the non-movant), or must consider only the evidence favoring the
2. Bankruptcy — Standing of Administrative Claimants Under
Section 506(c). Suppliers of goods and services needed for the continued
operation of a Chapter 11 debtor have priority over other unsecured creditors.
11 U.S.C. § 503. Because debtors often have no unsecured assets, however, the
bankruptcy "trustee may recover from property securing an allowed secured claim
the reasonable, necessary costs and expenses of preserving, or disposing of,
such property to the extent of any benefit to the holder of such claim." 11
U.S.C. § 506(c). The Supreme Court granted certiorari in Hartford
Underwriters Insurance Co. v. Magna Bank, N.A., No. 99-409, to decide
whether, in addition to the trustee, administrative claimants have standing to
seek payment under 11 U.S.C. § 506(c).
Magna Bank made secured loans to Hen House Interstate, Inc.
After Hen House petitioned for bankruptcy under Chapter 11, Hartford
Underwriters Insurance Company provided Hen House with workers' compensation
insurance coverage that was required under Missouri law. Hen House failed to pay
premiums totaling almost $52,000. In January 1993 the bankruptcy court converted
the Hen House case into a Chapter 7 liquidation proceeding, and appointed a
Hartford brought an action in the bankruptcy court seeking
allowance of its claim as an administrative expense. The bankruptcy court held
that Hartford had standing under Section 506(c), relying on IRS v.
Boatmen's First National Bank, 5 F.3d 1157, 1159 (8th Cir. 1993).
Approving the substance of Hartford's claim, the bankruptcy court ordered the
surcharge of Magna's secured collateral, and the district court affirmed.
A panel of the Eighth Circuit also affirmed. 150 F.3d 868
(1998). On rehearing en banc, however, a 7-5 majority of the Eighth
Circuit overruled Boatmen's and held that the language of Section 506(c)
does not afford non-trustee claimants standing to assert claims against a
secured creditor's collateral. 177 F.3d 719 (1999). The five dissenting judges
believed that the doctrine of prudential standing permitted administrative
claimants to bring actions under Section 506(c). See id. at 725 (Heaney,
The Fourth Circuit, like the Eighth Circuit, has held that
non-trustee claimants lack standing under Section 506(c). E.g., Ford
Motor Credit Co. v. Reynolds & Reynolds Co. (In re JKJ Chevrolet,
Inc.), 26 F.3d 481, 484 (4th Cir. 1994). By contrast, four courts of appeals
have held that Section 506(c) does give non-trustee claimants standing. See
Precision Steel Shearing, Inc. v. Fremont Financial Corp. (In re
Visual Industries, Inc.), 57 F.3d 321, 325 (3d Cir. 1995); North County
Jeep & Renault, Inc. v. General Electric Capital Corp. (In re Palomar
Truck Corp.), 951 F.2d 229, 232 (9th Cir. 1991); In re Parque Forestal,
Inc., 949 F.2d 504, 511-12 (1st Cir. 1991); New Orleans Public Service,
Inc. v. First Federal Savings & Loan Ass'n (In re Delta Towers,
Ltd.), 924 F.2d 74, 77 (5th Cir. 1991).
This case is of obvious importance to secured lenders and to
firms that may provide goods and services to post-petition businesses. The
volume of litigation in bankruptcy cases could be even more significantly
affected, as the decision may affect the application of other Bankruptcy Code
provisions that give trustees the ability to pursue certain claims. For example,
the same usage of "trustee" appears in the avoidance provisions governing
actions to revoke fraudulent conveyances or preferential transfers of a debtor's
assets. See 11 U.S.C. §§ 544(a), 545, 547(b), 548(a), 549(a).