On the Docket: Supreme Court Cases, Week of Nov. 5, 2007

The following is a summary of cases the U.S. Supreme Court will hear for the week of Nov. 5-Nov. 9, 2007:

Case: CSX Transportation, Inc. v. Georgia State Board of Equalization

Argument Date: Monday, Nov. 5

Law in Question: Conflict between the Tax Injunction Act and the Regulatory Revitalization and Regulatory Reform Act of 1976.

Concern: Is federal court intervention possible to settle disputes over the valuation of railroad?

Impact: This is a federalism case through and through, and would appear to have little impact beyond the court’s determination in this specific case of state’s rights and federal intervention.

Question Presented: "Whether, under the federal statute prohibiting state tax discrimination against railroads, 49 U.S.C. § 11501(b)(1), a federal district court determining the "true market value" of railroad property must accept the valuation method chosen by the State."

Background: Remember in the game of Monopoly how important it was to collect the railroads? While one couldn’t build houses and hotels on them they provided a nice stream of revenue for anyone holding them. In real life. rail lines are valuable even if they aren’t the Reading, B&O, Short Line and Pennsylvania. And in real life any thing that’s of value will certainly catch the eye of the Tax Man. This case presents a conflict on what to do when there’s a dispute over tax assessments.

CSX Transportation (and its parent CSX Corporation) is a major player in moving cargo in the eastern half of the United States. Its Web site boasts of operating a 21,000 mile network of rail lines that connect 23 states, the District of Colombia and two Canadian provinces. Its 2006 annual report lists a record $9.6 billion in revenues.

In the mid-20th century a push was made in Congress to resolve lingering frustrations in the rail industry about state and local taxing authorities levying burdensome assessments against rail owners. Their efforts paid off with a 1976 law that in part mandates states to apply a formula for taxation that would not allow for rail lines to be taxed at a rate significantly beyond the rate for other properties.

Georgia decided to use a new methodology for determining property value and totaled CSX’s rail holdings at $8.2 Billion. The company filed a complaint saying calculations under the state’s old valuation method put its holdings at only $6 Billion. That difference would represent a huge difference in tax assessments. All federal courts in this case have ruled that they cannot interfere with a state’s taxation policy—provided it isn’t out of line with other properties. CSX’s appeal to the high court says the change in methodology represents a violation of the 1976 law and is therefore subject to federal review.

Case: Department of Revenue of Kentucky, et al. v. George W. Davis, et ux.

Argument Date: Monday, Nov. 5

Law in Question: Commerce Clause

Concern: Can states tax the proceeds of out-of-state municipal bonds when they do not tax them for in-state bonds?

Impact: This is a major case for the $2.3 trillion bond market. Municipal bonds are very popular with investors because of their tax-exempt status at the federal level. Kentucky (and other states) decided that for its own tax purposes it would similarly exempt in-state municipal bonds from taxation but tax those from out-of state. A class-action suit was filed for the seeming inequity and the case is now in front of the high court.

Question Presented: "Whether a state violates the dormant Commerce Clause by providing an exemption from its income tax for interest income derived from bonds issued by the state and its political subdivisions, while treating interest income realized from bonds issued by other states and their political subdivisions as taxable to the same extent, and in the same manner, as interest earned on bonds issued by commercial entities, whether domestic or foreign."

Background: George and Catherine Davis of Kentucky weren’t too keen on their home state’s Tax Man. Beyond the usual reasons for not wanting to pay up, they felt the Department of Revenue was improperly taxing a specific part of their income. The Davises filed a class action suit against the state saying it was unconstitutional for Kentucky to exempt from taxation the income generated from in-state municipal bonds but to then tax those from out-of-state. They claim this practice (not unique to Kentucky) violates the Constitution’s Commerce Clause, which regulates interstate commerce.

A fundamental investing tenet is to avoid or at least defer taxation on investment income. The federal tax code is ripe with such opportunities and a popular one is a tax exemption on what’s gained from investing in municipal bonds. These are securities offered by states and other smaller public entities (counties, cities, etc.) to fund big-ticket projects that perhaps the annual capital budget could not support. Kentucky’s tax law provides for a similar exemption but only for home state bonds. Any income derived from out-of-state investments would be taxed.

The state trial court ruled against the Davises class action case determining the Department of Revenue’s policy was constitutional. But the state appeals court sided with the investors ruling the tax policy discriminatory towards other states and that it was incompatible with the Commerce Clause. The Kentucky Supreme Court refused to intervene but in May the United States Supreme Court agreed to take the case.

Case: John R. Sand & Gravel Company v. United States

Argument Date: Tuesday, Nov. 6

Law in Question: The Tucker Act and its statute of limitations; also part of the Fifth Amendment about government seizing property.

Concern: Is the U.S. Court of Federal Claims required to review the statute of limitations provision as proscribed by the Tucker Act?

Question Presented: The statute of limitations in the Tucker Act, 28 U.S.C. §2501, provides: "Every claim of which the United States Court of Federal Claims has jurisdiction shall be barred unless the petition thereon is filed within six years after such claim first accrues." The question presented is: Whether the statute of limitations in the Tucker Act limits the subject matter jurisdiction of the Court of Federal Claims.

Background: In 1969, the John R. Sand & Gravel Company signed a lease agreement with Metamora Township, Mich. to mine 158 acres of land. Part of the property was used as a landfill and in 1984 that part of the property was red-flagged by the Environmental Protection Agency (EPA) as a hazardous waste site. Over the next few years, the EPA ordered a cap over the landfill and fence work to limit access.

Early on, the EPA’s involvement didn’t interfere with the mining operations but that began to change when some of the fence work prevented John R. Sand from accessing parts of the property. By 1996, the EPA said it was time for the site to be cleaned up and mandated access to the entire property—not just the contaminated areas. John R. Sand effectively told the Feds to buzz off and both sides went back-and-forth over the issue. The EPA eventually sought out the help of Michigan courts to gain access. In 1998, a perimeter fence was built isolating 42 acres -- or more than one quarter of the entire property.

In 2002, John R. Sand had enough of the EPA and filed suit against the agency claiming its Fifth Amendment rights had been violated. The statute of limitations in this case prevents claims more than six years old from going forward. Though the government did at first question this matter it eventually stipulated with the mining company that the claim was well within this timeframe. Both sides considered the 1998 perimeter fence construction as the date when the statute of limitations clock started. The trial court then proceeded to rule on the merits of the case and ruled against the mining company. It appealed to the U.S. Court of Appeals for the Federal Circuit. But in its review, the court said it had no jurisdiction in the case and dismissed it without ever considering the merits. It ruled the EPA’s actionable intervention started no later than 1994 meaning John R. Sand’s lawsuit was at least two years too late.

Case: Federal Express Corporation v. Paul Holowecki

Argument Date: Tuesday, Nov. 6

Law in Question: Claims under the Age Discrimination in Employment Act (ADEA)

Concern: What specific paperwork to the Equal Employment Opportunity Commission (EEOC) is necessary before age discrimination lawsuits are permissible?

Question Presented: Whether the Second Circuit erred in concluding, contrary to the law of several other circuits and implicating an issue this court has examined but not yet decided, that an "intake questionnaire" submitted to the EEOC may suffice for the charge of discrimination that must be submitted pursuant to the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., even in the absence of evidence that the EEOC treated the form as a charge or the employee submitting the questionnaire reasonably believed it constituted a charge.

Background: Paul Holowecki and 13 Federal Express colleagues, all at least 40 years old, probably feel a lot of the world is against them. First, they filed paperwork with the EEOC claiming that recent company practices were discriminatory. Then a judge rules against them because some of that paperwork wasn’t the exact material they were supposed to fill out. Eventually, Holowecki and his co-workers found a few supportive judges on the Second Circuit Court of Appeals who reinstated the lawsuit. But FedEx appealed the case that’s now in front of the Supreme Court.

The ADEA mandates that before any lawsuit alleging age discrimination can proceed, a written "charge" must be submitted to the EEOC. The ADEA stipulates that the lawsuit can be green-lighted only 60 days after filing the EEOC paperwork. The purpose of this delay is to allow proper notification of the company involved and an opportunity for the parties to mediate the dispute before entering the legal system.

Holowecki and the others filled out "intake questionnaires" which a District Court judge said didn’t qualify as a "charge" as proscribed by the ADEA and tossed the case.

The Second Circuit reversed the lower court ruling and considered the group’s questionnaires as the "charges" necessary for legal action. The court called the employee’s act one of "manifest intent" to start the process necessary for seeking relief under ADEA. It held that the necessary information required by the formal "charge" was found in the questionnaires. FedEx claims it shouldn’t be forced into litigation without an opportunity to resolve the matter otherwise. Because the EEOC didn’t process the initial paperwork as a "charge," FedEx was unaware of the filings until the lawsuit was filed.

It argues this is a circumstance the ADEA clearly sought to avoid. "Permitting an ADEA suit to proceed under these circumstances is inconsistent with both the text of the ADEA and the plain intent of Congress that informal methods be undertaken to address alleged discrimination before litigation."

Interestingly, the Justice Department has submitted a "friend of the court" brief on behalf of Holowecki and the other FedEx employees. The brief argues in part that the employees shouldn’t be penalized for the failures of the EEOC to properly process their paperwork.

Case: Hall Street Associates, L.L.C. v. Mattel, Inc.

Argument Date: Wednesday, Nov. 7

Law in Question: Federal Arbitration Act (FAA)

Concern: What authority do federal courts have in setting aside or intervening in decisions made by federal arbiters?

Question Presented: Did the Ninth Circuit Court of Appeals err when it held, in conflict with several other federal Courts of Appeals, that the Federal Arbitration Act ("FAA") precludes a federal court from enforcing the parties’ clearly expressed agreement providing for more expansive judicial review of an arbitration award than the narrow standard of review otherwise provided for in the FAA?

Background: A cursory search of Barbie Doll Web sites reveals in the nearly half-century since Barbie came onto the American landscape she has never been a lawyer. Perhaps had manufacturer Mattel been so willing it would not find itself litigating a case in front of the Supreme Court — or at the very least it might be able use its blonde-haired and well-endowed in-house counsel.

In 1981, Mattel leased an Oregon property from Hall Street Associates for some manufacturing work. When that lease ended Hall Street concluded Mattel had violated the agreement by failing to properly monitor its well water supply for contamination. The two sides reluctantly agreed to have the dispute resolved by a federal mediator. To mitigate their concerns over using the mediator they agreed that any dispute in judgment could be appealed to a federal district court.

Sure enough, Hall Street wasn’t too keen on the judgment in Mattel’s favor and took it to the court. A federal judge overruled the arbiter’s findings and ordered Mattel to pay $500,000 in damages. The toy company appealed and the 9th Circuit concluded that the agreement the two sides had about post-mediation litigation was not permissible under the FAA, which stipulates very specific and limited reasons for judicial review. The 9th Circuit ruled the arbiter’s judgment was final and Hall Street appealed to the Supreme Court.