home
about the group
appellate attorneys
briefs
docket reports
oral arguments
news on
 mayerbrown.com
contact
 

MAYER, BROWN & PLATT

SUPREME COURT DOCKET REPORT


 

1998 Term, Number 2 / October 13, 1998

Today the Supreme Court granted certiorari in three cases, all of which are of potential interest to the business community. Amicus briefs in support of the petitioners are due on November 27, 1998, and amicus briefs in support of the re.spon.dents are due on December 28, 1998 (because December 27 is a Sunday). Any questions about these cases should be directed to Alan Untereiner (202-778-0656) or Donald Falk (202-778-0174) in our Washington office.

1.  ERISA — Preemption — Exemption for State Laws Regulating Insurance.
The Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., preempts all state laws that "relate to" employee benefit plans, but exempts from preemption state laws "which regulate[] insurance." 29 U.S.C. § 1144(a), 1144(b)(2)(A). The Court granted certiorari in UNUM Life Ins. Co. v. Ward, No. 97-1868, to decide whether ERISA preempts two state common law rules restricting the ability of insurance companies to deny claims based on untimely notice. Specifically, the Court will decide whether the state rules (1) "relate to" an employee benefit plan so as to come within the preemption clause; (2) "regulate[] insurance" so as to be saved from preemption; and (3) are preempted in any event because they conflict with other provisions of ERISA.

John Ward, the CEO of his former employer, brought this action in the United States District Court for the Southern District of California under Section 502 of ERISA, 29 U.S.C. § 1132, seeking to recover long-term disability benefits under an employee benefit plan. The district court granted summary judgment in favor of the UNUM Life Insurance Company on the ground that Ward's claim was untimely under the terms of the employer's long-term disability insurance policy.

The Ninth Circuit reversed. 135 F.3d 1276 (1998). Although acknowledging that Ward's claim "plainly was untimely under the express terms of the UNUM policy," id. at 1280, the court of appeals held that Ward's untimeliness could be excused by either of two California common law rules. Under the "notice-prejudice" rule, an insurance company must prove substantial prejudice in order to avoid liability based on untimely notice or submission of proof. Under the "Elfstrom rule" (which originated in Elfstrom v. New York Life Ins. Co., 67 Cal.2d 503 (1967)), an employer that participates in the administration of a group insurance policy acts as an agent of the insurer, so that Ward's (timely) notice to his employer sufficed to give proper notice to UNUM.

The Ninth Circuit held that neither of these state law rules is preempted by ERISA. In the court of appeals' view, the "notice-prejudice" rule "remains in force * * * as a state law 'which regulates insurance' under ERISA's savings clause," 135 F.3d at 1280, while the "Elfstrom rule" is not preempted because it neither "relate[s] to" ERISA plans for purposes of 29 U.S.C. § 1144(a) nor conflicts with ERISA's exclusive remedy and fiduciary duty provisions. 135 F.3d at 1284-1289.

The Ninth Circuit's decision arguably conflicts with the decisions of other circuits. Several courts of appeals have held that ERISA preempts state "notice" rules and agency-law principles in the context of the administration of ERISA plans, either expressly or under principles of conflict preemption. See, e.g., Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1492-1495 (7th Cir. 1996). Other circuits also have held that ERISA preempts state-law rules that depart from the unambiguous terms of the ERISA plan at issue or of ERISA itself. E.g., Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 128 (7th Cir. 1992).

The Supreme Court applies a three-factor analysis to state-law rules asserted to avoid preemption through the operation of the insurance savings clause: (1) whether the state law regulates a practice "that has the effect of transferring or spreading a policyholder's risk"; (2) whether the regulated "practice is an integral part of the policy relationship between the insurer and the insured"; and (3) "whether the practice is limited to entities within the insurance industry." Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 743 (1985). In holding that the "notice-prejudice" rule falls within the insurance savings clause, the Ninth Circuit relied on an earlier decision holding that a state law could avoid preemption without satisfying all three criteria. 135 F.3d at 1280 (relying on Cisneros v. UNUM Life Ins. Co., 134 F.3d 939 (9th Cir. 1998) (state law may come within insurance savings clause without regulating practice that spreads risk), pet. for cert. pending, No. 97-1867). That holding deepened an intercircuit conflict on whether all three criteria must be satisfied. Compare, e.g., Davies v. Centennial Life Ins. Co., 128 F.3d 934 (6th Cir. 1997) (no single factor is dispositive) with, e.g., Tingle v. Pacific Mutual Life Ins. Co., 996 F.2d 105 (5th Cir. 1996) (all three factors must be satisfied).

This case has obvious importance for insurance companies that insure or administer ERISA plans as well as for businesses that fund their own plans. The Court will have another opportunity to clarify the restrictive reading of the preemption clause announced in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995), as well as to explain the proper application of the insurance savings clause. In addition, the conflict preemption question may lead the Court to analyze the regulatory and remedial scheme of ERISA more broadly, an analysis that necessarily would have great practical importance in light of the universally acknowledged opacity of the statute itself. Finally, because the analysis of the ERISA preemption savings clause follows the analysis used to determine antitrust immunity under the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., the case has still broader significance for insurance companies.

2.  Exhaustion of Tribal Court Remedies — Price-Anderson Act — Preemption.
The Price-Anderson Act, 42 U.S.C. § 2011 et seq., vests federal courts with original jurisdiction over tort actions arising from a "nuclear incident," which is broadly defined to include any occurrence causing bodily injury or death that results from nuclear materials or their byproducts. Indian tribal courts have original jurisdiction over tort claims arising from conduct on tribal land. The Supreme Court granted review in El Paso Natural Gas Co. v. Neztsosie, No. 98-6, to decide whether a tribal court must first be permitted to determine whether it has jurisdiction over a common law tort action based on a "nuclear incident" on tribal land before the defendants can seek an order in federal court enjoining the action for lack of jurisdiction.

In two separate actions, members of the Navajo Nation filed suit in Navajo Tribal Court against El Paso Natural Gas Company and Cyprus Foote Mineral Company, asserting tort claims under Navajo common law. The plaintiffs in both cases alleged that they suffered radiation-related damages from contamination resulting from uranium mining activities that El Paso and a predecessor of Cyprus had conducted on the Navajo reservation in the 1950s and 1960s.

In response, El Paso and Cyprus filed complaints for declaratory and injunctive relief in the United States District Court for the District of Arizona. El Paso and Cyprus claimed that the Price-Anderson Act provides the exclusive remedy for all actions arising from "nuclear incidents," and that the tribal court therefore lacked subject matter jurisdiction over the tort claims. The same district judge heard both actions. In each case, the district court enjoined the plaintiffs from raising any claims under the Price-Anderson Act in tribal court, but refused to enjoin the proceedings on the Navajo common law claims. The court did not decide whether the Price-Anderson Act preempts the tribal-law claims. Instead, the district court balanced the interest of the United States in operating its nuclear industry in a uniform manner against the Navajo Nation in adjudicating disputes that occur on its territory, and concluded that the tribal court had jurisdiction to hear the plaintiffs' claims based upon tribal law.

El Paso and Cyprus then moved the tribal court to dismiss the common law claims. The tribal court denied both motions, finding that the Price-Anderson Act did not apply.

A divided panel of the Ninth Circuit affirmed the district court's judgment refusing to enjoin prosecution of the tribal-law claims and, sua sponte, reversed the injunctions prohibiting plaintiffs from asserting Price-Anderson claims in tribal court. 136 F.3d 610 (1998). (The plaintiffs had not appealed the latter determination.) The majority held that, under National Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845 (1985) and Iowa Mutual Ins. Co. v. LaPlante, 480 U.S. 9 (1987), a non-Indian sued in tribal court must exhaust tribal remedies before seeking relief in federal court, except in certain very narrow circumstances not present here. The majority further held that the Price-Anderson Act provides for concurrent rather than exclusive jurisdiction over claims that arise from nuclear incidents. Accordingly, the majority concluded that it did not need to address the question whether the Price-Anderson Act preempts the tribal common-law claims. Because of "important comity considerations," however, the court of appeals reversed the district court's order enjoining the plaintiffs from bringing Price-Anderson claims in the tribal court action. 136 F.3d at 615.

Judge Kleinfeld dissented on the ground that there are no "actions that can arise out of sickness or death resulting from hazardous properties of nuclear material that are not Price-Anderson actions." 136 F.3d at 621. Because the plaintiffs had not appealed the determination that the tribal court lacked jurisdiction over the Price-Anderson Act claims, and because in any event that Act explicitly requires removal of state-court actions to federal court (42 U.S.C. § 2210(n)(2)) and so suggests exclusive federal jurisdiction over Price-Anderson claims, Judge Kleinfeld concluded that the defendants were not required to exhaust tribal remedies before proceeding in federal court. He also criticized the majority for reaching out to reinstate the Price-Anderson claims in tribal court.

The decision of the Ninth Circuit appears to conflict with In re TMI Litig. Cases Consol. II, 940 F.2d 832, 854 (3d Cir. 1991), and O'Conner v. Commonwealth Edison Co., 13 F.3d 1090, 1099 (7th Cir. 1994). The Third and Seventh Circuits have held that the Price-Anderson Act provides an exclusive federal-law remedy and preempts all other causes of action for nuclear-related torts. The requirement that the defendants first present the jurisdictional question to the tribal court appears to conflict with the Supreme Court's recent decision in Strate v. A-1 Contractors, 117 S. Ct. 1404 (1997), which held that exhaustion is not required where there is no federal grant of authority for the tribes to adjudicate disputes with non-members arising from the conduct at issue.

This case is of obvious importance to the nuclear-power industry and to companies that do business on Indian reservations. Many businesses have sustained substantial awards of damages in tribal courts where such exposure was far less likely under state or federal law. In addition, the importance of the relationship between federal preemption and the doctrine of tribal exhaustion reaches beyond the Price-Anderson context. The Court also may address the substantive law of federal preemption more broadly, increasing the interest of the case to any business whose operations are governed by a preemptive federal statutory regime.

3. Materiality — Mail and Wire Fraud.
In Neder v. United States, No. 97-1985, the Court granted review to decide, among other things, whether materiality is an element of the federal crimes of mail, wire, and bank fraud, 18 U.S.C. § 1341, 1343, and 1344. Those statutes prohibit "schemes or artifices" to defraud or to obtain money or property "by means of false or fraudulent pretenses, representations, or promises." Although Neder is a criminal case, mail, wire, and bank fraud are among the most common predicate offenses alleged in civil actions brought under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.

Ellis Neder, Jr., was convicted of mail, wire, and bank fraud (as well as other crimes) based on his participation in certain failed real estate development projects. The trial court instructed the jury that any "false pretenses, representations, or promises" must be material under the bank fraud statute, but it also told the jury (erroneously, as the Supreme Court later decided in United States v. Gaudin, 515 U.S. 506 (1995)) that materiality was not an issue for the jury to decide. The trial court gave no materiality instruction at all for the mail fraud and wire fraud offenses.

The Eleventh Circuit affirmed Neder's conviction. 136 F.3d 1459 (1998). The court of appeals held that the failure to submit materiality to the jury on the bank fraud counts or to instruct on materiality with respect to the mail and wire fraud counts was not error because materiality is not an element of those offenses. In reaching this conclusion, the Eleventh Circuit relied heavily on United States v. Wells, 117 S. Ct. 921 (1997), in which the Court held that misstatements need not be material to fall within the scope of 18 U.S.C. § 1014, which prohibits certain "false statement[s]" to federally insured banks. The court of appeals noted that the mail fraud, wire fraud, and bank fraud statutes resemble Section 1014 in that they do not contain the word "material." 136 F.3d at 1463-1464. The court also relied on the fact that the mail fraud statute (after which the wire fraud and bank fraud statutes were patterned), like Section 1014, was enacted as part of the recodification of the federal criminal code in 1948. Ibid.

The circuits are divided on whether materiality is an element of the crimes of mail, wire, and bank fraud. The Eleventh Circuit's holding is at odds with decisions of other circuits rendered both before and after Wells. See, e.g., United States v. Von Barta, 635 F.2d 999 (2d Cir. 1980), cert. denied, 450 U.S. 998 (1981); United States v. DeSantis, 134 F.3d 760 (6th Cir. 1998). The Supreme Court's resolution of the materiality issue is important to the business community because mail fraud, wire fraud, and bank fraud are very common predicate offenses alleged in civil RICO cases, a point noted by the United States in its responsive brief. A holding that materiality is not an element of mail or wire fraud could significantly expand civil RICO liability to cases in which plaintiffs allege only immaterial misrepresentations by a defendant.

Mayer, Brown & Platt is counsel of record for petitioner Ellis Neder.


This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.



 
 
© 2014. The Mayer Brown Practices. All rights reserved. --  Legal Notices | Attorney Advertising

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.