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2000 Term, Number 7 / January 8, 2001

Today the Supreme Court granted certiorari in five cases, two of which were consolidated. The consolidated case and one additional case are of potential interest to the business community. Amicus briefs in support of the petitioners are due on Thursday, February 22, 2001, and amicus briefs in support of the respondents are due on Monday, March 26, 2001. The Court also invited the Solicitor General to express the views of the United States in one case of interest to the business community. Any questions about these cases should be directed to Donald Falk (202-263-3245), Eileen Penner (202-263-3242) or Miriam Nemetz (202-263-3253) in our Washington office.

1. First Amendment Commercial Speech Federal Preemption State Regulation of Tobacco Advertisements. Massachusetts administrative regulations prohibit tobacco manufacturers, distributors, and retailers from displaying any outdoor advertising within a thousand-foot radius of any public playground, playground area in a public park, elementary school or secondary school zones that encompass almost the entire populated area of Massachusetts. The regulations ban not only advertisements that are posted outdoors, but also advertisements inside retail establishments that are visible from the outside. Related regulations require retail outlets within the same zones to place indoor tobacco advertisements more than five feet above the floor, and to keep tobacco products out of reach of consumers. The Supreme Court granted certiorari in Lorillard Tobacco Co. v. Reilly, No. 00-596, and Altadis U.S.A. Inc. v. Reilly, No. 00-597, to decide whether the regulations are preempted by the Federal Cigarette Labeling and Advertising Act ("FCLAA"), 15 U.S.C. 1331-1431, or violate the First Amendment. The cases have been consolidated.

Tobacco manufacturers sued in federal district court to bar enforcement of the regulations on the ground that the advertising restrictions violate the First Amendment and are preempted by the FCLAA, which explicitly reserves to Congress the sole authority to legislate "with respect to the advertising or promotion" of cigarettes. 15 U.S.C. 1334(b). The district court upheld all of the regulations against the preemption claims, and invalidated only the limitations on indoor advertising on First Amendment grounds. 76 F. Supp. 2d 124 (1999).

The First Circuit affirmed in part and reversed in part. 218 F.3d 30 (2000). Recognizing a conflict among the federal courts of appeals on the preemption issue, the First Circuit rejected what it termed a "hyper-literal" reading of the FCLAA preemption provision by the Ninth Circuit, and concluded (like the Second and Seventh Circuits) that Congress did not intend to preempt the kind of advertising restrictions imposed by the Massachusetts regulations. In the First Circuit's view, "[t]he regulations do not interfere with the cigarette and smokeless tobacco labeling and advertising scheme established by Congress, and, to the extent that they may create differing restrictions on the location of advertising in various states and municipalities, such divergent restrictions are indistinguishable from the existing zoning regulations in place throughout the country." Id. at 41.

The First Circuit also held that the regulations did not violate the tobacco manufacturers' First Amendment right to engage in truthful, nonmisleading commercial speech. Although the court of appeals acknowledged that the Massachusetts regulations imposed "plainly content-based" restrictions on the tobacco manufactures' speech, the court nonetheless declined to apply strict scrutiny to the state regulations, and instead evaluated the regulations under the flexible intermediate scrutiny test of Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980). The court acknowledged "recent rumblings from members of the Supreme Court and others suggesting that the Central Hudson test may be in need of minor or major modification," but concluded that it was "bound to apply the Central Hudson test, as is, to this case." 218 F.3d at 42-43. The First Circuit then held that the regulations do not violate the First Amendment because the governmental interest in reducing tobacco consumption by minors is "substantial" and the regulations are "narrowly tailored to achieve the desired objective." Id. at 44, 49-53.

This case is of substantial interest to all businesses whose advertising or labeling is subject to federal or state regulation. The preemption issues are significant for businesses subject to federal regulation of advertising or labeling. More broadly, however, the case provides the Court with an opportunity to revisit the First Amendment analysis applicable to all commercial speech.

Mayer, Brown & Platt represents the petitioners in this case.

2. Title VII Cap on Compensatory Damages Front Pay. The Supreme Court granted certiorari in Pollard v. E.I. DuPont de Nemours Co., No. 00-763, to decide whether front pay awarded to employment discrimination victims to compensate them for future loss of wages is subject to the cap on compensatory damages created in the Civil Rights Act of 1991 ("the 1991 Act").

In the 1991 Act, Congress created a new right for plaintiffs claiming intentional employment discrimination under Title VII of the Civil Rights Act of 1964 to recover compensatory and punitive damages, subject to a cap on the total amount of such damages recoverable. See 42 U.S.C. 1981a(a)(1), (b)(3). Before the 1991 Act was passed, only equitable relief, such as injunctions and restitutionary back pay, had been available to Title VII plaintiffs. 42 U.S.C. 2000e-5(g).

In the 1991 Act, Congress expressly included "future pecuniary losses" within the ambit of the compensatory damages plaintiffs could now receive. Id. at 1981a(b)(3). Yet it also explicitly stated that compensatory damages did not include any of the remedies that historically had been available "under section 706(g) of the Civil Rights Act of 1964." Section 706(g), 42 U.S.C. 2000e-5(g), historically had been interpreted by many courts to authorize what they characterized as the equitable remedy of front pay.

Sharon Pollard sued her former employer, E.I. DuPont de Nemours Co., under Title VII, alleging sexual harassment. After a bench trial, the district court found that Pollard had been subjected to a hostile environment at a DuPont facility, and that as a result Pollard had to take a medical leave of absence for psychological treatment and ultimately had been dismissed for her refusal to return to the same hostile environment. 16 F. Supp. 2d 913 (W.D. Tenn. 1998). In addition to back pay, retroactive benefits, and attorney's fees, the district court awarded Pollard $300,000 in compensatory damages, the maximum allowable under the statutory cap. The court explained, however, that it would have awarded Pollard additional compensation but for the Sixth Circuit's decision in Hudson v. Reno, 130 F.3d 1193 (6th Cir. 1997), which identified front pay as an element of "future pecuniary losses" subject to the statutory cap. See 16 F. Supp. 2d. at 924 n.19.

The Sixth Circuit affirmed. 213 F.3d 933 (2000). The panel noted, however, that it rejected Pollard's cross-appeal challenging the limitation of front pay damages only under the compulsion of Hudson, which the full Sixth Circuit had declined to overrule en banc. The Sixth Circuit panel agreed with Pollard that: (1) the 1991 Act "explicitly excludes remedies [from the statutory cap] which were traditionally available under Title VII * * * and * * * front pay was a traditionally available remedy"; (2) "the legislative history of the statutory cap * * * clearly indicates that front pay was not intended to be included in it"; (3) "the Hudson decision misinterpreted existing Sixth Circuit cases examining the nature of front pay as a remedy"; and (4) "public policy concerns weigh in favor of excluding front pay from the $300,000 statutory cap on compensatory damages." Id. at 945.

The Sixth Circuit panel noted that "other Circuits have reached a conclusion contrary to Hudson." 218 F.3d at 945 (citing Martini v. Federal Nat'l Mortgage Ass'n, 178 F.3d 1336, 1348-49 (D.C. Cir. 1999); Medlock v. Ortho Biotech, Inc., 164 F.3d 545, 556 (10th Cir. 1999); and Kramer v. Logan County Sch. Dist. No. R-1, 157 F.3d 620, 625-626 (8th Cir. 1998)).

This case is of vital importance to all businesses that have 15 or more employees, the minimum necessary to bring a business within the reach of Title VII. 42 U.S.C. 2000e(b). Exclusion of front pay from the statutory cap on compensatory damages will expose such employers to substantially greater liability should they be found liable for any of the various types of intentional discrimination prohibited by Title VII.

* * * * *

The Court invited the Solicitor General to express the views of the United States in Montemayor v. Corporate Health Insurance, No. 00-665. The questions presented in this case are (1) whether the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 et seq., preempts independent review requirements imposed by Texas law on managed health care organizations; and (2) whether the Federal Employees Health Benefit Act, 5 U.S.C. 8901 et seq., preempts the same requirements as applied to federal employees.

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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