KMK Law Complex Litigation Blog

The Supreme Court recently concluded its October 2014 Term. Two decisions issued in the closing days of the term received substantial media coverage and public attention:

• First, in King v. Burwell the Court held, by a 6-3 vote, that health care subsidies are available to any person that purchased health care on an exchange, regardless of whether the exchange was created by the federal or a state government; a contrary decision would have substantially undermined the effectiveness of the Affordable Care Act.
• Second, in Obergefell v. Hodges, the Court ruled by a vote of 5-4 that the Constitution prohibits restrictions on the right of same-sex couples to marry, legalizing same-sex marriage nationwide.

There were other decisions, however, that will have important effects for businesses nationwide. Below we summarize the most important business-related cases from this Term.

Young v. United Parcel Service, Inc. (employment)

An employee (Young) became pregnant and her employer (UPS) forced her to take an unpaid leave of absence. Young alleged that UPS discriminated against her in refusing to accommodate her pregnancy-related lifting restriction. The relevant law – the Pregnancy Discrimination Act – requires employers to treat pregnant women the same as anyone not pregnant but with similar restrictions on the ability to work.

The question for the Court was whether employers that provide one non-pregnant worker with an accommodation must provide similar accommodations to all pregnant workers, irrespective of any other criteria. In a 6-3 opinion authored by Justice Breyer, the Court said no. Rather, a pregnant woman pressing a discrimination claim must show she sought accommodation that was denied and that the employer did accommodate others similar in their ability or inability to work. The employer may then seek to justify its refusal to accommodate the plaintiff by relying on “legitimate, nondiscriminatory” reasons for denying accommodation.

EEOC v. Abercrombie & Fitch Stores, Inc. (employment)

A practicing Muslim (“Elauf”) applied for a position at Abercrombie.  She wore a hijab (a head covering) every day, and did so in her interview.  During her interview she did not mention that she would need an accommodation from Abercrombie’s “Look Policy” – which forbids employees from wearing black clothing or caps.  Because of the hijab, Abercrombie lowered Elauf’s “appearance rating” which prevented her from being hired.  Elauf alleged hiring discrimination based on her religion.

Abercrombie argued that it could not have discriminated against Elauf on the basis of her religion because it did not have actual knowledge of Elauf’s need for an accommodation. The Court, in an 8-1 opinion authored by Justice Scalia, disagreed. The Court stated that an applicant need show only that his or her need for an accommodation was a motivating factor in the employer’s decision, not that the employer actually knew for sure or had been told of the need.

Omnicare, Inc. v. Laborers Dist. Council Constr. Industry Pension Fund (securities)

Omnicare stated in a securities filing that it believed that its contractual arrangements with certain parties were “legally and economically valid” and in compliance with applicable law. Plaintiffs alleged that these statements were untrue and sued Omnicare for securities fraud.

The question before the Court was whether these statements were factual in nature so as to support a claim that such facts were misrepresented. In a 9-0 ruling, the Supreme Court held a statement of opinion, even if shown to be objectively false, does not constitute an “untrue statement of fact.” The opinion thus recognizes a distinction between opinion and fact and generally makes it more difficult to establish liability.

The opinion was not entirely favorable, however, for security issuers. If an issuer’s statement omits material facts about the issuer’s inquiry into a statement of opinion, and if those facts conflict with what a reasonable investor (reading the statement fairly and in context) would take from the statement itself then Section 11’s omissions clause creates liability. (The Court’s example: a statement that “we believe our conduct is lawful” without consulting a lawyer or disclosing that a consulted lawyer felt otherwise.)

Yates v. United States (regulatory)

Yates was cited for having fished undersized red grouper. Federal officials found the next day that some of the undersized grouper, previously in Yates’s possession, were missing. Yates was charged with violating a provision of the Sarbanes-Oxley Act which imposes criminal liability on anyone who “knowingly . . . destroys . . . any record, document, or tangible object.”

Yates challenged his conviction on the ground that his throwing the fish overboard did not destroy a “tangible object” under the statute. In a 5-4 opinion authored by Justice Ginsburg, the Supreme Court held that a “tangible object,” in this context, is one used to record or preserve information, and does not include fish.  While the broad dictionary definition of “tangible objects” would cover fish, the Court held the term must be read in the financial context of the Sarbanes-Oxley Act. Yates’s conviction was reversed.

Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc. (fair housing)

A Texas non-profit sued a state agency alleging that the manner the agency allocated tax credits discriminated against low-income minorities. The theory it advanced was disparate impact: that is, that the challenged policy had the effect of discrimination even if discriminatory intent was absent. The question for the Court was whether these disparate-impact claims are cognizable under the Fair Housing Act (“FHA”).

A sharply divided Court (the decision was 5-4 and authored by Justice Kennedy)  held that such claims are available under the FHA. The Court said the statutory language of the FHA focuses on the consequences of the actions in question rather than the actor’s intent. Disparate-impact liability, the Court noted, is consistent with the FHA’s purpose of preventing discriminatory housing practices because it allows plaintiffs to counteract unconscious prejudices and disguised discrimination that is often harder to prove than disparate treatment. However, a prima facie case for disparate-impact liability must meet a robust causality requirement, as evidence of racial disparity on its own is not sufficient.

While no business group was a party to this case, the Court’s holding – that disparate impact claims are available to plaintiffs under the Fair Housing Act – applies to business actors such as residential landlords.

Michigan v. EPA (environmental)

The Court was asked to consider whether the Environmental Protection Agency (“EPA”) unreasonably interpreted 42 U.S.C. §7412(n)(1)(A) of the Clean Air Act.  This Act requires the EPA to regulate power plants when “appropriate and necessary.” 

The EPA acted unreasonably, the Court ruled (in a 5-4 opinion written by Justice Scalia), when it refused to consider costs when making that decision. The EPA estimated that the cost of its regulations to power plants would be $9.6 billion a year, but the quantifiable benefits from the resulting reduction in hazardous-air-pollutant emissions would be $4 to $6 million a year.  The court held the EPA strayed well beyond “the bounds of reasonable interpretation” in concluding that cost is not a factor relevant to the appropriateness of regulating power plants.   It was not rational, never mind “appropriate,” to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.

Summer Associate Stephanie M. Scott also contributed to this post.