MAYER, BROWN & PLATT
SUPREME COURT DOCKET REPORT
2000 Term, Number 2 / October 10, 2000
Today the Supreme
Court granted certiorari in nine cases, three of which are of potential interest
to the business community. Amicus briefs in support of the petitioners are due
on Friday, November 24, 2000, and amicus briefs in support of the respondents
are due on Tuesday, December 26, 2000. In addition, the Court has invited the
Solicitor General to express the views of the United States in two cases of
interest to the business community. Any questions about these cases should be
directed to Donald Falk (202-263-3245), Eileen Penner (202-263-3242), or Miriam
Nemetz (202-263-3253) in our Washington office.
1. Constitutional Challenges to Punitive
Damages Awards — Standard of Review. The Supreme Court granted
certiorari in Cooper Industries, Inc. v. Leatherman Tool Group, Inc., No.
99-2035, to determine the standard of review applicable to a trial court's
determination that a punitive damages award is not unconstitutionally
excessive.
Leatherman Tool Group and Cooper Industries are competing hand
tool manufacturers. In the early 1980s, Leatherman introduced the Pocket
Survival Tool ("PST"), a multi-function hand tool that now dominates the market
for such products. In 1996, Cooper developed a multi-function hand tool similar
to the PST. Cooper marketed its tool, named the Toolzall, using photographs of a
modified PST. Leatherman sued Cooper in federal district court, alleging trade
dress infringement under the Lanham Act and common law claims for unfair
competition, false advertising, and "passing off." Cooper voluntarily removed
the original Toolzall from the market and stipulated to a preliminary injunction
prohibiting its use of pictures of the PST in marketing the Toolzall.
Thereafter, the district court preliminarily enjoined Cooper from marketing the
original Toolzall in the United States.
A jury concluded that
the Toolzall had infringed Leatherman's trade dress, but found that this
infringement caused no damage to Leatherman. The jury also found in favor of
Leatherman on its common law claims and awarded $50,000 in compensatory damages
and $4.5 million in punitive damages. In post-trial motions, Cooper argued that
the punitive damages were unconstitutionally excessive. The trial court refused
to reduce the award, finding it to be "fairly proportional given both the nature
of the conduct, evidence of intentional use of the modified [PST], and the size
of an award necessary to deter future similar conduct given defendant's size and
assets."
The Ninth Circuit
reversed the judgment against Cooper on the Lanham Act claim, ruling that the
overall appearance of the PST was not protectable trade dress. 199 F.3d 1009
(1999). In a separate, unpublished opinion, however, the court of appeals
affirmed the award of punitive damages on Leatherman's common law claims. 1999
WL 1216844. The court of appeals noted that this was a "very unusual passing
off case" because customers would not have been deceived by the photographs at
issue. Id. at *2. It nonetheless concluded that Cooper had engaged in "literal
passing off," and that this "gave Cooper an unfair advantage by allowing it to
use the sweat of Leatherman's efforts to obtain a ‘mock-up' [of the Toolzall]
more cheaply, easily, and quickly." Ibid. The court also found that "there was
evidence that Cooper did not act promptly" to remedy its improper use of the PST
photographs. Ibid. Ruling that the district court's findings concerning the
proportionality of the punitive damages award were thus "supported by the
evidence" (id. at *1), the Ninth Circuit held that the lower court "did not
abuse its discretion in declining to reduce the amount of punitive damages" (id.
at *2).
There is a conflict
among the circuits concerning the proper standard of review of district court
determinations concerning the constitutionality of a punitive damages award.
Like the Ninth Circuit, the Seventh and the Second Circuits apply a deferential
"abuse of discretion" standard in reviewing a district court's excessiveness
determination. See Shea v. Galaxie Lumber & Constr. Co., 152
F.3d 729, 736 (7th Cir. 1998); Lee v. Edwards, 101 F.3d
805, 808 (2d Cir. 1996). By contrast, the Third, Eighth, Tenth, and Eleventh
Circuits review such determinations de novo. See United Phosporous, Ltd. v.
Midland Fumigant, Inc., 205 F.3d 1219,
1229 (10th Cir. 2000); Inter Med. Supplies, Ltd. v. EBI Med. Sys., Inc., 181
F.3d 446, 467-470 (3d Cir. 1999), cert. denied (see
modification) , 120 S. Ct. 791 (2000); United States v. Bid D Enters., Inc.,
184
F.3d 924, 932-933 (8th Cir. 1999), cert. denied, 120 S. Ct. 1419 (2000);
Johansen v. Combustion Eng'g, Inc., 170 F.3d
1320, 1334 (11th Cir.), cert. denied, 120 S. Ct. 329 (1999).
Huge jury awards of
punitive damages have become commonplace in all types of lawsuits, and corporate
defendants must rely on the courts to reduce excessive awards. The standard of
review applicable to a district court's determination that a punitive award is,
or is not, unconstitutionally excessive thus has substantial importance to all
businesses.
2. Environmental Regulations — Regulatory
Takings — Ripeness. The Supreme Court granted certiorari in Palazzolo v.
Rhode Island, No. 99-2047, to decide whether a claimant may assert a regulatory
takings claim when the challenged regulation antedates his acquisition of the
property and permits some economic use of the property. The Court also will
decide when a regulatory takings claim becomes ripe for adjudication.
Anthony Palazzolo was
the president and sole shareholder of Shore Gardens, Inc. ("SGI"), which owned a
parcel containing 18 acres of wetlands and a few additional acres of uplands.
Palazzolo became the owner of the land when SGI's corporate charter was revoked
in 1978. Intending to develop either a recreational beach facility or a 74-home
residential subdivision on his property, Palazzolo has repeatedly filed
applications with Rhode Island environmental agencies to fill the wetlands. All
of his applications were denied.
After the denial of
the most recent application, Palazzolo filed suit in Rhode Island state court
alleging that the denial of his wetlands application constituted a taking of his
property without just compensation in violation of both the United States and
Rhode Island Constitutions. The trial court concluded that Palazzolo's property
had not been taken for public use and that no compensation was required.
The Supreme Court of
Rhode Island affirmed. 746 A.2d 707
(2000). The court first held that Palazzolo's claim was not ripe because he had
never specifically applied for permission to build a residential subdivision and
he had never sought "permission for less ambitious development plans" involving
the fill of fewer acres of wetlands or the development only of the upland
portion of the parcel. Id. at 714. The court nonetheless addressed the merits of
the case. First, the court held that Palazzolo had not suffered a per se taking.
To begin with, Palazzolo had not been "deprived of all beneficial and reasonable
use of his land." Id. at 715. In addition, Palazzolo could not rest his claim on
deprivation of a right to fill the wetlands, since he had never had that right;
the environmental regulations limiting his ability to fill the wetlands were
already in place when he became the individual owner of the land. Id. at
715-716. Second, the court held that Palazzolo had not been subjected to a
regulatory taking. In light of the pre-existing regulations, he "could not
reasonably have expected that he could fill the property and develop a
seventy-four-lot subdivision" when he acquired the property. Id. at 717.
Accordingly, the court found that Palazzolo had no reasonable investment-backed
expectations that were affected by the regulations. Ibid.
The petition asserts
that the decision of the Rhode Island court is in tension with decisions of
other state and federal courts. Some courts apparently apply less stringent
ripeness analyses to takings claims. Other courts appear to have permitted
takings challenges to the operation of regulations imposed before the current
owners acquired the regulated property. Still other courts have acknowledged
that a regulatory taking may require compensation even if it does not eliminate
all beneficial use of the property.
This case is of
obvious interest to the real estate and development industries and to any other
business that may have its expansion or development plans restricted by land-use
regulations. The decision will determine not only whether landowners may obtain
relief for a wide variety of stringent development regulations, but whether
their access to the courts to press such claims will be significantly delayed by
judicial notions of ripeness.
3. Government Contracts — Agency
Withholding of Contract Funds — Due Process. The California Labor Code
requires contractors and subcontractors on public works projects to pay a
state-determined prevailing wage to all of their employees. Upon finding a
violation of the prevailing wage law, but without conducting any hearing, the
contracting agency may withhold from the prime contractor an amount equal to the
total of the underpayments plus fines. If the violator is a subcontractor, then
the prime contractor is authorized to withhold an equivalent amount from the
subcontractor. These provisions are incorporated in all public works contracts.
The sole remedy of an aggrieved prime contractor is to sue the awarding body;
subcontractors have no right to sue, although a prime contractor may assign its
right to a subcontractor. The Supreme Court granted certiorari in Bradshaw v.
G&G Fire Sprinklers, Inc., No. 00-152, to determine whether the California
scheme violates the due process rights of subcontractors.
In this case, the
California Division of Labor Standards Enforcement ("DLSE") determined that
G&G Fire Sprinklers had violated the prevailing wage laws on three public
works projects. At the DLSE's direction, the awarding agencies withheld payments
from the prime contractors on those projects, which in turn withheld payments
from G&G. G&G filed an action seeking declaratory and injunctive relief
against the State, arguing that the withholding of payments constituted a
deprivation of property without due process of law in violation of the
Fourteenth Amendment. The district court held that the relevant provisions of
California law were unconstitutional and enjoined the State from enforcing them
against G&G.
The Ninth Circuit affirmed in part and reversed in part. 156
F.3d 893 (1998). Although it narrowed the district court's injunction, the
court of appeals agreed that G&G had a protected property interest in being
paid in full under its contracts, and that the statutory scheme deprived it its
property without due process of law. Id. at 901-903. The court made clear,
however, that payments could be withheld pending the results of a prompt
post-deprivation hearing. Id. at 903-904. Judge Kozinski dissented on the ground
that the State was not exercising its regulatory powers when it bargained for
contract terms such as those at issue. Id. at 908-910.
The Supreme Court
granted certiorari, vacated the judgment, and remanded for further consideration
in light of American Manufacturers Mutual Insurance Co. v. Sullivan, 526
U.S. 40 (1999). See 526 U.S. 1061 (1999). In Sullivan, the Court considered
a private insurer's decision, as authorized by a Pennsylvania statute, to
withhold payment on a worker's compensation claim pending review of the
reasonableness and necessity of particular medical treatment. The Court held
that the withholding was not fairly attributable to the State so as to be
subject to the constraints of the Fourteenth Amendment. 526 U.S. at 58. The
Court also held that the claimants lacked a protected property interest "in
having their providers paid for treatment that has yet to be found reasonable
and necessary." Id. at 61.
On remand, the Ninth
Circuit reinstated its earlier judgment and opinion, adding a separate
discussion of Sullivan. 204
F.3d 941 (2000). The majority emphasized that the withholding at issue here,
unlike that in Sullivan, was "specifically directed by State officials," and
that, consistent with Sullivan, the court had "explicitly authorized the
withholding of payments pending the hearing." Id. at 943-944. Judge Kozinski
again dissented, finding Sullivan dispositive. Id. at 944-947.
According to Judge
Kozinski, the Ninth Circuit created a conflict among the circuits when it
concluded that a contractor's interest in being paid in full under a government
contract is a property right protected by the Fourteenth Amendment. See 156
F.3d at 909 (citing Mid-American Waste Sys., Inc. v. City of Gary, 49 F.3d
286 (7th Cir. 1995); Walentas v. Lipper, 862 F.2d 414 (2d Cir.
1988)).
This case is of
substantial importance to all government contractors.
* * * * *
The Supreme Court invited the
Solicitor General to express the views of the United States in the following two
cases:
-
J.E.M. Ag Supply Inc. v.
Pioneer Hi-Bred International Inc., No. 99-1996: The question presented is
whether the Plant Variety Protection Act and Plant Patent Act provide the
exclusive means of obtaining a right to exclude others from reproducing, using,
or selling a sexually reproducing plant or plant variety, and thus take such
plants or plant varieties outside the scope of subject matter patentable under
35 U.S.C. § 101. Decision below: 200
F.3d 1374 (Fed. Cir. 2000).
-
C.S.U. L.L.C. v. Xerox
Corp., No. 00-62: The question presented is whether a company with monopoly
power in a market for products containing patented or copyrighted material is
immune from antitrust liability and from a finding of patent or copyright misuse
when that company selectively refuses to license or sell those products in order
to monopolize a separate market. Decision below: 203
F.3d 1322 (Fed. Cir. 2000).
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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