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October Term, 2008

April 1, 2009

Today, the Supreme Court issued two decisions, described below, of interest to the business community.

14 Penn Plaza LLC v. Pyett, No.07-581 (previously discussed in February 19, 2008 Docket Report)
In Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), the Supreme Court allowed a discharged employee to bring an employment-discrimination claim in federal court even though he had already engaged in arbitration of the claim under his union’s collective bargaining agreement. In the years that followed, some courts construed Gardner-Denver and subsequent cases to preclude a union from agreeing, through a collective-bargaining agreement on behalf of its members, that the members would pursue statutory employment-discrimination claims in arbitration rather than in court. Today, in 14 Penn Plaza LLC v. Pyett, No. 07-581, the Supreme Court held that a provision in a collective-bargaining agreement that explicitly requires union members to arbitrate claims arising under the Age Discrimination in Employment Act of 1967 (ADEA), 29 U.S.C. § 621 et seq., is enforceable.

In Pyett, union members who had been reassigned to less-desirable jobs at the office building where they worked brought an age-discrimination suit in federal court. Under the terms of the applicable collective-bargaining agreement (CBA), union members were required to submit claims of employment discrimination—including ADEA claims—to arbitration. Invoking the Federal Arbitration Act, the defendants petitioned the district court to compel arbitration of the plaintiffs’ age-discrimination claims. The district court denied the petition, and the Second Circuit affirmed. The court of appeals held that, under the Gardner-Denver line of cases, an arbitration agreement contained within a collective-bargaining agreement cannot be enforced to require an individual worker to arbitrate federal employment-discrimination claims rather than pursue those claims in a judicial forum. The Supreme Court granted certiorari to resolve a circuit conflict over “whether a provision in a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate claims arising under [the ADEA] is enforceable.” Slip op.1.

In an opinion by Justice Thomas, a five-Justice majority of the Supreme Court held that such a provision is enforceable. The Court first explained that the arbitrability of employment-discrimination claims is a “condition of employment” within the scope of the union’s collective-bargaining authority under the National Labor Relations Act (NLRA). Thus, the Court reasoned, “the CBA’s arbitration provision must be honored unless the ADEA itself removes this particular class of grievances from the NLRA’s broad sweep.” Slip op. 8. Noting that it had already held, in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), that the ADEA does not preclude the arbitration of an employee’s ADEA claim pursuant to an individual employment contract, the Court then concluded that the ADEA likewise does not bar arbitration in the collective-bargaining context. Because the NLRA gives the union and the employer the authority to negotiate an arbitration provision, and because the ADEA does not abrogate that authority, the Court found “no legal basis . . . to strike down the arbitration clause in this CBA.” Slip op. 10.

The Court went on to hold that the Gardner-Denver line of cases did not require a different result. The Court explained that those cases did not squarely address the enforceability of an agreement to arbitrate statutory claims, but instead examined whether the prior arbitration of contract-based claims precluded subsequent litigation of statutory claims. The Court also disavowed “broad dicta” in Gardner-Denver that was “highly critical of the use of arbitration for the vindication of statutory antidiscrimination rights,” pointing out that such skepticism “rested on a misconceived view of arbitration that this Court has since abandoned.” Slip. op. 16.

In a dissenting opinion joined by Justices Stevens, Ginsburg, and Breyer, Justice Souter argued that the question presented in the case was controlled by Gardner-Denver. Justice Stevens wrote a separate dissent, expressing concern about what he termed the “subversion of precedent to the policy favoring arbitration.”  Slip op. 1 (Stevens, J., dissenting).

Entergy Corp. v. EPA, No. 07-588 (previously discussed in April 14, 2008 Docket Report)

The Clean Water Act, 33 U.S.C. § 1251 et seq., regulates “cooling water intake structures” found in large powerplants. The Clean Water Act (Act) requires the Environmental Protection Agency (EPA) to determine that such intake structures “reflect the best technology available for minimizing adverse environmental impact.”  33 U.S.C. § 1326(b). In 2004, the EPA promulgated rules governing its determination of what constitutes the “best technology available” (BTA). In issuing those rules, the EPA determined that existing powerplants did not have to adopt closed-cycle cooling systems, although such systems provide the greatest environmental protection, because, in the agency’s view, the financial cost of retrofitting existing powerplants with such systems would outweigh the environmental benefits achieved. The Respondents, plaintiffs below, challenged the EPA’s use of cost-benefit analysis.

In an opinion by Justice Scalia, the Supreme Court rejected the challenge. According to the Court, although the relevant statutory phrase—“best technology available for minimizing adverse environmental impact”—could be read (as it was by the court below) to mean “the technology that achieves the greatest reduction in adverse environmental impacts at a cost that can reasonably be borne by the industry,” the phrase can also be reasonably read (as it was by the EPA) to refer to the technology that produces a reduction in adverse environmental impacts “at the lowest per-unit cost, even if it” reduces adverse environmental impacts to a lesser degree “than other available technologies.”  Slip op. 8. Moreover, the fact § 1326(b)—in contrast to other provisions of the Act—directs the agency to “minimize” rather than “eliminate” the harm in question, suggests that Congress vested the EPA with “some discretion to determine the extent of reduction that is warranted under the circumstances.”  Slip op. 9. Having found the agency’s interpretation of the relevant statutory phrase to be reasonable, the Court upheld it under Chevron U.S.A. Inc., v. Natural Resources Defense Council, Inc. 467 U.S. 837 (1984).

In finding the EPA’s interpretation reasonable, the Court rejected an argument based on statutory silence. The plaintiffs challenging the agency’s rules argued that Congress’s failure to specifically authorize cost-benefit analysis under § 1326(b) while expressly authorizing it under other provisions of the Act reflected Congress’s intent that cost-benefit analysis not be used for BTA determinations under § 1326(b). According to the Court, that argument proved too much, because those other provisions allow the agency to consider cost. The BTA provision is totally silent, not only as to cost-benefit analysis, but also as to cost. Thus, if the argument were accepted, the agency could not consider cost at all when implementing the BTA standard—an implausible result that not even the plaintiffs or the court below endorsed. Slip op. 11–15.

Justice Breyer filed a separate opinion, concurring in part and dissenting in part. He agreed that § 1326(b) allows for cost-benefit analyses, but wrote separately to emphasize the section’s legislative history, which in his view indicates that the provision was meant to restrict, though not forbid, the use of cost-benefit comparisons. Slip op. 1 (concurring and dissenting opinion). Justice Breyer dissented insofar as the Court upheld the EPA’s standard for approving, on a cost-benefit basis, a powerplant’s application for a variance from the otherwise applicable national performance standards established by the agency. Slip op. 7 (concurring and dissenting opinion). In Justice Breyer’s view, the agency had not adequately justified its standard, which was a departure from the prior standard, and he would have remanded the case so that the EPA could either provide such justification or apply the prior standard.

Justices Stevens, Souter and Ginsburg dissented, finding that “Section 316(b) neither expressly nor implicitly authorizes the EPA to use cost-benefit analysis when setting regulatory standards.”  Slip op. 2 (dissenting opinion).

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