United States: Supreme Court Docket Report - October 2, 2014

Today (October 2, 2014), the Supreme Court granted certiorari in four cases of interest to the business community:

  • ERISA—Statute of Limitations
  • Medicaid—Private Right of Action—Supremacy Clause
  • Bankruptcy Code—Professional Fees
  • Employment Discrimination—Reasonable Accommodation of Religious Observance or Practice

ERISA—Statute of Limitations

The Employee Retirement Income Security Act (ERISA) permits plan participants to challenge the prudence of actions by plan fiduciaries as long as they do so within six years. Today, the Supreme Court granted certiorari in Tibble v. Edison Int'l, No. 13-550, to decide whether plan participants may challenge decisions initially made more than six years before filing suit, if those decisions could have been reconsidered during the six-year window.

The plaintiffs in Tibble are participants in a multi-billion-dollar 401(k) plan that is offered and administered by the defendants. The plaintiffs choose their investments from a menu of funds selected by the Investment Committees, which meet quarterly to review plan investments and to consider whether to remove, replace, or add funds. Plaintiffs' suit alleges in relevant part that the defendants breached their duty of prudence by offering higher-fee retail-class mutual funds as plan investments when lower-fee institutional-class funds were available. The district court granted summary judgment to the defendants in relevant part, holding that ERISA's six-year statute of limitations barred plaintiffs' claim because the defendants initially selected the mutual funds more than six years before the complaint was filed. The Ninth Circuit affirmed.

At the Supreme Court's invitation, the Solicitor General filed an amicus brief, which recommended on behalf of the United States that the Court grant review on the statute-of-limitations issue. The Solicitor General argued that the Ninth Circuit erred in failing to recognize that the defendants owed a continuing duty of prudence, which they breached by failing to research fund options and offer available lower-cost institutional-class investments during the six-year period prior to the filing of the complaint. The Solicitor General also stated that the courts of appeals disagree on this question. (Although the petition also presented a separate question regarding the level of deference due to fiduciary decisions, the Solicitor General recommended that the Court not address that other issue, and the Court followed the Solicitor General's recommendation.)

The Supreme Court's decision in this case will be important because it will necessarily address the nature of a separate duty to reconsider past decisions and decide whether a theory of "continuing violation" can be used to evade ERISA's limitations period. The Court's decision may therefore alter the nature of fiduciary duty and expose ERISA fiduciaries to increased risk for past actions.

Absent extensions, amicus briefs in support of the plaintiffs will be on November 24, 2014, and amicus briefs in support of the defendants will be due on December 24, 2014.

Medicaid—Private Right of Action—Supremacy Clause

Section 30(A) of the Medicaid Act requires that state Medicaid plans contain procedures to ensure that reimbursement rates for healthcare providers "are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers" to meet the need for care and services in the geographic area. 42 U.S.C. § 1396a(a)(30)(A). The statute does not include an express right of action for Medicaid providers to challenge whether a state plan complies with Section 30(A). Today, the Supreme Court granted certiorari in Armstrong v. Exceptional Child Center, No. 14-15, to decide whether the Supremacy Clause of the U.S. Constitution gives providers an implied private right of action to enforce § 1396a(a)(30)(A) against a State.

A group of Medicaid providers in Idaho sued that State's Department of Health and Welfare, alleging that the State's reimbursement rates for certain supported-living services failed to comply with Section 30(A). The district court granted judgment in favor of the providers, finding that they had an implied private right of action under the Supremacy Clause to enforce Section 30(A). The Ninth Circuit affirmed. Its ruling is consistent with those of the First, Second, Third, Fourth, Fifth, and Sixth Circuits, but conflicts with a Tenth Circuit decision holding that a Supremacy Clause right of action does not exist in the absence of congressionally created rights or remedies.

The Supreme Court previously granted certiorari in Douglas v. Independent Living Center, Inc., 132 S. Ct. 1204 (2012), to resolve this circuit split, but post-argument procedural events produced a remand in that case, so the Court did not reach the issue. The Chief Justice, joined by three other justices, dissented from the remand and stated that the Supremacy Clause does not supply a right of action of its own force where Congress has not created an enforceable right.

The Supreme Court's resolution of this circuit split will be of significant interest to Medicaid providers who wish to challenge state plans. Depending on the scope of the decision, it may also have larger implications regarding the availability of private rights of action against state officials for violations of federal law.

Absent extensions, amicus briefs in support of the petitioners will be due on November 24, 2014, and amicus briefs in support of the respondents will be due on December 24, 2014.

Bankruptcy Code—Professional Fees

Section 330(a) of the Bankruptcy Code grants discretion to bankruptcy judges to award "reasonable compensation for actual, necessary services rendered by" an attorney or other professional employed by the estate. 11 U.S.C. § 330(a)(1). Today, the Supreme Court granted certiorari in Baker Botts L.L.P. v. ASARCO LLC, No. 14-103, to decide whether § 330(a) grants bankruptcy judges discretion to award compensation for the defense of a fee application.

After ASARCO entered chapter 11 bankruptcy in 2005, petitioners Baker Botts L.L.P. and Jordan, Hyden, Womble, Culbreth & Holzer, P.C., were retained as counsel to the ASARCO estate. After resolution of the bankruptcy case, petitioners filed their final fee application, which the reorganized ASARCO challenged. Following a six-day fee trial, the bankruptcy court awarded fees to petitioners, including $5 million in fees that they incurred defending the fee application. The district court affirmed the bankruptcy court's final fee award.

Reversing in part, the Fifth Circuit denied petitioners the $5 million in defense fees. It held that, as a matter of law, § 330(a) does not authorize compensation for the costs that counsel or other professionals bear in defending their fee applications. The Fifth Circuit relied on the language of § 330(a), which expressly allows fees for preparing a fee application but does not expressly allow fees for defending one. The Fifth Circuit also reasoned that the so-called American Rule, under which each party to litigation bears its own costs, weighs against allowing fees for defense of a fee application. In so holding, the Fifth Circuit disagreed with the Ninth Circuit's decision in In re Smith, 317 F.3d 918 (9th Cir. 2002), which held that bankruptcy courts have discretion to award compensation for the defense of a fee application.

The Supreme Court's decision in this case will be significant for the business community because it will determine the scope of compensation for professional services provided to bankruptcy estates.

Absent extensions, amicus briefs in support of petitioners will be due on November 24, 2014, and amicus briefs in support of respondent will be due on December 24, 2014.

Employment Discrimination—Reasonable Accommodation of Religious Observance or Practice

Title VII of the Civil Rights Act of 1964 makes it an unlawful employment practice for an employer to discharge or refuse to hire an individual because of the individual's religious observance or practice unless the employer demonstrates that it is unable to accommodate the practice without undue hardship in the conduct of its business. Today, the Supreme Court granted certiorari in Equal Employment Opportunity Commission v. Abercrombie & Fitch Stores, Inc., No. 14-86, to decide whether an employer may be liable under Title VII for refusing to hire an applicant or discharging an employee based on a religious observance or practice where the employee did not provide the employer with direct, explicit notice of the need for a religious accommodation.

The EEOC claimed that Abercrombie violated Title VII when it failed to hire a prospective employee, Samantha Elauf, because of her religious practice without offering her a reasonable accommodation. Elauf, a Muslim, interviewed for a sales position at Abercrombie while wearing a black hijab (headscarf), a practice inconsistent with Abercrombie's policy prohibiting sales employees from wearing black clothing or "caps." Although the assistant manager interviewing Elauf assumed that Elauf wore her hijab because she was Muslim, Elauf did not say that she needed to wear it for religious reasons or request a religious accommodation. There was evidence that Abercrombie did not hire Elauf because of her attire. The district court granted the EEOC's motion for summary judgment on liability and denied Abercrombie's motion for summary judgment. It concluded that the EEOC had established all elements of a prima facie case of discrimination, including Abercrombie's awareness of Elauf's need for a religious accommodation, and held that Abercrombie had failed to rebut the EEOC's showing on those elements.

The Tenth Circuit reversed the grant of summary judgment to the EEOC and held that Abercrombie was entitled to summary judgment. According to the Tenth Circuit, the undisputed evidence showed that no agent of Abercrombie involved in the hiring process had actual knowledge of Elauf's religious obligation to wear a hijab. The court of appeals explained that plaintiffs claiming religious discrimination based on a failure to accommodate ordinarily must prove that they informed the employer that they engage in a particular practice for religious reasons and require an accommodation. It rejected the EEOC's position that Title VII may be satisfied by notice short of an explicit communication from the applicant. The Tenth Circuit's decision is in tension with decisions of the Seventh, Eighth, Ninth, and Eleventh Circuits, which have adopted the EEOC's position that the element of notice is established where the employer has actual knowledge of an employee or applicant's religious practice even if there is no an explicit request from for an accommodation. See Adeyeye v. Heartland Sweeteners, LLC, 721 F.3d 444 (7th Cir. 2013); Brown v. Polk Cnty., 61 F.3d 650 (8th Cir. 1995); Heller v. EBB Auto Co., 8 F.3d 1433 (9th Cir. 1993); Dixon v. Hallmark Cos., 627 F.3d 849 (11th Cir. 2010).

This case is of significant interest to the business community because it will determine what level of notice is required from an applicant or employee before an employer is required to provide a reasonable accommodation for the applicant or employee's religious beliefs. The case is of special significance to firms that have dress requirements for employees.

Absent extensions, amicus briefs in support of the petitioner are due on November 24, 2014, and amicus briefs in support of the respondent are due on December 24, 2014.

The Supreme Court also granted review today in a non-business case, Williams-Yulee v. The Florida Bar, No. 13-1499, in which Mayer Brown represents the petitioner. The case will address the question whether a canon of judicial conduct that prohibits candidates for judicial office from personally soliciting campaign funds violates the First Amendment.

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© Copyright 2014. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. 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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