Co-authored by Ms Miriam R. Nemetz & Mr Andrew H. Schapiro
The Supreme Court granted certiorari in three cases of potential interest to the business community.
1. Copyrights - Extension Of Existing Copyright Term - Constitutionality. The Supreme Court granted certiorari in Eldred v. Ashcroft, No. 01-618, to consider the following questions: 1) whether Congress's twenty-year extension, in 1998, of the terms of all copyrights violates the First Amendment; 2) whether that extension violates the Copyright Clause of the Constitution, U.S. Const. Art. I, § 8, Cl. 8; and 3) whether a circuit court may properly consider arguments raised by an amicus that differ from those advanced by the parties.
Congress passed the Copyright Term Extension Act of 1998 ("CTEA"), Pub. L. No. 105-298, 112 Stat. 2827, ("CTEA") in 1998, adding twenty years to the terms of all existing copyrights and providing that all future copyrights will survive for the life of the author plus seventy years. Several plaintiffs subsequently filed suit against the U.S. Attorney General in the U.S. District Court for the District of Columbia. The plaintiffs included a non-profit organization that uses the Internet to distribute electronic versions of books in the public domain, a company that reprints out-of-print public-domain books, a sheet music vendor and a choir director who rely on inexpensive public-domain music, and a company that preserves and restores old films.
The plaintiffs maintained that the CTEA violates the First Amendment because it restricts speech without serving important governmental interests and thus cannot survive intermediate scrutiny, the level of review to which the Court subjects content-neutral laws restricting speech. The plaintiffs also asserted that Congress, by passing the CTEA, exceeded its power under the Copyright Clause, the preamble of which states that Congress has the "power * * * To promote the Progress of Science and useful Arts, by securing for limited Times * * * Writings and Discoveries." According to the plaintiffs, in extending the copyrights of existing works, Congress ignored the requirements that works receiving copyright protection possess "originality" and that copyrights endure for "limited times."
On cross-motions for judgment on the pleadings, the district court upheld the statute. 74 F. Supp. 2d 1 (D.D.C. 1999). The court concluded that there is no First Amendment right to use the copyrighted works of others and that Congress had acted within its discretion under the Copyright Clause in passing the CTEA. 74 F. Supp. at 3.
The D.C. Circuit affirmed. 239 F.3d 372 (2001). The court unanimously rejected the plaintiffs' First Amendment argument, relying on the Circuit's prior decision that "copyrights are categorically immune from challenges under the First Amendment." United Video, Inc. v. FCC, 890 F.2d 1173 (1989). It also rejected plaintiffs' argument that the CTEA violated the originality requirement, reasoning that Congress had not extended the copyrights of any works in the public domain and that "[o]riginality is what made the work copyrightable in the first place." 239 F.3d at 376-377.
The panel split 2-1, however, over the question whether the CTEA violated the "limited times" language in the Copyright Clause's preamble. The majority found the petitioners' argument to be foreclosed by the Circuit's prior decision in Schnapper v. Foley, 667 F.2d 102 (1981), which, in the majority's view, held that the introductory language of the Copyright Clause does not limit Congress' power. 239 F.3d at 377-378. Judge Sentelle dissented. Finding persuasive a narrower reading of Schnapper urged by an amicus brief, he opined that the Copyright Clause preamble places an "outer limit" on Congressional power that Congress exceeded when it extended the term of existing copyrights. Id. at 381-383. According to the majority, however, that argument was "rejected by the actual parties to this case and therefore [was] not properly before" the court. Id. at 378. In a dissent from the court's subsequent denial of rehearing and rehearing en banc, Judge Sentelle, joined by Judge Tatel, wrote that the panel's decision "effectively eliminates any role for amicus curiae in the practice of this circuit" and "renders Congress' power under [the Copyright Clause] limitless despite express limitations in the terms of that clause." 255 F.3d 849, 852-854 (2001).
This is the most important copyright case in decades; it has the potential to produce a decision that will have an enormous impact on copyright holders and on businesses and individuals who rely on materials which enter the public domain as their copyrights expire. Because the Court did not limit the grant of certiorari, it may consider any of the issues presented, including the constitutionality of the CTEA, the limits of Congress's power under the Copyright Clause, and the proper role of the argument of an amicus.
2. Federal Courts - Diversity Jurisdiction - Amount-in-Controversy Requirement Applied to Class Action Claim for Injunctive Relief. The Supreme Court granted certiorari in Ford Motor Co. v. McCauley, No. 01-896, to determine whether the cost to a defendant of complying with an injunction sought by a plaintiff class satisfies the amount-in-controversy requirement of the diversity statute, where such compliance would cost the defendant more than the $75,000 minimum regardless whether it covered the entire class or any single member of the class.
Petitioners Ford Motor Company and Citibank (South Dakota), N.A. ("the companies"), issued a credit card that enabled its users to earn rebates toward the purchase or lease of certain Ford vehicles. After the companies discontinued the program, cardholders filed six class action lawsuits in the state courts of Washington, Oregon, California, Illinois, Alabama, and New York, alleging that the companies had made misrepresentations regarding the rebate program and then wrongfully terminated it. The companies removed the cases to federal court on the basis of diversity jurisdiction. The Judicial Panel on Multidistrict Litigation consolidated the cases and transferred them to the Western District of Washington for pretrial proceedings. The named plaintiffs in the consolidated cases then jointly filed a consolidated complaint based on diversity jurisdiction. The consolidated complaint sought as relief an injunction requiring defendants to reinstate the rebate program for class members, disgorgement, and compensatory and punitive damages.
After discovery was completed and the plaintiffs had moved for class certification, the district court sua sponte issued an order to show cause why the consolidated complaint should not be dismissed for lack of jurisdiction for failure to meet the $75,000 amount-in-controversy requirement of 28 U.S.C. § 1332(a). In response, the companies argued, inter alia, that the cost of complying with the requested injunction would exceed $75,000. After rejecting this rationale, the district court dismissed the consolidated complaint for lack of jurisdiction and remanded the underlying actions to their respective state courts of origin.
The Ninth Circuit affirmed the district court on this issue. 264 F.3d 952 (2001). The Ninth Circuit first noted that it has adopted the "either viewpoint" rule, under which "the test for determining the amount in controversy is the pecuniary result to either party which the judgment would directly produce." Id. at 958. The court then observed that the "either viewpoint" rule, when used to calculate the amount in controversy in class action suits seeking equitable relief, conflicts with the non-aggregation rule, which precludes class action plaintiffs from aggregating their separate claims in order to reach the threshold amount for diversity jurisdiction. Ibid. The court reconciled these rules by concluding that it would apply the "either viewpoint" rule to determine jurisdiction in cases in which the plaintiffs possess a "common and undivided interest" in the injunctive relief they are seeking, but would look to the cost to the defendants of an injunction running in favor of one plaintiff in cases in which each plaintiff is asserting an individual right. Id. at 959.
Applying this test, the Ninth Circuit first held that plaintiffs did not possess a "common and undivided interest" in the requested injunctive relief because the "right [to accrue rebates] is distinct to each plaintiff, is based on his or her individual contractual relationship with Ford and Citibank, and is worth no more than $3,500." Id. at 960. The court then proceeded to determine whether the cost to the petitioners of an injunction reinstituting the rebate program in favor of one plaintiff would exceed $75,000. The court did not dispute petitioners' assertion that the cost of an injunction running in favor of one plaintiff would exceed $75,000, because "the fixed costs to Ford and Citibank of reinstating and maintaining the program would be the same whether it is done for one plaintiff or for six million." Ibid. Nevertheless, the court held that these "fixed administrative costs" could not satisfy the amount-in-controversy requirement, reasoning that allowing administrative costs to create federal jurisdiction would mean that "‘every case [seeking an injunction], however trivial, against a large company would cross the threshold.'" Id. at 961 (quoting In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599 (7th Cir. 1997)).
This case is of obvious interest to all corporations that are potentially subject to class action lawsuits that seek injunctive relief pursuant to state law, because the Supreme Court will clarify the circumstances in which such suits fall within the diversity jurisdiction of the federal courts.
3. Federal Courts - Removal Jurisdiction - All Writs Act. The Supreme Court granted certiorari in Syngenta Crop Protection, Inc. v. Henson, No. 01-757, to determine whether the All Writs Act, 28 U.S.C. § 1651(a), provides federal courts with authority to exercise removal jurisdiction under 28 U.S.C. § 1441 over otherwise non-removable state court claims that threaten to interfere with federal court proceedings.
Hurley Henson, together with six other plaintiffs, filed a class action in Louisiana state court against Syngenta and several individuals, seeking damages for injuries alleged to have been sustained from plaintiffs' exposure to certain chemicals while they were working at one of Syngenta's facilities. The Louisiana court stayed the action after Henson and others successfully intervened in a nationwide class action based on virtually identical allegations, Price v. Ciba-Geigy Corp., No. 94-0647, which was then pending in the Southern District of Alabama. The Price case produced a complicated, structured, class-wide settlement, in which Henson and his co-plaintiffs participated. Although a clause in the Price settlement required the dismissal of Henson's suit, the Henson plaintiffs subsequently sought to pursue their Louisiana suit against Syngenta, persuading the state court that the Price settlement did not bar an action asserting damages caused by chemicals other than those involved in Price.
Syngenta removed Henson's suit to the United States District Court for the Middle District of Louisiana, basing removal jurisdiction solely on the All Writs Act, which states that federal courts "may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." Defendants thereafter gained permission to transfer the case to the Southern District of Alabama, where the court held that the Price settlement barred Henson's claims and imposed sanctions on Henson's attorney. On appeal, the Eleventh Circuit upheld the sanctions, but vacated the judgment dismissing Henson's claims, holding that the All Writs Act does not give federal courts jurisdiction under U.S.C. § 1441 over otherwise non-removable claims. 261 F.3d 1065.
The Eleventh Circuit recognized that its sister circuits were divided over the issue, with a majority of circuits allowing removal. It observed that the Second, Third, Sixth, Seventh and Eighth Circuits have indicated that federal courts have some degree of jurisdiction over otherwise non-removable state claims which could threaten the integrity of a federal court's consent decree or judgment. See 261 F.3d at 1069-1070 (citing Bylinksi v. City of Allen Park, 169 F.3d 1001, 1003 (6th Cir. 1999); Xiong v. State of Minnesota, 195 F.3d 424, 426 (8th Cir. 1999); Davis v. Glanton, 107 F.3d 1044, 1047 n.4 (3d Cir. 1997); In re VMS Secs. Litig., 103 F.3d 1317, 1324 (7th Cir. 1996); In re Agent Orange Prod. Liab. Litig., 996 F.2d 1425, 1431 (2d Cir. 1993)). It noted, however, that the Ninth and Tenth Circuits have interpreted the All Writs Act more narrowly, holding that the Act does not create an independent source of subject-matter jurisdiction that would expand removal jurisdiction. See 261 F.3d at 1070 (citing Hillman v. Webley, 115 F.3d 1461, 1469 (10th Cir. 1997); Westinghouse Elec. Corp. v. Newman & Holtzinger, P.C., 992 F.2d 932, 937 (9th Cir. 1993)). The Eleventh Circuit sided with the Ninth and Tenth Circuits, rejecting the argument that the Act was supposed to function as "jurisdictional caulk" by preventing "crafty litigants" from "escap[ing] the effect of a federal order." 261 F.3d at 1070.
Subsequent to the decision in this case, the Fifth Circuit joined the Ninth, Tenth and Eleventh Circuits, holding that a district court had erred in finding jurisdiction under the All Writs Act, but declining to find that jurisdiction would not exist under the Act when "extraordinary circumstances" are present. Texas v. Real Parties in Interest, 259 F.3d 387, 395 (5th Cir. 2001).
Syngenta Crop Protection is significant to all businesses that may become involved in complex litigation in the federal courts. The Supreme Court's ruling will determine the federal courts' authority to protect the integrity of consent decrees, settlement agreements, and other rulings in ongoing complex cases. The decision in this case will have a particularly significant impact on the viability of nationwide class-action settlements, which — under the approach taken by the Eleventh Circuit and the circuits with which it has aligned itself — are vulnerable to being thwarted by later-filed or pending state court actions.
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