United States: Supreme Court Decision Alert - June 9, 2014

Today (June 9, 2014) the Supreme Court issued two decisions, described below, of interest to the business community.

CERCLA—Preemption Of State Statutes Of Repose

CTS Corp. v. Waldburger, No. 13-339 (described in the January 13, 2014, Docket Report)

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) provides that, under certain circumstances, a federal commencement date applies in the running of state statutes of limitations governing state causes of action. Specifically, the federal commencement date applies if the state commencement date is earlier than the federal commencement date and the case involves "any action brought under State law for personal injury, or property damages, which are caused or contributed to by exposure to any hazardous substance, or pollutant, or contaminant, released into the environment from a facility." 42 U.S.C. § 9658(a)(1). Today, in CTS Corp. v. Waldburger, No. 13-339, the Supreme Court held that 42 U.S.C. § 9658 pre-empts only state statutes of limitations and does not pre-empt state statutes of repose.

Plaintiffs-respondents brought a North Carolina nuisance claim against CTS Corporation, contending that their land and ground water were contaminated by toxic chemicals that CTS had left on land that it had sold 24 years before the suit was filed. CTS moved to dismiss the complaint, arguing that respondents' nuisance claim was barred by North Carolina's 10-year statute of repose. The district court granted CTS's motion to dismiss, but the Fourth Circuit reversed, holding that § 9658 pre-empts North Carolina's 10-year statute of repose.

In a 7-2 opinion written by Justice Kennedy, the Supreme Court reversed the Fourth Circuit. The Court emphasized that statutes of limitation and of repose serve different purposes. Statutes of limitations are designed to encourage plaintiffs to pursue claims diligently; statutes of repose are intended to protect defendants by providing "a fresh start or freedom from liability." Slip op. 7. And a 1982 Study Group Report that was commissioned by Congress recognized "that statutes of repose and statutes of limitations are distinct." Slip op. 12. The Court thus found it instructive that § 9658 uses the term "statute of limitations" four times but does not use the term "statute of repose" even once.

Acknowledging that the term "statute of limitations" is sometimes used in a less formal way, however, the Court proceeded to examine other evidence of congressional intent. First, § 9658 describes the covered period in the singular, using terms such as "the applicable limitations period," which "would be an awkward way to mandate the pre-emption of two different time periods with two different purposes." Slip op. 13. Second, § 9658 defines the "applicable limitations period" as the period during which a civil action under state law may be brought, which suggests that it encompasses only statutes of limitations because a statute of repose "may preclude an alleged tortfeasor's liability before a plaintiff is entitled to sue, before an actionable harm ever occurs." Id. 14-15. Third, the Court looked to § 9658's provision for equitable tolling as evidence that the statute's reach is limited to statutes of limitations, because "a critical distinction" between statutes of limitations and repose "'is that a repose period is fixed and its expiration will not be delayed by estoppel or tolling.'" Id. 15.

Finally, Justice Kennedy explained that federalism principles call for reading a federal statute narrowly so as not to displace state tort law except where Congress makes that intent explicit. Id. 17. Justice Scalia, in a concurrence joined by Chief Justice Roberts, Justice Thomas, and Justice Alito, disagreed with this part of Justice Kennedy's opinion, on the ground that express pre-emption provisions should be given their ordinary meaning rather than construed narrowly to minimize pre-emption of state law.

Justice Ginsburg, joined by Justice Breyer, dissented. In the dissent's view, a repose period is simply "a limitations period unattended by a discovery rule." Slip op. 3 (Ginsburg, J., dissenting). The dissent also pointed to the legislative history of § 9658, contending that it demonstrated an intent to override State statutes of repose. Id. 4.

The Supreme Court's holding that § 9658 pre-empts only state statutes of limitation should be of significant interest to businesses facing potential environmental tort liability in those states that have (or may in the future adopt) statutes of repose. It will also be of interest to securities law defendants and plaintiffs awaiting the outcome of Nomura Home Equity Loan v. National Credit Union Administration Board (No. 13-576, cert. petition pending) and Public Employees' Retirement System of Mississippi v. IndyMac MBS, Inc. (No. 13-640, cert. granted Mar. 10, 2014), which both involve the statute of repose set forth in 15 U.S.C. § 77m.

Bankruptcy—Powers Of Bankruptcy Courts

Executive Benefits Ins. Agency v. Arkison, No. 12-1200 (described in the June 24, 2013, Docket Report)

In Stern v. Marshall, 131 S. Ct. 2594 (2011), the Supreme Court held unconstitutional a provision of the bankruptcy code that allowed bankruptcy courts to issue final orders and judgments in statutorily defined "core proceedings" when the claims at issue were traditionally within the purview of Article III courts. Stern held that those claims must be decided by an Article III court, but left open the question of what power bankruptcy courts retain with regard to these "Stern claims." Today, in Executive Benefits Insurance Agency v. Arkison, the Court unanimously held that bankruptcy courts may treat Stern claims as "non-core proceedings" and issue non-final proposed findings of fact and conclusions of law that are reviewed de novo by a district court.

In Executive Benefits, a bankruptcy trustee brought what the Court assumed was a Stern claim—fraudulent conveyance—against Executive Benefits Insurance Agency as part of a bankruptcy proceeding involving another insurance agency. The bankruptcy court granted summary judgment in favor of the trustee on the fraudulent-conveyance claim. The district court reviewed the bankruptcy court's decision de novo and affirmed. Executive Benefits appealed to the Ninth Circuit, which also affirmed.

On appeal to the Supreme Court, Executive Benefits argued that because Stern eliminated the bankruptcy court's ability to issue final decisions on core claims (such as fraudulent-conveyance claims), and because the bankruptcy code's provision authorizing proposed findings and conclusions applies solely to claims that are "not ... core," bankruptcy courts retain no power to adjudicate Stern claims. The Court rejected this argument, holding that, under the statute's severability provision, the "core" label on Stern claims has been held invalid. These claims may therefore be heard in non-core proceedings if they meet the requirement of the non-core provision that claims be related to the underlying bankruptcy. The Court concluded that the fraudulent-conveyance claim at issue was so related because its purpose was to bring assets into the bankruptcy estate. The bankruptcy court could therefore have treated the claim as a non-core proceeding and issued proposed findings and conclusions. The Supreme Court held that even assuming that the bankruptcy court's entry of judgment exceeded its authority, the district court's de novo review and entry of its own judgment "cured any error." The Supreme Court therefore did not address the parties' dispute over whether parties could or did consent to have the bankruptcy court enter judgment on Stern claims.

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