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October Term, 2010

February 22, 2011

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

Federal Preemption of State-Law Claims—National Childhood Vaccine Injury Act

Bruesewitz v. Wyeth, No. 09-152 (previously discussed in the March 8, 2010 Docket Report)

The National Childhood Vaccine Injury Act of 1986 (“Vaccine Act”), 42 U.S.C. §§ 300aa-1 et seq., expressly preempts state-law claims against manufacturers of certain covered vaccines if the injury or death giving rise to such a claim “resulted from side effects that were unavoidable even though the vaccine was properly prepared and was accompanied by proper directions and warning.” 42 U.S.C. § 300aa-22(b)(1). Today, in Bruesewitz v. Wyeth, No. 09-152, the Supreme Court held that the Vaccine Act categorically preempts all design-defect claims against such manufacturers.

Lower courts had been divided over the preemptive scope of the Vaccine Act. In the decision that was affirmed by today’s opinion, the Third Circuit had held that the Vaccine Act preempts all design-defect claims, including both those sounding in negligence and those sounding in strict-liability. The Georgia Supreme Court, by contrast, had previously held that a design-defect claim is not preempted unless the manufacturer demonstrates, on case-by-case basis, that there was no safer design that could have avoided the injury giving rise to the claim.

Writing for the majority, Justice Scalia explained that the “even though” clause in the Vaccine Act’s preemption provision enumerates the steps that a vaccine manufacturer must take for an injury or death to be considered “unavoidable” for purposes of the statute. In other words, if the vaccine was “properly prepared and was accompanied by proper directions and warning,” any side effects—including those resulting from alleged design defects—are deemed to have been “unavoidable.” State-law claims premised on such side effects are, accordingly, barred by the Vaccine Act.

The Court rejected the dissent’s contention that the word “unavoidable” in the preemption provision was a term of art that incorporated Comment k to Restatement (Second) of Torts § 402A. Generally speaking, the Restatement’s approach to products liability holds a manufacturer strictly liable for harms caused by unreasonably dangerous products. Comment k exempts from this strict-liability rule products that are “unavoidably unsafe.” Petitioners had argued (and the dissent agreed) that, at the time the Vaccine Act was enacted, courts understood Comment k as requiring a case-by-case showing by the manufacturer that the product in question was not capable of feasibly being made safer. The Court disagreed, explaining that there was no reason to believe that the Vaccine Act’s use of the word “unavoidable” (as distinguished from “unavoidably unsafe”) was meant to invoke this analysis: “Unavoidable,” the Court observed, is hardly a rarely used word. And, in any event, Comment k had not been uniformly interpreted—some courts thought it required a case-specific showing that a product was “unavoidably unsafe,” while others thought it categorically exempted certain classes of products from strict liability.

The Court found additional support for a broad reading of the preemption provision in the structure and purpose of the Vaccine Act. The Vaccine Act and its implementing regulations specify in great detail how covered vaccines must be manufactured, and a vaccine’s license contains the exact language of the warnings and directions that must accompany the vaccine. Any deviation from these detailed federal standards could take the manufacturer outside the Vaccine Act’s preemption provision. By contrast, the Vaccine Act provided no guidance as to how the safety or effectiveness of a vaccine was to be evaluated. The Court reasoned that this lack of “guidance for design defects combined with the extensive guidance for the two grounds of liability specifically mentioned in the Act strongly suggests that design defects were not mentioned because they are not a basis for liability.” Slip op. 14. Moreover, other provisions of the Vaccine Act established a “structural quid pro quo” that would be undermined by allowing design-defect claims to proceed. In exchange for funding, via an excise tax, an informal, administrative compensation scheme for vaccine injuries—which allows claimants to recover without proof of negligence or, indeed, the existence of any defect—manufacturers received significant protection from state-law tort liability. It would be anomalous for design-defect claims to be left out of this bargain.

Finally, the Court rejected the argument that the Vaccine Act’s legislative history demonstrated that Congress intended to require vaccine manufacturers to show, on a case-by-case basis, that no safer, feasible alternative design existed. The Committee Report that accompanied the preemption provision itself supported a broad reading of the preemption provision. And the Committee Report that accompanied the later legislation that created the excise tax funding the compensation scheme was “post-enactment” legislative history, and therefore not a legitimate tool of statutory interpretation.

In a concurring opinion, Justice Breyer joined the Court’s judgment and opinion in full. In Justice Breyer’s view, however, the textual question was a close one. His concurrence explained why the “legislative history, statutory purpose, and the views of the federal administrative agency, supported by expert medical opinion,” reinforced the Court’s reading of the Vaccine Act’s preemption provision. Slip op. 1 (Breyer, J., concurring). Justice Breyer observed that the Committee Report characterized that provision as setting forth the principle of Comment K—not the details of how Comment K had been elaborated by various state courts. That principle is that vaccine manufacturers, like manufacturers of other unavoidably unsafe products, should not be held liable for design-defect-related injuries.

The dissenting opinion was written by Justice Sotomayor and joined by Justice Ginsburg.

Justice Kagan did not participate in the case.

Mayer Brown filed an amicus brief on behalf of the Chamber of Commerce of the United States of America in support of affirmance.

Railroad Revitalization and Regulatory Reform Act—Discriminatory State Taxation

CSX Transportation, Inc. v. Alabama Dept. of Revenue, No. 09-520 (previously discussed in the June 14, 2010 Docket Report).

The Railroad Revitalization and Regulatory Reform Act of 1976 (“the 4-R Act”), 49 U.S.C. § 11501(b), restricts the ability of state and local governments to levy discriminatory taxes on rail carriers. The 4-R Act includes three prohibitions on certain property taxes (subsections (b)(1) through (3)) and a fourth prohibition on “another tax that discriminates against a rail carrier” (subsection (b)(4)). Today, in CSX Transportation, Inc. v. Alabama Dept. of Revenue, No. 09-520, the Supreme Court held that, under subsection (b)(4), rail carriers may challenge in federal court a state’s sales and use taxes that apply to rail carriers but exempt their competitors.

In Alabama, rail carriers must pay sales and use taxes on the purchase and consumption of diesel fuel. Motor and water carriers, the main competitors of rail carriers, are exempted. Petitioner CSX Transportation, Inc. (“CSX”) challenged the Alabama taxes in federal district court, claiming that they violate subsection (b)(4). The district court held that CSX could not challenge the taxes under the 4-R Act and dismissed the suit. The Eleventh Circuit affirmed, relying on a prior decision of that court that in turn had relied on the Supreme Court’s decision in Department of Revenue v. ACF Industries, Inc., 510 U.S. 332 (1994).

In an opinion by Justice Kagan, the Supreme Court reversed. The Court reasoned that subsection (b)(4) encompasses CSX’s claims because the phrase “another tax” is a “catch-all” that includes the sales and use taxes imposed on CSX, slip op. 6, and because the exemptions could be considered a form of “discrimination,” id. at 8. The Court rejected Alabama’s argument that the 4-R Act applies only to favorable treatment of “local actors,” explaining that the text of § 11501(b) targets differential treatment of “railroads and other actors, whether interstate or local.” Id. at 10. The Court also determined that the Eleventh Circuit had “misread” ACF Industries, id. at 12, which restricts challenges to “property tax exemptions under subsection (b)(4),” id., but “has no bearing on … non-property tax exemptions like those at issue in this case,” id. at 13. The Court emphasized, however, that its decision was “limited” to whether CSX “may challenge Alabama’s sales and use taxes” under subsection (b)(4) and did not reach the question whether CSX “should prevail.” Id. at 18.

In a dissenting opinion joined by Justice Ginsburg, Justice Thomas agreed that “Alabama’s sales and use taxes are ‘another tax’ within the meaning of 49 U.S.C. § 11501(b)(4) and that a scheme of tax exemptions is capable of making a tax discriminatory,” and thus “could potentially violate subsection (b)(4),” but nevertheless took the position that CSX should not prevail, because, in his view, subsection (b)(4) is limited to a tax that “targets or singles out railroads as compared to general commercial and industrial taxpayers.” Slip op. 1–2 (Thomas, J., dissenting).

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