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1999 Term, Number 1 / September 10, 1999

Breaking with tradition, the Supreme Court today issued a list of granted cases almost a full month before the formal opening of the new Term on Monday, October 4. The Court granted certiorari in seven cases, four of which are of potential interest to the business community (including two related cases). Under a special briefing schedule set by the Court, amicus briefs in support of the petitioners are due on Friday, October 22, 1999, and amicus briefs in support of the respondents are due on November 19. Any questions about this case should be directed to Alan Untereiner (202-263-3241) or Donald Falk (202-263-3245) in our Washington office.

1. Federal Arbitration Act Actions To Confirm Or Vacate Award Venue. A party who prevails in an arbitration may seek to have a court confirm the arbitrator's award. By the same token, the losing party may request a court to vacate the award. If the arbitration is governed by the Federal Arbitration Act (FAA), 9 U.S.C. 1 et seq., confirmation is governed by Section 9 of the FAA and vacatur by Section 10. The Supreme Court granted certiorari in Cortez Byrd Chips, Inc. v. Bill Harbert Construction Co., No. 98-1960, to decide whether the venue provisions of Sections 9 and 10 are mandatory or permissive.

Section 9 of the FAA provides that, if the parties' agreement does not specify a confirming court, a petition to confirm "may be made to the United States court in and for the district within which" the arbitration award was made. Section 10 provides that "the United States court in and for the district wherein the award was made may make an order vacating the award." On one hand, the only court expressly specified to confirm or vacate an arbitration award is the court in the district where the award was made. On the other hand, the FAA does not expressly preclude a court in another district from confirming or vacating an award, and Congress's use of the permissive "may" rather than the mandatory "shall" could indicate the availability of that option.

This case arises out of an arbitration award adding $488,500 to the negotiated price of a construction contract. The arbitration was conducted in Alabama, where the contractor was located. The losing party filed an action to vacate the arbitration award in federal district court in Mississippi, where the construction took place. The builder then filed an action to confirm the award in an Alabama federal court. In an unreported decision, the Alabama district court denied a motion to dismiss, transfer, or stay that proceeding.

The Eleventh Circuit affirmed. 169 F.3d 693 (1999). In a brief per curiam opinion, the court of appeals held that a petition to confirm or vacate an arbitration award must be filed in the federal district court for the district in which the award was made. Id. at 694-695.

The courts of appeals are divided over this question. Like the Eleventh Circuit, the Sixth and Ninth Circuits have ruled that Sections 9 and 10 mandate venue in the district where the award was made. Island Creek Coal Sales Co. v. City of Gainesville, 729 F.2d 1046, 1050 (6th Cir. 1984); Sunshine Beauty Supplies, Inc. v. United States District Court, 872 F.2d 310, 312 (9th Cir. 1989). The Second, Fourth, Fifth, Seventh, and Tenth Circuits have held that Sections 9 and 10 do not override the venue options found in the general venue statute, 28 U.S.C. 1391. See Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 706 (2d Cir. 1985); Apex Plumbing Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 192 (4th Cir. 1998); Sutter Corp. v. P & P Industries, 125 F.3d 914, 919-920 (5th Cir. 1997); In re VMS Securities Litigation, 21 F.3d 129, 142-145 (7th Cir. 1994); P & P Industries v. Sutter Corp., 179 F.3d 861, 869 (10th Cir. 1999).

This case is of substantial importance to the growing number of businesses that arbitrate many of their disputes. Some companies may prefer that all judicial proceedings that emanate from an arbitration take place in the same geographical area as the arbitration hearing. Others would prefer the option of obtaining judicial review in more convenient locations or where the opposing party's assets are located. In addition, the Court may take this opportunity to clarify the relationship between general and special venue statutes, an issue with a significant impact on the business community wholly apart from the arbitration context.

2. Preemption National Traffic and Motor Vehicle Safety Act Airbags. The Supreme Court granted certiorari in Geier v. American Honda Motor Co., 120 S. Ct. __ (2000), to decide whether the National Traffic and Motor Vehicle Safety Act (NTMVSA), 49 U.S.C. 30103(b), and Federal Motor Vehicle Safety Standard 208, 49 C.F.R. 571.208 (1997) (Standard 208), preempt design defect claims brought under state law for failure to install airbags. Federal appellate courts have uniformly concluded that state claims are preempted; several state courts of last resort have reached the opposite conclusion.

Petitioner Alexis Geier was injured in an automobile accident while driving a 1987 Honda. She and her parents brought suit against Honda, alleging that, although she had available (and had actually used) a three-point lap belt, her automobile was defectively designed because it lacked an airbag.

The version of Standard 208 in effect in 1987 gave manufacturers a choice among several passive restraint options, including lap belts and airbags. Standard 208 was promulgated under the NTMVSA, which contains an express preemption clause. That clause preempts state "safety standard[s]" that are "applicable to the same aspect of performance" as an existing federal safety standard, where the state standard is "not identical to the Federal standard." 49 U.S.C. 30103(b). The Act also contains a provision stating that "[c]ompliance with any Federal motor vehicle safety standard does not exempt any person from any liability under common law." Id. 30103(e). In an unreported decision, the district court granted summary judgment to Honda on the ground that Geier's claim was expressly preempted.

The D.C. Circuit affirmed. 166 F.3d 1236 (1999). The court of appeals did not decide whether the common law claims were expressly preempted. Rather, it ruled that Geier's claim was impliedly preempted because "a verdict in her favor would stand as an obstacle to the federal government's chosen method of achieving the Act's safety objectives." Id. at 1241. Standard 208 reflected a Department of Transportation "policy of encouraging both public acceptance of airbags and experimentation with better passive restraint systems. Id. at 1243.

All six of the federal courts of appeals that have considered common law claims premised on failure to install airbags have determined that Standard 208 either expressly or impliedly preempts state common law no-airbag design defect claims. E.g., Harris v. Ford Motor Co., 110 F.3d 1410 (9th Cir. 1997) (express preemption); Montag v. Honda Motor Co., 75 F.3d 1414 (10th Cir. 1996) (implied preemption). Two state courts of last resort agree. Cellucci v. General Motors Corp., 706 A.2d 806 (Pa. 1998); Cooper v. General Motors Corp., 702 So.2d 428 (Miss. 1997). Five state courts of last resort have held to the contrary. E.g., Drattel v. Toyota Motor Corp., 699 N.E.2d 376 (N.Y. 1998); Minton v. Honda of America Mfg., Inc., 684 N.E.2d 648 (Ohio 1997).

Although this case is of obvious importance to automobile manufacturers, the preemption questions raised here have significant implications for all businesses subject to substantial federal regulation. Many federal statutes contain preemption provisions similar to those in the NTMVSA. Moreover, Geier also presented (and the Court accepted) a broader question relating to whether the presence of an express preemption clause in a statute forecloses implied preemption analysis an argument that the Court appeared to reject as "without merit" in Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995). If Geier's position prevails, state juries will obtain broader ability to second-guess the judgments of Congress and expert federal agencies on matters of national concern in a national economy. That would subject manufacturers to an increased range of product liability suits with the attendant risks of massive compensatory and punitive damages liability.

3. Preemption State Regulation of Oil Tankers. Ocean-going oil tankers must comply with U.S. Coast Guard regulations issued pursuant to several federal statutes, including the Ports and Waterways Safety Act of 1972 (PWSA), 46 U.S.C. 3701 et seq., and the Oil Pollution Act of 1990 (OPA), Pub. L. No. 101-380, 104 Stat. 484 (1990). Tankers also are subject to various international obligations of the United States. The Supreme Court consolidated and granted certiorari in United States v. Locke, No. 98-1701, and International Association of Independent Tanker Owners (Intertanko) v. Locke, 120 S. Ct. 1135 (2000), to determine whether federal law preempts the State of Washington's regulations governing the staffing and operations of oil tankers.

The OPA regulates a variety of issues relating to oil tanker personnel, operations, design and construction. Section 1018 of the OPA contains a "savings" clause, permitting states to impose additional liability or requirements relating to "the discharge of oil or other pollution." 33 U.S.C. 2718(c). The PWSA directs the Secretary of Transportation to issue regulations governing the design, construction, operation, personnel qualification, and staffing of vessels. See generally Ray v. Atlantic Richfield Co., 435 U.S. 151 (1978) (finding earlier Washington oil tanker regulations preempted by the PWSA and associated regulations). In addition, the United States has ratified several international conventions setting standards for oil tankers and requiring acceptance within United States ports of tankers certified in compliance with those conventions.

In 1994, the State of Washington adopted new "Best Available Protection" (BAP) regulations that impose more stringent safety requirements on tankers than do the Coast Guard regulations. The BAP regulations address such matters as operating procedures, drug and alcohol testing and reporting, crew training policies, and language proficiency requirements.

Intertanko sought declaratory and injunctive relief against several Washington state and county officials, contending that 16 of the BAP regulations were preempted by federal law. The district court upheld all of the BAP regulations. 947 F. Supp. 1484 (W.D. Wash. 1996).

On appeal, the United States intervened on behalf of Intertanko. The Ninth Circuit affirmed in part and reversed in part. 148 F.2d 1053 (1998). The court of appeals held that regulations requiring navigation and towing equipment were preempted, but that regulations that addressed staffing, personnel training and qualifications, and tanker operations were not.

The Ninth Circuit held that the "savings" clause in Section 1018 of the OPA for state laws addressing "the discharge of oil or other pollution" limited the preemptive effect of all provisions of OPA. The court of appeals then concluded that "because the oil-spill prevention requirements set forth in the BAP Regulations clearly respect the discharge of oil, they were not preempted by anything in [the] OPA." 148 F.3d at 1059. The Ninth Circuit also held that, although Section 1018 does not directly apply to other statutes, the OPA embodies the "full purposes and objectives of Congress" in the field of tanker regulation purposes that reflect a "willingness to permit state efforts in the areas of oil-spill prevention, removal, liability, and compensation," regardless of the PWSA and other federal statutes. Id. at 1062. Accordingly, in the Ninth Circuit's view, Coast Guard regulations issued under the earlier statutes did not preempt BAP regulations addressing the same subject matter.

The Ninth Circuit also held that the BAP regulations did not conflict with the international conventions ratified by the United States. The court believed that the United States did not adhere to a policy of international uniformity in tanker regulation, so that international agreements set only minimum standards that could be supplemented by the States. 148 F.3d at 1062-1063.

The Ninth Circuit also concluded that Congress had not preempted the field of tanker operating and staffing rules. 148 F.3d at 1065-1066. Finally, again relying on Section 1018, the court of appeals held that Congress had not delegated to the Coast Guard the authority to issue regulations expressly preempting state oil spill prevention measures. Id. at 1068.

The Ninth Circuit denied rehearing en banc over Judge Graber's dissent. 159 F.3d 1220 (1998). Judge Graber concluded that Section 1018 of OPA applied only to OPA's liability and compensation provisions, not its prevention provisions. She also believed that the Coast Guard could issue regulations expressly preempting state laws and regulations without an express delegation of authority to do so.

The decision of the Ninth Circuit did not create or deepen a conflict among the circuits, although it appears to be in tension with the Supreme Court's decision in Ray v. Atlantic Richfield. In seeking review, the United States pointed out the severe impact of the Washington regulations on the ability of the Coast Guard to maintain uniform standards for ocean-going commerce and on the foreign relations of the United States. Indeed, several nations already have protested the Washington rules.

The importance of these cases for business extends beyond the shipping community to any enterprise that is subject to seemingly uniform national or international standards. If the Supreme Court approves the Ninth Circuit's broad interpretation of a narrow savings clause, the preemptive force of many other federal statutes may be undermined. In addition, these cases may substantially develop the preemption analysis applicable to treaties and other international agreements. In particular, businesses whose dealings are governed in part by such agreements may want to be heard when the Court considers the Ninth Circuit's view that international compacts provide only minimum standards that State regulatory bodies are free to supplement.

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.

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