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SUPREME COURT DOCKET REPORT
OCTOBER TERM 2006 - NO.
14


October Term, 2006--No. 14

June 25, 2007


Mayer Brown's Supreme Court and Appellate Practice Group distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community. Please feel free to forward this to anyone who you think might find it useful or interesting. If you don't already subscribe to the Docket Report and would like to, please click here.


The Supreme Court granted certiorari today in three cases of interest to the business community:

         Food, Drug, and Cosmetic Act--Medical Device Amendments--Federal Preemption

         FAA Authorization Act--Regulation of Motor and Air Carriers--Preemption of State Law

         Internal Revenue Code--Deductibility of Investment Advice Fees


Food, Drug, and Cosmetic Act--Medical Device Amendments--Federal Preemption.  The Medical Device Amendments (MDA) to the Food, Drug, and Cosmetic Act (FDCA) provide that no State may "establish * * * any requirement" that "relates to the safety or effectiveness" of a medical device and "is different from, or in addition to, any requirement applicable under" the MDA.  21 U.S.C. 360k(a).  The Supreme Court has granted certiorari in Riegel v. Medtronic, Inc., No. 06-179, to decide whether 360k(a) preempts state-law tort claims challenging the design, manufacture and labeling of a medical device that was granted pre-market approval by the Food and Drug Administration (FDA).

Subject to certain exceptions, a medical device that is intended to be used "in supporting or sustaining human life" or "presents a potential unreasonable risk of illness or injury" may be marketed only after receiving pre-market approval by the FDA.  As part of the pre-market approval process, the FDA scrutinizes (among other things) the device's design, the method by which it will be manufactured, and the label that it will carry.  If the FDA grants pre-market approval for the device, the manufacturer is then, subject to certain limited exceptions, prohibited by federal law from changing the device's design, manufacturing process, or label.

The plaintiff in Riegel alleged that he suffered injuries during an angioplasty when a balloon catheter that had received pre-market approval purportedly malfunctioned.  Invoking both negligence and strict-liability theories, the plaintiff asserted various state-law tort claims alleging that the catheter was defectively designed, labeled, and manufactured.  The defendant moved for summary judgment, arguing that the FDA's grant of pre-market approval established federal requirements that preempted any state requirements different from or in addition to the federal requirements, and that the imposition of state-law tort liability despite the receipt of pre-market approval would effectively establish state requirements different from or in addition to the federal requirements.  The Second Circuit-joining the Third, Fifth, Sixth, Seventh, and Eighth Circuits, as well as the supreme courts of Pennsylvania, Rhode Island, and Texas-affirmed the grant of summary judgment, holding that the FDA's grant of pre-market approval establishes federal requirements that preempt state-law tort claims such as those brought by the plaintiff.  See 451 F.3d 104.  By contrast, the Tenth and Eleventh Circuits, along with the supreme court of Illinois, have held that such claims are not preempted.  The Supreme Court's decision in Riegel will resolve that split in authority.

Although presented in the context of medical devices, Riegel is an important case for all manufacturers of federally regulated products.  The decision in Riegel will likely affect the extent to which manufacturers of federally regulated products, and other participants in federally regulated arenas, are subject to state-law tort liability.

Mayer, Brown, Rowe and Maw LLP is counsel of record for respondents in this case.  Absent an extension, which is likely, amicus briefs in support of the petitioner will be due on August 9, 2007; amicus briefs in support of the respondent will be due 35 days after petitioner's brief is filed. Any questions about this case should be directed to Andrew Tauber (202-263-3324) in our Washington, DC office.


FAA Authorization Act--Regulation of Motor and Air Carriers--Preemption of State Law.  The Federal Aviation Administration Authorization Act of 1994 ("FAAAA") provides that "a State * * * may not enact or enforce a law * * * related to a price, route, or service of any motor carrier," or of any air carrier, with respect to the transportation of property.  49 U.S.C. 14501(c)(1) & 41713(b)(4)(A).  Intended to level the playing field in the transportation industry and to prevent a "patchwork" of inconsistent state regulations, these preemption provisions traditionally have been interpreted to preempt any state law that significantly affects or expressly references a carrier's prices, routes, or services.  The Supreme Court granted certiorari in Rowe v.  New Hampshire Motor Transport Association, No. 06-457, to determine whether the FAAAA preempts two provisions of a Maine law regulating the delivery to Maine consumers of tobacco products purchased over the internet.

The first of the state-law provisions at issue requires retailers to provide for the delivery of tobacco products via a carrier that will ensure that: (i) the purchaser is the same person as the addressee of the package; (ii) the addressee is of legal age to purchase tobacco products and signs for the package; and (iii) if the addressee is under 27 years of age, that she show valid identification verifying that she is old enough to purchase tobacco products.  Although the statute penalizes the retailer for failing to use such a carrier, its purpose and effect is to require carriers to take such steps.  The second provision prohibits carriers from delivering tobacco products to Maine consumers if the products were purchased from an "unlicensed retailer." 

In this case, several trade associations, relying on evidence that the Maine law caused UPS to cease delivering tobacco products to Maine consumers, sought to enjoin the law's enforcement.  In substantially affirming the district court's grant of summary judgment to the trade associations, the First Circuit--reasoning that preemption under the FAAAA depends on the effect rather than purpose of state laws--rejected Maine's broad argument that the FAAAA was intended to preempt only "economic regulation," not "laws enacted pursuant to a state's police power to protect the health and welfare of its citizens."  448 F.3d at 74-78.  Turning to the specific provisions at issue, the court then held that the law's verification and signature requirements were preempted because they expressly referenced and significantly affected--and hence "related to"--carriers' services.  Id. at 78-80.  In so holding, the court rejected Maine's argument that these provisions penalized retailers who failed to use compliant carriers rather than the carriers themselves and its alternative argument that carriers could simply forgo delivering tobacco products to Maine consumers.  The court further held that the statutory provision prohibiting carriers from delivering tobacco products purchased from an "unlicensed retailer" was preempted to the extent it imposes constructive knowledge on carriers that certain packages contain tobacco products, finding that while Maine could legitimately prohibit the knowing delivery of contraband tobacco, the constructive-notice portion of the statute would impermissibly affect carriers' services.  Id. at 80-82.

This case obviously is of great importance to motor and air carriers.  If the FAAA is deemed inapplicable to laws purportedly "enacted pursuant to a state's police power," then states' ability to enact burdensome and inconsistent regulations will increase significantly.  The case is also of great importance to the airline industry because the preemption provision of the Airline Deregulation Act, 49 U.S.C. 41713(b)(1), parallels the FAAAA's provisions and traditionally has been interpreted to be consistent with them.  Finally, the case is of interest to the business community generally, as Maine's broad defense of the "state's police power" could have implications for preemption jurisprudence generally.

Absent an extension, which is likely, amicus briefs in support of the petitioner will be due on August 9, 2007; amicus briefs in support of the respondent will be due 35 days after petitioner's brief is filed. Any questions about this case should be directed to Evan Tager (202-263-3240) in our Washington, DC office.

In the First Circuit, Mayer Brown filed an amicus brief supporting the associations on behalf of the American Trucking Association and the Chamber of Commerce of the United States.


Internal Revenue Code--Deductibility of Investment Advice Fees.  The Internal Revenue Code, in particular, 26 U.S.C. 67(a), generally allows miscellaneous itemized deductions "only to the extent that the aggregate of such deductions exceeds 2 percent of adjusted gross income." However, 26 U.S.C. 67(e)(1) allows a trust to deduct the full amount of certain administrative costs (i.e., regardless of whether such expenses exceed 2 percent of adjusted gross income) if certain conditions are satisfied. The Supreme Court granted certiorari today in Knight v. Commissioner of Internal Revenue, No. 06-1286, to resolve a conflict over how the two provisions interact. 

Knight, the trustee of a trust that had gross income of approximately $615,000, incurred more than $22,000 in investment advice fees.  The trust attempted to deduct the full amount of the fees, asserting that the investment management services met the deductibility requirement of 67(e)(1), which allows a trust to deduct costs if (1) they are incurred "in connection with administration of the estate" and (2) they "would not have been incurred if the property were not held" in trust.  The issue in the case is whether the second requirement was satisfied.  Relying on a Sixth Circuit decision that construed the statute to allow trusts to deduct costs that are incurred to satisfy a trustee's state-law fiduciary duty, the trust argued that the fees were fully deductible because Connecticut law required the trustee qua trustee to use investment advisory services.

The Second Circuit, in a decision reported at 467 F.3d 149, rejected the trust's (and the Sixth Circuit's) statutory interpretation, holding that investment advice fees are not exempt from the two-percent floor of 67(a) merely because the trustee had a fiduciary duty to incur them. Although the Second Circuit's ultimate conclusion aligned with prior decisions of the Fourth and Federal Circuits, the Second Circuit applied a different test, holding that trusts can deduct under 67(e)(1) only those fees that individuals are incapable of incurring (rather than costs not customarily incurred outside of trusts).

The Supreme Court's decision in Knight will be of significance to both trustees and the financial services industry.  If the decision below is upheld, trustees will have an incentive to discharge their fiduciary duties without incurring investment management and advice fees subject to the 2-percent floor, a result that would likely reduce the demand for such services.  Absent an extension, which is likely, amicus briefs in support of the petitioner will be due on August 9, 2007; amicus briefs in support of the respondent will be due 35 days after petitioner's brief is filed. Any questions about this case should be directed to Charles Rothfeld (202-263-3233) in our Washington, DC office.


Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed.

 
 
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