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Director, Center for Supreme Court AdvocacyNational Association of Attorneys General
July 8, 2024 | Volume 31, Issue 18
This Report summarizes cases granted review on June 24, 2024 (Part I).
CASES GRANTED REVIEW
United States v. Skrmetti, 23-824.
The Court will resolve “[w]hether Tennessee Senate Bill 1 (SB1), which prohibits all medical treatments intended to allow ‘a minor to identify with, or live as, a purported identity inconsistent with the minor’s sex’ or to treat ‘purported discomfort or distress from a discordance between the minor’s sex and asserted identity,’ Tenn. Code Ann. §68-33-103(a)(1), violates the Equal Protection Clause of the Fourteenth Amendment.” In March 2023, Tennessee enacted the Prohibition on Medical Procedures Performed on Minors Related to Sexual Identity (SB1). SB1 declares that sex-transition medical and surgical interventions can lead to minors “becoming irreversibly sterile, having increased risk of disease and illness, or suffering from adverse and sometimes fatal psychological consequences.” §68-33-101(b). And it stated that these interventions “are experimental in nature and not supported by high-quality, long-term medical studies.” SBI therefore prohibits certain medical interventions―including the use of puberty blockers and cross-sex hormones―“for the purpose of” either (1) “[e]nabling a minor to identify with, or live as, a purported identity inconsistent with the minor’s sex” or (2) “[t]reating purported discomfort or distress from a discordance between the minor’s sex and asserted identity.”
Shortly after the law’s enactment, three transgender adolescents who live in Tennessee, their parents, and a Tennessee doctor who treats adolescents with gender dysphoria sued multiple Tennessee officials for declaratory and injunctive relief, claiming SB1 violates due process and equal protection. The United States intervened as a plaintiff. The district court granted the private plaintiffs’ motion for a preliminary injunction, finding that SB1 likely violates the Equal Protection Clause. (The court also found that SB1 likely violates parents’ substantive due process right to make decisions about their children’s medical care, but the Supreme Court did not grant certiorari on that issue.) The district court held that SB1 is subject to heightened scrutiny because it discriminates based on sex and because it “expressly and exclusively targets transgender people,” who, the court held, constitute a quasi-suspect class. The court then held that SB1 likely fails heightened scrutiny. It concluded that the “the weight of the evidence” did not support respondents’ contention that “either puberty blockers or cross-sex hormones pose serious risks” to transgender adolescents. And it found that “the benefits of the medical procedures banned by SB1 are well-established.” A divided panel of the Sixth Circuit granted a stay pending appeal, then reversed the district court and vacated the injunction. 83 F.4th 460.
The Sixth Circuit concluded that SB1 “treat[s] similarly situated individuals evenhandedly . . . however one characterizes the alleged classifications in the law.” The Act “regulate[s] sex-transition treatments for all minors, regardless of sex.” “[N]o minor may receive puberty blockers or hormones or surgery in order to transition from one sex to another.” Because the Act “treats like people alike,” it “does not trigger heightened review.” The Court distinguished Bostock v. Clayton Cnty., 140 S. Ct. 1731 (2020), holding that Bostock’s “text-driven reasoning applies only to Title VII,” not the Equal Protection Clause, “as Bostock . . . make[s] clear.” “That such differently worded provisions . . . should mean the same thing is implausible on its face.” The court then rejected the plaintiffs’ contention that SBI discriminates based on transgender status, finding that the law draws classifications based only on age or medical condition, neither of which warrants heightened scrutiny. The court further concluded that the plaintiffs had not met the “high” burden to “recogniz[e] a new suspect class.” Recognizing a new class, the court said, would remove “policy choices from fifty state legislatures to one Supreme Court” and exacerbate the obvious “fraught line-drawing dilemmas” involved. Nor is transgender status “an immutable group,” as “the stories of ‘detransitioners’” confirm. Finally, the court ruled that SBI easily passed rational-basis review. “[N]o one disputes that these treatments carry risks or that the evidence supporting their use is far from conclusive.”
The United States argues in its petition that “SB1 warrants heightened scrutiny both because it relies on sex-based classifications and because it discriminates based on transgender status, which satisfies all of this Court’s traditional criteria for recognizing a suspect classification.” On the former point, the United States agrees with the district court that “the law ‘creates a sex-based classification on its face’ by defining the prohibited procedures based on the patient’s sex assigned at birth.” “In operation, as mandated by its text, SB1 restricts care only for transgender individuals who seek to induce physiological effects inconsistent with their sex assigned at birth. That, too, is sex discrimination, because ‘transgender status [is] inextricably bound up with sex.’ Bostock, [140 S. Ct. at 1742].” And, says the United States, “[t]hat sex-based line-drawing is not an incidental effect of SB1—to the contrary, it is the law’s raison d’être.” The United States further maintains that Bostock controls: “Bostock’s core insight is that ‘it is impossible to discriminate against a person for being . . . transgender without discriminating against that individual based on sex’ because sex plays an ‘unmistakable’ role when a person is ‘penalize[d]’ for ‘traits or actions’ that would be tolerated in someone assigned the opposite sex at birth, 140 S. Ct. at 1741-1742—and that reasoning is just as sound in the equal-protection context.” The United States argues that heightened scrutiny also applies because transgender persons are at least a quasi-suspect class for they satisfy each of the four factors the Court has set out for determining whether a group qualifies as a suspect class. Finally, the United States asserts that SBI cannot survive heightened scrutiny because “the evidence established that the benefits of gender-affirming care outweigh any risks associated with such treatment—consistent with the consensus within the medical community endorsing such care, in appropriate cases, to treat gender dysphoria in adolescents.”
United States v. Miller, 23-824.
The question presented is “[w]hether a bankruptcy trustee may avoid a debtor’s tax payment to the United States under [11 U.S.C. §]544(b) when no actual creditor could have obtained relief under the applicable state fraudulent-transfer law outside of bankruptcy.” To understand that question, some background on §544(b) is necessary. Under that provision, a bankruptcy trustee may avoid any prepetition transfer of the debtor’s property that would be voidable “under applicable law” outside bankruptcy by an actual unsecured creditor of the estate. “As ‘applicable law,’ trustees most often invoke state laws authorizing creditors to avoid fraudulent transfers, many of which allow longer look-back periods than Section 548,” which authorizes a trustee to “avoid” a fraudulent transfer of property the debtor conveyed to a creditor “within 2 years before the date of the filing of the petition.”
This case involves the bankruptcy proceeding filed by All Resort Group, Inc. (ARG) in 2017. In 2014, ARG paid $145,138.78 to the Internal Revenue Service to cover the personal tax debts of two of its principals. Among ARG’s debts when it filed for bankruptcy was an unpaid judgment resulting from a discrimination lawsuit brought by a former employee. After the bankruptcy case was converted from Chapter 11 to Chapter 7, the Chapter 7 trustee brought an adversary proceeding against the United States under (among other provisions) §544(b) seeking to avoid the 2014 tax payments. The bankruptcy court granted summary judgment to the trustee on that claim, which relied on the Utah Uniform Fraudulent Transfer Act (UUFTA) as the “applicable law” under which the tax payments were voidable in a suit brought by the former employee who obtained the discrimination judgment. The UUFTA has a four-year limitations period on an action to recover a transfer that was constructively fraudulent, making the claim timely. The Government contended that the requirements of §544(b) were not met because there did not exist an actual creditor who could bring a lawsuit under the UUFTA. That’s because, the Government argued, outside bankruptcy, sovereign immunity would bar the former employee’s suit against the United States to recover federal tax payments. The bankruptcy court rejected that contention, agreeing with the trustee that §106(a) of the Code “abrogates that sovereign immunity in the bankruptcy context.” Section 106(a) states that “sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to” 59 sections of the Bankruptcy Code, including §544. The district court affirmed, as did the Tenth Circuit. 71 F.4th 1247.
The Tenth Circuit also relied on §106(a)’s abrogation of the Government’s sovereign immunity, which waives sovereign immunity “with respect to” §544. The court reasoned that that phrase generally has a “broadening effect,” reflecting Congress’s intent that the waiver “‘reach any subject that has a connection with . . . the topics the statute enumerates.’” The court concluded that §106(a) “‘has a connection with’” the UUFTA as applied in a §544(b) action, and that Congress thus “clearly” intended “to abolish the Government’s sovereign immunity in an avoidance proceeding arising under §544(b)(1), regardless of the context in which the defense arises.” The Tenth Circuit also rejected the Government’s “alternative argument that if sovereign immunity does not bar the Trustee’s §544(b)(1) action, field preemption . . . does so by way of the Internal Revenue Code’s . . . interest in tax collection.” The court stated that §544(b) is a federal statute, and if Congress thought §544(b) “posed an obstacle to its objectives,” it “surely would have added an express preemption provision.”
The United States argues in its petition that “[b]ecause no actual unsecured creditor could have avoided the federal tax payments at issue here under Utah fraudulent-transfer law, the Chapter 7 trustee had nobody’s shoes to step into when seeking to avoid those tax payments under Section 544(b) by invoking that state law.” In particular, the United States rejects the Tenth Circuit’s reliance on §106(a)’s abrogation of the Government’s sovereign immunity. While “Section 106(a) thus authorizes the trustee to invoke certain provisions of the Bankruptcy Code against the government within the bankruptcy proceeding—[] it does not purport to create a substantive claim for relief or a cause of action that would not otherwise exist.” Thus, “while Section 106(a)’s abrogation of sovereign immunity ‘with respect to §544’ allows the trustee to assert a Section 544(b) claim against the United States in bankruptcy court, the trustee’s claim should have failed on the merits because ‘outside of bankruptcy and apart from Code §544(b)(1),’ there is no creditor who could have avoided the debtor’s payments to the IRS.” Put another way, “nothing in Section 106(a) purports to alter any of the identified provisions’ substantive requirements—here, that the disputed transfer actually be voidable under the applicable state law.” Finally, the United States argues that the former employee’s claim under the UUFTA would also fail because it would be barred by the Supremacy Clause, which “‘prevents states from enabling their residents to recover tax payments directly from the United States,’” and by the Appropriations Clause.
Feliciano v. Dep’t of Transportation, 23-861.
“Congress enacted the differential pay statute, 5 U.S.C. §5538, to eliminate the financial burden that reservists face when called to active duty at pay rates below their federal civilian salaries. To ensure that these reservists suffer no financial penalty for active-duty service, the differential pay statute requires that the government make up the difference. . . . The question presented is: Whether a federal civilian employee called or ordered to active duty under a provision of law during a national emergency is entitled to differential pay even if the duty is not directly connected to the national emergency.”
Following the attacks of September 11, 2001, and “recognizing the need for measures that would allow sustained reservist deployment, Congress took up its first differential pay bill in 2003.” As enacted, the statute requires differential pay for federal civilian employees who “perform active duty . . . pursuant to a call or order to active duty under . . . a provision of law referred to in section 101(a)(13)(B) of title 10.” Section 101(a)(13)(B) lists statutes that can “result[] in the call or order to, or retention on, active duty,” including “section 688, 12301(a), 12302, 12304, 12304a, 12305, or 12406 of [title 10], chapter 13 of [title 10], section 3713 of title 14, or any other provision of law during a war or during a national emergency declared by the President or Congress.” Section 12301(d), which allows the Secretary of Defense to call up or retain a member of the reserve components with the reservist’s consent, is covered by the catch-all residual clause of §101(a)(13)(B).
In Adams v. DHS, 3 F.4th 1375 (2021), the Federal Circuit held that to qualify for differential pay, reservists activated under §12301(d) would be required to show that they were “directly called to serve in a contingency operation.” The court considered it “implausible” that Congress had intended to cover “voluntary duty that was unconnected to the emergency at hand.” It principally relied on the ejusdem generis canon, reasoning that §101(a)(13)(B)’s catch-all must be read, like “all of the identified statutes,” to “involve a connection to the declared national emergency.” The Federal Circuit applied that reasoning to petitioner, who served as a civilian air traffic controller and a member of the Coast Guard Reserve. From 2012 to 2017, he was absent from his civilian position to perform active duty in the Coast Guard. Activated in support of Operation Iraqi Freedom, Operation Enduring Freedom, and Operation Expeditionary SPOE, “petitioner manned a Coast Guard vessel to escort other military vessels to and from safe harbor, protecting both the ships and the harbor itself.” The Federal Circuit affirmed the denial of differential pay for the portion of his service performed under Section 12301(d). The court found him ineligible for differential pay because “[his] service does not qualify as an active duty contingency operation.” 2023 WL 3449138.
Petitioner contends that the “Federal Circuit’s rule is impossible to square with the plain language of the statute. . . . Reservists in federal civilian service are entitled to differential pay if activated ‘pursuant to a call or order to active duty under a provision of law referred to in section 101(a)(13)(B) of title 10.’ 5 U.S.C. §5538(a). Section 101(a)(13)(B) in turn lists several statutory activation authorities and ‘any other provision of law during a war or during a national emergency declared by the President or Congress.’ Thus, while a presidential national emergency declaration is in effect, a reservist activated under ‘any other provision of law’—including Section 12301(d)—is entitled to differential pay.” Petitioner asserts that the Federal Circuit erred when it relied on the canon of ejusdem generis. “For one, the Federal Circuit simply got it wrong when saying that ‘all of the [enumerated provisions in Section 101(a)(13)(B)] involve a connection to the declared national emergency.’” Petitioner also argues that “[t]he differential pay statute [] mandates a provision-by-provision inquiry, not a fact-intensive, post hoc review of each reservist’s individual service record.”
Seven County Infrastructure Coalition v. Eagle County Colorado, 23-975.
The question presented is “[w]hether the National Environmental Policy Act requires an agency to study environmental impacts beyond the proximate effects of the action over which the agency has regulatory authority.” “Petitioners seek to build an 85-mile-long railway line in Utah connecting the Uinta Basin in northeastern Utah to the existing interstate freight rail network near Kyune, Utah.” “Though the new railway could carry any goods produced or consumed in the Basin, ‘the [petitioners] recognize[] (and no one disputes) that the Railway’s predominant and expected primary purpose would be the transport of waxy crude oil produced in the Uinta Basin.’” In August 2021, the Surface Transportation Board issued a final environmental impact statement “which authorized construction and operation of the railway subject to environmental mitigation conditions.” “Once the environmental review was done, the Board made a final decision approving the project. The bulk of that decision was devoted to an analysis of the new rail line’s environmental effects. As part of that analysis, the Board explained that under [Department of Transportation v. Public Citizen, 541 U.S. 752 (2004)], ‘when an agency has no ability to prevent a certain effect due to its limited statutory authority over the relevant actions, the agency cannot be considered the legally relevant cause of the effect for NEPA purposes.’ Because the Board had ‘no authority or jurisdiction over development of oil and gas in the Basin nor any authority to control or mitigate the impacts of any such development,’ it concluded that the effects of oil and gas development were not indirect effects of the new rail line.” (Some internal quotation marks omitted.)
“Respondents—Eagle County, Colorado and a collection of environmental groups led by the Center for Biological Diversity—separately petitioned for review of the Board’s decision in the D.C. Circuit[.]” The D.C. Circuit consolidated the petitions and then vacated and remanded the Board’s decision. 82 F.4th 1152. Of most relevance here, the court “held that the Board’s NEPA analysis should have considered the upstream environmental effects of increased oil development and the downstream effects of refining that oil.” “In the court’s view, the Board had the authority to prevent those effects, observing that the Board had ‘exclusive jurisdiction over the construction and operation of the railway, including authority to deny the exemption petition if the environmental harm caused by the railway outweighs its transportation benefits.’” The D.C. Circuit stated that the Board “cannot avoid its responsibility under NEPA to identify and describe the environmental effects of increased oil drilling and refining on the ground that it lacks authority to prevent, control, or mitigate those developments.” Rather, the Board’s “authority to deny” a new rail project “on the ground that the railway’s anticipated environmental and other costs outweigh its expected benefits” meant that “the Board’s argument that it need not consider effects it cannot prevent is simply inapplicable.”
Petitioners argue that Public Citizen “held that ‘where an agency has no ability to prevent’ an environmental effect ‘due to its limited statutory authority over the relevant actions, the agency cannot be considered a legally relevant cause of the effect.’ Hence, the agency need not study that effect in its National Environmental Policy Act review.” (Citation omitted; some internal quotation marks omitted.) More precisely, petitioners explain that “[i]n Public Citizen, the Court saw that the argument for broadly scoped NEPA review rested ‘on a particularly unyielding variation of “but for” causation, where an agency’s action is considered a cause of an environmental effect even when the agency has no authority to prevent the effect.’ 541 U.S. at 767. The key question here is what the Court meant by ‘no authority to prevent the effect.’” Petitioners maintain that the best reading of Public Citizen is that the Court “was talking about the agency’s lack of regulatory authority.” Petitioners insist that “[i]f NEPA required agencies to assess distant effects over which they have no regulatory responsibility, it would turn those agencies into ‘environmental-policy czar[s].’” Worse still, “[s]uch czars, rather than focusing on the effects of their own actions, could deny permits based on issues that lie outside both their authority and their expertise.”
Stanley v. City of Sanford, Fla., 23-997.
The Court will resolve the following question: “Under the Americans with Disabilities Act, does a former employee—who was qualified to perform her job and who earned post-employment benefits while employed—lose her right to sue over discrimination with respect to those benefits solely because she no longer holds her job?” Title I of the ADA prohibits employers from discriminating “against a qualified individual on the basis of disability in regard to . . . [the] terms, conditions, and privileges of employment.” 42 U.S.C. §12112(a). The ADA enforces this standard with the full “powers, remedies, and procedures” of Title VII of the Civil Rights Act of 1964, 42 U.S.C. §12117(a). The ADA defines a “qualified individual” as someone who, “with or without reasonable accommodation, can perform the essential functions of the employment position that such individual holds or desires.” 42 U.S.C. §12111(8).
Petitioner Karyn Stanley served for almost two decades as a firefighter for the City of Sanford, Florida. One of the fringe benefits she received was a retirement “health insurance subsidy” that covered the cost of health insurance for qualifying retirees until they reached age sixty-five. In 2003, the city changed its policy in a way that reduced the benefits a disabled retiree could receive in a comparison to a non-disabled retiree. This change affected Stanley when she was forced to retire because she contracted Parkinson’s disease. Under the 2003 change, “just 24 months after she retired, the City discontinued Ms. Stanley’s health-insurance subsidy.” Stanley filed suit, alleging that the city’s subsidy policy discriminated against her “on the basis of disability” in violation of Title I of the ADA. The district court dismissed her claim on the ground that “disabled former employee[s]” like Stanley have “no standing to sue” under Title I because they are no longer “qualified individuals.” The Eleventh Circuit affirmed. 83 F.4th 1333.
The Eleventh Circuit acknowledged that in Robinson v. Shell Oil Co., 519 U.S. 337 (1997), the Court held that former employees may sue under Title VII. But the court “distinguished Robinson on the grounds that it interpreted the term ‘employee’ in Title VII, while the term at issue in the ADA (according to the Eleventh Circuit) was ‘qualified individual.’ Emphasizing that section 12111(8) defines ‘qualified individual’ using the ‘present tense’ words ‘can,’ ‘holds,’ and ‘desires.’ the court reasoned that the ADA, unlike Title VII, is unambiguous about who it protects. And it concluded that the ‘clear temporal qualifiers’ indicate that a plaintiff ‘must desire or already have a job with the defendant at the time the defendant commits the discriminatory act’ to maintain a right to sue under the ADA.” (Citations omitted.) The Eleventh Circuit further held that “subsequent amendments to the ADA did not affect its conclusion.”
Stanley argues in her petition that the key provisions stating the “[g]eneral rule” prohibiting discrimination “against a qualified individual on the basis of disability,” and defining a “qualified individual,” “address the question ‘what kind of action counts as discrimination?’ But these provisions are not about who counts as a valid plaintiff or when an injury from discrimination occurs or gives rise to a right to sue. Likewise, they say nothing about timing; they do not say a person must have a disability at the time that a discriminatory decision is made, at the time they feel the effects of that decision, or at the time they sue.” “Contrast that,” Stanley says, “with section 12117, which is the ADA’s ‘[e]nforcement’ provision. It applies to ‘any person alleging discrimination on the basis of disability’ and incorporates by reference the ‘powers, remedies, and procedures’ of Title VII. 42 U.S.C. §12117(a). One such incorporated provision, section 2000e-5, gives ADA plaintiffs the right to sue for discrimination whenever they are ‘affected by’ or ‘subject to’ a discriminatory compensation policy ‘after the alleged unlawful employment practice occurred.’ 42 U.S.C. §§200e-5(e)(1), (3)(A).” Stanley also maintains that “[t]he Eleventh Circuit’s narrow interpretation of ‘qualified individual’ [] undermines Congress’s deliberate choice in the ADA to bar discrimination in the provision of fringe benefits.”
Republic of Hungary v. Simon, 23-867.
The Foreign Sovereign Immunities Act (FSIA) immunizes foreign governments from suit in American courts subject to specific exceptions. One of those is the expropriation exception, which applies if a court finds “(1) rights in property are in issue; (2) that the property was ‘taken’; (3) that the taking was in violation of international law; and (4) that one of the two nexus requirements is satisfied,” one of which is a commercial nexus. The petition presents three questions. “(1) Whether historical commingling of assets suffices to establish that proceeds of seized property have a commercial nexus with the United States under the expropriation exception to the Foreign Sovereign Immunities Act. (2) Whether a plaintiff must make out a valid claim that an exception to the Foreign Sovereign Immunities Act applies at the pleading stage, rather than merely raising a plausible inference. (3) Whether a sovereign defendant bears the burden of producing evidence to affirmatively disprove that the proceeds of property taken in violation of international law have a commercial nexus with the United States under the expropriation exception to the Foreign Sovereign Immunities Act.”
Plaintiffs filed this case in 2010 . . . as a putative class action on behalf of a worldwide class seeking compensation for personal property seized during the Holocaust. . . . They allege that their property was seized by Hungary or MÁV (the Hungarian national railway) in 1944 when they were forcibly transported as part of the Nazi-led assault on the Jewish people. Plaintiffs claim the proceeds of this property ‘were transferred to the Hungarian government treasury and co-mingled with other Hungarian government revenues.’” (Citations omitted.) The case made its way up from the district court to the D.C. Circuit (thrice) and to the Supreme Court. While the case was pending before the Supreme Court, the district court denied another motion to dismiss by defendants. As relevant here, the D.C. Circuit “affirmed the district court’s rulings with respect to framework in assessing plaintiffs’ allegations and Hungary and MÁV’s burden.” 77 F.4th 1077.
On the issue of commingling, “the D.C. Circuit held that ‘plaintiffs need not produce evidence directly tracing the liquidated proceeds of their stolen property to funds retained by the defendants in order to survive the defendants’ factual challenge to the court’s jurisdiction under the FSIA’s expropriation exception.’ Instead, a plaintiff may move forward with claims against a sovereign based on a historical commingling theory unless the defendant can ‘affirmatively establish by a preponderance of the evidence that their current resources do not trace back to the property originally expropriated.’” The D.C. Circuit next “rejected the position that plaintiffs were obligated to make out a ‘valid claim’ that the expropriation exception governs.” Rather, “‘[d]ismissal is warranted only if no plausible inferences can be drawn from the facts alleged that, if proven, would bring plaintiffs’ claims within an exception to sovereign immunity under the FSIA.’” “As to the parties’ burdens, the court ruled that ‘the burden of proof in establishing the inapplicability of [the FSIA’s] exceptions is upon the party claiming immunity.’ It rejected the argument that Hungary and MÁV were ‘entitled to reversal because the Simon plaintiffs failed to produce evidence tracing property in the United States or possessed by MÁV to property expropriated from them during World War II.’” (Some internal citations omitted.)
Defendant-petitioners maintain that there are circuit splits on all three questions presented. On the merits, they contend that “[t]he D.C. Circuit’s approach permits plaintiffs to evade foreign sovereign immunity merely by alleging that funds were historically commingled. Thus, in the absence of any supporting evidence, foreign nations can be haled into domestic courts to face trial for decades-old conduct that occurred in their own jurisdictions. Absent intervention by this Court, Simon III will serve as a beacon for plaintiffs around the world to litigate all manner of historical grievances in domestic courts, and needlessly entangle the United States in disputes in which it has no legitimate connection. That is not the standard embodied by the restrictive view of foreign sovereign immunity and codified by the FSIA, nor is it a standard consistent with the national interests of the United States.”
Dewberry Group, Inc. v. Dewberry Engineers Inc., 23-900.
At issue is “[w]hether an award of the ‘defendant’s profits’ under the Lanham Act, 15 U.S.C. §1117(a), can include an order for the defendant to disgorge the distinct profits of legally separate non-party corporate affiliates.” John Dewberry “founded petitioner, originally named Dewberry Capital Corporation, to assist in developing, leasing, and managing commercial properties. Petitioner itself does not own or lease any commercial properties. Rather, petitioner is a corporate entity that supports other, affiliated leasing companies by providing accounting, human-resources, legal, and real-estate-development services. Those affiliates, in turn, lease commercial property to tenants in Florida, Georgia, South Carolina, and Virginia. Petitioner and its affiliates are under Mr. Dewberry’s common ownership, but the affiliates are all separate corporate entities.” (Citations omitted.) In 2007, petitioner settled a trademark dispute with another real-estate entity, respondent Dewberry Engineers Inc. “In 2017, petitioner rebranded itself as Dewberry Group, Inc., and created several sub-brands (Dewberry Living, Dewberry Office, and Studio Dewberry). Petitioner also produced marketing materials that used the ‘Dewberry Group’ and ‘Studio Dewberry’ marks. Petitioner’s affiliates then used these materials to market commercial properties to tenants. . . . In 2020, respondent brought this suit asserting (as relevant) trademark infringement under the Lanham Act on the theory that petitioner’s rebranding infringed respondent’s mark. It named petitioner as the sole defendant.” (Citations omitted.) After the district court ruled for respondent on liability, it held a bench trial on damages. “Petitioner argued that any award should be limited to its own ‘revenues and profits’ from infringing activities, which were zero.” The district court disagreed, holding “that the Lanham Act authorized disgorgement from petitioner of the non-party affiliates’ profits,” and ordered petitioner to disgorge close to $43 million of such profits. A divided panel of the Fourth Circuit affirmed. 77 F.4th 265.
The Fourth Circuit held that the district court properly “treated [petitioner] and its affiliates as a single corporate entity for the purpose of calculating revenues generated by [petitioner’s] use of infringing marks.” In the court’s “view, the district court could ‘conside[r] the revenues of entities under common ownership with [petitioner],’ wholly apart from veil-piercing. The majority reasoned that, ‘while [petitioner] did not receive the revenues from its infringing behavior directly, it still benefited from its infringing relationship with its affiliates’ who did receive them.” (Citations omitted.) The court pointed to the Lanham Act’s proviso stating that a “grant of profit disgorgement is ‘subject to the principles of equity,’” finding that this confers on courts broad “discretion” to “weig[h] the equities of the dispute.” And any other ruling, found the court, “risks handing potential trademark infringers the blueprint for using corporate formalities to insulate their infringement from financial consequences.” Doing so would “ru[n] counter to Congress’s fundamental desire” to maximize protection for trademark holders.
Petitioner argues that “[t]he Fourth Circuit’s freewheeling approach to Lanham Act remedies defies this Court’s decisions and the plain statutory text. This Court has recognized the ‘bedrock principle’ that a corporation ‘is not liable for the acts’ of its affiliates except when ‘the corporate veil may be pierced.’ It has accordingly held that federal statutes will not be construed to ‘rewrite th[at] well-settled rule’ unless Congress says so ‘directly.’ Nothing in the Lanham Act purports to displace that rule. To the contrary, the pertinent statutory provision limits awards to the ‘defendant’s profits,’ makes any such award ‘subject to the principles of equity,’ and cautions that no award can become a ‘penalty.’ 15 U.S.C. §1117(a) (emphasis added). The decision below flouts all three limitations in one stroke. The Fourth Circuit’s stated policy concerns about infringement by corporate groups are no license to rewrite the Lanham Act, and they are unfounded in any event.” (Citations omitted.)
NAAG Center for Supreme Court Advocacy Staff
- Dan Schweitzer, Director and Chief Counsel
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