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October Term, 2010

March 1, 2011

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

Uniformed Services Employment and Reemployment Rights Act—Imputed Bias

Staub v. Proctor Hospital, No. 09-400 (previously discussed in the April 19, 2010 Docket Report)

Under the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”), 38 U.S.C. § 4311 et seq., it is unlawful for an employer to discriminate on the basis of an employee’s membership in the armed services. Today, in Staub v. Proctor Hospital, No. 09-400, the Supreme Court held that an employer is liable under USERRA when a supervisor animated by antimilitary bias acts with the intent to cause an adverse employment action and, although the supervisor is not the ultimate decisionmaker, the supervisor’s conduct is a proximate cause of a subsequent adverse employment action.

Today’s decision—which recognizes the so-called “cat’s paw” theory of liability—will likely have implications for employment-discrimination claims under other statutes as well.

The petitioner in Staub had military obligations that prevented him from working certain periods of the year. After respondent Proctor Hospital terminated his employment, petitioner sued, claiming that his discharge was influenced by the discriminatory animus of supervisors who were hostile to his military obligations. A jury found in petitioner’s favor. But the Seventh Circuit reversed, concluding that an employer could not be liable for a non-decisionmaker’s animus under USERRA if the employer conducted an investigation into the facts relevant to the decision. 560 F.3d 647, 659. 

In an opinion by Justice Scalia, the Supreme Court reversed. The Court observed that USERRA, a statute that “is very similar to Title VII,” provides that discrimination is established when animus was “a motivating factor in the employer’s action.” Slip op. 5. The Court also noted that “when Congress creates a federal tort it adopts the background of general tort law.” Id. Relying in large part on principles of agency and proximate causation, the Court held that so long as the non-decisionmaker “intends, for discriminatory reasons, that the adverse action occur, he has the scienter required to be liable under USERRA.” Id. at 7. The Court found it “axiomatic under tort law that the exercise of judgment by the decisionmaker does not prevent the earlier agent’s action (and hence the earlier agent’s discriminatory animus) from being the proximate cause of the harm.” Id.  

In a concurring opinion, Justice Alito, joined by Justice Thomas, took the position that the Court’s decision should have focused on the statutory text—specifically, the phrase “motivating factor in the employer’s action”—rather than on principles of agency and tort law.

Justice Kagan did not participate in the case.

Freedom of Information Act—Corporations

Federal Communications Commission v. AT&T, Inc., No. 09-1279 (previously discussed in the September 28, 2010 Docket Report).

The Freedom of Information Act (“FOIA”), 5 U.S.C. §§ 551–559, requires a federal agency to disclose certain documents within its possession. So-called “Exemption 7(C),” however, exempts from mandatory disclosure “records or information compiled for law enforcement purposes . . . to the extent that the production of such law enforcement records or information . . . could reasonably be expected to constitute an unwarranted invasion of personal privacy.” 5 U.S.C. § 552 (b)(7)(C). The statute does not define “personal,” but it does define “person” as “includ[ing] an individual, partnership, corporation, association, or public or private organization other than an agency.” 5 U.S.C. § 551(2). In Federal Communications Commission v. AT&T, Inc., No. 09-1279, the Supreme Court held today that Exemption 7(C) does not protect the “personal privacy” of corporate entities.

In overturning the Third Circuit’s novel reading of the “personal privacy” provision of Exemption 7(C), the Court also strongly indicated—even if only in dicta—that the personal privacy language in FOIA Exemption 6, which arguably is more broadly applicable than Exemption 7(C), also does not apply to corporations.  The decision thus resolves uncertainties about the scope of both Exemption 7(C) and Exemption 6 that were created by the Third Circuit’s unique construction of the privacy protection in Exemption 7(C).  In so doing, the decision reinstates the status quo ante, in which business submitters of information to Federal government entities had to rely principally on Exemption 4 to protect their trade secrets and commercial and financial information.  The Exemption 4 protections remain intact after the Court’s ruling, which confirmed (once again) that corporations are “person[s]” for the purposes of Exemption 4.  Thus, the decision clarifies that, as they did before the Third Circuit’s decision, business entities submitting information to the government will need to focus mainly on the competitive-harm and custom-of-disclosure principles implicated by Exemption 4 to protect their confidential business information.

The case arose from an FCC enforcement action triggered by AT&T’s voluntary report that it might have overcharged the government for certain work it had done. During the investigation, the FCC ordered AT&T to produce, and it did produce, a broad range of documents, including invoices, internal e-mails providing pricing and billing information, names of employees allegedly involved in the improper billing, and AT&T’s internal assessments of whether the employees had violated the company’s code of conduct. A trade association representing some of AT&T’s competitors submitted a FOIA request for the contents of the FCC’s investigative file. While some of AT&T’s disclosures qualified for Exemption 4 protection (such as cost and pricing data, billing related-information, and identifying information about staff, contractors, and customer representatives), the FCC refused to apply Exemption 7(C) to withhold the remainder of the information in its investigative file. The FCC reasoned that corporations lack “personal privacy.”

Applying an “ordinary meaning” analysis to the term “personal privacy,” the Supreme Court agreed with the FCC. Chief Justice Roberts authored the Court’s unanimous opinion reversing the Third Circuit. Justice Kagan was recused.

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