Court bars new look at Enron case
The Supreme Court on Tuesday turned down an attempt to keep alive a gigantic investors’ lawsuit against major investment bankers, apparently because of the Justices’ ruling last Tuesday limiting such lawsuits. The brief order denying review of California Regents v. Merrill Lynch, et al. (06-1341) appears to take away what may have been only a slim chance to revive the case in a lower court. Investors had sought $40 billion in damages from the investment houses, contending that they were part of a scheme to falsely inflate the financial condition and thus the stock value of the huge — but now defunct — energy company, Enron Corp. The Fifth Circuit Court barred the lawsuit, finding that the investment firms did not directly mislead investors. That is the result the Supreme Court voted to leave intact. While the order contained no explanation, it probably reflected its ruling in the case of Stoneridge Investment Partners v. Scientific Atlanta, et al. (06-43), rejecting “scheme liability” under federal securities fraud law.
Justice Anthony M. Kennedy did not take part in Tuesday’s order. He had written the majority opinion in the 5-3 decision in Stoneridge.
While refusing to hear the Enron-related case, the Court ordered the Ninth Circuit Court to reconsider a ruling allowing a “scheme liability” claim involving alleged participation by business partners in an effort to enhance the financial status of Homestore.com, Inc. The business partners included Cendant Corp. (now Avis Budget Group, Inc.) and Time Warner, Inc. The Circuit Court was told explicitly to take into account the Stoneridge ruling. Investors, led by the California State Teachers Retirement System, had sued for securities fraud. The case was Avis Budget Group v. California State Teachers Retirement System (06-560).
In the only ruling of the day by the Justices on the merits, the Court decided by a 5-4 vote that a federal law gives all federal law enforcement officers immunity to lawsuits by prison inmates claiming that the officers have wrongly lost or misplaced the prisoners’ personal property. Justice Clarence Thomas wrote for the majority in Ali v. Federal Bureau of Prisons (06-9130), rejecting the argument that the immunity law only applies to losses of property during customs or tax collection.
The Court asked the U.S. Solicitor General to offer the federal government’s views on two new cases — one involving pension benefits, the other a significant test case on antitrust law. There is no deadline for the Solicitor General to file the responses.
The pension case (AT&T Corp. v. Hulteen, 07-543) raises the question of whether federal law requires an employer to set current pension benefits at a level that makes up for a denial of work credit that was legal when it occurred in the past. The Circuit Courts are split on the issue of whether a denial of full service credits for past maternity leave amounts to a new violation of the 1978 federal law against pregnancy discrimination on the job. In the AT&T case, the Ninth Circuit Court found a current violation in the failure to count past service time that was denied earlier.
The anitrust case (Pacific Bell Telephone, et al., v. linkLine Communications, et al., 07-512) is a test of the theory that a “prize squeeze” violates the Sherman Act. A “price squeeze” is said to occur when a company sets high prices at wholesale but then puts low prices on its own retail sales to undercut retail competitors who buy from it at wholesale. The specific question is whether a company that has no duty under antitrust law to sell to others at wholesale can be held liable for the narrow difference between its wholesale and retail price levels. The case may lead to some clarification of the Court’s 2004 ruling in Verizon v. Trinko Law Firm barring a Sherman Act claim when a regulated company with no underlying duty to provide a service but is required to do so by federal law fails in that federally-imposed duty.
Among the cases denied review on Tuesday, the Court may have put an end to a long-running dispute between a lesbian couple over visitation rights to the child after their civil union was dissolved. Last March 30, the Court denied review of the case after it had been appealed from the Vermont Supreme Court; on Tuesday, it denied review of a new appeal from the state courts of Virginia. The end result of these denials was that a Vermont court order stands, gi ving the non-biological partner, Janet Miller-Jenkins, some visitation rights to the child; the biological parent, Lisa Miller-Jenkins, now living in Virginia, had fought the visitation order repeatedly. The new case was Miller-Jenkins v. Miller-Jenkins, 06-672. The case had the same title, but was docket 06-1110, when denied last March.
Among other issues turned aside by the Court Tuesday: a test of whether states have any authority to bar cellphone companies from listing taxes and fees as separate items on monthly bills to customers; the Eleventh Circuit found that the states do retain some of that power (Sprint Nextel v. NASUCA, 06-1184), and a plea to clarify whether the constitutional limits the Court has put on punitive damages awards permits such an award where business misconduct would qualify as malicious under state law; the argument was rejected by the Sixth Circuit (Chicago Title Insurance v. First American Title Insurance, 07-649).
After releasing the orders and opinion, the Court began a recess that will continue until the scheduled Conference on Feb. 15. In the interim, only emergency orders will be issued.