JANUARY 22, 2007
On Friday, January 19, the Supreme Court granted certiorari in three cases of
interest to the business community.
CERCLA—Right to Seek
Contribution from Other Potentially Responsible Parties. In Cooper Industries, Inc. v. Aviall Services, Inc., 543 U.S.
157 (2004), the Supreme Court held that a party may seek contribution for
clean-up costs under Section 113(f) of the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9613(f), only if the party
seeking contribution had itself been sued under the act. The Court has now
granted certiorari in United States v. Atlantic Research Corp.,
No. 06-562, to decide whether under Section 107(a) of CERCLA, 42 U.S.C. §
9607(a), a party may seek contribution for clean-up costs if the party seeking
contribution incurred those costs voluntarily rather than as a result of having
been held legally liable under the act.
Atlantic Research will resolve a circuit split over the issue. In the
decision below, reported at 459 F.3d 827, the Eighth Circuit, like the Second
Circuit in Consolidated Edison Co. of New York, Inc. v. UGI Utilities,
Inc., 423 F.3d 90 (2d Cir. 2005), held that under Section 107(a) a party
that is potentially responsible for clean-up costs under CERCLA may, even if it
has not itself been sued under the act, sue another potentially responsible
party for that other party’s share of the costs incurred in a voluntary clean-up
undertaken by the first party. The Second and Eighth Circuits found that such
suits were authorized by the text of Section 107(a)--which makes a potentially
responsible party liable for “any * * * necessary costs of response incurred by
any other person”--and consistent with CERCLA’s remedial purpose by encouraging
polluters to initiate voluntary clean-ups without waiting to be sued. By
contrast, in E.I. DuPont de Nemours & Co. v. United States, 460
F.3d 515 (3d Cir. 2005), the Third Circuit held that Section 113(f), which
allows suits for contribution only after the party seeking contribution has
itself been sued under CERCLA, provides the exclusive basis for potentially
responsible parties to seek contribution from other potentially responsible
parties. According to the Third Circuit, a potentially liable party may not seek
contribution under Section 107(a) because the statutory phrase “any other
person” excludes potentially liable parties from its scope. Moreover, according
to the Third Circuit, allowing parties to seek contribution only after having
been sued under CERCLA fulfills Congress’s desire to encourage polluters to
enter legally enforceable, federally supervised settlements.
The question of when a potentially responsible party may seek contribution
under CERCLA for clean-up costs is obviously of tremendous practical importance
to all businesses that may face CERCLA liability. How the Supreme Court resolves
the issue will have significant consequences for companies’ environmental
policies and litigation strategies. Amicus briefs in support of the petitioner
are due on March 5; amicus briefs in support of the respondents will be due 35
days after petitioner’s brief is filed. Any questions about the case should be
directed to Tim Bishop (312-701-7829) in our Chicago office.
Termination—Existence of a Fiduciary Duty to Consider Plan Merger Rather
Than Purchase of an Annuity. The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001
et seq., requires employee benefit plan fiduciaries--i.e., those
with discretionary authority or control over plan management, assets, or
administration, see 29 U.S.C. § 1002(21)(A)(i) & (iii)--to discharge their
duties solely in the interest of plan participants and beneficiaries. See
29 U.S.C. § 1104(a)(1)(A), (B) & (D). An employer may initiate termination of a
single-employer defined benefit pension plan--one that entitles employees to
fixed periodic payments upon retirement--“only” through the termination
procedures established by Title IV of ERISA. See 29 U.S.C. § 1341(a)(1). Under a
“standard termination,” a plan administrator must distribute assets to plan
participants and beneficiaries either through the purchase of “irrevocable
commitments [i.e., annuities] from an insurer to provide all benefit
liabilities under the plan” or by otherwise fully providing all benefit
liabilities under the plan “in accordance with the provisions of the plan and
any applicable regulations.” 29 U.S.C. 1341(b)(3)(A); see also 29 C.F.R.
4041.28(c)(1). The Supreme Court granted certiorari in Beck v. Pace
International Union, No. 05-1448, to determine whether a pension plan
sponsor’s decision to terminate a plan by purchasing an annuity, rather than to
merge the pension plan with another, is a plan sponsor decision not subject to
ERISA’s fiduciary obligations.
In the decision below, the Ninth Circuit held that this is a fiduciary
decision. In particular, the court held that (i) merger into a multi-employer
plan is not a prohibited means of terminating a pension plan under ERISA and its
regulations, and (ii) the sponsor of a single-employer defined-benefit pension
plan could breach its fiduciary duties by failing to undertake an “intensive and
scrupulous investigation” of a proposed merger as an alternative to the purchase
of annuities. 427 F.3d 668 (9th Cir. 2005). The Ninth Circuit reasoned that
because “the implementation of a decision to terminate [a pension plan] is
discretionary in nature and subject to ERISA’s fiduciary obligations,” whether
there is a fiduciary duty to investigate a proposed merger turns on whether
merger is a permissible means of implementing the termination decision. Id.
at 673-674. The Court determined that ERISA and its regulations permit merger by
construing 29 U.S.C. 1341(b)(3)(A) and 29 C.F.R. 4041.28(c)(1) to permit any
method of termination, including merger, that suffices “to cover plan
liabilities.” 427 F.3d at 674-676.
Both the Third and Sixth Circuits have declined to impose ERISA’s fiduciary
obligations on an employer’s decision to merge pension plans. See Malia
v. Gen. Elec. Co., 23 F.3d 828, 833 (3d Cir. 1994); Sutter v.
BASF Corp., 964 F.2d 556, 562 (6th Cir. 1992). There is also a potential
conflict between the Ninth Circuit’s decision and Supreme Court decisions
that—distinguishing between settlor and fiduciary function—have held that
decisions about plan design, composition, and structure are settlor functions
that are not subject to ERISA’s fiduciary requirements. See Curtiss-Wright
Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995); Lockheed Corp.
v. Spink, 517 U.S. 882, 890-891 (1996); Hughes Aircraft Co. v.
Jacobson, 525 U.S. 432, 444-445 (1999).
This decision will have a significant impact on businesses that are sponsors
of plans governed by ERISA. If the Ninth Circuit decision is upheld and
employers have a fiduciary duty to consider merger as an alternative to plan
termination with a concomitant distribution of annuities, employers may have to
choose merger over termination (or maintain the status quo) even if
termination makes business sense. In addition, although ERISA provides that an
employer that terminates a plan may generally recover any residual assets upon
the satisfaction of all obligations owed to beneficiaries and participants, see
29 U.S.C. § 1344(d)(1), no such residual-asset pool results from merger because
all assets of the merged fund are transferred to the acquiring fund. Therefore,
employers’ funding decisions may be affected by the risk that they will be
precluded from recouping excess plan assets through termination. Amicus briefs
in support of the petitioner are due on March 5; amicus briefs in support of the
respondents will be due 35 days after petitioner’s brief is filed. Any questions
about the case should be directed to firstname.lastname@example.org.
Foreign Sovereign Immunity
Act—Removal to Federal Court—Definition of “[A]gency or Instrumentality of
a Foreign State”—Appellate Jurisdiction Over Remand Order. Under the Foreign Sovereign Immunity Act (FSIA), 28 U.S.C. § 1602 et seq.,
a “foreign state” sued in a state court has the right to remove the suit to
federal district court. 28 U.S.C. § 1441(d). The FSIA defines the term “foreign
state” to include “an agency or instrumentality of a foreign state,” 28 U.S.C.
§ 1603(a), and in turn defines that term to include any entity (i) “which is an
organ of a foreign state or political subdivision thereof,” or (ii) “a majority
of whose shares or other ownership interest is owned by a foreign state or
political subdivision thereof.” 28 U.S.C. § 1603(b)(2). The Supreme Court
granted certiorari in Powerex Corp. v. Reliant Energy Services, Inc.,
No. 05-85, to determine the scope of the “organ of a foreign state” provision.
Powerex is a Canadian-based company that sells excess power generated in
British Columbia. It is a wholly owned subsidiary of the British Columbia Power
and Hydro Authority (BC Hydro), which is in turn wholly owned by the Canadian
Province of British Columbia. Powerex, BC Hydro, and others were sued in
California state court for allegedly manipulating the cost of electricity during
the California energy crisis in 2000 and 2001, and subsequently removed the
action to federal court. The district court held that BC Hydro could
appropriately remove the litigation to federal court under the
majority-ownership provision, and further held that BC Hydro was immune from
suit under the FSIA. As to Powerex, the court held that it could not remove the
litigation to federal court under either prong of Section 1603(b)(2) because (a)
it did not qualify as an “organ of a foreign state,” and (b) in Dole Food Co.
v. Patrickson, 538 U.S. 468 (2003), the Court interpreted the
majority-ownership provision to require direct ownership by the foreign
state or political subdivision. The district court thereafter remanded the
litigation against Powerex to state court.
The Ninth Circuit affirmed. California v. NRG Energy Inc., 391
F.3d 1011 (9th Cir. 2004). The court held that it had jurisdiction to hear the
appeal despite 28 U.S.C. § 1447(d), which ordinarily bars appellate review of
remand orders, because the district court unquestionably had jurisdiction based
on BC Hydro’s removal. On the merits of the remand order, the court held that
Powerex does not qualify as an “organ of a foreign state” because it “was not
run by government appointees, was not staffed with civil servants, was not
wholly owned by the government, was not immune from suit, and did not exercise
regulatory authority.” 391 F.3d at 1026.
As we noted in the April 19, 2006 Docket Report, the Supreme Court called for
the views of the Solicitor General in this case. In his brief, the Solicitor
General suggested that the Court grant certiorari, and opined that the Ninth
Circuit’s construction of Section 1603(b)(2) conflicted with the views of
several other federal circuits and failed to give adequate attention to the
“ultimate question: whether the defendant is ‘an entity that engages in activity
serving a national interest and does so on behalf of its national government.’”
U.S. Br., at 9, quoting USX Corp. v. Adriatic Ins. Co., 345 F.3d
190, 209 (3d Cir. 2003). In granting certiorari, the Court ordered the parties
to address both the construction of the “organ of a foreign state” provision and
whether the Ninth Circuit had appellate jurisdiction notwithstanding Section
This case is of obvious interest not only to foreign governments and their
instrumentalities but also to any company that does business with, or might have
reason to pursue legal action against, a company that is affiliated with a
foreign government. Additionally, the Court’s analysis of the
appellate-jurisdiction question will be of interest to all companies that have
cause to remove cases from state courts. Amicus briefs in support of the
petitioner are due on March 5; amicus briefs in support of the respondents will
be due 35 days after petitioner’s brief is filed. Any questions about the case
should be directed to email@example.com.